Opinion ID: 3062214
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Heading: The Requirements of United States v. Powell

Text: In United States v. Powell, the Supreme Court listed four requirements for the IRS to make a prima facie case for enforcement of an administrative summons:  The investigation must be conducted for a legitimate purpose;  the summons must be relevant to that purpose;  the IRS must not already have the information sought; and  the IRS must have followed the “administrative steps required by [the Internal Revenue Code].” Powell, 379 U.S. at 57-58. Mr. Jewell and the government agree that the fourth prong of Powell determines whether the summonses must be quashed. III. The Administrative Steps in 26 U.S.C. § 7609(a)(1) In 26 U.S.C. § 7609, the Internal Revenue Code lists special procedures for the IRS’s summonses to third parties. These procedures include 23 days’ notice to the taxpayer: If any summons to which this section applies requires the giving of testimony on or relating to, the production of any portion of records made or kept on or relating to, or the production of any computer software source code (as defined in 7612(d)(2)) with respect to, any person (other than the person summoned) who is identified in the summons, then notice of the summons shall be given to any person so identified within 3 days of the day on which such service is made, but no later than the 23rd day before the 2 Hopkins and Lain are unpublished; though they are not precedential, they are persuasive. 4 day fixed in the summons as the day upon which such records are to be examined. Such notice shall be accompanied by a copy of the summons which has been served and shall contain an explanation of the right under subsection (b)(2) to bring a proceeding to quash the summons. 26 U.S.C. § 7609(a)(1) (2006) (emphasis added). In both cases, the government admitted that the taxpayer had not received the statutory notice. Appellant’s App. (W.D. Okla. appeal) at 62; Appellant’s App. (E.D. Okla. appeal) at 75. The resulting question is whether we are free to disregard the statutory requirement of 23 days’ notice.
To determine whether the IRS complied with § 7609(a)(1), we begin with the statutory language. If the plain language of the statute is clear, our inquiry ordinarily ends. E.g., United States v. Morgan, 922 F.2d 1495, 1496 (10th Cir. 1991).
The statute provides that notice of the summons “shall” be given within 23 days before the date of the examination. Thus, we begin with the meaning of “shall.” This term indicates a mandatory intent. See United States v. Myers, 106 F.3d 936, 941 (10th Cir. 1997) (“It is a basic canon of statutory construction that use of the word ‘shall’ indicates a mandatory intent.”); Forest Guardians v. Babbitt, 174 F.3d 1179, 1187 (10th Cir. 1999) (“The Supreme Court and this circuit have made clear that when a statute uses the word ‘shall,’ Congress has imposed a mandatory duty upon the subject of the command.”). 5 The government tells us that “shall” does not always signify a mandatory intent, relying on Barnhart v. Peabody Coal Co., 537 U.S. 149 (2003), and Dolan v. United States, 560 U.S. 605 (2010). We disagree with the government’s reading of Barnhart and Dolan. In both cases, statutes provided that the government “shall” act within a set time period. Barnhart, 537 U.S. at 752; Dolan, 560 U.S. at 607-08. In both opinions, the Supreme Court acknowledged that “shall” signifies a mandatory intent. Barnhart, 537 U.S. at 157-60; Dolan, 560 U.S. at 612. In Barnhart, the Commissioner of Social Security had a statutory obligation to assign a company that would fund benefits for individuals who had retired from the coal industry and were eligible for benefits. See Barnhart, 537 U.S. at 152. In Dolan, the district court had a statutory duty to determine how much the defendant owed in restitution. See Dolan, 560 U.S. at 607-08. To carry out these duties, the government had statutory deadlines. But in both cases, the government missed the deadlines. See Barnhart, 537 U.S. at 155; Dolan, 560 U.S. at 609. Thus, in both cases, the Supreme Court had to determine which mandatory obligation (the underlying obligation or the deadline) took precedence. In Barnhart, did the failure to timely comply mean that the Social Security Commissioner no longer had to designate a company to fund benefits for retirees entitled to benefits? And, in Dolan, did the district court’s failure to timely comply mean that the victim would no longer get the restitution that Congress said he was owed? In both cases, the Court held that missing a 6 deadline does not relieve the government of its statutory obligations. Barnhart, 537 U.S. at 158-72; Dolan, 560 U.S. at 611. Thus, the Social Security Commissioner’s failure to timely designate a company would not prevent retirees from obtaining benefits, and a court’s delay would not relieve criminals of a duty to compensate their victims. Our case is different. The IRS could issue the summonses, but it was not required to do so. In Barnhart, that choice was not available to the Social Security Commissioner; and in Dolan, that choice was not available to the sentencing court. In short, Barnhart and Dolan did not disturb the age-old precept that “shall” means “shall.”
