Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-casd-3_09-cv-01606/USCOURTS-casd-3_09-cv-01606-0/pdf.json

Nature of Suit Code: 871
Nature of Suit: IRS 3rd Party Suits 26 USC 7609 (U.S. plaintiff)
Cause of Action: 26:7609 IRS: Petition to Quash IRS Summons

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UNITED STATES DISTRICT COURT

SOUTHERN DISTRICT OF CALIFORNIA

VIEWTECH, INC., a California corporation,

and JUNG KWAK, an individual,

Movants,

CASE NO. 09cv1606-IEG(CAB)

Order Granting Respondent’s Motion

to Dismiss 

vs.

UNITED STATES OF AMERICA,

Respondent.

Movants, Viewtech, Inc. and Jung Kwak, have filed a motion to quash an Internal Revenue

Service (“IRS”) summons dated June 25, 2009. The third-party summons was issued in

furtherance of an IRS investigation of Movant Jung Kwak’s ability to pay previously assessed

federal income tax liability totaling over $3 million. The summons calls for production by Wells

Fargo Bank in Oceanside, California, of the bank account records of Viewtech, Inc. for the time

period January 1, 2009 through May 31, 2009.

The government has moved to dismiss this action, arguing Movants are not parties entitled

to notice of the summons under 26 U.S.C. § 7609(c)(2)(D)(i), and thus lack standing to move to

quash the summons. Movants have filed an opposition to the government’s motion to dismiss. 

The Court finds the motions appropriate for submission on the papers and without oral

argument. For the reasons set forth herein, the Court GRANTS the government’s motion to

dismiss. 

Case 3:09-cv-01606-IEG-CAB Document 9 Filed 10/16/09 Page 1 of 5
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Movants also cite Fed. R. Civ. P. 45(c)(3). The summons in dispute, however, was not

issued under the authority of the Federal Rules of Civil Procedure. Thus, the provisions of Rule

45(c)(3) are irrelevant to this motion.

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Background

Revenue Officer Susan LaRoche is conducting an investigation into Jung Kwak’s ability to

satisfy an outstanding federal income tax liability of over $3 million. [Declaration of Revenue

Officer LaRoche in Support of Motion to Dismiss (“LaRoche Decl.”), ¶ 2.] On June 25, 2009,

Revenue Officer LaRoche issued a summons to Wells Fargo Bank, for records and testimony

regarding a specified account held in the name of Petitioner Viewtech, Inc. [Id., ¶ 3; Exhibit A.] 

The summons called for production of all records regarding the specified account for the time

period January 1, 2009 through May 31, 2009. Revenue Officer LaRoche served the summons

upon Wells Fargo Bank on the date it was issued.

On July 24, 2009, the account holder, Viewtech, Inc., and the assessed taxpayer, Jung

Kwak, filed a motion to quash the summons pursuant to 26 U.S.C. § 7602, et seq.1

 On

September 24, 2009, the government filed a motion to dismiss this action, arguing Petitioners lack

standing to move to quash the summons. Petitioners have filed an opposition to the motion.

Discussion

The government moves to dismiss the petition under Fed. R. Civ. P. 12(b)(1) for lack of

jurisdiction. The United States is immune from suit unless there is a valid waiver of sovereign

immunity. Valdez v. United States, 56 F.3d 1177, 1179 (9th Cir. 1995). The only statute providing

the court with jurisdiction to quash an IRS summons is 26 U.S.C. § 7609(b). Section 7609(b),

therefore, is the exclusive method by which a taxpayer can challenge a summons issued by the IRS

to a third-party recordkeeper. Ponsford, 771 F.2d 1305, 1309 (9th Cir. 1985). 

Only those persons entitled to notice of the summons pursuant to § 7609 have standing to

move to quash the summons. 28 U.S.C. § 7609(b)(2)(A); Ip v. United States, 205 F.3d 1168, 1170

(9th Cir. 2000). Although the IRS is required to give notice of the issuance of a third-party

summons in many circumstances, it is not required to give notice where the third-party summons

is issued “in aid of the collection of – (i) an assessment made . . . against the person with respect to

whose liability the summons is issued . . . .” 26 U.S.C. § 7609(c)(2)(D).

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In this case, there is no dispute the summons was issued to a third party in aid of collection

of an IRS assessment of federal tax liability against Jung Kwak. Thus, under § 7609(c)(2)(D), Mr.

Kwak was not entitled to notice of the summons and he lacks standing to move to quash the

summons. 

The IRS has not made an assessment of tax liability against Viewtech, Inc. In its motion to

dismiss, however, the IRS argues it has evidence in its possession suggesting Mr. Kwak has a

“recognizable legal interest in the records summonsed.” Ip, 205 F.3d at 1176. In Ip, the Ninth

Circuit addressed the question of when an individual has standing to challenge an IRS summons

concerning his own records in connection with collecting a tax assessment from another individual

or entity. The Ninth Circuit noted Congress’s desire to balance the IRS’s need to expeditiously

obtain information in furtherance of its enforcement of an assessed tax liability with the right of

certain individuals to receive notice before a third-party produces private documents in response to

an IRS summons. Id. at 1172-73. The Court noted that “Congress also recognized that to give

notice to a person who is a fiduciary or transferee of an assessed taxpayer gives rise to a

heightened risk of tax fraud.” Id. at 1173 (citing § 7609(c)(2)(D)(ii)). The Court concluded that

the “assessed taxpayer” notice exception applied only where the summonsed party “had

recognizable legal interests in the accounts summonsed or ... had fiduciary relationships with the

person against whom an assessment was made.” Id. at 1174.

