Document ID: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-caed-2_05-mc-00044/USCOURTS-caed-2_05-mc-00044-0/pdf.json

Parties Involved:
Butte Community Bank
Counter Defendant
John D. Dillingham
In Re
Revenue Agent James Reno
Counter Claimant
United States Internal Revenue Service
Respondent
United States of America
Counter Claimant

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McGREGOR W. SCOTT

United States Attorney

YOSHINORI H. T. HIMEL #66194

Assistant U. S. Attorney

501 I Street, Suite 10-100

Sacramento, California 95814

Telephone: (916) 554-2760

Attorneys for Federal Respondents and Counter-Petitioners, UNITED STATES OF

AMERICA, UNITED STATES INTERNAL REVENUE SERVICE, and Revenue Agent

JAMES RENO

IN THE UNITED STATES DISTRICT COURT FOR THE

EASTERN DISTRICT OF CALIFORNIA

JOHN D. DILLINGHAM,

Petitioner,

v.

UNITED STATES INTERNAL REVENUE

SERVICE, Revenue Agent JAMES RENO, and

BUTTE COMMUNITY BANK,

Respondents;

UNITED STATES OF AMERICA and Revenue

Agent JAMES RENO,

Counter-Petitioners,

v.

BUTTE COMMUNITY BANK,

Counter-Respondent.

MISC. S-05-44-WBS/PAN-PS

MAGISTRATE JUDGE'S

FINDINGS AND

RECOMMENDATIONS RE:

PETITIONS TO QUASH IRS

SUMMONSES, AND TAX

SUMMONS ENFORCEMENT

Taxpayer: John D. Dillingham

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PATRICIA H. DILLINGHAM,

Petitioner,

v.

UNITED STATES INTERNAL REVENUE

SERVICE, Revenue Agent JAMES RENO, and

BUTTE COMMUNITY BANK,

Respondents;

UNITED STATES OF AMERICA and Revenue

Agent JAMES RENO,

Counter-Petitioners,

v.

BUTTE COMMUNITY BANK,

Counter-Respondent.

MISC. S-05-45-GEB/PAN-PS

Taxpayer: Patricia H. Dillingham

This matter came before me on April 20, 2005, pursuant to Order filed April 11, 2005,

on petititioners' petitions to quash Internal Revenue Service ("IRS") summonses and

respondents' verified counter-petition to enforce IRS summonses. No appearance was made

by or for the petitioners, John D. Dillingham and Patricia H. Dillingham, or respondent and

counter-respondent Butte Community Bank. Yoshinori H. T. Himel, Assistant United States

Attorney, appeared for respondent IRS, counter-petitioner United States, and respondent and

counter-petitioner Revenue Agent ("RA") James Reno, who was present.

At issue are two IRS summonses issued to Butte Community Bank in Paradise,

California, seeking information to aid in the determination of petitioners' tax liabilities for

calendar years 2001, 2002 and 2003. By their petitions, Mr. and Mrs. Dillingham assert

primarily that the IRS summons authority is limited to investigations related to gasoline taxes,

and that respondents therefore had, and did not meet, a burden of connecting petitioners with

taxable gasoline-related activities. Petitions at 2-10.

The verified counter-petition alleges, under oath and without controversion, that

Revenue Agent Reno issued the IRS summonses as part of his investigation to determine the

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federal tax liabilities of the Dillinghams for calendar years 2001, 2002 and 2003; that the

information sought is relevant to that purpose; that the information sought is not already in the

possession of the Internal Revenue Service; and that the administrative steps required by the

Internal Revenue Code have been followed. A copy of the IRS original of the summonses

was attached as Exhibits 1 and 2 to the counter-petition. Form 2039-D, an instruction sheet

for petitions to quash, accompanied the taxpayers' attested copy of the summonses; see

verified counter-petition ¶ 7 and Exhibit 3.

As a threshold matter, the Order filed April 11, 2005, instructed each of the petitioners,

within three days of service of the order, to serve upon the respondents a copy of the petition,

the respective summons, and that Order. The sworn and uncontroverted allegations in the

counter-petition established that Mr. Dillingham mailed a copy of his petition, including an

incomplete copy of the summons sent to him, to RA Reno on April 6, 2005, and that he

followed up by mailing RA Reno a copy of the Order on April 15, 2005. Mrs. Dillingham

similarly mailed a copy of her petition to RA Reno, but did not mail the Order. The mailings

did not contain a full copy of the summonses, nor were any of the papers served at any time

upon the United States Attorney's Office or the Attorney General in Washington, D.C. See

verified counter-petition ¶ 12.

The statutory waiver of sovereign immunity for petitions to quash IRS summonses

jurisdictionally requires that the petition be served on the United States Attorney's Office and

the Attorney General. I.R.C. § 7609(b)(2)(B) requires a registered or certified mailing of the

petition to quash "to such office as the Secretary may direct in the notice referred to in

subsection (a)(1)." The Secretary's directions are in Form 2039-D, counter-petition Exhibit 3;

they include the instruction that "Your petition must be served upon the appropriate parties,

including the United States, as required by Federal Rule of Civil Procedure 4." Id. ¶ 9. As

the Eastern District of North Carolina reasons in Norfleet v. United States, 2002 WL

1396494, 89 A.F.T.R.2d 2002-2879, 2002-2 USTC ¶ 50,564 (E.D.N.C. 2002),

IRS Form 2039, Part D, provides that, in addition to the persons

summoned and the IRS officer who issued the summons, the

petitioner must serve the United States as required by Rule 4 of

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the Federal Rules of Civil Procedure. Under Rule 4(i)(1), service

upon the United States shall be effected (A) by delivering a copy

of the summons and of the complaint to the United States attorney

for the district in which the action is brought . . . or by sending a

copy of the summons and of the complaint by registered or

certified mail addressed to the civil process clerk at the Office of

the United States Attorney and (B) by also sending a copy of the

summons and complaint by registered or certified mail to the

Attorney General of the United States at Washington, District of

Columbia. . . .

