Opinion ID: 183261
Heading Depth: 3
Heading Rank: 2

Heading: Further Enforcement Actions

Text: The parties do not dispute that the summons was issued in good faith in October 2008. What changed, according to Richey and the Peskys, is that the Peskys agreed to the Notice of Deficiency in December 2008, and paid the required assessment, interest, and penalties. They buttress their claim on section 4.8.9 of an internal IRS manual, which provides that when a taxpayer agrees to an assessment and collection of the entire deficiency, [u]pon receipt of a signed waiver or agreement, the following actions must be taken: . . . . Close the case agreed to Centralized Case Processing for assessment of the deficiency. Internal Revenue Manual § 4.8.9.19.3.2, available at http://www.irs. gov/irm/part4/irm_04-008-009-cont02.html (last accessed Nov. 22, 2010). Thus, they reason, since the audit was closed, the Government's continued efforts to enforce the summons were necessarily in bad faith. The district court sided with Richey and the Peskys, explaining: [I]t seems any discovery to clarify the appraisal at this stage is no longer in good faith since the notice of deficiency has issued and the taxpayers have paid the taxes and penalties assessed. While the prima facie case for enforcement of the summons under United States v. Powell et al [.], 379 U.S. 48 [85 S.Ct. 248, 13 L.Ed.2d 112] (1964)[,] is minimal, the IRS still has to provide some explanation of why the final appraisal report alone is insufficient to explain the appraiser's conclusion and why the IRS has an interest after the taxpayers have consented to the assessment which disallows the deduction calculated by the appraisal. We have not previously ruled whether an IRS summons initially issued in good faith can transmogrify into one issued in bad faith upon the taxpayer's consenting to a deficiency assessment. However, other circuits considering the issue have held in similar circumstances that there can be no showing of bad faith by the IRS in such circumstances unless there has been a predicate final, irrevocable determination of the taxpayer's liability. [2] We are persuaded by the reasoning of the Second and Seventh Circuits, and we hold that under the facts of this case, continued enforcement of an IRS summons is proper where the Taxpayers' liability has not been finally determined and there is no other evidence in the record that the summons was issued for an improper purpose, such as to harass the Taxpayers. See, e.g., Powell, 379 U.S. at 58, 85 S.Ct. 248. Here, the Peskys' tax liabilities had not been finally determined. The time period for the Peskys to file a petition with the Tax Court had not expired when the IRS sought enforcement of the summons. The Peskys further indicated that they would likely challenge the Notice of Deficiency and seek a refund. Moreover, even though the Peskys consented to the assessment, the IRS still had the ability to adjust the tax liability later, as noted on the assessment form the Peskys signed. Because the Peskys' tax liability could still change, even though the IRS's investigation had ostensibly concluded, the IRS had a legitimate reason to seek documentation essential to establishing the Peskys' tax liabilities. Thus, as long as the amount the Peskys allegedly owed to the IRS was subject to change, the IRS had a good-faith interest in obtaining the appraisal work file pursuant to the summons. We therefore conclude that Richey and the Peskys have not met their heavy burden of showing bad faith by the IRS, Fortney, 59 F.3d at 120, and that the summons is enforceable in accordance with its terms, which includes Richey's appearance before the IRS, unless other defenses are available to Richey and the Taxpayers.