Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-azd-2_07-cv-02184/USCOURTS-azd-2_07-cv-02184-2/pdf.json

Nature of Suit Code: 870
Nature of Suit: Tax Suits
Cause of Action: 26:7402 IRS: Petition to Enforce IRS Summons

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WO

IN THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF ARIZONA

United States of America, )

)

Petitioner, ) No. MC 06-00123-PHX RCB

)

vs. ) O R D E R

)

William R. Fitzpatrick, Jr., )

)

Respondent. ) )

Introduction

This IRS summons enforcement matter arises out of an

investigation which the IRS is currently conducting as to a

"Closing Agreement of Final Determination Covering Specific

Matters" ("Form 906") which respondent William R. Fitzpatrick, Jr.

and the Internal Revenue Service ("IRS") entered into on September

30, 2004. The current investigation, as the IRS Revenue Agent

describes it, is "limited" and concerns "possible

misrepresentations and fraud related to th[at] closing agreement." 

Doc. 1, exh. A thereto at 2, ¶ 3. 

. . .

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Background

Following the return of an Order to Show Cause, on April 2,

2007, this court entered an order enforcing the IRS summons (doc.

14). Respondent has until this Thursday, May 10, 2007, by which to

comply with that enforcement order. Id. at 2. 

On April 27, 2007, respondent filed the present "Motion for

Modification of Order, or, in the Alternative, Stay of Order and

Request for Expedited Ruling" with respect to that enforcement

order (doc. 15). Petitioner filed its opposition to this motion on

May 3, 2007 (doc. 17), and the respondent's reply (doc. 18) was

filed on May 4, 2007. The court then ordered a hearing to be

conducted on May 7, 2007. (doc. 19). 

After reviewing all of the parties' submissions and

considering the arguments of counsel, the court rules as follows. 

Discussion

I. Modification

 Respondent is seeking to have this court direct the IRS "to

provide him with a description of documents and/or testimony

necessary to pursue its limited investigation into possible

misrepresentations, malfeasance or fraud related to . . . Form

906[,]" because he does not know what documents the IRS "deems

necessary" to that investigation. Doc. 15 at 2, ¶ 6. Respondent

is also seeking additional time in which to respond to the court's

enforcement order. 

The IRS does not address respondent's argument that he cannot

comply with the summons because he does not know what documents and

testimony the IRS "deem[s] necessary . . . for the purpose of

pursing its limited investigation[.]" See Doc. 14 at 1-2. 

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Instead, the IRS focuses on the content of the summons itself,

noting that it "contains a clear description of what information

respondent must provide to comply [there]with[.]" Doc. 17 at 3. In

particular, the IRS points out that in the section entitled

"Documents To Be Produced" the summons expressly requires the

production of "'all documents and records used in or created for or

during the period of [Respondent's] federal income tax. . . '

return for 2001." Id. (quoting exh. A (summons)). Likewise, in

that same section, the IRS further points out that the summons

"requires respondent to produce 'all documents and records

circulated [among] and between Taxpayer and/or associates and

Chenery' in 2001." Id. (quoting exh. A (summons)). The IRS claims

it has no knowledge of what such documents would be and that

knowledge lies with the respondent. 

In his reply, respondent contends that the "scope" of what he

should have to produce "should be limited to correspondence and

communications exchanged between [he] and [the IRS] agent

concerning the content of the Form 906." Doc. 18 at 3, ¶ II (A). 

In the court's view, limiting enforcement in this way would render

the summons practically useless. That is so because most likely

respondent would be producing documents already in the IRS'

possession.

Respondent further contends that "[t]he scope of discovery

should not now be expanded to include 'all documents and records

used in or created for or during the preparation of . . . [[his]

2001] federal income tax [return] . . . [and] all documents and

records circulated among and between [him] and/or associates and

Chenery [in 2001].'" Id. at 3, ¶ II(B) (quoting IRS Response (doc.

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17) at 2). The flaw with this argument is that production of these

documents is not an expansion of the IRS summons. Nor is it an

expansion of the enforcement order. Production of this sort is

completely consistent with the summons which requires production

of, among other things, "[a]ll documents and records circulated

among and between Taxpayer an/or associates and Chenery, during the

period 12/01/2000 through 12/31/1004[.]" Resp., exh. A thereto

(doc. 17-2) at 5. 

In fact, this court's order expressly states "that respondent

may comply by providing the testimony, and all documents and

records as identified more specifically in the Summons, . . .

regarding [his] federal income tax liabilities . . . for the tax

period ending December 31, 2001." Doc. 15 at 2. Thus, if

respondent provides that documentation, he will be in compliance 

with the court's enforcement order. It will then be up to the IRS

to decide which of those documents are relevant to its current,

"limited" investigation. 

