Document ID: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-cand-4_15-cv-04764/USCOURTS-cand-4_15-cv-04764-3/pdf.json

Parties Involved:
Joseph Gary Baxter
Petitioner
Patricia Mary Baxter
Petitioner
United States of America
Respondent

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United States District Court 

Northern District of Californi

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UNITED STATES DISTRICT COURT 

NORTHERN DISTRICT OF CALIFORNIA 

JOSEPH GARY BAXTER AND PATRICIA 

MARY BAXTER, 

Petitioners, 

v. 

UNITED STATES OF AMERICA, 

Respondent. 

Case No. 15-cv-04764-YGR 

ORDER ON FIRST AMENDED PETITION TO 

QUASH; RESPONDENTS’ MOTION FOR 

SUMMARY DENIAL OF FIRST AMENDED 

PETITION TO QUASH

Re: Dkt. Nos. 7, 10, 16, 20 

Petitioners Joseph Baxter and Patricia Baxter (“Baxters” or “petitioners”) bring this action 

against the United States (“government”), seeking to quash third party summonses the Internal 

Revenue Service (“IRS”) served on the California Supreme Court for documents related to 

payments made to petitioners. The government opposed and filed a motion for summary denial of 

the first amended petition to quash (“FAP”). Having carefully considered the papers submitted1

and the pleadings in this action, oral argument held February 2, 2016, and for the reasons 

discussed below, the Court GRANTS IN PART the first amended petition to quash and GRANTS IN 

PART the motion for summary denial. 

I. FACTUAL AND PROCEDURAL BACKGROUND

The IRS randomly chose the Baxters as participants for a National Research Program 

(“NRP”) audit for the 2011 tax year. (Dkt. No. 7, FAP ¶ 6.) The NRP examination led to an 

investigation into the Baxters’ 2011 tax liabilities, which in turn resulted in the opening of an 

examination of their 2012 federal income tax liabilities. (See id. ¶ 8.) On September 25, 2015, 

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 Petitioners filed a motion to strike the government’s reply in support of its motion for 

summary denial (Dkt. No. 16), arguing the government’s reply was filed in violation of the Civil 

Local Rules and this Court’s prior scheduling orders. Petitioners’ motion to strike is DENIED. The Civil Local Rules entitle the government to file a reply in support of its motion and the 

Court’s prior scheduling orders allowed the same, even if not explicitly. Petitioners’ arguments to 

the contrary do not persuade. Moreover, petitioners’ motion to enlarge or shorten time to 

accommodate briefing on the motion to strike (Dkt. No. 20) is DENIED AS MOOT. All motions 

were fully briefed and addressed at the February 2, 2016 hearing. 

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IRS agent Shirley Steen served two IRS third-party summonses on the California Supreme Court 

directing them to provide “documents relating to billing statements, invoices, or other documents 

resulting in payments to Petitioners, contracts operable during those time periods, and other 

information about how attorneys are paid by the Judicial Council.” (Dkt. No. 10-2, “Steen Decl.,” 

¶ 11.) Petitioner Joseph Baxter, who is an attorney, represents capital defendants and is paid for 

that work by the California Supreme Court. (FAP ¶ 9.) One summons served on the California 

Supreme Court requested documents for the 2011 taxable year (the “Summons for 2011”) and 

another requested documents for the 2012 taxable year (the “Summons for 2012”). (Id. ¶¶ 1, 8.) 

On the same day, September 25, 2015, Agent Steen sent separate notices of service for 

each summons by certified mail to the Baxters, and both were returned as unclaimed mail. (Steen 

Decl. ¶¶ 12, 15.) In addition, Agent Steen sent a notice of service of the Summons for 2011 to the 

Baxters’ personal representative, Sara Baxter, petitioners’ attorney of record in this action. (Id. ¶ 

12.) A similar notice of service of the Summons for 2012 was not sent to Sara Baxter because she 

was not listed as the petitioners’ personal representative for their 2012 federal income tax 

liabilities. (Id.) 

 On October 15, 2015 – twenty days after the notices were sent – petitioners instituted this 

action, filing a petition to quash the Summons for 2011. (Dkt. No. 1.) October 20, 2015, 

petitioners filed the FAP, which also seeks to quash the Summons for 2012. (FAP p. 2 n. 1.) 

