Opinion ID: 785820
Heading Depth: 1
Heading Rank: 4

Heading: Validity of the Summonses

Text: 27 The Supreme Court made clear in United States v. Powell, 379 U.S. 48, 85 S.Ct. 248, 13 L.Ed.2d 112 (1964), that a court should not enforce an IRS summons if enforcement will result in abuse of the court's process. The Court stated: 28 It is the court's process which is invoked to enforce the administrative summons and a court may not permit its process to be abused. Such an abuse would take place if the summons had been issued for an improper purpose, such as to harass the taxpayer or to put pressure on him to settle a collateral dispute, or for any other purpose reflecting on the good faith of the particular investigation. 29 Id. at 58, 85 S.Ct. 248 (footnote omitted). The above listing is not an exhaustive inventory of the potential improper purposes that might reflect on the good faith of an investigation and prevent enforcement of a summons. See id. (stating that taxpayer `may challenge the summons on any appropriate ground' (quoting Reisman v. Caplin, 375 U.S. 440, 449, 84 S.Ct. 508, 11 L.Ed.2d 459 (1964))). Rather, courts may consider new situations as they arise to determine whether the enforcement of a summons would further an improper purpose, reflect on the good faith of the IRS, or result in an abuse of the court's process. See United States v. LaSalle Nat'l Bank, 437 U.S. 298, 318 n. 20, 98 S.Ct. 2357, 57 L.Ed.2d 221 (1978) (These requirements are not intended to be exclusive. Future cases may well reveal the need to prevent other forms of agency abuse of congressional authority and judicial process.). 30 In Powell, the Court also set forth a mode of analysis to determine the good faith of the IRS for the purpose of enforcing an IRS summons. [The IRS] must show [1] that the investigation will be conducted pursuant to a legitimate purpose, [2] that the inquiry may be relevant to that purpose, [3] that the information sought is not already within the [IRS]'s possession, and [4] that the administrative steps required by the Code have been followed.... 379 U.S. at 57-58, 85 S.Ct. 248. If the IRS makes this showing, the challenger is afforded the opportunity to rebut the IRS showing as to one or more of the requirements or to demonstrate that judicial enforcement of the summons would otherwise constitute an abuse of the court's process. United States v. Claes, 747 F.2d 491, 494 (8th Cir.1984); see also Lask, 703 F.2d at 297. The Supreme Court has stated that courts should be slow to erect barriers to enforcement of IRS summonses where the summonses are being used to further the IRS mission of effectively investigating taxpayer liabilities. United States v. Euge, 444 U.S. 707, 711, 100 S.Ct. 874, 63 L.Ed.2d 141 (1980) ([T]his Court has consistently construed congressional intent to require that if the summons authority claimed is necessary for the effective performance of congressionally imposed responsibilities to enforce the tax Code, that authority should be upheld absent express statutory prohibition or substantial countervailing policies.). Accordingly, the burden on the IRS to make a prima facie showing as to the Powell good faith requirements is slight, and the burden on the challenger to rebut the IRS showing as to one or more of these requirements or to demonstrate that judicial enforcement of the summons would otherwise constitute an abuse of the court's process is great. Claes, 747 F.2d at 494 (That burden is a heavy one. The party must show either that the IRS is acting in bad faith or that the IRS has abandoned any civil purpose in the investigation.). 31 Ms. Robert's challenge focuses generally on the good faith and abuse of process concerns expressed in Powell. She argues that the general prohibition on abuse of the court's process is sufficiently broad to permit the court to quash a summons based on an underlying violation of a law or rule by the IRS. See In re Spencer, 123 B.R. 858, 862 (Bankr.N.D.Cal.1991) (stating that if issuance of a summons is in violation of a bankruptcy stay, the court should quash the Summons unless good cause exists for declining to do so). But see Mimick v. United States, 952 F.2d 230, 232 (8th Cir.1991); United States v. Gilbert C. Swanson Found., Inc., 772 F.2d 440, 441 (8th Cir.1985) (refusing to hold that a rule violation mandated the quashing of a summons and instead adopting an approach that `requires the court to evaluate the seriousness of the violation under all the circumstances including the government's good faith and the degree of harm imposed by the unlawful conduct' (quoting United States v. Payne, 648 F.2d 361, 363 (5th Cir.1981))). To the extent that Ms. Robert's challenge fits into the framework set forth in Powell, she focuses on the proper purpose requirement. In particular, she argues that the IRS violated the rule [against certain ex parte communications] for the improper purpose of trying to improve its litigating position. 