Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-azd-2_06-cv-03121/USCOURTS-azd-2_06-cv-03121-2/pdf.json

Nature of Suit Code: 890
Nature of Suit: Other Statutory Actions
Cause of Action: 26:7402 IRS: Petition to Enforce IRS Summons

---

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

1

 This matter was originally assigned case number MC-06-63-PHX-SRB. This matter

was subsequently reassigned civil case number 06-CV-3121-PHX-SRB (docket # 31).

Citations to "docket # ___" are to civil case number 06-CV-3121-PHX-SRB unless otherwise

indicated.

WO

IN THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF ARIZONA

United States of America, 

Petitioner, 

vs.

Sue Taylor,

Respondent. 

)

)

)

)

)

)

)

)

)

)

)

)

No. CV-06-3121-PHX-SRB

ORDER AND 

REPORT AND RECOMMENDATION

This matter is before the undersigned on referral from United States District

Judge Susan R. Bolton pursuant to 28 U.S.C. § 636(b).1

On January 19, 2007, the undersigned conducted a hearing regarding purging

a contempt order that had been issued against Respondent. Shortly before the hearing, the

undersigned was informed that the Internal Revenue Service ("IRS") had made a referral to

the United States Justice Department recommending the initiation of a grand jury

investigation of Respondent based on alleged violations of Title 26 and other tax-related

offenses. 

In view of the foregoing, the undersigned issued an Order to Show Cause

directing the parties to submit briefing regarding whether Judge Bolton's November 28, 2006

Case 2:06-cv-03121-SRB Document 62 Filed 03/14/07 Page 1 of 15
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

2

 On March 7, 2007, the undersigned granted attorney Marc J. Victor's Motion to

Withdraw, filed on March 5, 2007, as Respondent's counsel. (docket # 57) It is unknown if

Respondent has retained new counsel.

3

 The United States' Response to the Order to Show Cause appears at docket # 32 in

MC-06-63-PHX-SRB. Taylor's reply appears at docket # 45 in CV-06-3121-PHX-SRB.

The Court will direct the Clerk of Court of docket the United States' Response in civil case,

CV-06-3121-PHX-SRB.

4

 This Order was signed on July 17, 2006 by Judge Bolton but was not entered on the

docket by the Clerk until the next day.

- 2 -

Order enforcing the IRS summons and related orders holding Respondent in civil contempt

(dockets ## 11, 12, 17, and 19) should be vacated. (docket # 25) The Government and

privately retained counsel2

 representing Respondent submitted briefing responsive to the

Court's Order to Show Cause.3

 For the reasons set forth below, the undersigned recommends

that Judge Susan R. Bolton should not vacate her November 28, 2006 and related orders.

BACKGROUND

On May 25, 2006, the United States commenced an action pursuant to 26

U.S.C. §§ 7402(a) and 7604(a) to enforce an Internal Revenue Service ("IRS") summons

issued to Respondent, Sue Taylor ("Taylor"). (docket # 1) The IRS summons was issued

to Taylor on December 7, 2004 ordering her to produce "books, records, papers, and other

data" relating to the collection of her tax liability for the tax periods ending December 31,

1997 and December 31, 1998. (docket # 1, Exh. 1) Judge Bolton set a show cause hearing

for July 17, 2006. (docket # 3) When Taylor failed to appear on July 17, 2006 as ordered,

Judge Bolton issued an order enforcing the IRS summons and ordered Taylor to produce the

materials described in the IRS summons within 45 days of Judge Bolton's Order. (dockets

## 11,12) The July 18, 2006 Order4

 warned Taylor that noncompliance may result in a

finding of civil contempt. (docket # 12) 

Taylor's subsequent failure to comply with the Court's July 18, 2006 Order

prompted the United States to file a Motion to Show Cause for Contempt against Taylor on

October 5, 2006. (docket # 13) Judge Bolton set a November 27, 2006 hearing for Taylor

