ANDREA BYERS, Petitioner-Appellant, v. UNITED STATES OF AMERICA, INTERNAL REVENUE SERVICE, Respondent-Appellee.
No. 19-1893
United States Court of Appeals for the Sixth Circuit
Decided and Filed: June 26, 2020
RECOMMENDED FOR PUBLICATION Pursuant to Sixth Circuit I.O.P. 32.1(b). File Name: 20a0191p.06. Argued: June 10, 2020.
Before: MOORE, SUTTON, and GRIFFIN, Circuit Judges.
COUNSEL
ARGUED: Daniel W. Weininger, ABRAHAM & ROSE, P.L.C., Farmington Hills, Michigan, for Appellant. Theodore Joshua Wu, UNITED STATES DEPARTMENT OF JUSTICE, Washington, D.C., for Appellee. ON BRIEF: Daniel W. Weininger, ABRAHAM & ROSE, P.L.C.,
OPINION
KAREN NELSON MOORE, Circuit Judge. Petitioner-Appellant Andrea Byers1 appeals the district court‘s order enforcing multiple IRS third-party summonses seeking her records and dismissing her petitions to quash these summonses. An IRS agent, seeking Byers‘s records in furtherance of an investigation into whether she is liable for internal revenue violations, served the summonses on four financial institutions. When Byers moved to quash these summonses, the government moved to dismiss Byers‘s petitions and to enforce the summonses, and the district court ruled in the government‘s favor in an oral decision. For the following reasons, we AFFIRM the decision of the district court.
I. BACKGROUND
On August 28, 2018, Andrea Byers received notice from JP Morgan Chase Bank (“Chase“) that IRS Agent Joseph Conroy had requested information in connection with the IRS‘s investigation into her then-husband, Lex Byers. R. 8-3 (Response to Mot. to Dismiss, Ex. B) (Page ID #151). The notice stated that “[t]he requested information includes information that relates to you.” 2 Id. On October 5, Agent Conroy sent a letter to Byers informing her that she was under investigation for violating
under your control related to . . . Andrea Byers and any other corporation or name Andrea Byers used during the [specified] period[] . . . including but not limited to: INC‘S & LLC‘S, ETCETERA, Inc.” and thirteen other entities. R. 1-2 (Pet. to Quash, Ex. A) (bold in original) (Page ID #15).
On November 15, Byers filed a petition to quash the summonses. R. 1 (Pet. to Quash at 1) (Page ID #1). Approximately one week later, Byers received copies of two additional IRS summonses, which Agent Conroy had issued to SunAmerica Trust Company and Pershing, LLC. R. 8-2 (Byers Decl. ¶ 10) (Page ID #147). On November 27, she filed a supplemental petition to quash these summonses. R. 3 (Supp. Pet. to Quash at 1) (Page ID #51). On December 6, Bank of America responded to the summons that Conroy served, but Conroy has not opened the envelope containing the bank‘s response due to
II. STANDARD OF REVIEW
“A district court‘s order enforcing an IRS summons will not be reversed unless clearly erroneous.” United States v. Monumental Life Ins. Co., 440 F.3d 729, 732 (6th Cir. 2006). Clear error exists if this court is “left with the definite and firm conviction that a mistake has been committed.” Alexander v. Local 496, Laborers’ Int‘l Union of N. Am., 177 F.3d 394, 402 (6th Cir. 1999). “Issues of statutory interpretation, however, are reviewed de novo.” Monumental Life, 440 F.3d at 732.
III. DISCUSSION
This case deals primarily with the IRS‘s powеr to summon information from a third party about a named taxpayer. Byers makes three arguments in support of her claim that the IRS overstepped the boundaries of its information-gathering authority. First, she argues that the IRS was required to establish a “reasonable basis” for its investigation of her before its summonses could be enforced, and that the IRS failed to do so. Second, she argues that the IRS did not make a prima-facie showing in support of enforcing its summonses. Third, she argues that she carried her burden of showing that the IRS abused the district court‘s prоcess in seeking enforcement of the summonses. In view of the IRS‘s broad authority to collect information related to taxpayers’ potential liabilities, each of Byers‘s arguments fails.
A. The IRS Authority to Issue Summonses
Our self-reporting system of taxation relies on honesty at the front end and investigation at the back end. “There is legal compulsion, to be sure, but basically the Government depends upon the good faith and integrity of each potential taxpayer to disclose honestly all information relevant to tax liability.” United States v. Bisceglia, 420 U.S. 141, 145 (1975), partially superseded by statute on other grounds,
The
The same standards apply when the IRS issues a summons not to the investigated taxpayer herself, but to a third party who may possess records relаted to the taxpayer. See Monumental Life, 440 F.3d at 730, 733. The only difference is that, in this scenario, the named taxpayer is entitled to notice that the summons has been issued, and has the right to intervene in the summons-enforcement proceeding. See
B. The “Reasonable Basis” Requirement
The novel issue that we consider here is whether the IRS must demonstrate a “reasonable basis” for believing that a named taxpayer has violated or may violate the internal revenue laws before the district court may enforce a third-party summons seeking information about this taxpayer. Byers acknowledges that this “reasonable basis” language stems from a different provision, subsection (f), of the third-party summons statute, entitled “Additional requirement in the case of a John Doe summons.”
violated or may violate the law. The other provisions of
The fact that only the John-Doe provision of
Byers maintains that this should not end our inquiry. Despite the lack of any languagе in
In response to this concern,
§§ 7609(a) and(b) gave the real parties in interest those actually being investigated the right to intervene in the enforcement proceedings. Similarly, the John Doe requirements of§ 7609(f) were adopted as a substitute for the procedures of§§ 7609(a) and(b) . In effect, in the John Doe context, the court takes the place of the affected taxpayer under§§ 7609(a) and(b) and exerts a restraining influence on the IRS.