32 In Gilbert C. Swanson Foundation, we stated, We take very seriously the statutory and administrative regulations that govern the issuance of IRS summonses. They are an essential check on the discretion of an agency with broad investigatory powers over all American citizens. 772 F.2d at 441. Our approach, however, was not to adopt a per se rule and hold unenforceable all summonses that involve a violation of a rule or law. Id. Rather, we adopted the position of the Fifth Circuit to hold that the enforceability of a summons that the IRS issued through a violation of a law or rule depends upon all of the circumstances surrounding the summons, including the seriousness of the violation, the government's good faith, and the harm, if any, caused by the violation. See id. (adopting the Fifth Circuit's method as set forth in Payne, 648 F.2d at 363). 33 Applying this test, we find that the violation in the present case was serious. The ex parte communications violated the spirit of the Restructuring Act and its congressional mandate to the Commissioner, not just the letter of Revenue Procedure 2000-43. Accordingly, the violation was not merely a violation of a non-binding, internal IRS guideline. 34 Congress, however, delegated to the Commissioner the responsibility for reorganizing the IRS and ensuring compliance with the restriction on ex parte communications. Congress did not legislate a specific remedy for violation of the restriction, and we generally will not fashion a remedy where Congress creates a right but fails to create an accompanying remedy. See United States v. James Daniel Good Real Property, 510 U.S. 43, 63, 114 S.Ct. 492, 126 L.Ed.2d 490 (1993). In James Daniel Good Real Property, the Court said: 35 We have long recognized that many statutory requisitions intended for the guide of officers in the conduct of business devolved upon them ... do not limit their power or render its exercise in disregard of the requisitions ineffectual. French v. Edwards, 80 U.S. (13 Wall.) 506, 511, 20 L.Ed. 702 (1871). We have held that if a statute does not specify a consequence for noncompliance with statutory timing provisions, the federal courts will not in the ordinary course impose their own coercive sanction. 36 Id. (alteration in original). 37 Exercising its delegated authority under the Restructuring Act, the IRS provided that violations of the ex parte restriction would be addressed in accordance with existing administrative and personnel processes. Rev. Proc.2000-43, § 3, at Q & A 28. Accordingly, an alternate remedy exists for the IRS to address the present violations. The presence of this alternate means to address the violations suggests that it is not necessary to quash the current summonses. 38 Looking at the broader question of good faith, we find nothing to suggest that the communications and the resultant summonses were motivated by any goal other than the accurate determination of Ms. Robert's tax liability. While the fact of the ex parte communications and the failure to timely disclose these communications is improper and troublesome, there are no parallel criminal proceedings for which the summonses might serve as improper discovery tools, there is no allegation of an ulterior motive on the part of Mr. Mannion or any of the Examination Division personnel, and there are no allegations that the IRS is attempting to coerce Ms. Robert to settle some other, collateral matter. In short, there is nothing to suggest any purpose to issuance of the summonses other than a desire to accurately appraise the Siegel-Robert stock and accurately determine Ms. Robert's tax liability. 39 Ms. Robert's entire argument regarding good faith and improper purpose hinges on her interpretation of the Appeals Office's role subsequent to passage of the Restructuring Act. While it is undisputed that the Appeals Office served a role as a dispute resolution body prior to the Restructuring Act, Ms. Robert characterizes the Appeals Office today as a limited appellate review body that may only affirm or reverse the IRS position that is presented for review. Ms. Robert, therefore, argues that any action by the Appeals Office that might change the IRS position from that expressed in the thirty-day letter is a wrongful attempt by the Appeals Office to engage in partisanship and enhance the IRS position in future litigation. Consequently, to accept Ms. Robert's bad faith argument, we would be required to view the Appeals Office as limited in its authority to either (1) adopt the IRS position as set forth in the thirty day letter or (2) adopt the taxpayer's position for the tax years under investigation, even if an Appeals Officer comes to believe that neither position accurately reflects the taxpayer's liability. 