Court Opinion

ID: 3050872
Source: CourtListenerOpinion
Date Created: 2015-10-13 23:33:04.654216+00
Date Added: 2024-06-11T08:12:53.584319
License: Public Domain

FOR PUBLICATION
  UNITED STATES COURT OF APPEALS
       FOR THE NINTH CIRCUIT

MORSE STEWART; JEANINE STEWART,                  No. 05-36112
             Plaintiffs-Appellants,                 D.C. No.
               v.                                CV-05-00194-
UNITED STATES OF AMERICA,                          GMK/DCA
              Defendant-Appellee.
                                                  OPINION

         Appeal from the United States District Court
                  for the District of Oregon
           Garr M. King, District Judge, Presiding

                    Argued and Submitted
                 Submitted December 6, 2007*
                       Portland, Oregon

                      Filed January 15, 2008

   Before: Diarmuid F. O’Scannlain, Susan P. Graber, and
           Consuelo M. Callahan, Circuit Judges.

                 Opinion by Judge O’Scannlain

  *This panel unanimously finds this case suitable for decision without
oral argument. See Fed. R. App. P. 34(a)(2).

                                 541
                 STEWART v. UNITED STATES               543

                        COUNSEL

Morse and Jeanine Stewart, Vernonia, Oregon, filed briefs
pro se as plaintiffs-appellants.

Karen G. Gregory, Attorney, Tax Division, United States
Department of Justice, Washington, DC, filed a brief for the
544               STEWART v. UNITED STATES
defendant-appellee; Frank P. Cihlar, Attorney, Tax Division,
United States Department of Justice, Washington, DC, Eileen
J. O’Connor, Assistant Attorney General, Tax Division,
United States Department of Justice, Washington, DC, and
Karin J. Immergut, United States Attorney, Portland, Oregon,
were on the brief.

                         OPINION

O’SCANNLAIN, Circuit Judge:

   We are called upon to determine whether a person who is
not identified in an Internal Revenue Service administrative
summons issued to a third party has standing to file a petition
to quash.

                               I

   Sometime in 2005, the Internal Revenue Service (“IRS”)
commenced an investigation of Morse Stewart’s income tax
liabilities for the tax years 1998 through 2003. In furtherance
of that investigation, Revenue Agent Carla J. Oyala issued
administrative summonses to fifteen banks and mortgage
companies seeking information regarding Morse’s financial
accounts and transactions. Morse’s accounts at these entities
were jointly held with his wife Jeanine Stewart. Three of the
summonses issued by the IRS identified both Morse and Jea-
nine as subjects of the investigation. The remaining twelve
summonses identified Morse alone.

   On February 8, 2005, Morse and Jeanine filed a pro
se petition in the district court to quash the summonses pursu-
ant to 26 U.S.C. § 7609(b)(2). The government conceded to
quashing the three summonses that identified Jeanine insofar
as they related to her because Jeanine was not a subject of the
IRS’s investigation. The district court then dismissed the
                   STEWART v. UNITED STATES                   545
remainder of the petition insofar as it related to Jeanine, con-
cluding that she lacked standing under § 7609(b)(2) to peti-
tion to quash the twelve summonses in which she was not
identified. The district court denied Morse’s petition in its
entirety, concluding that the government had made a prima
facie showing that the summonses were issued in good faith,
which Morse failed to rebut.

  Morse and Jeanine appeal.

                               II

   [1] We begin with Jeanine’s petition to quash the twelve
summonses which did not identify her. Section 7609(b)(2) of
the Internal Revenue Code (the “Code”) instructs that any
person entitled to notice of an IRS administrative summons’s
issuance to a third party has standing to challenge the validity
of that summons. Specifically, it provides that “any person
who is entitled to notice of a summons under subsection (a)
shall have the right to begin a proceeding to quash such sum-
mons . . . in the manner provided in subsection (a)(2).” 26
U.S.C. § 7609(b)(2)(A) (emphasis added).

   [2] Thus, at the statute’s instruction, we turn to § 7609(a)
for the definition of persons entitled to notice. That section
provides as follows:

       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 . . . 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 day fixed in the summons as the day upon which
    such records are to be examined.
546                STEWART v. UNITED STATES
Id. § 7609(a)(1) (emphasis added). This provision expressly
states that only those persons identified in a summons are
entitled to notice of its issuance. Accordingly, under the plain
meaning of § 7609(b)(2), only those persons so identified
have standing to petition to quash. See Vanguard Int’l Mfg.,
Inc. v. United States, 588 F. Supp. 1229, 1232 (S.D. N.Y.
1984) (holding that a corporation not identified in an IRS
summons lacked standing under § 7609(b)(2) to challenge the
summons’s validity even though the summons sought records
relating to a taxpayer who had signatory authority over the
corporation’s bank accounts); Voss v. United States, 573 F.
Supp. 957, 960-61 (D. Colo. 1983) (concluding that a joint
owner of a bank account not identified in an IRS summons
lacked standing under § 7609(b)(2) to challenge the sum-
mons’s validity even though it identified her husband, the
other joint owner).

   [3] We note that our interpretation accords with that
adopted by the Second Circuit in United States v. First Bank,
737 F.2d 269 (2d Cir. 1984). In that case, the court deter-
mined that the plain text of § 7609(a)(1) combined with its
inconclusive legislative history compelled the interpretation
that “a co-owner of a joint bank account who is not identified
in the summons is not entitled to notice when an administra-
tive summons is served on a third-party recordkeeper.” Id. at
271. Recognizing that such an interpretation would deny the
joint owner of a bank account the right to notice of a sum-
mons pertaining to that account unless such owner is identi-
fied in the summons, the court in First Bank concluded that
“this possibility was not thought by Congress to create a suffi-
cient infringement to warrant the inclusion of additional statu-
tory notice requirements for unidentified persons,” and that
Congress’s decision was “reasonable.” Id. at 274.