According to petitioners, they were “never served with the [Summons for 2012] and thus did not 

include it within their [original] petition to quash.” (Id.) Petitioners became aware of the 

Summons for 2012 on October 19, 2015, when counsel for the California Supreme Court informed 

petitioners’ attorney thereof. (Id.) The FAP seeks to quash both summonses on several grounds, 

including that: (1) the IRS failed to provide petitioners advance notice it would contact the 

California Supreme Court in violation of 26 U.S.C. section 7602(c)(1), and (2) the documents the 

IRS seeks are protected by the attorney-client privilege. 

 In opposition to the FAP, the government contends that petitioners cannot challenge the 

Summons for 2012 because the FAP was untimely with respect to that summons. The government 

further contends that FAP should be denied as to both the Summons for 2011 and Summons for 

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2012 because it satisfied the requirements for enforcement of an administrative IRS summons as 

announced by the Supreme Court in United States v. Powell, 379 U.S. 48 (1964), including the 

advance notice requirement. Petitioners’ assertion of attorney-client privilege fails, according to 

the government, because petitioners fail to show the documents would reveal the substance of 

protected communications between attorney and client. Based thereon, the government requests 

that the Court deny petitioners’ request that it quash both summonses. 

II. THE SUMMONS FOR 2011 

 To enforce a summons or dismiss a petition to quash a summons, the government must 

first establish a prima facie case of good faith by making a showing that: (1) the underlying 

investigation is for a legitimate purpose, (2) the inquiry requested is relevant to that purpose, (3) 

the information sought is not already in the government’s possession, and (4) the administrative 

steps required by the Internal Revenue Code (“IRC”) have been followed. Powell, 379 U.S. at 57-

58. The government’s burden is “minimal” and “[a] prima facie case of good faith typically is 

made through the introduction of the sworn declaration of the revenue agent who issued the 

summons.” United States v. Gilleran, 992 F.2d 232, 233 (9th Cir. 1993). If the government 

establishes its prima facie case, the burden of proof shifts to the party challenging the summons to 

show “abuse of process” or “the lack of institutional good faith.” United States v. Dynavac, Inc., 6 

F.3d 1407, 1414 (9th Cir. 1993). 

 The Court finds that the government has met its burden as to the first three Powell 

requirements. First, the Summons for 2011 was issued for the legitimate purpose of investigating 

the IRS’s suspicion of unreported income. (Steen Decl. ¶¶ 7, 9.) The government may use its 

summons authority “merely on suspicion that the law is being violated, or even just because it 

wants assurance that it is not.” Powell, 379 U.S. at 57. Second, the relevance requirement is 

satisfied here. As the source of a significant amount of petitioners’ income during 2011, the 

California Supreme Court is an obvious entity to summons upon suspicion of unreported income. 

(Id. ¶ 18.) Third, the government has submitted testimony indicating the summonsed information 

is not already in the government’s possession. (Id. ¶ 16) For example, the bank records already in 

the government’s possession do not reveal all relevant information, such as the reason for 

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payment, which would allow the IRS to determine which payments were taxable income and 

which were not. 

 As to compliance with IRC’s administrative steps (element four), the government has not 

met its burden under Powell. The IRC limits IRS contact with third parties to occur only after 

notice of the contact is given to the taxpayer: 

An officer or employee or the Internal Revenue Service may not 

contact any person other than the taxpayer with respect to the 

determination or collection of the tax liability of such taxpayer 

without providing reasonable notice in advance to the taxpayer that 

contacts with persons other than the taxpayer may be made. 

26 U.S.C. § 7602(c)(1). It is uncontested that the IRS did not provide advance notice to the 

Baxters of its intent to make contact specifically with the California Supreme Court. Instead, the 

government argues that it satisfied this requirement on July 25, 2013 by providing petitioners with 

generic notice, i.e. IRS Publication 1, which states that the IRS will “sometimes talk with other 

persons if [they] need information that [the taxpayers] have been unable to provide.” (Steen Decl. 