Id. at 321. From this dicta, Byers discerns a recognition by the Supreme Court that “known taxpayers are entitled to the same substantive protections section 7609(f) affords to unknown
taxpayers.” Appellant Br. at 13. This is so, Byers argues, “[b]ecause the Supreme Court treats section 7609(f) [the John-Doe summons provision] as a procedural ‘substitute’ for section 7609(a) [the notice provision for named summonses].” Id. Put another way, the fact that the John-Doe procedure is merely a substitute means, according to Byers, that named and unnamed third-party summonses “address identical substantive privacy concerns,” id. at 12—namely, the concern that the government will simply “look around for targets to investigate,” Tiffany Fine Arts, 469 U.S. at 320. If the substantive privacy concеrns are the same, says Byers, then protections for taxpayers should be the same, whether they are named or unnamed in a third-party summons.
Yet Tiffany Fine Arts does not hold, let alone insinuate, any of this. The Supreme Court‘s holding was straightforward: “[When] the IRS serves a summons on a known taxpayer with the dual purpose of investigating both the tax liability of that taxpayer and the tax liabilities of unnamed parties, it need not comply with the requirements for John Doe summonses set out in
entitled to the extra procedural protections set forth in
It is true that simply including the name of a targeted party may be a poor proxy for whether the government is engaged in a “legitimate investigation.” Id. Indeed, in other doctrinal arenas, courts expressing concern with “fishing expeditions” speak of the invеstigating or complaining party‘s failure to adduce “enough fact to raise a reasonable expectation that discovery will reveal evidence of illegal[ity],” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 556 (2007), not of the investigating or complaining party‘s failure to identify which party it is investigating or suing. See, e.g., Fed. Trade Comm‘n v. Am. Tobacco Co., 264 U.S. 298, 305–06 (1924) (stating, in a case involving the Federal Trade Commission and known investigated parties: “Anyone who respects the spirit as well as the letter of the Fourth Amendment would be loath to believe that Congress intended to authorize one of its subordinate agencies to sweep all our traditions into the fire, and to direct fishing expeditions into private papers on the possibility that they may disclose evidence of crime.“) (citing Interstate Commerce Comm‘n v. Brimson, 154 U.S. 447, 479 (1894)). Yet in the context of a summons targeting a named taxpayer, as the Eighth Circuit has observed, “the Secretary or his delegate has been specifically licensed to fish by
target of the summons.” 469 U.S. at 320. Accordingly, Congress provided extra protections—such as the “reasonable basis” requirement—only in John-Doe cases, when investigated taxpayers could not contest the summonses themselves. See H.R. REP. 94-658, at 311 (1975) (“[T]he committee does not intend that the John Doe summons is to be available for purposes of enabling the Service to engage in a possible ‘fishing expedition.‘“); S. REP. 94-938 (I), at 373 (1976) (same).
Next, Byers relies on Powell, and the cases it cites, as establishing a general “reasоnableness test” for the enforcement of agency summonses. Reply Br. at 1–2. This assertion is without support. Byers ignores that Powell favorably mentioned “the general rejection of probable cause requirements in like circumstances involving other agencies.” 379 U.S. at 57. For example, Powell recounted how in United States v. Morton Salt Co., 338 U.S. 632 (1950), the Court had permitted the Federal Trade Commission to investigate “merely on suspicion that the law is being violated, or even just because it wants assurance that it is not.”5 Powell, 379 U.S. at 57 (quoting Morton Salt, 338 U.S. at 642–43). Powell did not “confirm[] that the agency must articulate some reasonable basis to gain judicial approval of its summonses.” Reply Br. at 3. Neither Tiffany Fine Arts nor Powell supports Byers‘s atextual reading of the statute.
