Opinion ID: 204030
Heading Depth: 3
Heading Rank: 2

Heading: Issuance for a legitimate purpose

Text: The appellants next argue that the IRS did not issue the summonses for a legitimate purpose. Specifically, they claim that the IRS intended to use the summonses in order to avoid more restrictive Tax Court discovery rules, to harass them, and to improperly extend the statute of limitations applicable to the examination of tax returns. By way of background, a notice of deficiency permits an individual taxpayer to bring a Tax Court proceeding to challenge the tax liability claimed by the IRS in the notice. 26 U.S.C. § 6213. In the partnership context, a notice of final partnership administrative adjustment (FPAA) is analogous to a notice of deficiency. 26 U.S.C. § 6226. Discovery in Tax Court proceedings is more limited than that permitted under the Federal Rules of Civil Procedure. Schneider Interests, L.P. v. Comm'r, 119 T.C. 151, 2002 WL 31163105 (2002); see also United States v. Admin. Enter., Inc., 46 F.3d 670, 672 (7th Cir. 1995) (Discovery in Tax Court proceedings is traditionally informal and noncoercive. . . .). Courts look to the timing of a summons relative to the commencement of [tax court] litigation in order to evaluate validity in the face of such allegations. Sterling Trading, 553 F.Supp.2d at 1159-60 ( citing PAA Mgmt., Ltd. v. United States, 962 F.2d 212, 219 (2d Cir. 1992)). Where the summons is issued before the commencement of judicial proceedings, that summons is generally not found to undermine the discovery process. Id. Here, as the district court noted, it is undisputed that the IRS issued the summonses before issuing the FPAA to Derringer. [9] Thus, the timing of the summons does not suggest that the IRS intended the summons as a pre-litigation discovery tool. . . . Id. The appellants argue that because the FPAA was a final determination of Derringer's tax liability, the summons could only have been for illegitimate purposes. This position, however, overstates the impact of the FPAA. The FPAA is not `final' in the sense that its issuance necessarily obviates the need for further information, [or] brings the curtain down on the IRS's administrative or investigative role. . . . PAA Mgmt., 962 F.2d at 219. Against this backdrop, the issuance of the FPAA does not invalidate the legitimacy of the Derringer summons. The appellants also rely on Rogers's version of a conversation with Weinger in which Weinger allegedly said that the IRS auditors were being guided by district counsel who planned to litigate regardless of the result of the audit and notwithstanding whether petitioners were able to prove bad business debt through the audit. The appellants rely on PAA Mgmt., Ltd. v. United States, No. 91C168, 1992 WL 346314 (N.D.Ill. Nov.19, 1992), for the proposition that the motive to use in litigation materials obtained by summons is evidence of an improper purpose. In PAA Mgmt, however, the court found that the IRS agent explicitly admitted that the IRS did not need the summoned materials for its examination, but rather that it only sought the material to protect the government's interests in Tax Court. 1992 WL 346314 at -6. There is no such admission here. Instead, the declaration in this case states that the information sought in the Derringer summons is still necessary to the determination of the accuracy of Derringer's returns. And contrary to the appellants' assertions, Weinger's alleged statement (which was in connection with a different summons enforcement proceeding [10] ) does not compel an outcome in their favor here, particularly in light of the fact that in the other proceeding Weinger expressly denied being directed by counsel to seek specific documents. Moreover, there is no prohibition against IRS agents speaking with district counsel during an examination. Good Karma, LLC, 546 F.Supp.2d at 604. Accordingly, we reject the appellants' discovery claim. The appellants' claim of harassment [11] is based on two specific claims, neither of which is sufficient to merit relief. First, they argue that the IRS threatened the imposition of severe penalties if they did not settle. The IRS does not dispute that it sought settlement; however, The mere fact that the IRS attempted to settle with taxpayers . . . hardly amounts to a `threat.' Sterling Trading, 553 F.Supp.2d at 1158. Next, the appellants claim that the IRS threatened one of their attorneys. According to an affidavit from the attorney, IRS agents believed that the attorney's responses to document requests were incomplete and told the attorney that failure to respond could result in a disciplinary referral. This conduct does not rise to the level of harassment, either. In the first place, the attorney did not characterize the agents' communications as threats, nor have other courts viewed them as threats. See, e.g., Superior Trading, 2008 WL 5192379 at  ( citing Ironwood Trading, 2008 WL 817066 at ). Perhaps more importantly, the alleged threats involved an individual and partnership entity distinct from any in this case. Accordingly, the appellants' claim of harassment fails. We also reject the appellants' argument that the summonses were issued as a means to improperly extend the applicable statutes of limitation. [12] As the district court noted, and as the appellants concede, it was the filing of the petition to quash that tolled the statute, not the issuance of the summonses. 26 U.S.C. § 7609(e)(1). The statute is also tolled if the summoned party does not comply within six months. 26 U.S.C. § 7609(e)(2). [13] In the end, the appellants fail to cite any evidence in support of their statute of limitations argument. Based on the foregoing, we affirm the district court's finding that the summonses were not issued for an improper purpose.