Court Opinion

ID: 66669
Source: CourtListenerOpinion
Date Created: 2010-04-26 06:12:57+00
Date Added: 2024-06-11T14:57:54.214609
License: Public Domain

IN THE UNITED STATES COURT OF APPEALS
                    FOR THE FIFTH CIRCUIT  United States Court of Appeals
                                                    Fifth Circuit

                                                 FILED
                                                                            June 18, 2009

                                       No. 08-30894                    Charles R. Fulbruge III
                                                                               Clerk

ZUGERESE TRADING LLC; HARBOR BAY FUND LLC,

                                                   Plaintiffs - Appellants,
v.

INTERNAL REVENUE SERVICE, United States of America, Department of
the Treasury,

                                                   Defendant - Appellee

                   Appeal from the United States District Court
                for the Eastern District of Louisiana, New Orleans
                                   2:08-CV-936

Before KING, GARWOOD, and DAVIS, Circuit Judges.
PER CURIAM:*
       Plaintiffs–appellants Zugerese Trading LLC and Harbor Bay Fund LLC
(collectively, “Petitioners”) appeal the district court’s denial of their petition to
quash an IRS summons—issued pursuant to 26 U.S.C. § 7602—and grant of the
IRS’s motion to enforce the summons. Additionally, Petitioners assert that the
district court erred by refusing to conduct an evidentiary hearing and to permit
discovery before denying the petition to quash. We conclude that the IRS has

       *
         Pursuant to 5TH CIR . R. 47.5, the court has determined that this opinion should not
be published and is not precedent except under the limited circumstances set forth in 5TH CIR .
R. 47.5.4.
                                        No. 08-30894

made a prima facie showing that it has satisfied the Powell 1 factors and that
Petitioners have failed to meet their heavy burden of rebutting that showing.
See Mazurek v. United States, 271 F.3d 226, 229–30 (5th Cir. 2001).
Additionally, the district court did not abuse its discretion in foregoing an
evidentiary hearing and preliminary discovery in this case. See id. at 234–35.
Thus, we affirm the rulings of the district court for the following reasons:
               1. The IRS succeeded in meeting its minimal burden of making a
      prima facie showing of the Powell factors. Despite Petitioners’ contentions
      to the contrary, Agent Larry Weinger’s statements were sufficient to make
      this showing. See Hintze v. IRS, 879 F.2d 121, 126 (4th Cir. 1989) (“In
      order to establish a prima facie case . . ., the IRS need only present an
      affidavit of an agent involved in the investigation averring the Powell good
      faith elements.” (internal quotation marks omitted)).
               2. Petitioners fail to persuade us that the IRS summons is not
      relevant to a legitimate purpose. The concept of relevance under § 7602
      is broader than that under the Federal Rules of Evidence. See United
      States v. Arthur Young & Co., 465 U.S. 805, 813–14 & n.11 (1984); United
      States v. Linsteadt, 724 F.2d 480, 482 (5th Cir. 1984). Thus, we find
      unavailing Petitioners’ argument that the IRS cannot rely on the 2007
      Coordinated Issue Paper because the transaction described there does not
      exactly match the transaction in question here.         Similarly, we are
      unconvinced that the alleged statements of IRS auditors—that the efforts
      of the president of Petitioners’ tax matters partner in an earlier, separate
      audit were “sincere”—indicate that the IRS has no legitimate basis for its
      current investigation. Further, the arguments made in Klamath Strategic
      Investment Fund ex rel. St. Croix Ventures v. United States, —F.3d—, No.

