Hernandez v. United States of America, No. 3:2010mc09181 - Document 12 (D. Or. 2010)
Court Description: OPINION AND ORDER: The government's motion to dismiss 3 is granted. Plaintiff's motion to correct filing 8 is denied. Signed on 12/16/10 by Judge Ancer L. Haggerty. (see 14-page opinion) (kb) Modified on 12/17/2010 (kb).
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Hernandez v. United States of America Doc. 12 1 2 3 4 5 6 7 8 9 IN THE UNITED STATES DISTRICT COURT 10 FOR THE DISTRICT OF OREGON 11 PORTLAND DIVISION 12 LUIS HERNANDEZ, 13 14 15 Petitioner, v. UNITED STATES OF AMERICA, 16 Respondent. ) ) ) ) ) ) ) ) ) ) No. CV-10-MC-9181 OPINION & ORDER 17 18 Luis A. Hernandez 17206 S.E. Julie Place Portland, Oregon 97236 19 Petitioner Pro Se 20 21 22 23 24 25 Quinn P. Harrington TRIAL ATTORNEY, TAX DIVISION United States Department of Justice P.O. Box 683 Ben Franklin Station Washington, D.C. 20044-0683 Attorney for Respondent HAGGERTY, District Judge: 26 Petitioner Luis Hernandez seeks to quash a summons issued by 27 the Internal Revenue Service (IRS) to "Wells Fargo Bank National 28 Association." Respondent United States moves to dismiss the 1 - OPINION & ORDER Dockets.Justia.com 1 petition for failure to properly effect service or alternatively, 2 for failure to state a claim. 3 I grant the motion. Attached as Exhibit A to the petition to quash is a copy of 4 the Summons issued by the IRS. 5 Bank National Association" and seeks, for the years 2006, 2007, and 6 2008, the production of "[a]ll records pertaining to Luis A. 7 Hernandez, whether held jointly or severally or as trustee or 8 fiduciary as well as custodian, executor or guardian as well as any 9 other entity in which this It is addressed to "Wells Fargo individual may have a 10 interest. 11 signatory authority and/or the right of withdrawal." 12 Petition. 13 should be included. 14 financial To include all accounts in which this entity had Exh. A to Following this is a list of the types of records which Id. In support of the petition to quash, Hernandez contends as 15 follows: 16 showing under United States v. Powell, 379 U.S. 48 (1964); (2) the 17 IRS failed to comply with the Privacy Act; (3) the IRS did not 18 comply with the safeguards involving taxpayer interviews found in 19 26 U.S.C. § 7521(b); (4) the IRS is inappropriately seeking records 20 of the Gresham Christian Fellowship under cover of an examination 21 of 22 documents would require access of church accounts in violation 26 23 U.S.C. § 7611; and (6) enforcement of the summons would violate 24 Gresham Christian Fellowship's First Amendment rights. 25 (1) the IRS has failed to meet its prima facie good faith Hernandez's I agree tax with returns; the United (5) production States that of none the of requested the bases 26 articulated by Hernandez for quashing the summons have any merit. 27 Thus, I decline to address the United States's arguments regarding 28 improper service because even if service of the petition to quash 2 - OPINION & ORDER 1 was proper, there is no basis for granting the petition and it must 2 be dismissed.1 3 The United States must first establish its "good faith." 4 Fortney v. United States, 59 F.3d 117, 119 (9th Cir. 1995). 5 meet this initial burden, the United States need only show that (1) 6 the summons is issued for a legitimate purpose; (2) the summons 7 seeks information that may be relevant for that purpose; (3) the 8 information sought by the summons is not already in the IRS's 9 possession; and (4) the IRS has complied with all of To the 10 administrative steps required by the Internal Revenue Code. 11 Powell, 379 U.S. at 57-58. 12 "slight," and "typically [it] is satisfied by the introduction of 13 the sworn declaration of the revenue agent who issued the summons 14 that the Powell requirements have been met." 15 120. 16 The burden upon the United States is Fortney, 59 F.3d at First, the summons must be issued for a legitimate purpose. 17 A summons may be issued to "determin[e] the liability of any person 18 for any internal revenue tax." 19 in this case was issued by IRS Revenue Agent Ellen Kennedy as part 20 of an examination into the potential federal income tax liabilities 26 U.S.C. § 7602(a). The summons 21 22 23 24 25 26 27 28 1 In response to the government's argument regarding improper service, plaintiff filed a separate civil action, No. CV-10-1451-HU, in order to obtain a summons for service of the action on the government. Plaintiff then filed identical motions, which he labeled "Motion to Correct Filing," in both this miscellaneous case and the separate civil case. While denoted a "Motion to Correct Filing," the gist of the motion is one to consolidate the two actions. Because I dispose of the merits of plaintiff's case here, and because as explained in a separate Order entered in the civil action the Court lacks subject matter jurisdiction over the civil action, there is no need to consolidate the actions and I deny the motion. 3 - OPINION & ORDER 1 of Luis A. Hernandez for tax years 2006, 2007, and 2008. 2 Declr. at ¶¶ 2, 11, 13, 15. 3 requirement. 4 Kennedy This satisfies the first Powell Second, the summons must seek information that may be relevant 5 to the purpose of the examination. Powell, 379 U.S. at 57. 6 Kennedy explains that the examination of Hernandez began after he 7 was identified as a potential participant in a "Corporate Sole" tax 8 avoidance scheme. 9 investigation into Hernandez, the IRS discovered that Hernandez Kennedy Declr. at ¶ 3. During the course of its 10 claimed minimal income for the years in question. Id. at ¶¶ 3, 5. 11 The IRS also discovered that the utility bills on Hernandez's 12 residence were being paid from a Wells Fargo Bank Account that had 13 "Louie A. Hernandez, A. Corp Sole" as an account holder. 