Case 2:06-cv-03121-SRB Document 62 Filed 03/14/07 Page 2 of 15
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

- 3 -

to show cause why she should not be held in contempt. (docket # 14) When Taylor failed

to appear for the November 27, 2006 show cause hearing, Judge Bolton found her in civil

contempt of her July 18, 2006 Order and issued a bench warrant for Taylor's arrest. (dockets

## 16, 17) A formal Order of Contempt was signed by Judge Bolton and entered on

November 28, 2006. (docket # 17)

Taylor was arrested on January 11, 2007 and appeared before the undersigned.

(docket # 22) The undersigned ordered Taylor detained until she fully complies with Judge

Bolton's November 28, 2006 Order and produces the documents in accordance with the IRS

summons. (docket # 22) The undersigned set a January 19, 2007 status hearing regarding

Taylor's efforts, if any, to purge the contempt order. (docket # 22) Several hours before this

hearing, the United States filed a sealed document notifying the undersigned that on

December 5, 2006, the Department of Treasury referred a recommendation for the

prosecution of Taylor for violating 26 U.S.C. § 7212(a). (docket # 24, sealed) On January

9, 2007, the IRS made a referral to the United States Justice Department recommending the

initiation of a grand jury investigation of Taylor related to potential criminal violations of

Title 26 and other tax related offenses. (Id.) On January 17, 2007, a grand jury was

authorized to investigate matters covered in the two separate recommendations. (Id.) 

In view of the foregoing developments, the Court ordered the parties to brief

whether the undersigned should recommend that Judge Bolton vacate her November 28,

2006 Order and related Orders (dockets ## 11, 12, 17, and 19) based on the following

considerations: (1) whether, in light of the referral for grand jury investigation, Taylor's Fifth

Amendment privilege against self-incrimination precludes the Government from coercing

Taylor into disclosing the documentary evidence which is the subject of the November 28,

2006 Order of Contempt and the IRS Summons; and (2) whether Title 26 U.S.C. §

7602(d)(1), which provides that the United States may not initiate a summons enforcement

proceeding if a Justice Department referral is in effect, prohibits the Government from

enforcing the subject summons after the Justice Department recommends the initiation of a

grand jury investigation of Taylor. (docket # 25, sealed) Recognizing that these issues

Case 2:06-cv-03121-SRB Document 62 Filed 03/14/07 Page 3 of 15
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

- 4 -

could hinder Taylor's ability to comply with Judge Bolton's November 28, 2006 and related

orders, on January 19, 2007, the undersigned ordered Taylor released on conditions after the

posting of a $100,000.00 cash appearance bond with the Clerk. (dockets # 30-34) The

parties have now submitted briefing regarding the Fifth Amendment and § 7602 enforcement

issues. 

ANALYSIS

I. Fifth Amendment Privilege

A. The IRS Summons

The Court will first consider whether complying with the IRS summons would

violate Taylor's Fifth Amendment privilege against self-incrimination. The IRS summons

requests that Taylor produce:

All documents in your possession and control reflecting the assets and

liabilities of the above named taxpayer(s) including, but not limited to, the

following: all bank statements, checkbooks, canceled checks, savings account

passbooks, and records of certificates of deposits for January 1, 2003 to the

date of full compliance with this summons, regarding accounts or assets held

in the name of the taxpayer(s) or held for the benefit of the taxpayer(s); all

records or documents regarding stocks and bonds, deeds or contracts regarding

real property current registration certificates for motor vehicles, and life or

health insurance policies currently in force, any of which items are owned,

wholly or partially, by the taxpayer(s), or in which the taxpayer(s) have a

security interest, or held for the benefit of either or both of the taxpayer(s), so

that a current Collection Information Statement may be prepared. A blank

copy of such Collection Information Statement is attached hereto to guide you

in the production of the necessary documents and records. 