Because § 7609 contains a waiver of the United States' immunity

against suit, such waivers must be strictly and narrowly construed,

and . . . strict compliance with the pre-conditions to a waiver must

be enforced.

Id. For this reason, petitioners' failure to serve process on the United States Attorney and the

Attorney General under Fed. R. Civ. P. 4(i)(1) is a fatal jurisdictional flaw, and the petitions

to quash must be dismissed for lack of subject matter jurisdiction.

The United States may still seek enforcement of the IRS summonses on their merits

under I.R.C. § 7609(b)(2)(A) ("In any such proceeding, the Secretary may seek to compel

compliance with the summons"). See Miller v. United States, 1994 WL 465816, 74

A.F.T.R.2d 94-5355, 94-2 USTC ¶ 50,383 (N.D. Ind. 1994) (dismissing petition to quash for

lack of subject matter jurisdiction and enforcing IRS summons). 

Regarding the taxpayers' contention that the IRS summons power is limited to gasoline

taxes, there is no such limitation in I.R.C. § 7602. That statute provides that "For the purpose

of ascertaining the correctness of any return," "determining the liability of any person for any

internal revenue tax," "or collecting any such liability," the Secretary of the Treasury can

summon "any person having possession" or "any other person the Secretary may deem

proper."

The taxpayers also contend that the Powell requirements are unsatisfied because the

administrative summonses do not, on their face, "allege[] that its investigation of the

summoned records are [sic] relevant or material to the business of a person liable for tax." 

Petitions at 4. They also contend that the summonses "fail[] to allege, 'that the information

sought is not already within the Commissioner's possession, and that the administrative steps

required by the Code have been followed.'" Id. at 5. There is, however, no requirement that

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the Powell requirements be proved up by the face of the summons as distinguished from proof

to the Court. The Northern District of Indiana disposed of similar contentions as follows:

Petitioners also contend that the summons is invalid

because the summons and/or notice do not contain verifications

that (1) the issuing officer is a delegate of the Secretary who

would be authorized to issue summonses; (2) a Justice Department

referral has not been made; (3) that the investigation is being

conducted for a legitimate purpose; and (4) that the documents are

not already in the possession of the IRS.

As the government has pointed out, there is no statutory

requirement that any of the foregoing verifications appear on

either the summons or the notice.

Miller, supra.

On the merits, the two IRS summonses meet the requirements of United States v.

Powell, 379 U.S. 48, 57-58 (1964). Based on the sworn and uncontroverted allegations in the

counter-petition, I find:

(1) The summonses issued by Revenue Agent James Reno to respondent Butte

Community Bank on March 18, 2005, seeking testimony and production of documents and

records in respondent's possession, were in good faith and for a legitimate purpose under

I.R.C. § 7602, that is, for the determination of the tax liabilities of John D. Dillingham and

Patricia H. Dillingham for calendar years 2001, 2002 and 2003;

(2) The information is relevant to that purpose;

(3) The information sought is not already in the possession of the Internal Revenue

Service;

(4) The administrative steps required by the Internal Revenue Code have been

followed; and

(5) There is no evidence of referral of this case by the Internal Revenue Service to the

Department of Justice for criminal prosecution.

Additionally, as noted above, petitioners failed to perfect service of their petitions to

quash.

It is therefore the recommendation of the Magistrate Judge that:

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(A) That the petitions to quash filed by John D. Dillingham and Patricia H. Dillingham

be dismissed for lack of subject matter jurisdiction for failure to fulfill the service conditions

on the statutory waiver of sovereign immunity for petitions to quash, I.R.C. § 7609(b)(2)(B).

(B) That the two tax determination summonses issued to respondent, Butte Community

Bank, be enforced, and that respondent be ordered to appear at Chico, California, before

Revenue Agent James Reno or his designated representative, within 21 days of the filing date

of the summons enforcement order, or at a time and date to be set by Revenue Agent Reno,

then and there to be sworn, to give testimony, and to produce for examining and copying the

books, checks, records, papers and other data demanded by the summonses, the examination

to continue from day to day until completed.

These findings and recommendation are submitted to the United States District Judge

assigned to each case, pursuant to the provisions of 28 U.S.C. § 636(b)(1)(B) and (C) and

Rule 72-304 of the Local Rules of the United States District Court for the Eastern District of

California. Within ten (10) days after being served with these findings and recommendations,

any party may file written objections with the court and serve a copy on all parties. Such a

document should be titled "Objections to Magistrate Judge's Findings and

Recommendations." Any reply to the objections shall be served and filed within ten (10) days

after service of the objections. The District Judge will then review these findings and

recommendations pursuant to 28 U.S.C. § 636(b)(1). The parties are advised that failure to

file objections within the specified time may waive the right to appeal the District Court's

order. Martinez v. Ylst, 951 F.2d 1153 (9th Cir. 1991).

Dated: April 25, 2005. 

 /s/ Peter A. Nowinski 

 PETER A. NOWINSKI

 Magistrate Judge

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