¶ 8, Exh. A.) The Court finds that the advance notice procedure cannot be satisfied by the 

transmission of a publication about the audit process generally. The IRC and its implementing 

regulations highlight that advance notice should be specific to a particular third party. For 

example, a contact is “authorized” and therefore not subject to the advance notice requirement if 

the “taxpayer or the taxpayer’s authorized representative requests or approves the contact.” 26 

C.F.R. § 301.7602-2(f)(1)(i)(B) (emphasis supplied). In that regard, the implementing regulations 

contemplate notice for each contact, not a generic publication’s reference that the IRS may talk to 

third parties throughout the course of an investigation. The government’s argument that 

Publication 1 satisfied their obligation of advance notice under Section 7602(c)(1) does not 

persuade. 

 In light of petitioners’ objection to their administrative compliance, the government 

professes to be “unclear [as to] what additional notice Petitioners (an attorney and his spouse), 

represented in at least one examination by another attorney, are demanding from the IRS.” (Dkt. 

No. 15 at 9:9-11.) The Court is not persuaded by this unsubstantiated proffer. No agent swore of 

such confusion. As the government concedes, petitioners were not “strangers to IRS audits.” (Id. 

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at 9:13.) Advance notice could have been satisfied in myriad ways. See 26 C.F.R. § 301.7602-

2(d)(1) (“pre-contact notice may be given either orally or in writing”); Highland Capital 

Management LP v. United States, --Fed.Appx.--, 2015 WL 5692377 (2d Cir. Sept. 29, 2015) 

(finding oral notice to taxpayers sufficient to satisfy Section 7602(c)(1)’s advance notice 

requirement before issuing third party administrative summons). In short, the IRS simply failed in 

this particular administrative duty. 

 The government having failed to show compliance with the administrative steps provided 

in the IRC, the Summons for 2011 cannot be enforced. See Powell, 379 U.S. at 57-58. 

Petitioners’ motion to quash the Summons for 2011 is GRANTED. 

*** 

 Should the government choose to satisfy the advance notice requirement and subsequently 

re-issue the Summons for 2011, the government must also comply with the parameters as set forth 

with respect to the Summons for 2012, infra, to avoid disclosure of privileged materials. 

Specifically, any such summons issued by the government shall direct the California Supreme 

Court to first deliver the summonsed documents to the Court for an in camera review to determine 

whether the documents contain any privileged attorney-client communications. 

 Prior to re-issuing the Summons for 2011, the government shall also meet and confer with 

petitioners to ensure compliance with Powell, including efforts to narrow the scope of the 

summons to include only information not already in the possession of the government. 

III. THE SUMMONS FOR 2012

 With respect to the Summons for 2012, the Court is without jurisdiction to address the 

petition to quash. Proceedings to quash an IRS summons must be filed no later than the twentieth 

day after the notice of a third-party summons is mailed to petitioners. 26 U.S.C. § 7609(b)(2)(A); 

Mollison v. United States, 568 F.3d 1073, 1076 (9th Cir. 2009). The twenty-day limitations period 

is jurisdictional and “is a condition precedent to the waiver of sovereign immunity.” Ponsford v. 

United States, 771 F.2d 1305, 1309 (9th Cir. 1985). Here, it is undisputed the FAP was filed to 

include a challenge to the Summons for 2012 more than twenty days after the IRS mailed it to 

petitioners. Petitioners argue that the Court may nevertheless assert jurisdiction over the 

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government for three reasons,2 namely because: (1) Rule 15 allows for relation back to the date of 

the original petition, within the twenty-day period; (2) petitioner Joseph Baxter was in San Diego 

when notice was mailed to him; and (3) the IRS failed to serve notice of the Summons for 2012 on 

their personal representative Sara Baxter. The Court addresses petitioners’ arguments in turn. 

First, petitioners correctly assert that Rule 15(a)(1) allows amendment to pleadings as a 

matter of course. However, new allegations and claims in an amended pleading do not 

automatically date back to the time of the original pleading for purposes of limitation periods, 

such as Section 7609(b)(2)(A). See Fed.R.Civ.P. 15(c). Pursuant to Rule 15(c), an amended 

pleading relates back to the time of the original pleading when “the law that provides the 

applicable statute of limitations allows relation back” or where “the amendment asserts a claim or 

defense that arose of the conduct, transaction, or occurrence set out – or attempted to be set out – 

in the original pleading.” Here, Section 7609 does not allow relation back to quash an IRS 

summons. In fact, no statutory provision allows for relation back in this instance. Next, the 

Summons for 2012 is a separate transaction not addressed by the original petition, which only 

challenged the Summons for 2011. See Henderson v. United States, 1999 WL 810380 (D.Co. 