   We are persuaded by the Second Circuit’s view. As the
court in First Bank explained, when a taxpayer places her
records in the hands of a third-party recordkeeper, there are
several situations in which the taxpayer’s records may be dis-
                   STEWART v. UNITED STATES                 547
closed to other parties, such as the recordkeeper’s certified
public accountant or a federal regulatory agency, without
notice to the taxpayer. Id. (quoting United States v. Gottlieb,
712 F.2d 1363, 1369 (11th Cir. 1983)). In light of this reality,
we believe it was reasonable for Congress to limit the statu-
tory right to notice of a summons’s issuance and the statutory
right to petition to quash to those persons identified in the
summons itself.

   [4] The twelve summonses which Jeanine petitions to
quash identify Morse alone. As a consequence, Jeanine was
not entitled to notice of the summonses’ issuance under
§ 7609(a)(1) and, as such, she lacked standing to petition to
quash the summonses under the plain meaning of
§ 7609(b)(2). Accordingly, we conclude that the district court
properly dismissed the petition to quash as it related to Jea-
nine for lack of jurisdiction.

                              III

   We next turn to Morse’s petition to quash the summonses
as they related to him. Morse contends that the summonses
are defective and unenforceable because the IRS did not
strictly adhere to the procedures required by the Code for the
issuance of summonses.

   The Code empowers the Commissioner of the IRS to make
“inquiries, determinations, and assessments of all taxes.” 26
U.S.C. § 6201(a). In the exercise of that power, the Code
authorizes the Commissioner to issue summonses ordering
that any person appear, produce documents, or give testimony
relevant to an IRS investigation. Id. § 7602(a). The Supreme
Court has made clear that this summons power must be con-
strued broadly. See United States v. Arthur Young & Co., 465
U.S. 805, 816-17 (1984). Nevertheless, when the IRS sum-
mons information relating to a person’s records held by a
third-party recordkeeper, it must comply with specific proce-
dures outlined in the Code. See 26 U.S.C. § 7609(a)(1)-(3).
548                STEWART v. UNITED STATES
                                A

   [5] In Powell v. United States, 379 U.S. 48 (1964), the
Supreme Court held that when a party petitions to quash an
IRS summons, the IRS must make a prima facie showing that
the summons was issued in good faith. Id. at 57-58. Specifi-
cally, the IRS must establish that the summons (1) was issued
pursuant to a “legitimate purpose”; (2) seeks information “rel-
evant” to that purpose; (3) seeks information that is “not
already within the Commissioner’s possession”; and (4) satis-
fies all “administrative steps required by the Code.” Id.

   [6] As this court explained in Fortney v. United States, 59
F.3d 117 (9th Cir. 1995), the government’s burden under
Powell “is ‘a slight one’ and typically is satisfied by the intro-
duction of a sworn declaration of the revenue agent who
issued the summons that the Powell requirements have been
met.” Id. at 120 (citing United States v. Dynavac, Inc., 6 F.3d
1407, 1414 (9th Cir. 1993); United States v. Gilleran, 992
F.2d 232, 233 (9th Cir. 1993)).

   [7] Morse argues that the government failed to satisfy Pow-
ell’s fourth requirement because Revenue Agent Oyala’s
sworn declaration failed to state with particularity which of
the required administrative steps the IRS complied with in
issuing the summonses. Yet Powell contains no such particu-
larity requirement. Agent Oyala’s declaration avers that “all
administrative procedures required by the Internal Revenue
Code for issuance and service of the summons have been fol-
lowed.” Under our precedent, such an averment is sufficient
to satisfy the government’s slight burden under Powell’s
fourth requirement. See Dynavac, 6 F.3d at 1414 (concluding
that the IRS had met its burden where the investigating agent
stated that he “had adhered to all the requisite administrative
steps”); see also United States v. Kis, 658 F.2d at 526, 536 &
n.28 (7th Cir. 1981) (concluding that an affidavit stipulating
that “the administrative steps required” were followed met the
Powell requirements and that “[n]o more than that is neces-
                    STEWART v. UNITED STATES                   549
sary to make the prima facie case”). Thus, based on this
record, we conclude that Agent Oyala’s sworn declaration
was sufficient to establish the government’s prima facie case
that the summonses were issued in good faith.

                                B

   With the IRS’s prima facie case established, the burden
shifts to Morse to rebut the government’s claim. As we have
previously explained, “[o]nce a prima facie case is made a
‘heavy’ burden is placed on the taxpayer to show an ‘abuse
of process’ or ‘the lack of institutional good faith.’ ” Fortney,
59 F.3d at 120 (quoting Dynavac, 6 F.3d at 1414). Despite the
weight of this burden, however, upon “a sufficient showing of
bad faith on the Government’s part, the taxpayer is entitled to
a limited evidentiary hearing.” United States v. Samuels,
Kramer, & Co., 712 F.2d 1342, 1347 (9th Cir. 1983).

   [8] On appeal, Morse offers no evidence in rebuttal to the
government’s prima facie case that the summonses were
issued in good faith. Rather, Morse’s claim focuses exclu-
sively on the alleged insufficiency of Agent Oyala’s averment
that all administrative steps required by the Code had been
complied with. Having determined that this argument is
unavailing, we conclude that the district court did not err in
denying Morse’s petition.

                                IV

  Based on the foregoing, the district court’s decision to dis-
miss the petition as it relates to Jeanine for lack of jurisdiction
and to deny the petition as it relates to Morse is

  AFFIRMED.1
  1
   The government’s motion to strike Appellants’ “Informal Written
Argument in Lue [sic] of Oral Argument” is denied as moot.