Opinion ID: 4523211
Heading Depth: 2
Heading Rank: 2

Heading: The Resulting Litigation

Text: In Colorado federal district court, the Taxpayers filed a petition to quash the summonses. They asserted that none of the summonses satisfied the Supreme Court’s requirements for enforcement as announced in United States v. Powell, 379 U.S. 48 (1964). Specifically, the Taxpayers argued that the summonses lack a legitimate purpose, are deficient because the IRS failed to follow necessary administrative steps, exceed the IRS’s authority by forcing the Enforcement Division to create reports, and impermissibly seek the identity of third-party taxpayers. The Taxpayers also requested an evidentiary hearing to determine whether the summonses satisfied the Powell requirements. The government moved to dismiss the petition under Federal Rule of Civil Procedure 12(b)(6) and to enforce the summonses under 26 U.S.C. §§ 7604(a) and 7609(b)(2)(A), arguing that Agent Pringle’s appended declaration established that the summonses satisfied Powell’s requirements. The Taxpayers responded by reasserting their initial grounds for quashing the summonses and listing six more: (1) Congress has not authorized the IRS to investigate drug crimes, (2) the IRS must grant absolute immunity before collecting nontax-crime information for tax purposes, (3) the 6 summonses violate the Taxpayers’ Fourth Amendment privacy rights, (4) the summonses are overbroad, (5) the IRS’s investigation into nontax crimes violates Powell’s good-faith requirement, and (6) enforcing the summonses would compel a violation of Colorado law. The Taxpayers also noted that they “are fully asserting Fifth Amendment privilege” in light of the IRS’s supposed admission that the audit is “an investigation of whether the [T]axpayers violated federal criminal drug laws[.]” App. vol. 1 at 118. Finally, they argued that because the motion to dismiss relies on information outside the pleadings, the district court must convert it into a motion for summary judgment. The district judge referred the matter to a magistrate judge. The magistrate judge did not convert the motion to dismiss into a motion for summary judgment, but she still relied on Agent Pringle’s declaration in concluding that the IRS had met Powell’s requirements. In addition, of course, the magistrate judge had available before her the Taxpayers’ attachments to their response to the motion to dismiss. The magistrate judge concluded that the Taxpayers had not sufficiently supported their arguments against enforcement. So the magistrate judge recommended denying the petition to quash, granting the motion to dismiss, and enforcing the summonses. The magistrate judge also informed the parties of their right to object to the recommendation and warned that failing to object would waive de novo review by the district judge and would waive appellate review. The Taxpayers timely objected to eight of the magistrate judge’s rulings: (1) that the IRS had issued the summonses for a legitimate purpose, (2) that the 7 information summoned is relevant to that purpose, (3) that the IRS does not already possess the information summoned, (4) that the potential for criminal prosecution does not show any bad faith by the IRS, (5) that enforcement would not improperly compel document creation, (6) that the Fourth Amendment does not protect the information summoned, (7) that the summonses are not overbroad, and (8) that enforcement would not compel a violation of state law. But the district judge overruled the objections and fully adopted the recommendation. After considering these arguments, the district judge denied the petition to quash, granted the motion to dismiss, and enforced the summonses. The Taxpayers have timely appealed the magistrate judge’s recommendation and the district judge’s order.