2011 D e c i sion s O p inion s of the U nit e d S t at e s C our t of Appe al s for the Thir d C ir c uit 11-30-2011 

# F r ank G angi v

. U SA P r e c e de nt i al or N on-P r e c e de nt i al : N on-P r e c e de nt i al D ocke t N o . 11-1612

F o llow thi s and a dd it ion al work s at : http://d i git alc ommon s .l a w . vi ll anova . e du/thir dc ir c uit_2011

Thi s de c i sion i s br ou ght t o you for f r e e and ope n a c c e s s b y the O p inion s of the U nit e d S t at e s C our t of Appe al s for the Thir d C ir c uit at V i ll anova U nive r sity S choo l of L a

w Di git al Reposit ory

. It h as be e n a c c ept e d for inclusion in 2011 D e c i sion s b y an author i z e d a dmini s tr at or of V i ll anova U nive r sity S choo l of L a

w Di git al Reposit ory

. F or mor e inform at ion, p le as e c ont a ct Be n j amin . C arl s on@l a

w . vi ll anova . e du . Re c omme nde d C it at ion " F r ank G an gi v

. U SA" (2011). 2011 D e cisio n s . P ape r 142. http://d i git alc ommon s .l a

w . vi ll anova . e du/thir dc ir c uit_2011/142Hon. Donald C. Pogue, Chief Judge , United States Court of International Trade , sitti ngby * designation. NOT P RE CE DE NT I AL U N IT E D S T A T E S C O U R T O F A P P E A L S F O R T H E T H IR D C IR C U IT

_______ N o. 11- 1612

______ F RA NK GA NG I ; F ERROU S MI

NE R H OLDI

NG S I NC .; B AB P VI LL C; G L OB AL

NAPS I NC . v. UN I TE D STAT ES O F AM ERI CA

F RA N K GA N G I, Appellant

_______ A ppeal fr om t he U ni t ed St at es D i s t r i ctC our tforthe D i s t r i ctof N ew J er s ey ( N o. 3: 10- m c- 0024) D istri ct Ju d g e: H o n o rab le G arrettE . B row n , Jr.

_______ Subm i t t ed underT hi r d C i r cui tL A R 34. 1( a)

N ovember18, 2011

_______ B efor e: FU E N T E S and C H A G A R E S, C i r cui tJ udges

a n d POG UE, J udge

* ( O pi ni on Fi l ed: N ovember30, 2011)2 _______ OP I NI ON

_______ PO G U E , J udge, A p p ell an t, F ran k G an g i, ap p ea ls th e D istri ct C o u rt ’s gra n t of the G o v ern m en t’ s m ot i on t o enfor ce I nt ernal R evenue Ser vi ce ( “I R S”) s um m ons es s erved on C i t i B ank and Sover ei gn B ank fort he purpos es of det erm i ni ng G angi ’ s t ax l i abi l i t y . Forthe fol l ow i ng r eas ons , w e w i l l aff

i r m t he D i s t r i ctC our t ’ s deci s i on.

I . BA CKGROUND B e c a u s e w e w ri te f

o r t h e p a rt ie s ’ b e n e f

it, w e w ill r e c ite o n ly th e e s s e n tia l f a c ts . T ho se fact s begin i n 2 00 4, w hen t he IR S op ened an au ditt o d et erm i ne if G ang i w as a bona fi de r es i dentof the V i r gi n I s l ands , w hetherhe w as obl i gat ed t o r epor ti ncome on a U .S . f e d e ra l in c o m e ta x re tu rn a n d w h e th e r h e re p o rt e d th e p ro p e r a m o u n ts o f in c o m e . I nt ernal R evenue A gentJ acki e M os s ( “A gentM os s ”) s erved thi r d- par t ys um m ons es on C i t i B ank and Sover ei gn B ank on February2, 2010 and M ay10, 2010, r es pect i vel y . T he su m m o n ses s o u g h t i n fo rm ati o n an d d o cu m en ts fo r th e p u rpo ses o f d eterm ining G an g i’ s ta x lia b ility. G a n g i p e tit io n e d to q u a sh th e su m m o n se s, a lleg in g th a t th e su m m o n se s f a iled to c o m p ly w ith th e re q u ir e m e n ts a rt ic u la te d in U n ite d S ta te s v . P o w e ll, 3 7 9 U .S . 4 8 (1 9 6 4 ). O n A u g u st 25 , 2 0 1 0 , the M ag istrate Ju d g e issu ed an o p inion an d o rde r de n y ing G an g i’ s pet i t i on and gr ant i ng t he G overnm ent ’ s m ot i on t o enfor ce. O n J anuary7, 2011, the3

D i s t r i ctC our tadopt ed, w i t h m odi fi cat i ons , the M agi s t r at e J udge’ s R epor tand R ecomm endat i ons . T he G overnm entappea l ed and G angi cr os s - appea l ed. T he G o v e rn m e n t’s a p p e a l w a s la ter v o lu n tar ilyd ism iss e d , lea v in g o n lyG a n g i’s a p p e a l.