      1
          United States v. Powell, 379 U.S. 48 (1964).

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                           No. 08-30894

07-40861, 2009 WL 1353118 (5th Cir. May 15, 2009), do not preclude all
of the possible theories under which the IRS seeks to disallow the losses
in this case. Finally, the summons is not overly broad because it describes
the requested material with sufficient particularity to permit the
summoned party to respond adequately. See Linsteadt, 724 F.2d at 483;
see also Adamowicz v. United States, 531 F.3d 151, 157–58 (2d Cir. 2008).
      3. Petitioners assert that the IRS already possesses the documents
it seeks in the summons. That is not the case, however; while Petitioners
point to related documents that they claim the IRS has already received,
they do not argue that the IRS possesses the specific documents sought by
the summons. See United States v. Davis, 636 F.2d 1028, 1037 (5th Cir.
Unit A 1981); PAA Mgmt., Ltd. v. United States, No. 91-C-168, 1992 WL
346314, at *5 (N.D. Ill. Nov. 19, 1992).
      4.   We also find no error in the district court’s conclusion that
enforcement of the summons does not constitute an abuse of the court’s
process. First, Petitioners have not shown that the IRS abandoned the
goal of ascertaining the correct tax liability of Zugerese Trading LLC by
issuing a final partnership administrative adjustment. See PAA Mgmt.,
Ltd. v. United States, 962 F.2d 212, 217–19 (2d Cir. 1992); PAA Mgmt.,
Ltd. v. United States, 817 F. Supp. 425, 426–27 (S.D.N.Y. 1993). Second,
Petitioners’ argument—that the issuance of the summons by the IRS was
somehow improper because it would likely elicit a motion to quash that,
in turn, would toll the limitations period applicable to assessing tax
liability—is unsupported by any authority and fails to take into account
the issuance of the final partnership administrative adjustment (which did
toll the limitations period).   And third, the record does not support
Petitioners’ contention that the IRS issued the summons as a form of
harassment by putting pressure on the taxpayer to settle a collateral

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                           No. 08-30894

dispute, see United States v. Bisceglia, 420 U.S. 141, 146 (1975), or by
seeking to extort records from Petitioners’ counsel, see United States v.
Equitable Trust Co., 611 F.2d 492, 500 (4th Cir. 1979).
      5. We cannot say that the district court abused its discretion by
foregoing an evidentiary hearing and preliminary discovery before denying
the petition to quash and granting the motion to enforce the summons.
Summons proceedings must be summary in nature, see United States v.
Stuart, 489 U.S. 353, 369 (1989), and an evidentiary hearing and discovery
are not required in each and every case, see Mazurek, 271 F.3d at 234;
Harris, 628 F.2d at 879. Petitioners claim that a hearing and discovery
are necessary to support their assertion that the IRS issued the summons
for an improper purpose. See United States v. Se. First Nat’l Bank, 655
F.2d 661, 667–68 (5th Cir. Unit B 1981). However, the information they
propose to find from such proceedings—to the extent they made such a
proffer to the district court—is clearly aimed at arguments underlying the
merits of the tax issue to be litigated in Tax Court and not at the issue
pertinent in these proceedings—the good faith of the IRS in issuing the
summons, cf. Mazurek, 271 F.3d at 235. In other words, Petitioners’
challenges fail to raise in a substantial way the existence of deficiencies
in the summons proceedings. See United States v. Harris, 628 F.2d 875,
879 (5th Cir. 1980); United States v. Newman, 441 F.2d 165, 169 (5th Cir.
1971).
      6. Finally, we are unpersuaded by Petitioners’ assertion that the
district court erred by failing to deem certain of their unchallenged
allegations admitted by the IRS.      While the Federal Rules of Civil
Procedure apply in summons proceedings, they are not as inflexible as
Petitioners would have them. See Donaldson v. United States, 400 U.S.
517, 528 (1971); see also F ED. R. C IV. P. 81(a)(5). The IRS sufficiently

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                          No. 08-30894

responded to the petition to quash the summons with a motion to enforce
the summons. See 26 U.S.C. § 7609(b)(2)(A); Good Karma Trading, LLC
v. United States, No. 07-CV-01688, 2008 WL 4879164 (D. Colo. Sept. 29,
2008).
AFFIRMED.

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