The bottom line is that there is no basis for Respondent's

motion for modification. If he complies with the summons,

presumably he will be producing the documents, which the IRS "deems

necessary" to its limited investigation of fraud, etc. with respect

to the Form 906 Closing Agreement. If that production does not

satisfy the IRS, the burden will then be on the IRS to take

whatever steps it deems necessary to further this investigation. 

In light of the foregoing, the court denies respondent's motion for

modification of its enforcement order. 

II. Stay

Because the court is denying respondent's motion for

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modification, it is necessary to consider his alternative motion

for a stay pending the outcome of an appeal to the Ninth Circuit of

this court's enforcement order. In seeking a stay, respondent

first correctly notes that "a district court order enforcing an IRS

summons is an appealable final order." See Church of Scientology

of California v. U.S., 506 U.S. 9, 18 n. 11, 113 S.Ct. 447, 452 n.

11 (1992) (citation omitted). "In determining whether to stay

enforcement of an IRS summons, the court should consider: (1)

whether irreparable harm will result unless a stay is granted; (2)

the likelihood that appellant will prevail on the merits; (3) the

extent to which harm to other interested persons may result; and

(4) the public interest." Simmons v. U.S., 1995 WL 149353, at *3

(E.D. Cal. March 6, 1995) (internal quotation marks and citations

omitted). 

Respondent addresses only the irreparable harm factor. Absent

a stay, respondent contends that irreparable harm will result

because "'the United States will have received the sought-after

information prior to a determination on appeal.'" Doc. 15 at 3, ¶

13 (quoting Moutevelis v. United States, 564 F.Supp. 1554, 1556

(M.D.Pa. 1983), aff'd on other grounds, 727 F.2d 313 (3rd Cir.

1984)). Although not part of the analysis, Respondent adds that no

harm will result from a stay. Additionally, according to

Respondent, "[t]he issue presented in this case appears to be one

of first impression in this Circuit: whether an IRS summons is

issued for a relevant purpose under Powell v. U.S., when its

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1

This statute authorizes closing agreements such as the one

which is the subject of this litigation.

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enforcement may be precluded by 26 U.S.C. § 7121(b).1" Id. at 3, ¶

14 (citation omitted) (footnote added).

The IRS counters that the court should not grant a stay here

because respondent has shown neither irreparable harm nor a

likelihood that he will prevail on appeal. As to irreparable harm, 

relying upon Church of Scientology, 506 U.S. 9 (1992), the IRS

contends that none would result because if the Ninth Circuit

reverses or modifies this court's enforcement order, "a court could

order that the IRS' copies of the tapes [or documents] be either

returned or destroyed." Id. at 15, 113 S.Ct. at 451. Furthermore,

the IRS contends that respondent's argument that the Ninth Circuit

has not yet ruled on an issue does not establish the necessary

showing of a likelihood of success on appeal. This is especially

so, the IRS argues, given respondent's failure to cite to any legal

authority to support this argument. 

Respondent replies that irreparable harm "will definitely

result" because "[a]nything but a limited inquiry into the

circumstances surrounding the formation of the Form 906 effectively

nullifies its legal effect in direct contravention to [sic] the

protections of 26 U.S.C. § 7121(b)." Doc. 18 at 3. This argument

ignores Revenue Ruling 72-487 which expressly provides that "[t]he

right to inspect the taxpayer's books and records is not affected

by the execution and approval of a [Form 906.]" Rev. Ru. 72-487

(emphasis added). That Ruling further provides, "[i]t may be that

the inspection of the taxpayer's books and records will not furnish

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evidence sufficient to entitle the [IRS] to set aside the closing

agreement, but the execution of such agreement does not preclude

the [IRS] from making an inspection to determine whether the case 

may be reopened." Id. (emphasis added). Compliance with the

court's enforcement order is in keeping with this Revenue Ruling

and, despite respondent's contrary protestations, does not have the

effect of nullifying the subject Form 906.

Respondent fares no better with his argument that the court

should grant a stay because this case raises an issue of first

impression. It does not. Clearly, Revenue Ruling 72-487 allows

for an inspection, including production of documents, to determine

whether a closing agreement can be reopened. Respondent has not

provided any authority to support a contrary position. Simply

stating that an issue is one of "first impression" does not make it

so. In a similar vein, respondent has not shown that even if this

is an "issue of first impression" that suffices to show a

likelihood that he will prevail on appeal. 

Moreover, on the face of it, nothing in section 7121(b)

precludes enforcement of an order such as the one entered by this

court on April 2, 2007. And, in fact, Revenue Ruling 72-487

supports the issuance of such orders. 

As the foregoing discussion shows, Respondent has not met his

burden of showing that he is entitled to a stay of this court's

enforcement order. Accordingly, 

IT IS HEREBY ORDERED that Respondent William R. Fitzpatrick

Jr.'s "Motion for Modification of Order, or, in the Alternative,

. . . 

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Stay of Order and Request for Expedited Ruling" (doc. 15)is DENIED.

DATED this 7th day of May, 2007.

Copies to counsel of record

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