I I . J URI S DI CTI ON & S TANDA RD O F REVI EW A s t he D i s t r i ctC our thad j ur i s di ct i on pur s uantt o 26 U . S. C . §§ 7402( b) and 7609( h) , w e have j ur i s di ct i on pur s uantt o 28 U . S. C . § 1291. I n r evi ew i ng t he D i s t r i ctC our t ’ s or dert o enfor ce a n I R S summ ons , w e r evi ew q u e s t i o n s o f

f a c tf o rc l e a re r r o ra n d q u e s t i o n s o f l a w de novo . See Lozano v. C i t yof H azl et on, 620 F. 3d 170, 181 ( 3d C i r . 2010) ; s ee a l s o U ni t ed St at es v. I ns . C ons ul t ant s of K n o x , Inc . , 1 8 7 F . 3 d 7 5 5 , 7 5 9 (7th C ir . 1 9 9 9 ). III . A N A L Y S IS Sect i on 7602( a) of the I nt ernal R evenue C ode ( “I R C ”) author i zes the I R S t o i s s ue su m m o n s “[ f]o r th e p u rpo se o f a sce rt ainin g the c o rrectne ss o f a n yreturn , m ak ing a re turn w her e none ha s been made, det erm i ni ng l i abi l i t yof anyper s on foranyi nt ernal r evenue t ax . . . , orcol l ect i ng anys uch l i abi l i t y . ” To est abl i s h a pr i m a f aci e c a se f

o r th e leg a lity of a s um m ons , t he I R S m us ts how t hat : ( 1) the i nves t i gat i on w i l l be conduc t ed pur s uant t o a l egi t i m at e purpos e; ( 2) t he i nqui r ym aybe r el evantt o t he purpos e; ( 3) the i nform at i on s oughti s notal r eadyw i t hi n t he C om m i s s i oner ’ s pos s es s i on; and ( 4) the admi ni s t r at i ve s t e p s r e q u i r e d b yt h e I RC h a v e b e e n f o l l o we d . P o we l l , 3 7 9 U. S . a t5 7

– 5 8 . On c e th e I RS has m ade it s pr i m a f

aci e cas e, t he t axpay erbear s the bur den of di s pr ovi ng anyone of the4

f o u r P o w e ll ele m e n ts o r o th e rw ise d e m o n stra tin g th a t “e n f o rc e m e n t o f

th e su m m o n s w ill r es ul ti n an abus e of the court ’ s pr oces s . ” U ni t ed St at es v. R ockw el l I nt ’ l , 897 F. 2d 1255, 1262 ( 3d C i r . 1990) . T he bur den of s how i ng an abus e of the court ’ s pr oces s i s on t he t axpay er . Pow el l , 379 U . S. at58. G angi cont ends t hatt he D i s t r i ctC our terr ed i n concl udi ng thatenfor cementof the su m m o n se s w o u ld n o t re su lt i n a n a b u se o f p ro c e ss . H e p re se n ts tw o a rg u m e n ts to su p p o rth is ab u se o f p roc ess c lai m : a co n sti tuti o n al arg u m en t, related to the IR S ’s i nt erpr et at i on of the s t atut e of l i m i t at i ons on t he as s es s m entof t axes , and an i ns t i tut i onal b a d f a ith a rg u m e n t. A . St at ut e of Li m i t at i ons Fi r s t , G angi ar gues t hatt he I R S’ s fai l ur e t o acknow l edge thatthe s t atut e of lim itatio n s f

o r a ss e ss m e n t o f

tax e s h a s e x p ire d c o n stitu tes a n in f rin g e m e n t o f

h is F if th A m e n d m e n t d u e p ro c e ss rig h ts. T h is c laim lac k s m e rit. T he s t atut e of l i m i t at i ons foras s es s m entof t axes i s thr ee y ear s fr om the l att erof t he dat e the r etur n w as due orfi l ed. I R C § 6501. Pow el l , how ever , m akes i tcl earthatt he s t atut e of l i m i t at i ons appl i es onl yt o as s es s m ent s of t axes , nott o s um m ons es orot her i nves t i gat i ve pr ocedur es . Pow el l , 379 U . S. at57 ( “[T] he [I R S] C om m i s s i onerneed not m ee t anystan d ard o f p rob ab le ca u se to o b tai n en fo rce m en t of h is sum m o n s, eith er b ef o re o r a f te r t h e th re e -ye a r s ta tu te o f lim ita tio n s o n o rd in a ry ta x lia b iliti e s h a s e x p ir e d .” ). S in c e th e d isp u te in th is c a se c o n c e rn s s u m m o n se s a n d n o t as se ss m e n ts, th e § 6 5 0 1 sta tu teIRC § 6 5 0 1 ( c ) ( 1 )

