Opinion ID: 1468274
Heading Depth: 1
Heading Rank: 1

Heading: IRS's Failure to Follow Administrative Procedures

Text: Appellants assert that the IRS failed to follow proper administrative procedures, citing this as evidence of bad faith and as a basis for quashing the summonses. Specifically, they claim: (1) by sending a letter to the Appeals Office, Leboff violated IRS Revenue Procedure 2000-43, which prohibits ex parte communications between appeals officers and other IRS employees; (2) by obtaining a copy of an appraisal from another party, the IRS improperly examined records required to be produced under a summons in violation of IRC § 7609(d); (3) the IRS improperly used the audit to obtain information about tax liability of other individuals; and (4) the IRS failed to notify parties involved in the summonses in violation of IRC § 7609(a). [4] The government argues that these alleged errors do not warrant quashing the summonses at issue because appellants were not prejudiced by them in any way. This Circuit has not previously decided whether violations of the sort alleged here require quashing related summonses issued in the course of a tax investigation. Other Circuits that have addressed this issue have held that violations of the IRC or tax regulations occurring in the course of a tax investigation do not necessarily require related tax summonses to be quashed. Those courts have looked at whether the taxpayer suffered harm or prejudice and whether the mistakes made by the IRS were in good faith. See United States v. Bank of Moulton, 614 F.2d 1063, 1066 (5th Cir.1980) (The correct approach for determining whether to enforce a summons 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.); see also Robert v. United States, 364 F.3d 988, 996-97 (8th Cir.2004) (setting forth that Circuit's rule 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). Employing similar reasoning, the First and Sixth Circuits have held that minor notice violations are not a basis for quashing a summons. Cook v. United States, 104 F.3d 886, 889 (6th Cir.1997) (employing a harmless error type analysis to conclude that a one-day-late notice did not warrant quashing the summons); Sylvestre v. United States, 978 F.2d 25, 28 (1st Cir.1992) (per curiam) (holding untimely notice was not a basis for quashing the summons where Sylvestre was not harmed by the late notice). Courts have decline[d] to elevate form over substance and [have] reject[ed] the suggestion that every infringement of a requirement of the Internal Revenue Code absolutely precludes enforcement of an IRS summons. Bank of Moulton, 614 F.2d at 1066. We see no reason to vary from this general approach taken by our sister Circuits. Thus, we adopt the rule that whether the government's violation of the IRC or an IRS regulation in connection with the issuance of a summons affects the enforceability of that summons depends upon the totality of the circumstances, including the seriousness of the infringement, the harm or prejudice, if any, caused thereby, and the government's good faith. Applying our holding to the appellants' allegations in this case, we conclude that appellants have not shown how they have been harmed or prejudiced by the alleged errors. As to the first claimed violation, appellants argue that communications between Leboff and the IRS's Appeals Office in connection with the denial of the estate's section 6166 application [5] violated the rule against ex parte communications embodied in IRS regulations. The regulation, explained in IRS Revenue Procedure 2000-43, provides that ex parte communications between appeals officers and other IRS employees are prohibited during the appeals process to ensure an independent appellate review. Even if there were a violation here, appellants fail to show any nexus between that violation and the summonses at issue. Nor have they made any showing of how they have been harmed by that violation in the course of this tax investigation. The rule applies to protect the appellate review of the denial of the estate's 6166 application, which is the subject of a separate pending action in Tax Court, where presumably appellants may argue the direct effect, if any, of the alleged violation. The second, third, and fourth challenges fall more squarely within the ambit of our holding. Appellants claim that the IRS improperly examined records under summons and that such examination violated IRC § 7609(d), which provides: No examination of any records required to be produced under a summons as to which notice is required under subsection (a) may be made. Appellants allege that the IRS examined an appraisal that it obtained from another party and that the appraisal in question was requested under the summons issued to Roslyn Savings Bank. We need not reach the issue of whether there was a violation here, because even if there were, appellants provide no evidence from which we could conclude that the IRS acted in bad faith, nor do they allege any harm or prejudice that resulted from it. Appellants also allege that the IRS admitted that it is using the audit to obtain information concerning alleged liabilities of other taxpayers. Insofar as this argument goes to overbreadth and improper purpose, both have been addressed above. We also point out here that appellants have failed to show any harm or prejudice resulting from this alleged violation. Finally, appellants assert that the IRS failed to abide by notice provisions in IRC § 7609(a) because the Service failed to notify appellants and all the parties identified in the summonses that the summonses had been issued. Yet again, appellants do not explain how, or even if, they have been prejudiced by this alleged notice violation. There is no question that they knew about the summonses soon enough to initiate a timely petition to quash them. If the notice provisions are intended to provide the summoned parties with ample time to protect their interests by initiating an action to quash the summonses, see IRC § 7609(a)(1), then surely that interest has not been impinged upon here. [6] We have considered appellants' remaining arguments and find them to be without merit.