Here, the government argues Viewtech has a significant legal relationship with Mr. Kwak,

sufficient to bring the company within the exception-to-notice provisions of § 7609(c)(2)(D). In

particular, the government has provided the declaration of Revenue Officer LaRoche establishing

the following:

• In 2007, Mr. Kwak was the 100% shareholder of Viewtech and received

$12,645,377 in ordinary income, $145,181 in interest income, $45,473 in expenses,

and $1,343,461 in wages from the company [LaRoche Decl., ¶ 5].

• In 2008, Mr. Kwak was the 97% shareholder of Viewtech and received $1,419,386

in ordinary income, $65,891 in interest income, $153,542 in expenses, and

$184,999 in wages from the company [Id.].

• On March 4, 2009 and on April 8, 2009, Viewtech transferred $30,000 and

$150,000 respectively from the summonsed bank account into Mr. Kwak’s personal

checking account. These transfers were in addition to deposits into Mr. Kwak’s

account on March 13 and April 16, 2009, in the amounts of $4,476 and $4,467, that

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In addition to these financial transactions, the government points out that a grand jury in

this District returned an indictment against Mr. Kwak on July 9, 2009, in which it alleged Mr.

Kwak engaged in illegal activity through Viewtech, a business which Mr. Kwak owns and

operates. [S.D. Cal. Case No. 09cr2646-JLS.] The indictment, however, is not evidence of the

relationship, but instead is an allegation that must be proven by the government. Thus, the Court

does not rely upon the indictment as a basis to conclude Mr. Kwak has a legally recognizable

interest in Viewtech.

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appear to represent his salary from the company [Id., ¶ 8].

• In 2007 and 2008, five checks in the amounts of $500,000, $186,320, $186,320,

$17,128.78, and $236,935 were drawn from Viewtech’s checking account to

partially satisfy Mr. Kwak’s personal federal income tax liabilities for 2006 and

2007 [Id. at ¶ 9].

• On two occasions in 2006 and on another two occasions in 2008, Mr. Kwak

deposited significant sums of cash into Viewtech’s summonsed account ($250,000,

$36,000, $290,000, and $100,000) [Id. at ¶ 10].

The government argues these transactions show there is a relationship between Mr. Kwak, his

financial affairs, and Viewtech. The government argues these transactions demonstrate Mr. Kwak

has an interest in Viewtech’s bank account, and Viewtech is the nominee, alter ego, or transferee

of Mr. Kwak.2

In reply, Viewtech argues the periodic distribution of funds to Mr. Kwak was in

consideration for the services he rendered as an employee or officer of Viewtech. In addition,

Viewtech argues Mr. Kwak’s deposits of capital into Viewtech, as a partial owner of the company,

does not establish that Mr. Kwak has a recognizable legal interest in Viewtech’s bank account. 

According to the declaration submitted by Viewtech in support of its motion to quash the

summons, Viewtech has other owners aside from Mr. Kwak, and has independent officers and

directors. [Declaration of Robert E. Rhine in Support of Motion to Quash (“Rhine Decl.”), ¶ 5.] 

Viewtech has approximately a dozen employees and does millions of dollars of business with

hundreds of other entities. [Id. at ¶ 6.] The summonsed bank account is Viewtech’s primary

operating account. [Id. at ¶ 7.] Mr. Kwak does not have individual access to or authority to use

Viewtech’s funds, held in the referenced account, without approval by Viewtech’s management,

and Mr. Kwak does not have the ability to cause distributions to be made from the referenced

account. [Id. at ¶¶ 8 and 9.]

Notwithstanding Viewtech’s arguments, the Court is persuaded that the government has

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produced sufficient evidence establishing the assessed taxpayer, Mr. Kwak, has a recognizable

legal interest in the subject Viewtech bank account. Viewtech does not dispute the government’s

assertion that Mr. Kwak held a 100% ownership interest in the company in 2007 and a 97%

interest in 2008. Although Viewtech states it has other owners, it does not attempt to demonstrate

Mr. Kwak’s ownership interest in the company significantly declined in 2009. Although Viewtech

states Mr. Kwak does not have the ability to cause distributions to be made from the referenced

account, it does not offer any explanation for the fact $1,126,704 was paid out of the subject

account in 2007 and 2008 to partially satisfy Mr. Kwak’s personal federal income tax liabilities. 

Finally, Viewtech does not dispute that Mr. Kwak directly deposited $676,000 to Viewtech’s

account between 2006 and 2008. Based thereon, the Court finds the government has established

Mr. Kwak has a recognizable legal interest in Viewtech sufficient to bring the company within the

exception-to-notice provision of 26 U.S.C. § 7609(c)(2)(D). Viewtech was not entitled to notice

of the summons, and thus lacks standing to move to quash the summons.

Conclusion

For the reasons set forth herein, the Court concludes Movant Jung Kwak, as the assessed

taxpayer, and Movant Viewtech, Inc., a company in which Mr. Kwak has a recognizable legal

interest, were not entitled to notice of the IRS summons under 26 U.S.C. § 7609(c)(2)(D) and thus

lack standing to move to quash the summons. The Court GRANTS the government’s motion to

dismiss. The Clerk may close this case.

IT IS SO ORDERED.

DATED: October 16, 2009

IRMA E. GONZALEZ, Chief Judge

United States District Court

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