(docket # 1, Exh. 1) The Order Enforcing Summons orders Taylor to "produce the

documents and testimony specified in the Summons." (docket # 12) Although the

undersigned did not limit the scope of the briefing in this matter, the parties limited their

briefing to an account with Global Bank of Commerce Limited in Antigua ("Global Bank)

and the Visa payment cards issued by Global Bank. (docket # 32, MC-06-063-PHX-SRB;

docket # 45, CV-06-3121-PHX-SRB) It appears that the Government may have limited the

scope of the previously-issued summons. (docket # 45 at 5) Accordingly, the Fifth

Amendment analysis applies only to the Global Bank records and the undersigned makes no

determination and recommendation regarding whether the Fifth Amendment applies to

Case 2:06-cv-03121-SRB Document 62 Filed 03/14/07 Page 4 of 15
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

- 5 -

Taylor's production of other materials. The Court notes, however, that Taylor cannot rely

on a blanket assertion of her Fifth Amendment privilege to defeat an IRS summons. United

States v. Roundtree, 420 F.2d 845, 852 (5th Cir. 1970). 

B. The Fifth Amendment and Compelled Document Production

The Fifth Amendment provides that "[n]o person . . . shall be compelled in any

criminal case to be a witness against himself." U.S. Constitution, Amend. V. The Fifth

Amendment protects a person from "compelled . . .testimonial communication that is

incriminating." Fisher v. United States, 425 U.S. 391, 408 (1976). Although the Fifth

Amendment expressly provides for protection from criminal prosecution based on one's own

testimony, "[i]t can be asserted in any proceeding, civil or criminal . . . and it protects against

any disclosure that the witness reasonably believes could be used in a criminal prosecution

or could lead to other evidence that might be so used." Kastigar v. United States, 406 U.S.

441, 444-45 (1972). 

When records are voluntarily produced, compulsion is not present and the

contents of those records are not protected by the Fifth Amendment. United States v. Doe,

465 U.S. 605, 610 (1984). In this case, Taylor does not claim that the contents of the

materials which the IRS requests are protected by the Fifth Amendment. Rather, she asserts

that the Fifth Amendment privilege applies to the act of producing the documents. (docket

# 45) Taylor correctly states under the "act-of-production" doctrine, an individual's

"production of documents in response to a [summons] may have incriminating testimonial

aspects." United States v. Hubbell, 530 U.S. 27, 36 (2000)(Hubbell II); Fisher, 425 U.S. at

410. The Fisher Court explained that in some cases compliance with a summons may

"tacitly concede the existence of the papers demanded and their possession or control by the

taxpayer. It also would indicate the taxpayer's belief that the papers are those described" in

the summons. Fisher, 425 U.S. at 411(citing Curcio v. United States, 354 U.S. 118, 125

(1957)). The Court further explained that when an individual produces documents responsive

to a summons or subpoena, the element of compulsion is present. Id. at 410. The more

difficult issue, however, is whether the individual's "tacit averments" are "both 'testimonial'

Case 2:06-cv-03121-SRB Document 62 Filed 03/14/07 Page 5 of 15
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

- 6 -

and 'incriminating' for purposes of applying the Fifth Amendment." Fisher, 425 U.S. at 410.

The Fisher Court clarified that there is no Fifth Amendment protection,

however, where "[t]he existence and location of the papers are a foregone conclusion and the

taxpayer adds little or nothing to the sum total of the Government's information by conceding

that he in fact has the papers." Fisher, 425 U.S. at 411. As explained in Fisher, "[u]nder

these circumstances . . . 'the question is not of testimony but of surrender.'" Fisher, 425 U.S.

at 411(quoting In re Harris, 221 U.S. 274, 279 (1911)). 

