Document ID: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-cand-4_06-cv-02602/USCOURTS-cand-4_06-cv-02602-0/pdf.json

Parties Involved:
Ramon Gonzales
Petitioner
Leslie D. Harvey
Petitioner
Richard D. King
Petitioner
United States of America
Respondent

Document Text:

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

[Proposed] Order Dism. Pet. To Quash & Enf. 

Sum. (No. C-06-2602-SBA) 1

UNITED STATES DISTRICT COURT

NORTHERN DISTRICT OF CALIFORNIA

OAKLAND DIVISION

RICHARD D. KING, LESLIE D. HARVEY, ) Case No. C-06-2602-SBA

and RAMON GONZALES, )

)

 Plaintiffs/Petitioners, ) ORDER DISMISSING

 ) PETITION TO QUASH AND

v. ) ENFORCING SUMMONS 

)

UNITED STATES OF AMERICA, )

 )

Defendant. )

__________________________________________)

This is an action filed by plaintiffs which seeks to quash an Internal Revenue Service (IRS)

summons served on Business Inc. The IRS is examining Business Inc to determine whether it is

preparing false income tax returns for it’s clients. Steven Murdock is the President and CEO of

Business Inc who the IRS believes is assisting in the preparation of false tax returns. The IRS

served a Summons on Business Inc. requesting it to produce records of clients whose returns

were prepared by Business Inc. 

The United States has a system of taxation that relies on self-assessment and the good

faith integrity of each taxpayer to disclose completely and honestly all information relevant to its

tax liability. Nonetheless, "it would be naive to ignore the reality that some persons attempt to

outwit the system." United States v. Bisceglia, 420 U.S. 141, 145 (1975). Pursuant to Sections

7801 and 7802 of the Internal Revenue Code of 1986 (26 U.S.C.), the Secretary of the Treasury

and the Commissioner of Internal Revenue are charged with the responsibility of administering
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

[Proposed] Order Dism. Pet. To Quash & Enf. 

Sum. (No. C-06-2602-SBA) 2

and enforcing the Internal Revenue Code. To this end, Code Section 7601 directs the Secretary

to make inquiries into the tax liability of every person who may be liable to pay any internal

revenue tax. In turn, Code Section 7602 authorizes the Secretary to examine records, to issue

summonses, and to take testimony for purposes of: (1) ascertaining the correctness of any

return, (2) making a return where none has been made, (3) determining the liability of any

person for any internal revenue tax, or (4) inquiring into any offense connected with the

administration or enforcement of the internal revenue laws. Donaldson v. United States, 400

U.S. 517, 523-524 (1971). An IRS summons is properly issued and enforced even if the IRS is

conducting a criminal investigation. There is no civil/criminal distinction. United States v.

Abrahams, 905 F.2d 1276, 1281, n. 4 (9th Cir. 1990)

In order to obtain enforcement of its summons, the IRS must establish the good faith

requirements set forth in United States v. Powell, 379 U.S. 48 (1964), defined as follows:

(1) that the investigation will be conducted pursuant to a legitimate purpose; (2) that the inquiry

may be relevant t the purpose; (3) that the information sought is not already within the

Commissioner’s possession; and (4) that the administrative steps required by the Code have been

followed--in particular, that the 'Secretary or his delegate,' after investigation, has determined the

further examination to be necessary and has notified the taxpayer in writing to that effect."Id., at

57-58. Once the IRS has made such a showing, it is entitled to an enforcement order unless there

is a showing that the IRS is attempting to abuse the court's process. Such an abuse would take

place "if the summons had been issued for an improper purpose, such as to harass the taxpayer or

to put pressure on him to settle a collateral dispute, or for any other purpose reflecting on the

good faith of the particular investigation.” Id., at 58. 

The Government’s burden is met by a declaration from the investigating agent that the

Powell requirements have been met. United States v. Garden State Nat’l Bank, 607 F.2d 61,

68 (3d Cir. 1979); Alphin v. United States, 809 F.2d 236, 238 (4th Cir. 1987); United States v.

Davis, 636 F.2d at 1034; United States v. Will, 671 F.2d 963, 966 (6th Cir. 1982); United States

v. Kis, 658 F.2d 526, 536 (7th Cir. 1981), cert. denied, 455 U.S. 1018 (1982). The burden is

minimal because the statute is read broadly to ensure that the enforcement powers of the IRS are
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

[Proposed] Order Dism. Pet. To Quash & Enf. 

Sum. (No. C-06-2602-SBA) 3

not unduly restricted. Liberty Financial Services v. United States, 778 F.2d 1390, 1392 (9th

F.2d. 1993); United States v. Balanced Financial Management, 769 F2d 1440, 1443 (10th Cir.

1985); see also, United States v. Abrahams, 905 F.2d 1276, 1280 (9th Cir. 1990).

The declaration of Special Agent Douglass Doss satisfies the Government’s prima facie

burden that the Powell requirements have been met. First, it demonstrates that the IRS is using

its summons power for a bona fide purpose, to investigate whether Steve Murdock is preparing

false tax returns for clients of his company Business Inc. Next, it establishes that the information

sought is relevant because it relates to that investigation. Third, it establishes that the

information is not already in the Government’s possession. Finally, it shows that the IRS has

followed all administrative procedures. 

The relevance standard of §7602 is not to be judged by relevance standards used in 

deciding whether to admit evidence in federal court. United States v. Arthur Young, 465 U.S.

805, 814 (1984). Rather, it is analogous to a grand jury subpoena. United States v. Ryan, 455

F.2d 728, 733 (9th Cir. 1972). The test of materiality and relevancy is essentially the same as

grand jury investigations, i.e., whether the inspection sought would throw light upon the

correctness of the taxpayer's returns. The IRS can obtain items of even potential relevance to an

ongoing investigation, without reference to its admissibility since the Service can hardly be

expected to know whether such data will in fact be relevant until it is procured and scrutinized. 

United States v. Arthur Young, 465 U.S. 805, 814 (1984)

For the foregoing reasons, the Petition to Quash Summons is dismissed and the Summons

served on Business Inc. is enforced. Business Inc. by and through its representative shall appear

on August 1, 2006 at 9:30 a.m. before IRS Special Agent Douglas Doss or any other IRS agent

designated by the IRS at 185 Lennon Lane, #200, Walnut Creek, California 94598 and produce

the records described in the Summons attached as Exhibit A to the Petition To Quash.

Dated: 7/18/06 ______________________________

UNITED STATE DISTRICT JUDGE