Smet v. United States of America, No. 2:2020mc00055 - Document 19 (D. Ariz. 2021)
Court Description: ORDER granting the Motion to Summarily Deny Petitions to Quash IRS Summonses and to Enforce IRS Summonses (Doc. 14 ) with Respect to the MBNA Petition (Doc. [1)]. IT IS FURTHER ORDERED dismissing the Petition to Quash the Bank of America Summons for lack of jurisdiction (MC-20-00058, Doc. 1 ). IT IS FURTHER ORDERED directing the Clerk of Court to close this matter. See document for complete details. Signed by Judge John J Tuchi on 10/29/21. (WLP)
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Smet v. United States of America 1 Doc. 19 WO 2 3 4 5 6 IN THE UNITED STATES DISTRICT COURT 7 FOR THE DISTRICT OF ARIZONA 8 9 Laetitia Smet, No. MC-20-00055-PHX-JJT Petitioner, 10 11 v. 12 United States of America, 13 Respondent. ORDER 14 15 At issue is Respondent United States of America’s Motion to Summarily Deny 16 Petitions to Quash IRS Summonses and to Enforce IRS Summonses (Doc. 14, Mot.). On 17 March 1, 2021, the Court granted Respondent’s Motion for Order to Show Cause 18 (Doc. 16), and on March 5, 2021 Petitioners entered a Response to Order to Show Cause 19 (Doc. 17, Resp.). Subsequently, Respondent filed a Reply (Doc. 18, Reply). 20 I. BACKGROUND 21 Laetitia Smet and her deceased husband, Jean-Philippe Smet (better known as 22 French rock n’ roll artist Johnny Halliday), are French citizens who also maintained a place 23 of residence in the United States. (Doc. 1, “MBNA Petition” ¶ 2; MC-20-00058, Doc. 1, 24 “Bank of America Petition” ¶ 2; Doc. 2 at 2.) 25 In October 2019, pursuant to the Convention between the Government of the United 26 States of America and the Government of the French Republic for the Avoidance of Double 27 Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income and 28 Capital (the “DTC”), the IRS’s Exchange of Information Office received a request Dockets.Justia.com 1 (“Request”) from the French Competent Authority for information regarding Petitioners’ 2 financial accounts in the United States. (Mot. at 3.) In short, the DTC provides for the 3 exchange of tax and financial information between France and the United States, but 4 neither country is obligated to provide information that cannot be obtained under the laws 5 of either country. The Request indicates that French tax authorities are investigating 6 Petitioners’ income and wealth tax for 2017. (Mot. at 2.) Tina Masuda, Program Manager 7 of the IRS’s Exchange of Information Office, reviewed the Request and determined that it 8 was proper, so on September 18, 2020 the IRS issued third-party summonses to Bank of 9 America, NA (Bank of America Petition, Ex. A) and MBNA FIA Card Services (MBNA 10 Petition, Ex. A). (Mot. at 3; Declaration of Tina B. Masuda, Dec. 4, 2020 (“Masuda Dec.”) 11 ¶ 7.) Both summonses request that the recipient institutions make available Petitioners’ 12 account documents from the 2017 tax year. (MBNA Petition, Ex. A; Bank of America 13 Petition, Ex. A.) 14 Petitioners claim that they were not French residents in 2017, so executing the 15 summonses constitutes an abuse of process by the French tax authorities. (Bank of America 16 Petition ¶ 7; MBNA Petition ¶ 7.) On October 6, 2020, the Smets, by and through counsel, 17 filed a Petition with this Court to Quash the MBNA Summons (MBNA Petition), and on 18 October 14, 2020, they filed a Petition to Quash the Bank of America Summons (Bank of 19 America Petition). Respondent filed a Motion to Summarily Deny Petitions to Quash IRS 20 Summonses and to Enforce IRS Summonses (Doc. 14). The Court now resolves that 21 Motion. 