 The Fisher Court rejected a Fifth Amendment challenge to IRS summonses

which sought production of accountants' documents in the possession of the taxpayer's

attorneys. The Court noted that the summonses did not seek oral testimony, and that the

"accountants' workpapers are not the taxpayer's. They were not prepared by the taxpayer,

and they contain no testimonial declarations by him." Fisher, 425 U.S. at 409. The Court

concluded that the taxpayer had no Fifth Amendment privilege with respect to the contents

of the documents at issue. Id. See also, Hubbell II, 530 U.S. at 35-36 (noting the "settled

proposition that a person may be required to produce specific documents even though they

contain incriminating assertions of fact or belief because the creation of those documents was

not 'compelled' within the meaning of the privilege.") 

More significantly, the Fisher Court found that the act of producing the

documents did not implicate the Fifth Amendment because the existence and location of the

documents was a foregone conclusion. Fisher, 425 U.S. at 411. The Court noted that papers

belonged to the accountant, were prepared by him, and were of the kind usually prepared by

an accountant. Id. The Government, therefore, was not relying on the "truth-telling" of the

taxpayer to prove the existence of the documents. Id.

Taylor argues that the foregone conclusion doctrine does not apply in this case

because she has never admitted to possessing or controlling the Visa payment cards. Taylor

claims that the act of producing the Global Bank records would amount to an admission of

the existence of the records and her possession thereof, and would also authenticate the

records. This argument lacks merit. 

Case 2:06-cv-03121-SRB Document 62 Filed 03/14/07 Page 6 of 15
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

- 7 -

In this case, the IRS gathered information regarding Taylor pursuant to its

Offshore Credit Card Project ("OCCP"). (Declaration of Revenue Officer Jerry Carter

["Carter Decl"] at ¶ 3, docket # 33 in United States v. Taylor, MC-06-63-PHX-SRB) The

IRS claims that it has determined that Taylor has maintained and used a Visa payment card,

number 4551-35**- -** **, issued by Global Bank of Commerce Limited ("Global

Bank") in Antigua. (Carter Decl. at ¶ 3) The United States explains that the OCCP is an

ongoing program to identify individuals who hide taxable income by transferring revenue to

offshore jurisdictions and then use payment cards, such as credit, debit, or charge cards, to

access those funds in the United States. The United States further explains that an offshore

scheme usually works in the following manner: (1) the United States taxpayer locates an

offshore professional to assist in the development of an offshore plan. This plan usually

involves creating an entity or entities in a financial secrecy jurisdiction. For example, the

offshore professional helps create an International Business Corporation ("IBC") or a trust

in the financial secrecy jurisdiction. (2) Once the offshore entity is created, a method is

devised to transfer funds or assets to the IBC or trust. These funds or assets may represent

profits or income the taxpayer seeks to hide from the IRS. (3) Finally, techniques are

developed to access the funds in the United States. Payment cards are a common method of

accessing offshore funds. (Carter Decl. ¶ 4) 

Here, the IRS has information that Taylor opened an account with Global Bank

in 1996. (Carter Decl. ¶ 8) Two Visa payment cards have been issued on the account, the

first is in the name of Property Resources Int. Inc., and the second card is in the name of Sue

Taylor. (Carter Decl. ¶ 7) Both cards list 20 N. Gilbert # A, Gilbert, Arizona 85234 as their

address. This Gilbert property belonged to Taylor until the IRS seized and sold it in June of

2006. (Carter Decl. ¶ 7) The OCCP records also reflect that the Global Bank Visa payment

cards have a credit line of, at least, $16,000.00 and have been used at numerous retail stores,

and restaurants to pay for services. (Carter Decl. ¶ 8) The OCCP records also indicate that

Taylor has a separate Deposit Account with Global Bank. (Carter Decl. ¶ 9)

The United States contends that the IRS summons at issue encompasses

Case 2:06-cv-03121-SRB Document 62 Filed 03/14/07 Page 7 of 15
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

- 8 -

documents related to Taylor's Global Bank account. The United States further argues that

Taylor cannot assert a Fifth Amendment privilege with respect to the Global Bank's records

because their existence is a foregone conclusion. Taylor, on the other hand, claims that the

Fifth Amendment applies because she has not admitted possession or control of the Global

Bank account and related records.