– ( 3 ) a ls o p ro v ide s e xc ep ti o n s f o r f a ls er e tu r n s , w il lf u l att e mp ts to e v a d etax, 1 and the f ailure to file a

return. I f the IRS determines that Gang i was not a bona fide re sident of the Virg in I slands, then he wa s obligated to file U.S. federal tax returns. It is uncontested that Gang i did not file U.S. federal tax returns for theperiod at issue. It follows that the statute of limit ations would not precludethe summonses for purpose s of deter mining the a

pplicability

of the see xcepti on s. 5 o f lim ita tio n s u p o n w h ic h G a n g i r e lie s is in a p p lic a b le to th e s u m m o n s e s a t is s u e . T her efor e, anydue pr oces s cl ai m s bas ed on the expi r at i on of the s t atut e of l i m i t at i ons m u st f a il. 1 T h e s ta tu te o f

lim ita tio n s f

o r a s s e s s m e n t d o e s n o t p re c lu d e th e s u m m o n s e s a t is s u e . A ccor di ngl y , w e nee d notaddr es s G angi ’ s cons t i tut i onal cl ai m s bas ed on the s t atut e of l i m i t at i on s. B . In sti tu ti o n a l B a d F a it h Second, G angi cl ai m s t hatt he s um m ons es evi dence d i ns t i tut i onal bad fa i t h on t he par tof the I R S. G angi bas es t hi s ar gum enton hi s cons t i tut i onal chal l enge, ar gui ng that th e IR S is p u rsu in g its in v e stig a tio n d e sp ite th e a ss e rte d u n c o n stitu tio n a lityo f its in terp re tatio n o f

th e sta tu te o f

lim itatio n s f

o r a ss e ss m e n t o f

tax liab ili tyin th e V irg in Isl an d s. G an g i fu rth er reli es o n a leg isl ati v e re co m m en d ati o n co n tai n ed in a 2 0 0 9 rep o rt to C o n g re s s b yth e IR S T a x p a y e r A d v o c a te S e rv ic e (“ T S A ” ). A good fai t h i nqui r ys at i s fi es the fi r s tpr ong of Pow el l – a l egi t i m at e i nves t i gat i ve purpos e. R ockw el l , 897 F. 2d at1262 ( “[T] he r equi r ementof l egi t i m at e purpos e means not hi ng m or e than thatt he governm ent ’ s s um m ons m us tbe i s s ued i n good fai t h pur s uant t o one of the pow er s gr ant ed under26 U . S. C . § 7602. ”) . E xampl es of bad f ai t h r equi r i ng6

a courtt o quas h a s um m ons i ncl ude s um m ons es i s s ued “s ol el yt o har as s [a t axpay er ] , or t o for ce hi m t o s et t l e a c ol l at er al di s put e, ” ort o gatheri nform at i on forot herfede r al a g e n c ie s . P ic k e l v . U n ite d S ta te s , 7 4 6 F .2 d 1 7 6 , 1 8 5 (3 d C ir . 1 9 8 4 ). G angi has fai l ed t o pr es entevi dence thatthe I R S act ed i n bad fa i t h. T he I R S has as s er t ed a l egi t i m at e i nves t i gat or ypurpos e – t o det erm i ne w hetherG angi w as a bona f i de r es i dentof the V i r gi n I s l ands and thus w hetherhe has s at i s fi ed hi s t ax l i abi l i t i es . A s t he D i s t r i ctC our thas not ed, t he TS A R epor t , on w hi ch G angi r el i es , pr es ent s t ax pol i cy ar gum ent s r athert han anyevi dence of i ns t i tut i onal bad fa i t h, w hi ch i s a l egal s t andar d. G a n g i v . U n ite d S ta te s , N o . 1 0 -2 4 , 2 0 1 1 W L 1 3 6 3 8 1 6 , a t * 6 (D .N .J . J a n . 0 7 , 2 0 1 1 ). Fur t herm or e, beca us e the s t atut e of l i m i t at i ons does notpr ecl ude s um m ons es , the cons t i tut i onal chal l enge pr es ent ed byG angi i s notr el evantt o t he ques t i on of w hethert he I R S act ed i n bad fa i t h i n i s s ui ng t he s um m ons es . A ccor di ngl y , the I R S’ s i s s uance of the s um m ons es does notcons t i tut e i ns t i tut i onal bad fa i t h. I V. CO NC L US I ON Fort he for egoi ng r eas ons , w e w i l l aff i r m the D i s t r i ctC our t ’ s or derdeny i ng G angi ’ s pet i t i on and gr ant i ng t he G overnm ent ’ s m ot i on t o enfor ce.