Court Opinion

ID: 4704374
Source: CourtListenerOpinion
Date Created: 2021-07-16 21:03:00.129681+00
Date Added: 2024-06-11T08:05:15.889302
License: Public Domain

NOT RECOMMENDED FOR PUBLICATION
                                File Name: 21a0343n.06

                                           No. 20-2182

                          UNITED STATES COURT OF APPEALS
                              FOR THE SIXTH CIRCUIT

 KIMBERLY BASEHART GAETANO; RICHARD                      )
                                                                                  FILED
                                                                              Jul 16, 2021
 GAETANO,                                                )
                                                                         DEBORAH S. HUNT, Clerk
                                                         )
        Petitioners-Appellants,                          )
                                                         )      ON APPEAL FROM THE
 v.                                                      )      UNITED STATES DISTRICT
                                                         )      COURT FOR THE EASTERN
 UNITED STATES OF AMERICA,                               )      DISTRICT OF MICHIGAN
                                                         )
        Respondent-Appellee.                             )
                                                         )

BEFORE:        BOGGS, CLAY, and WHITE, Circuit Judges

       BOGGS, Circuit Judge. The Internal Revenue Service issued summonses to nine financial

institutions as part of a criminal investigation into Kimberly Basehart-Gaetano and Richard

Gaetano (appellants). The IRS is investigating appellants’ quarterly and annual tax returns, and

the summonses seek records from January 1, 2015 to November 1, 2019. Appellants brought a

petition in the District Court for the Eastern District of Michigan to quash the summonses, and the

government responded with a motion to dismiss the petition and enforce the summonses. Adopting

the magistrate judge’s report and recommendation, the court dismissed appellants’ petition and

ordered enforcement. Appellants now argue that the district court erred because there are no tax

periods that end on November 1, 2019, and thus (1) the investigation did not have a legitimate

purpose and (2) the inquiry did not seek records relevant to a legitimate investigation. Because an
No. 20-2182, Gaetano v. United States

investigatory summons may seek records from dates outside the specific tax period under

investigation, we affirm.

                                                I

       The district court had jurisdiction to review the petition to quash under 26 U.S.C. § 7609.1

We have jurisdiction under 28 U.S.C. § 1291 and must affirm unless the district court’s order is

clearly erroneous. United States v. Monumental Life Ins. Co., 440 F.3d 729, 732 (6th Cir. 2006).

“Issues of statutory interpretation, however, are reviewed de novo.” Ibid.

                                                II

                                                A

       “For the purpose of ascertaining the correctness of any return . . . ,” as well as for “the

purpose of inquiring into any offense connected with the administration or enforcement of the

internal revenue laws,” the IRS may issue summonses and “examine any books, papers, records,

or other data which may be relevant or material” to an investigation. 26 U.S.C. §§ 7602, 7603.

“The IRS, however, has no power of its own to enforce the summons but must apply to the district

court in order to compel production of the requested materials.” United States v. Will, 671 F.2d

963, 966 (6th Cir. 1982) (citing 26 U.S.C. § 7604). In United States v. Powell, the Supreme Court

held that the government can establish a prima facie case for judicial enforcement of an

investigatory summons by demonstrating that (1) “the investigation will be conducted pursuant to

a legitimate purpose,” (2) “that the inquiry may be relevant to the purpose,” (3) “that the

       1
          Jurisdiction over a petition to quash lies in “the district within which the person to be
summoned resides or is found.” 26 U.S.C. § 7609(h)(1). Although only two of the summonses
reflect service on addresses in the Eastern District of Michigan, appellants allege, and the
government does not contest, that each recipient “either resides or is found” in that district. We
have no reason to doubt that each organization is, at least, found in the Eastern District of
Michigan.

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No. 20-2182, Gaetano v. United States

information sought is not already within the [IRS] Commissioner’s possession, and” (4) “that the

administrative steps required by the [Internal Revenue] Code have been followed.” 379 U.S. 48,

57–58 (1964); Will, 671 F.2d at 966.

         The government generally makes this prima facie showing for enforcement through “the

submission of the affidavit of the agent who issued the summons . . . .” Will, 671 F.2d at 966. If

the government makes this showing, “the burden shifts” to the taxpayer to disprove any of the

required elements or to demonstrate that enforcement of the summons would be an abuse of the

court’s process.2 Monumental Life, 440 F.3d at 733. “Such an abuse would take place if the

summons had been issued for an improper purpose . . . .” Powell, 379 U.S. at 58. That said, a

taxpayer must provide “specific facts and evidence” to meet the heavy burden necessary to

demonstrate an abuse of process. Byers v. United States, IRS, 963 F.3d 548, 560 (6th Cir. 2020)

(quoting Cypress Funds, Inc. v. United States, 234 F.3d 1267, 2000 WL 1597833, at *4 (6th Cir.