In United States v. Norwood, 420 F.3d 888 (8th Cir. 2005), the IRS petitioned

for the enforcement of a summons which requested that taxpayer produce, in pertinent part,

bank records. The taxpayer refused to produce the requested documents invoking his Fifth

Amendment privilege against self-incrimination. Norwood, 420 F.3d at 890. The Eighth

Circuit affirmed the district court's rejection of taxpayer's Fifth Amendment claim and

enforced the summons. The Norwood court found that because the IRS already knew of the

existence of the two payment cards and the corresponding accounts, the existence of related

documents – account applications, periodic account statements, and charge receipts – was

a foregone conclusion. Id. at 895. "The production of documents the existence of which is

a foregone conclusion is not testimony for purposes of the Fifth Amendment." Id.(citing

Fisher, 425 U.S. at 411). Accordingly, taxpayer's production of the bank records would add

"little or nothing" to the government's information." Id.

This case is similar to Norwood, 420 F.3d 888. Here, the IRS has determined,

based on information that it had gathered from the OCCP, that Taylor had an offshore credit

card account issued by Global Bank, the payment card numbers, and that she maintained and

used that card. (Carter Decl. ¶¶ 7-8); Norwood, 420 F.3d at 896. Based on this information,

as the court held in Norwood, it is a foregone conclusion that Taylor had an offshore-based

credit card account and, at least, one other foreign account (i.e., the account that held the

funds or assets that were accessed by the offshore credit card). Norwood, 420 F.3d at 895-

96. 

Banks routinely send monthly statements to their customers, compile account

records, and produce account statements. Kaggen v. IRS, 71 F.3d 1018, 1020 (2nd Cir. 1995)

("That banks send customers monthly statements which inform customers to whom their

Case 2:06-cv-03121-SRB Document 62 Filed 03/14/07 Page 8 of 15
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

- 9 -

money was paid and in what amounts is not reasonably subject to dispute . . . .Moreover,

those facts are generally known . . . ."); United States v. Norwood, No. A3-03-29, 2004 WL

1535579, * 2 (D.ND. March 31,2004) (stating that "the bank documents sought in paragraph

3 [of the IRS summons] are commonly assumed to exist in the presence of banking

transactions. IRS has proof of the offshore credit cards[;] it is not a reach to assume that

statements, cancelled checks and deposit slips supporting those cards exist.") In view of the

IRS's information regarding the Global Bank account and related payment cards, it is also

a foregone conclusion that account applications, monthly statements, charge receipts, and

other similar documents would exist for those accounts, as they are the type of documents

possessed by financial account owners "as a matter of course." Norwood, 420 F.3d at 895.

Moreover, as the cardholder and owner of the accounts, it is a foregone conclusion that

Taylor would have possession or control of these materials. United States v. Wheaton, 791

F.Supp. 103 (D.N.J. 1992) (control of offshore account is an adequate basis to infer ability

to produce records for that account.) Because the existence of the records sought in the

summonses relating to Taylor's offshore credit card issued by Global Bank is a foregone

conclusion, the Fifth Amendment does not support Taylor's refusal to produce records related

to the Global Bank account. 

Additionally, contrary to Taylor's assertion, her act of production would not

authenticate the Global Bank records. Taxpayer "would be no more competent to

authenticate [the Global Bank] records by producing them than [s]he would be to

authenticate them if testifying orally." Fisher, 425 U.S. at 413. Taylor "did not prepare the

papers and could not vouch for their accuracy." Id. Only Global Bank or its employees

could authenticate the Global Bank records. United States v. Clark, 847 F.2d 1467, 1473

(10th Cir. 1988). 