40 We disagree with this characterization of the role of the Appeals Office. The Restructuring Act is concerned with the independence of the Appeals Office and ex parte communications. See Restructuring Act § 1000(a)(4). The Restructuring Act contains no prohibition on the referral of a matter from the Appeals Office back to the Examination Division if the matter appears to have reached the Appeals Office prematurely or if new, material evidence is disclosed to the Appeals Office. See Rev. Proc.2000-43 § 3: 41 Q-7 Does the prohibition on ex parte communications change the criteria for premature referrals? 42 A-7 As a general rule, there is no change to current criteria or procedures. In essence, [the Restructuring Act] reinforces the instructions in Section 8.2.1.2 of the Internal Revenue Manual (IRM) and reaffirms Appeals' role as the settlement arm of the Service. If a case is not ready for Appeals consideration, Appeals may return it for further development or for other reasons described in IRM 8.2.1.2. 43 The Restructuring Act simply instructs that such referrals should not occur on an ex parte basis. 44 The history of the Restructuring Act, as set forth by the IRS in Rev. Proc.2000-43, demonstrates that the Appeals Office maintains its role as the settlement arm of the IRS and is not as limited in its power as Ms. Robert suggests. In particular, the legislative history reveals that Congress rejected a more far-reaching overhaul of the Appeals Office when it passed the Restructuring Act. 45 S. Rep. No. 1669, 105th Cong., 2nd Sess., § 304(a) (Feb. 24, 1998), would have established an independent Office of Appeals in the Internal Revenue Service, the head of which was to be appointed by and report directly to the Oversight Board. Further, this proposal would have barred Appeals from considering issues not raised by the originating function and prohibited any communication with the originating function unless the taxpayer or taxpayer's representative had an opportunity to be present. 46 Rev. Proc.2000-43 § 2. As enacted, the Restructuring Act only prohibits those ex parte communications that appear to compromise the independence of the appeals officers. Restructuring Act § 1000(a)(4). It does not prohibit the Appeals Office from examining new issues or returning a case for further examination. Further, it does not bar all ex parte communications. The IRS, in its regulation, concluded: 47 When the evolution of § 1000(a)(4) ... is considered in light of Appeals ['] longstanding methods of operation, it can be fairly concluded that Appeals must be accorded a significant degree of independence from other IRS components, and should be mindful to avoid ex parte communications with other IRS functions that might appear to compromise that independence. The statutory provision cannot, however, be interpreted as mandating a major redesign of the fundamental processes Appeals has traditionally followed to carry out its dispute resolution mission. 48 Rev. Proc.2000-43 § 2. The IRS, then, concluded that even after Congress passed the Restructuring Act, the Appeals Office was to remain a flexible administrative settlement authority rather than a rigidly constrained appellate review organization limited to affirming or rejecting proposed deficiencies. Id. Rev. Proc.2000-43 proceeds to make clear the IRS position that the Appeals Office retains the ability to (a) return[] cases that are not ready for Appeals consideration, (b) rais[e] certain new issues, and (c) seek[] review and comments from the originating IRS function with respect to new information or evidence furnished by the taxpayer or representative. Id. We agree. 49 Because we find nothing improper in the fact of the referral of Ms. Robert's case for further development-only in the ex parte nature of this referral-we find no evidence to suggest an improper purpose behind the summonses or bad faith in issuance of the summonses. Because referral of the case for further development was not improper, we cannot find that the present violations of the ex parte restriction caused any harm to Ms. Robert. Accordingly, under Gilbert C. Swanson Foundation, we do not find it necessary to quash the summonses.