2000) (table)).

                                                          B

         As to the relevance requirement of § 7602 and the Powell framework, the words “may be

[relevant]” reflect “Congress’ express intention to allow the IRS to obtain items of even potential

relevance to an ongoing investigation . . . .” United States v. Arthur Young & Co., 465 U.S. 805,

814 (1984). The relevance threshold needed to enforce a summons is lower than that required “to

admit evidence in federal court.” Ibid.; cf. Monumental Life, 440 F.3d at 736 (describing the

relevance threshold as “very low” (quoting United States v. Noall, 587 F.2d 123, 125 (2d Cir.

         2
           Where, as here, “the IRS issues a summons not to the investigated taxpayer herself, but to a third party who
may possess records related to the taxpayer . . . , the named taxpayer is entitled to notice that the summons has been
issued, and has the right to intervene in the summons-enforcement proceeding.” Byers v. United States, IRS, 963 F.3d
548, 553 (6th Cir. 2020) (citation omitted). No matter whether the IRS issues the summons to the investigated taxpayer
or a third party, “[t]he same standards apply.” Ibid.

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No. 20-2182, Gaetano v. United States

1978))). The critical inquiry is not whether the records sought are relevant, but whether they

“might throw light upon the correctness of a return.” Monumental Life, 440 F.3d at 735 (emphasis

added and internal quotation marks omitted).

       Tax periods do not exist in a vacuum. Records from outside those designated timeframes

may be relevant to a taxpayer’s conduct in a given quarter or year. Noncontemporaneous records

may illuminate important aspects of an investigation into tax liability, including the taxpayer’s

knowledge of filing requirements, the sources of assets or income, and the true nature of

transactions with others. There is widespread acceptance that records from before or after the tax

period under investigation can meet the low relevance threshold necessary for a summons. See,

e.g., Boyd v. United States, 87 F. App’x 481, 484–85 (6th Cir. 2003) (holding that summonses

could seek tax returns and workpapers for years before those under investigation); Phillips v.

United States, 178 F.3d 1295, 1999 WL 228585, at *3 (6th Cir. 1999) (per curiam) (table) (holding

that summonses could seek financial records for years before and after those under investigation);

La Mura v. United States, 765 F.2d 974, 976, 982–83 (11th Cir. 1985) (same); Muratore v. Dep’t

of the Treasury, 315 F. Supp. 2d 305, 312–13 (W.D.N.Y. 2004) (holding that summonses could

seek “documents generated after the investigation period” because, “given the expansive definition

of ‘relevance’ . . . , the IRS should not be limited to seeking documents only from the precise time

period under investigation”).3

                                                 C

       Appellants claim that the government failed to make out the case for enforcement because

the IRS issued the summonses for an improper purpose. Yet their sole support for that claim is the

       3
         As we previously noted in response to appellants’ similar challenge to another summons,
“[n]othing in § 7602 or § 7609 requires that a summons identify the tax period(s) the IRS is
investigating.” Gaetano v. United States, 994 F.3d 501, 511 (6th Cir. 2021).

                                                -4-
No. 20-2182, Gaetano v. United States

fact that no tax period ends on November 1, 2019. They argue that because no tax returns could

be due on that date, the requested records fail to meet the first and second Powell requirements for

enforcement: (1) a legitimate investigatory purpose and (2) an inquiry relevant to that purpose.

         There is no basis to this claim. The government has demonstrated a prima facie case for

enforcement through a declaration of the agent who issued the summons. The agent stated that the

summonses’ purpose is “to determine whether [appellants] understated their tax liability for tax

years 2015 through 2018, and quarterly filings for 2019, in violation of the Internal Revenue

Code.”       He further explained that the “records beyond the close of the tax periods under

investigation may shed light on the accuracy of income reported in the prior tax year.” The

declaration sufficiently demonstrates a legitimate investigatory purpose. And records from after

the tax period under investigation may be relevant to that inquiry.

                                                III

         Appellants have not disproved the government’s prima facie case for enforcement, nor

have they come close to meeting the heavy burden necessary to demonstrate an abuse of process.

They have not contested the type or breadth of records sought, and the mere fact that some records

relate to dates outside the period under investigation does not create doubt as to the IRS’s purpose

or the information’s potential relevance. The district court did not err in ordering enforcement.4

         AFFIRMED.

         4
         To the extent appellants appeal the denial of their motion to take discovery, the district
court properly denied the request because appellants failed to “make[] a preliminary and
substantial demonstration of abuse.” Will, 671 F.2d at 968.

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