Thus, because the "Government is in no way relying on the 'truth-telling' of the

taxpayer to prove the existence of or [her] access to the documents," or their authenticity, no

"'constitutional rights are touched. The question is not of testimony but of surrender.'" Fisher,

425 U.S. at 411(quoting In re Harris, 221 U.S. 274, 279 (1911). Based on the foregoing,

Case 2:06-cv-03121-SRB Document 62 Filed 03/14/07 Page 9 of 15
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

- 10 -

Taylor's production of the Global Bank records - the existence of which is a forgone

conclusion - is not testimonial and does not implicate her Fifth Amendment rights. 

Moreover, the foregone conclusion rule does not require the IRS "to have

actual knowledge of the existence and location of each and every responsive document . . .

." In re Grand Jury Subpoena Dated April 18, 2003, 383 F.3d 905, 910 (9th Cir. 2004).

Rather, it is sufficient for the Government "to establish the existence of the documents sought

and [the respondent's] possession of them with 'reasonable particularity.'" Id. (quoting United

States v. Hubbell, 167 F.3d 552, 579 (D.C.Cir. 1999) (Hubbell I), aff'd., 530 U.S. 27 (2000)

and In re Grand Jury Subpoena Duces Tecum Dated Oct. 29, 1992, 1 F.3d 87, 93 (2nd Cir.

1993)). Because the record in this case reflects that the Government knows with more than

"reasonable particularity" that records for the Global Bank account exist and that Taylor has

control over and access to those accounts, Taylor's production of those records would not be

testimonial. 

In summary, Taylor cannot lawfully refuse to produce the records related to

the Global Bank account and payment cards which are requested in the IRS summons on

Fifth Amendment grounds because the existence of the records relating to Taylor's offshore

account with Global Bank and the Visa payment card issued on that account is a foregone

conclusion. Thus, the production of the documents is not testimonial in nature for purposes

of the Fifth Amendment. Fisher, 425 U.S. at 411. 

II. Referral to Department of Justice

Also at issue is whether enforcement of the IRS summons may lawfully

continue in view of the subsequent referral of this matter to the Department of Justice. 

Congress has granted the IRS "expansive information-gathering authority" to

investigate "all persons who may be liable to pay any internal revenue tax." United States

v. Arthur Young & Co., 465 U.S. 805, 814 (1984) (citing 26 U.S.C. § 7601). To that end,

26 U.S.C. § 7602 authorizes the IRS to issue summonses for the purpose of "determining the

liability of any person for any internal revenue tax." Id. at 813-15; 26 U.S.C. § 7602(a)(2).

This statutory scheme authorizes the IRS to use summonses to compel the production of

Case 2:06-cv-03121-SRB Document 62 Filed 03/14/07 Page 10 of 15
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

- 11 -

"books, papers, records, or other data." 26 U.S.C. § 7602(a)(2); Speck v. United States, 59

F.3d 106, 108 (9th Cir. 1995). This language "reflects Congress' express intention to allow

the IRS to obtain items of even potential relevance to any ongoing investigation, without

reference to its admissibility [in federal court]." Arthur Young & Co., 465 U.S. at 814.

When an individual fails to comply with an IRS summons, the IRS may file a

petition to enforce the summons in federal court. To obtain enforcement of a summons, the

IRS need only demonstrate that the summons: (1) was issued for a legitimate purpose; (2)

seeks information relevant to that purpose; (3) seeks information that is not already within

the Commissioner's possession; and (4) satisfies all administrative steps required by the

United States Code. United States v. Powell, 379 U.S. 48, 57-58 (1964); Lidas, Inc. v.

United States, 283 F.3d 1076, 1082 (9th Cir. 2001). "To establish the need for judicial

enforcement, this showing need only be minimal . . . . "'[T]he statute must be read broadly

in order to ensure that the enforcement powers of the IRS are not unduly restricted.'" United

States v. Jose, 131 F.3d 1325, 1327 (9th Cir. 1997)(en banc) (quoting Libertry Fin. Servs. v.