22 II. LEGAL STANDARD 23 Under 26 U.S.C. § 7609, when the IRS issues a third-party summons, only certain 24 persons are entitled to bring a proceeding to quash the summons. The summoned third party 25 is never entitled to commence an action to contest the viability of an IRS summons, but if 26 under § 7609(a), notice of a third-party summons is required to be given to any person 27 identified in the summons, the person who receives such notice is entitled under § 7609(b)(2) 28 to bring a proceeding to quash the summons, so long as certain requirements are met. -2- 1 First, pursuant to § 7609(b)(2)(A), the petition to quash must be filed not later than 2 the 20th day after the notice is given. Ponsford v. United States, 771 F.2d 1305, 1309 (9th 3 Cir. 1985); see also Fisher v. United States, No. 13-mc-00056, 2013 WL 7137477, at *2 4 (D. Ariz. Dec. 10, 2013) (“Under Ninth Circuit precedent, Petitioner’s failure to comply 5 with the twenty-day limit in 26 U.S.C. § 7609(b)(2)(A) strips the district court of 6 jurisdiction.”). Second, the petitioner must send copies of the petition to the summoned 7 person and the office designated by the Secretary of the Treasury by registered or certified 8 mail. 26 U.S.C. § 7609(b)(2)(B). Third, the petition to quash must be filed in the district 9 where the summoned party “resides or is found.” 26 U.S.C. § 7609(h). Furthermore, under 10 § 7609(b)(2)(A) the Government may “seek to compel compliance with the summons” 11 whenever a petition to quash the summons has been filed. 12 The IRS enjoys broad information-gathering authority under 26 U.S.C. § 7602, 13 which also applies to information sought in response to treaty requests. Lidas, Inc. v. United 14 States, 238 F.3d 1076, 1081 (9th Cir. 2001). Where the Government seeks enforcement of 15 a summons under 26 U.S.C. § 7602, it need only demonstrate “good faith” in issuing the 16 summons. Lidas, 238 F.3d at 1081-82. The Government can make a prima facie showing 17 of good faith by meeting the four factors set in United States v. Powell, 379 U.S. 48, 57-58 18 (1964). Powell requires the Government to show that: (1) the investigation will be 19 conducted pursuant to a legitimate purpose; (2) the information sought may be relevant to 20 that purpose; (3) the information sought is not already in the IRS’s possession; and (4) the 21 administrative steps required by the Internal Revenue Code have been followed. Id. The 22 Government’s burden at this stage is “a slight one,” and may be satisfied by a declaration 23 from the investigating agent. Crystal v. United States, 172 F.3d 1141, 1143-44 (9th Cir. 24 1999) (internal quotations omitted). Where the IRS has issued summonses at the request 25 of a tax treaty partner, the Government need not establish the good faith of the requesting 26 nation, so long as it acts in good faith under Powell and complies with any applicable 27 statutes. United States v. Stuart, 489 U.S. 353, 370 (1989). 28 -3- 1 After the Government makes its prima facie case, the burden shifts to the party 2 resisting enforcement, who must show that enforcement would be an “abuse of process.” 3 Fortney v. United States, 59 F.3d 117, 120 (9th Cir. 1995). To carry this burden, the 4 challenger must allege “specific facts and evidence” in support of the allegations. Liberty 5 Fin. Servs. v. United States, 778 F.2d 1390, 1392 (9th Cir. 1985). 6 III. ANALYSIS 7 A. 8 Because the United States seeks to enforce the summons, it carries the initial burden 9 of establishing the Powell factors. It may satisfy its burden by a declaration from the 10 investigating agent that the Powell requirements have been met. Crystal, 172 F.3d at 1144 11 (internal citations omitted). If Respondent meets this burden, Petitioners must then 12 demonstrate a lack of good faith on the part of the IRS. Id. The MBNA Summons 13 The United States asserts that it has met the requirements articulated in Powell and 14 asks the Court to enforce the summons directed at MBNA. (Mot. at 8.) In support of its 15 Motion, the Government submits a declaration from Tina Masuda, Program Manager of 16 the IRS’s Exchange of Information Office. (Mot., Masuda Dec.) 17 18 1. The Powell Factors a. Legitimate Purpose 19 Under Powell, the Government must first show that the investigation is being 20 conducted for a legitimate purpose. 379 U.S. at 57-58. The United States argues that 21 compliance with a treaty partner’s proper request for information itself stands as legitimate 22 purpose. (Mot. at 8.) Indeed, this position is consistent with the conclusions of other courts, 23 including those in the Ninth Circuit. See, e.g., United States v. Hiley, No. 07-cv-1353, 2007 24 WL 2904056, at *4 (S.D. Cal. Oct. 2, 2007) (citing United States v. A.L Burbank & Co., 25 525 F.2d 9, 16-17 (2d Cir. 1975)). 