Aug. 17, 1999) (denying motion to amend petition to quash where amendment would add 

untimely challenge of summons to same third-party entity as original petition for records 

pertaining to different tax year). Relation back under Rule 15(c) cannot save this jurisdictional 

defect. 

With respect to petitioners’ second argument, they claim that notice was never “given” 

because petitioner Joseph Baxter was away in San Diego when the notice was mailed to his home 

address. See 26 U.S.C. § 7609(b)(2)(A). In that regard, petitioners argue that the clock on the 

twenty-day period never started because notice was not properly given under the statute. The 

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 In reply, petitioners raised a fourth argument: the related proceeding is consolidated 

herewith, conferring the Court with jurisdiction to not allow the government to enforce the 

Summons for 2012 during the pendency of the related proceeding. However, petitioners did not 

provide and the Court cannot discern any authority by which it may exercise jurisdiction over the 

sovereign to adjudicate a claim for which the government has not waived immunity to suit. 

Consolidation would not alter the analysis. And, the other proceeding to which petitioners refer is 

administratively related and not consolidated herewith. See Case No. 15-cv-02138-YGR. 

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Court disagrees. Section 7609 requires notice be sent by certified mail to petitioners’ “last known 

address.” Petitioners do not contend that the address to which Agent Steen sent the notices does 

not meet that definition. The Court finds that notice was “given” to petitioners when the notice 

was sent by certified mail on September 25, 2015, triggering the twenty-day period. 

Finally, petitioners similarly argue that the twenty-day period never started because the 

IRS failed to give notice of the Summons for 2012 to their personal representative, Sara Baxter. 

Petitioners fail to provide any authority for the proposition that Sara Baxter was entitled to notice 

of the Summons for 2012. Although Sara Baxter is the personal representative for petitioners in 

connection with their 2011 tax liabilities, petitioners had not designated her as their personal 

representative for their 2012 tax liabilities. (Steen Decl. ¶ 12.) Regardless, petitioners argue that 

the government had actual knowledge that Sara Baxter represented petitioners in connection with 

their 2012 tax liabilities because she is their attorney of record in a related action challenging 

evaluation of their 2012 tax liabilities. See Case No. 15-cv-02138-YGR (Dkt. No. 1). While 

understanding the practical attractiveness of this argument, petitioners have provided no authority 

upon which the Court may impose such an obligation on the government. 

Petitioners’ failure to institute a proceeding to quash the Summons for 2012 within the 

twenty-day period divests the Court of jurisdiction over their petition to quash the same. The 

government’s motion is GRANTED with respect to the Summons for 2012. 

*** 

 While the Court cannot entertain a petition to quash the Summons for 2012, it must be 

assured that the attorney-client privilege will not be violated thereby. Petitioners’ assertions of 

privilege are not as conclusory as the government suggests. For example, it is plausible that 

attorney billing records submitted to the California Supreme Court could reveal litigation strategy. 

See Clarke v. American Commerce Nat. Bank, 974 F.2d 127, 129 (9th Cir. 1992) (“ledgers, 

statements, and time records which also reveal ....litigation strategy, or the specific nature of the 

services provided, such as researching particular areas of law, fall within the privilege”). 

 To determine whether the documents contain privileged material, and prevent disclosure of 

the same, the documents produced by the California Supreme Court shall be subject to an in 

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camera review by the Court prior to disclosure. See United States v. Zolin, 491 U.S. 554, 574-75 

(1989) (courts often review contested material when parties disagree whether a privilege applies). 

 Accordingly, the government shall advise the California Supreme Court that the 

summonsed documents must be delivered to this Court prior to disclosure to the government. 

Once received, the Court will refer the review to a magistrate judge who will contact the parties 

and may order any further briefing on the topic as needed. 

IV. CONCLUSION

 Based on the foregoing, petitioners’ first amended petition to quash is GRANTED as to the 

Summons for 2011, and the government’s motion for summary denial is GRANTED as to the 

Summons for 2012. The petition and motion are otherwise DENIED. 

 This Order terminates Docket Numbers 7, 10, 16, and 20. 

IT IS SO ORDERED. 

Dated: February 8, 2016 

______________________________________ 

 YVONNE GONZALEZ ROGERS

 UNITED STATES DISTRICT COURT JUDGE

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