United States, 778 F.2d 1390, 1392 (9th Cir. 1985)). 

The Government must also show that no Justice Department referral is in effect

with respect to such person. 26 U.S.C. § 7602(d). Section 7602(d)(1) provides that "[n]o

summons may be issued . . . and the Secretary may not begin any action under section 7604

to enforce any summons, with respect to any person if a Justice Department referral is in

effect with respect to such person." Id. (emphasis added). Thus, the IRS's summoning

authority ends when the IRS refers a criminal investigation of the Department of Justice. 26

U.S.C. § 7602(d)(1). The statute plainly states that the validity of the summons is determined

as of the date the enforcement petition is filed. 

 Taylor argues that Congress' intent in enacting § 7602(d)(1) was to prevent IRS

from using its summons power in any manner after a Justice Department referral. Courts

apply the rules of statutory construction to determine Congress' intent in enacting a particular

statute. The court first looks to the plain language of the statute. "The plain meaning of the

statute controls, and courts will look no further, unless its application leads to unreasonable

Case 2:06-cv-03121-SRB Document 62 Filed 03/14/07 Page 11 of 15
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

- 12 -

or impracticable results. If the statute is ambiguous - and only then - courts may look to its

legislative history for evidence of congressional intent." United States v. Daas, 198 F.3d

1167, 1174 (9th Cir. 1999)(citations omitted). 

The undersigned finds that the plain language of § 7602 only restricts the time

when the IRS may issue a summons and "begin" an enforcement action. Specifically, the

IRS must issue a summons or begin an enforcement action before a Justice Department

referral. 28 U.S.C. § 7602. On its face, § 7602 does not limit the continued execution of a

summons that was issued and enforced before a Justice Department referral. 28 U.S.C. §

7602.

This interpretation of § 7602 is supported by Drum v. United States, 602

F.Supp. 834 (M.D.Pa. 1985) where the district court considered whether the United States

could continue to execute IRS summonses following a Justice Department referral where the

summonses were validly issued and enforced prior to the referral. Id. at 834. Relying on the

plain language of § 7602(d)(1), the district court concluded that because the summonses were

issued prior to any Justice Department referral, the summonses were properly issued and

enforcement could proceed. Id. at 835-37. See also, Garpeg, Ltd. v. United States, 583

F.Supp. 799, 802 (S.D.N.Y. 1984) (stating that "[i]t is well settled . . . that the validity of an

IRS summons is tested as of the date of issuance. (citations omitted))." The district court in

Drum stated that "the language of Section 7602 is unambiguous. The statute prohibits the

issuance or commencement of an action to enforce a summons after a Justice Department

referral but it does not prevent continued execution of a validly issued and enforced

summons." Drum, 602 F.Supp. at 836. 

The undersigned agrees with Drum that the language of § 7602 is

unambiguous. The statute prevents issuance of or commencement of an action to enforce a

summons after a Justice Department referral but it does not prevent continued execution of

a validly enforced summons. Drum, 602 F.Supp. at 837. If the statute is to be amended to

preclude the continuation of the Government's enforcement of a summons after such a

referral, it is solely within the province of Congress to do so, not the courts.

Case 2:06-cv-03121-SRB Document 62 Filed 03/14/07 Page 12 of 15
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

5

 Consistent with Drum, in United States v. Boulware, 203 Fed.Appx. 179, 172, 2006

WL 2986451 (9th Cir., October 19, 2006)(not published in the Federal Reporter), the court

explained that the argument that a subsequent Justice Department referral prohibits the

enforcement of a prior IRS summons "fails because no Department of Justice referral was

in effect . . . when the summons was issued . . . ."