26 Petitioners argue that the IRS and French tax authorities are in violation of this 27 factor, because since they claim that they were not residents of France in 2017, and thus 28 executing the summons would expand the French tax authorities’ power to obtain -4- 1 information in violation of Article 27 of the DTC. (Doc. 2 at 5.) Petitioners’ Memorandum 2 of Law in Support of the Petition to Quash Summons cites only one case—Mazurek v. 3 United States, 271 F.3d 226, 232 (5th Cir. 2001). (Doc. 2 at 7.) Had Petitioners read 4 Mazurek more closely, they would have noted that the Fifth Circuit rejected the very 5 residency argument they put forth here. As the Mazurek Court reasoned, “an assessment of 6 what would be allowed or disallowed under a foreign nation’s law is unnecessary,” so, 7 “even if under French law the [French tax authority] was not permitted to continue its 8 investigation pending final determination of the residency issue, the [French tax authority] 9 retains the substantive right to procure the requested information.” 271 F.3d at 233-34 10 11 12 13 (considering the Court’s holding in Stuart, 489 U.S. at 370). Petitioners’ argument is without legal merit, and Respondent has established a legitimate purpose. b. Relevance 14 Next, the Government must show that the IRS’s inquiry is relevant to the legitimate 15 purpose. Powell, 379 U.S. at 57. The Supreme Court has interpreted § 7602 to allow the 16 IRS to “obtain items of even potential relevance to an ongoing investigation,” regardless 17 as to whether the documents it seeks are relevant in any “technical, evidentiary sense.” 18 United States v. Arthur Young & Co., 465 U.S. 805, 814 (1984) (emphasis in original). 19 Because the French tax authorities are interested in Petitioners’ assets and income which 20 they failed to report, the information sought in the summonses meets the Powell relevance 21 standard. (See Masuda Dec. ¶ 6.) 22 c. Possession of Information 23 Third, Powell requires that the “information sought is not already within the [IRS] 24 Commissioner’s possession.” 379 U.S. at 57-58. Petitioners argue that they have already 25 provided the requested documents to the French tax authorities. (Resp. at 3.) However, 26 whether the French tax authorities possess the documents is irrelevant. Powell directs the 27 Court to ask whether the documents are in the IRS’s possession, not whether they are in 28 the French tax authority’s possession. Petitioners do not claim to have provided the -5- 1 requested documents to the IRS. Furthermore, as Respondent notes in its Reply, Petitioners 2 do not provide any support for their allegation that the French tax authorities are already in 3 possession of the requested documents. (Reply at 2.) Additionally, after Petitioners 4 initiated their action, the IRS reconfirmed with the French tax authorities that they do not 5 already possess the information sought. (Masuda Dec. ¶ 16.) Absent any support for 6 Petitioners’ assertion, the Government satisfies this factor of the Powell test. 7 d. Compliance with Administrative Steps 8 Finally, the Government must show that it has followed the Internal Revenue Code’s 9 administrative steps. Powell, 379 U.S. at 58. The United States argues that the IRS followed 10 the required administrative steps in serving the summons in accordance with 26 U.S.C. 11 §§ 7603(a) and 7609(a)(1), as well as providing notice to Petitioners in accordance with 12 § 7609(a)(2). (Mot. at 9; Masuda Dec. ¶¶ 8, 9 and Exs. A, B.) Ms. Masuda’s Declaration 13 also states that the IRS complied with the Internal Revenue Code’s administrative steps in 14 issuing and serving the summonses on MBNA and Bank of America. (Masuda Dec. ¶ 10.) 15 Petitioner does not raise any arguments to undercut this factor. The fourth Powell factor is 16 satisfied. 2. 