Other factors counsel against Byers‘s argument. One is the Supreme Court‘s general reluctance to interfere with the IRS‘s summons power: “While
made by the submission of an affidavit from the agent who issued the summonses“); United States v. Will, 671 F.2d 963, 966 (6th Cir. 1982) (same); United States v. AS Holdings Grp., LLC, 521 F. App‘x 405, 409 (6th Cir. 2013) (“The IRS may meet this ‘minimal burden’ by submitting an affidavit from the agent issuing the summons.“) (quoting United States v. Pragovich, 363 F. App‘x 313, 314 (6th Cir. 2009) (order)). And although we have never ruled on the precise issue that Byers raises, we have recognized that the John-Doe procedures
None of this leaves a named taxpayer without recourse to challenge the propriety of an investigation, as discussed further below. See United States v. Gertner, 65 F.3d 963, 968 (1st Cir. 1995) (“Though a conclusory affidavit is enough to satisfy the government‘s burden at the first tier of the framework [the prima-face showing], it can come back to haunt the proponent if it is not later supplemented by more hearty fare once the challenger succeeds in scaling the second tier [the abuse-of-process tier].“) (internаl citations omitted); H.R. REP. 94-658, at 309 (“[T]he committee intends that the noticee would have standing to raise other issues which could be asserted by the third-party record keeper, such as asserting that the summons is ambiguous, vague or otherwise deficient in describing the material requested, or that the material requested is not relevant to a lawful investigation.“). At the prima-facie stage, however, the IRS‘s burden is minimal and inconsistent with a “reasonable basis” requirement.
There is no shortage of reasons to reject Byers‘s argument. But her argument, we acknowledge, has intuitive appeal—“Shouldn‘t the government have to give a reason why it wants my information?“—and merits this fulsome response. In all, Byers has raised a colorable policy argument, but not a legal one. “Simply stated, the IRS is not required to comply with the ‘John Doe summons’ requirements, where the summons relates to an investigation of a named
party.” 35 Am. Jur. 2d Federal Tax Enforcement § 55. The district court did not err in rejecting Byers‘s argument.
C. The Prima-Facie Showing
Byers next argues that apart from whether the IRS was required to establish a “reasonable basis” for its investigation, it has failed to satisfy the four-part Powell test discussed supra Part III.A. We consider each part of the test below, and conclude that the government carried its burden.
1. Legitimate purpose
The Supreme Court has cautioned that “those opposing enforcement of a summons do bear the burden to disprove the actual existence of a valid civil tax determination or collection purpose by the Service.” United States v. LaSalle Nat‘l Bank, 437 U.S. 298, 316 (1978), superseded by statute on other grounds,
We have never established—and do not establish in this case—what precisely
aver, “I‘m conducting an investigation to determine whether Ms. Byers violated the tax code.” See R. 16 (Hr‘g Tr. at 10) (Page ID #247). We need not weigh in on this hypothetical. In light of the government‘s minimal burden at this stage, the district court did not clearly err in concluding that the declared purpose here was legitimate. The declaration is sufficient to show that the summons will be properly used for a civil investigation, rather than for an improper purpose, such as an ongoing criminal investigation. See United States v. Ahee, 5 F. App‘x 342, 353 (6th Cir. 2001) (“Given . . . the fаct [that] the summonses were utilized to gather evidence, not justify a previous determination to prosecute, the trial court did not err in concluding the IRS had a legitimate purpose for the use of administrative summonses under
2. Relevance
Paragraph 14 of Agent Conroy‘s declaration, which describes how the financial information sought by the summonses will assist the investigation, is sufficient to establish relevance. Congress has authorized the IRS “[t]o examine any books, papers, records, or other data which may be relevant or material” to an investigation,
3. Already in possession of the IRS
Agent Conroy‘s declaration states that besides the information contained in Bank of America‘s sealed response, the rest of the information sought in the summonses is “not already in the possession of the Internal Revenue Service.” R. 5-1 (Conroy Decl. ¶ 13) (Page ID #114). Byers suggests that the information sought in the
The relevant statutory section, however, requires notice of the issuance of a summons only to “any person . . . who is identified in the summons,”
4. Procedural compliance
Byers‘s first argument regarding the government‘s alleged failure to comply with administrative procedures is that “unknown prospective investigation targets” other than Byers are the “sole” focus of the investigation, so the government should have followed the John-Doe procedures set forth in
Agent Conroy that Byers is, in fact, the focus of the investigation. R. 5-1 (Conroy Decl. ¶ 4) (Page ID #112–13). Even if the IRS were investigating both Byers and unnamed entities, Tiffany Fine Arts makes it clear that the government need not comply with
Byers further argues that the various entities identified in the summonses were entitled to notice pursuant to
For the foregoing reasons, the district court‘s determination that the government has satisfied the four Powell factors was not clearly erroneous.
D. Byers‘s Abuse-of-Process Argument
The IRS‘s satisfaction of the prima-facie burden is not the end of the case. “Once th[e] [prima-facie] showing is made, the burden shifts to the taxpayer to demonstrate that enforcement of the summons
In support of her abuse-of-process allegations, Byers submitted a declaration, which professes her innocence and states that Agent Conroy has never informed her what she or her ex-
husband may have done to violate the law. R. 8-2 (Byers Decl. ¶¶ 4, 20–22) (Page ID #147–49). Yet nowhere in the declaration does Byers explain what nefarious purpose the IRS has for investigating her. Hеr statements do not carry the “heavy” burden of demonstrating an abuse of process, and the district court did not clearly err in rejecting this argument.
IV. CONCLUSION
For the foregoing reasons, we AFFIRM the decision of the district court.
KAREN NELSON MOORE
UNITED STATES CIRCUIT JUDGE