6

 Although the civil case, CV-06-3121-PHX-SRB, includes most of the documents

filed in its predecessor case, MC-06-63-PHX-SRB, some documents - including the

Government's Response to the Order to Show Cause and the Declaration of Jerry Carter - still

- 13 -

In this case, the IRS issued the summons at issue on December 7, 2004. On

May 25, 2006, the IRS commenced this action to enforce that summons. On July 17, 2006,

Judge Bolton issued an order enforcing the summons. Thereafter, on November 27, 2006

Judge Bolton held Taylor in contempt of its July 17, 2006 Order. Months later, on January

9, 2007, the IRS referred the investigation of Taylor's case to the Justice Department. 26

U.S.C. § 7602(d)(2)(stating that a Justice Department referral is in effect when the IRS

"recommend[s] to the Attorney General a grand jury investigation of, or the criminal

prosecution of, such person . . . .") Under the plain language of § 7602(d)(1), because no

referral was in place when the summons was issued or when enforcement of the IRS

summons was sought and ordered by Judge Bolton, the subsequent referral to the Justice

Department does not preclude continued execution of the IRS summons.5

 Garpeg, 583

F.Supp. at 802.

CONCLUSION

In accordance with the foregoing, the undersigned finds that the July 17, 2006

and related Orders (dockets # 11, # 12, # 17, # 19) should not be vacated. Rather, the

enforcement of the IRS summons may continue in accordance with those orders. 

Accordingly,

IT IS ORDERED that in accordance with the Court's January 23, 2007 and

February 28, 2007 Orders (dockets ## 31 and 47, respectively), the Clerk of Court shall

modify the docket in CV-06-3121-PHX-SRB to reflect all of the docket entries in MC-06-63-

PHX-SRB6

.

Case 2:06-cv-03121-SRB Document 62 Filed 03/14/07 Page 13 of 15
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28 appear only in MC-06-63-PHX-SRB.

- 14 -

In light of Taylor's supervision by Pretrial Services, the posting of a significant

cash bond and other conditions,

IT IS ORDERED that the Government's Request to Reexamine Defendant's

Release Conditions (docket # 55), filed on March is DENIED.

IT IS RECOMMENDED that Judge Bolton's November 28, 2006 and related

Orders (dockets # 11, # 12, # 17, # 19) not be vacated.

IT IS FURTHER RECOMMENDED that Respondent, Sue Taylor, be

ordered to appear on a date and time in the near future and a place certain to either produce

all the documents requested in the subject IRS summons or that she self-surrender to the

United States Marshal Service on the second floor of the Sandra Day O'Connor U.S.

Courthouse for indefinite incarceration until she purges her civil contempt by compliance

with Judge Bolton's November 28, 2006 Order. (docket # 17)

This recommendation is not an order that is immediately appealable to the

Ninth Circuit Court of Appeals. Any notice of appeal pursuant to Rule 4(a)(1), Federal Rules

of Appellate Procedure, should not be filed until entry of the District Court=s judgment. The

parties shall have ten days from the date of service of a copy of this recommendation within

which to file specific written objections with the Court. See, 28 U.S.C. ' 636(b)(1); Rules

72, 6(a), 6(e), Federal Rules of Civil Procedure. Thereafter, the parties have ten days within

which to file a response to the objections. Failure timely to file objections to the Magistrate

Judge's Report and Recommendation may result in the acceptance of the Report and

Recommendation by the District Court without further review. See United States v. ReynaTapia, 328 F.3d 1114, 1121 (9th Cir. 2003). 

/ / /

/ / /

/ / /

Case 2:06-cv-03121-SRB Document 62 Filed 03/14/07 Page 14 of 15
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

- 15 -

Failure timely to file objections to any factual determinations of the Magistrate Judge

will be considered a waiver of a party=s right to appellate review of the findings of fact in an

order or judgment entered pursuant to the Magistrate Judge=s recommendation. See, Rule 72,

Federal Rules of Civil Procedure.

DATED this 13th day of March, 2007.

Case 2:06-cv-03121-SRB Document 62 Filed 03/14/07 Page 15 of 15