Though the statute creates a mandatory obligation, we must consider whether that obligation involves an “administrative step” under Powell. As discussed above, the Powell Court held that a prima facie case requires the IRS to show that it followed the “administrative steps required by [the Internal Revenue Code].” United States v. Powell, 379 U.S. 48, 57-58 (1964). We know the 23-day notice requirement is mandatory, but is it an “administrative step” under Powell? We conclude that it is. In Powell, the Supreme Court did not define the term “administrative step.” Thus, we start with the common meaning of the term. The term is broad, defined in one leading dictionary as “[p]ertaining to, or dealing with, the conduct or management of affairs.” I The Oxford English Dictionary 163 (2d ed. 1989). The government acknowledges that the 23-day notice provision is “a procedural requirement for the issuance of an 7 administrative summons.” Appellee Br. (W.D. Okla. appeal) at 39.3 This requirement is not only “procedural,” but also “administrative.” See United States v. MacKay, 608 F.2d 830, 833-34 (10th Cir. 1979).4 The IRS elsewhere characterizes the notice defect as a mere “technical default.” Appellee Br. (W.D. Okla. appeal) at 24 n.8. This characterization, if accurate, is immaterial. Even if the IRS’s delay constituted a “technical default,” the question would be whether the “technical” notice requirement involves an “administrative” requirement. The meaning of the term “administrative” is broad and would include precisely this sort of “technical” requirement.
Having determined that the 23-day notice requirement is mandatory and an “administrative step,” we must apply the Supreme Court’s opinion in Powell. There, the Supreme Court held that the IRS cannot make a prima facie case for enforcement of a summons until it shows compliance with the tax code’s “administrative steps.” United States v. Powell, 379 U.S. 48, 57-58 (1964). These steps include the 23-day notice 3 In the district court proceedings, the government appeared to acknowledge that the 23-day notice requirement was among the tax code’s “administrative steps” under Powell. For example, the government argued that its affidavit had shown compliance with “all administrative steps” “with the exception of the 23-day notice requirement.” Appellant’s App. (W.D. Okla. appeal) at 55; Appellant’s App. (E.D. Okla. appeal) at 67. 4 In MacKay, we applied Powell and addressed whether the IRS had complied with the tax code’s administrative steps. MacKay, 608 F.2d at 832-34. We held that the IRS had followed the required “administrative steps,” including the requirement for notification of the taxpayer “as required by § 7609(a)(1).” Id. at 833-34. 8 requirement, and the government admits that it did not give 23 days’ notice. Under Powell, that failure prevents the IRS from making a prima facie showing for enforcement of the summonses. Thus, Powell prevents enforcement of the summonses.
We are mindful of the fact that five other circuit courts have declined to apply Powell in this manner. Adamowicz v. United States, 531 F.3d 151, 161 (2d Cir. 2008) (per curiam); Cook v. United States, 104 F.3d 886, 889-90 (6th Cir. 1997); Sylvestre v. United States, 978 F.2d 25, 28 (1st Cir. 1992) (per curiam); United States v. Bank of Moulton, 614 F.2d 1063, 1066 (5th Cir. 1980) (per curiam); Azis v. U.S. IRS, 522 F. App’x 770, 777 (11th Cir. 2013) (per curiam). We are hesitant to create a circuit split, but we have little choice because we are obliged to follow the Supreme Court’s holding in Powell even if other circuit courts have not. Four circuit courts have acknowledged Powell, but have declined to enforce the 23-day requirement as mandatory. These courts have taken two approaches. One approach (taken by the First Circuit) is to acknowledge that Powell requires the government to comply with all of the “required administrative steps,” but then to ignore the fact that the 23-day notice is one of the administrative steps required in the tax code. See Sylvestre v. United States, 978 F.2d at 26, 28. A second approach (taken by the Second, Sixth, and Eleventh Circuits) is to assume equitable power to excuse the notice defect if the taxpayer was not prejudiced. See Cook v. United States, 104 F.3d at 889-90; Azis v. U.S. IRS, 522 F. App’x at 777; Adamowicz v. United States, 531 F.3d at 161. 9 None of these courts denied that the 23-day requirement was mandatory or an “administrative step” of the tax code. One other circuit court has declined to apply Powell when the IRS violated a separate notice provision: 26 U.S.C. § 7609(d)(1). Bank of Moulton, 614 F.2d at 1065. Though the IRS violated the notice requirement, the Fifth Circuit Court of Appeals allowed enforcement of the summons to avoid elevating “form over substance.” Id. at 1066-67. Though we do not lightly create a circuit split, we are obliged to follow Supreme Court precedent, even when it might be viewed as “inequitable” or as “form over substance.” In Powell, the Supreme Court expressed itself clearly: If the IRS does not comply with the administrative requirements of the Internal Revenue Code, its summonses are unenforceable. United States v. Powell, 379 U.S. 48, 57-58 (1964). The 23-day requirement is mandatory and an administrative requirement of the Internal Revenue Code. Thus, under Powell, we conclude that the district courts in the Western and Eastern Districts of Oklahoma were obligated to grant Mr. Jewell’s petitions to quash the summonses.