17 Abuse of Process 18 Because the Government has met its burden of establishing a prima facie case for 19 enforcing the third-party summons, the burden shifts to Petitioners to show that 20 enforcement of the summons would be an “abuse of process.” Fortney, 59 F.3d at 120 (9th 21 Cir. 1995). “Naked allegations of improper purpose are not enough: The taxpayer must 22 offer some credible evidence supporting his charge.” United States v. Clarke, 573 U.S. 248, 23 254 (2014). 24 Petitioners argue that the French tax authorities have committed an abuse of process 25 because they have no evidence showing that the Smets were residents of France in 2017. 26 (Doc. 2 at 4.) However, Petitioners fail to cite any case law in either their Memorandum of 27 Law in Support of the Petition to Quash Summons (Doc. 2) or their Response to the Court’s 28 Order to Show Cause (Doc. 17) to support their argument. Instead, this time without even -6- 1 citing Mazurek, Petitioners persist in their Mazurek-derived contention that the United 2 States should wait to disclose Petitioners’ financial information to the French tax 3 authorities until a French Court declares them French residents. (Resp. at 3.) As the Court 4 explained above, this argument failed in Mazurek, and is equally unpersuasive here. 5 Mazurek, 271 F.3d at 231, 232 (“It does not follow, simply because Mazurek challenges 6 the [French tax authority’s] residency determination, that the [French tax authority’s] 7 investigation is being conducted for an improper purpose.”). 8 Further, even if Petitioners could identify case law in support of their argument, they 9 fail to provide any evidence to support their assertion that they were not residents of France. 10 Ms. Masuda’s Declaration explicitly states that “the French tax authority’s information 11 shows [the Smets] were in France [in 2017] for the requisite period for tax liability under 12 French law.” (Masuda Dec. ¶ 6.) Petitioners offer no evidence to the contrary. 13 14 The Court finds that Petitioners have not shown any specific facts or circumstances that plausibly show an abuse of process on the part of the Government. 15 B. 16 The Government argues that because Petitioners did not file the Petition to Quash 17 the Bank of America Summons within the 20-day period required under 26 U.S.C. 18 § 7609(b)(2)(A), the Court lacks jurisdiction over that Petition. (Mot. at 6.) The Court 19 agrees. The Bank of America NA Summons 20 As stated above, under § 7609(b)(2)(A) Petitioners must file the petition to quash 21 the summons “not later than the twentieth day following the date that notice of the 22 summons was served or mailed.” Fisher, 2013 WL 7137477, at *1 (internal citations 23 omitted). 24 Here, the IRS mailed Petitioners notice of the Bank of America Summons on 25 September 18, 2020. (Bank of America Petition ¶ 7(a); Masuda Dec. ¶¶ 8, 9; Mot. Exs. A, 26 B.) Accordingly, Petitioners had until October 8, 2020 to institute a proceeding to quash. 27 Petitioner failed to do so until October 14, 2020, the twenty-sixth day after notice was 28 mailed. Petitioner does not contest that the notice was indeed mailed on September 18. -7- 1 Ninth Circuit precedent makes clear that Petitioner’s failure to comply with the 2 twenty-day limit set forth in § 7609(b)(2)(A) strips the district court of jurisdiction. See, 3 e.g., Ponsford, 771 F.2d at 1309. Thus, the Court must dismiss the Bank of America 4 Petition. Fed. R. Civ. P. 12(h)(3).1 5 IT IS THEREFORE ORDERED granting the Motion to Summarily Deny 6 Petitions to Quash IRS Summonses and to Enforce IRS Summonses (Doc. 14) with Respect 7 to the MBNA Petition (Doc. 1). IT IS FURTHER ORDERED dismissing the Petition to Quash the Bank of 8 9 America Summons for lack of jurisdiction (MC-20-00058, Doc. 1). 10 IT IS FURTHER ORDERED directing the Clerk of Court to close this matter. 11 Dated this 29th day of October, 2021. 12 Honorable John J. Tuchi United States District Judge 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 1 28 Because the Court lacks jurisdiction, it cannot deny the Petition to Quash the summons issued to Bank of America. Accordingly, with regard to the Bank of America NA Summons, the Court construes Respondent’s Motion as a Motion to Dismiss. -8-
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