14 10; see also Exhibit A to Respondent's Reply Mem (copy of canceled 15 check made payable to PGE, showing "Louie A. Hernandez, A. Corp 16 Sole" and "Janice L. Hernandez" as the account holders).2 17 that information, the IRS determined that Hernandez's financial 18 account information at Wells Fargo could be relevant in determining Id. at ¶ Based on 19 20 21 22 23 24 25 26 27 28 2 In his response to the government's motion, Hernandez contends that the government "misquoted the listing of the bank account" on the PGE check and that the name of the bank account is listed as "Gresham Christian Fellowship, Louie A. Hernandez, Corporation Sole." Petitioner's Resp. at p. 2. In support, he attaches a Wells Fargo bank statement dated January 11, 2006, addressed to "Gresham Christian Fellowship, Louis A. Hernandez, Corporation Sole." Exh. A to Petitioner's Resp. As noted above, the Wells Fargo account check to PGE, dated December 1, 2008, which Kennedy received in response to her summons to PGE, shows the account holders to be Louie A. Hernandez, A. Corp Sole and Janice L. Hernandez. The government did not misquote the "listing" of the bank account and nothing in Hernandez's submission contradicts the representations made by the government in support of its motion or by Kennedy in her declaration. 4 - OPINION & ORDER 1 Hernandez's federal income tax liability for the 2006, 2007, and 2 2008 tax years. 3 requirement. 4 5 Id. at ¶ 15. This satisfies the second Powell Third, the IRS does not currently possess the records sought. Id. at ¶ 16. 6 Fourth, the United States must show that all administrative 7 requirements established by the Internal Revenue Code have been 8 met. 9 all administrative steps required by the Internal Revenue Code for Powell, 379 U.S. at 58. Kennedy affirmatively states that 10 issuance of the summons have been followed. 11 18. More specifically, she states that on March 15, 2010, she sent 12 Hernandez a letter notifying him that she would be conducting an 13 examination of his tax liability for the 2006, 2007, and 2008 tax 14 years. 15 1," entitled "Your Rights as a Taxpayer." 16 information that the IRS could potentially contact third parties. 17 Id. 18 as "Notice 609," which explained the Privacy Act of 1974 and its 19 application to the information supplied to the IRS. 20 August 11, 2010, Kennedy served a copy of the summons at issue on 21 Hernandez. Id. at ¶ 6. Kennedy Declr. at ¶ She included with her letter "IRS Publication Id. This included She also included a "Privacy Act Notice," which she refers to Id. And on Id. at ¶ 11. 22 Accordingly, the IRS complied with the law prohibiting it from 23 contacting third parties unless the IRS provides "reasonable notice 24 in advance to the taxpayer that contacts with persons other than 25 the taxpayer may be made." 26 complied with the law requiring it to serve a notice of the summons 27 on "any person (other than the person summoned) who is identified 28 in the summons." 26 U.S.C. § 7602(c)(1). 26 U.S.C. § 7609(a)(1). 5 - OPINION & ORDER It also 1 At this point, the United States has shown that the four 2 Powell good faith requirements have been met. 3 petitioner's "heavy burden" to show an "abuse of process" or "lack 4 of institutional good faith." 5 quotation omitted). 6 This triggers the Fortney, 59 F.3d at 120 (internal Hernandez contends that the IRS acted in bad faith because it 7 failed to comply with the Privacy Act before issuing a summons and 8 further and that the IRS violated his due process rights by failing 9 to supply the information required by 5 U.S.C. § 552a(e)(3)(A)-(D) 10 (Privacy Act provisions setting forth certain information to be 11 provided by the agency to each individual whom it asks to supply 12 information). 13 552a(e)(3) as a prerequisite to issuing or enforcing a summons. 14 See United States v. McAnlis, 721 F.2d 334, 337 (11th Cir. 1983) 15 ("Compliance with 5 U.S.C. § 552a(e)(3), the Privacy Act, is not a 16 prerequisite to enforcement of an IRS summons."). Additionally, 17 the Privacy allowing 18 quashing of an IRS summons as a remedy for any alleged failure to 19 provide information as required by that Act. Finally, Kennedy sent 20 Hernandez a Privacy Act notice on March 15, 2010, explaining the 21 Act's application to information provided by Hernandez to the IRS. 22 Plaintiff fails to establish any bad faith or due process violation 23 related to a Privacy Act violation. 24 But, the IRS is not required to comply with section Act does not contain any provision the Next, Hernandez contends that the IRS failed to comply with 26 25 U.S.C. § 7521(b) containing certain safeguards for taxpayer 26 interviews. 27 interview with Hernandez, he changed the date on one occasion and 28 then wrote to Kennedy to state he would not attend the rescheduled In this case, while Kennedy tried to set up an 6 - OPINION & ORDER 1 meeting. Kennedy Declr. at ¶¶ 6-8. 2 occurred, 26 U.S.C. § 7521(b) is inapplicable. 3 provided Hernandez with the "Your Rights as a Taxpayer" publication 4 which contains 5 taxpayer's 6 7521(b)(1)(A). the rights explanation under such of Because no interview has the process audit as Moreover, Kennedy process required by and the section Kennedy Declr. at ¶ 6. 7 Next, Hernandez contends that the summons must be quashed 8 because the IRS is seeking records of an exempt organization, the 9 Gresham Christian Fellowship, under cover of an examination of an 10 individual's tax return. 11 The face of the summons shows that the summons was issued 12 "[i]n the matter of Luis A. Hernandez," and that it seeks "[a]ll 13 records pertaining to Luis A. Hernandez." 14 Quash. 15 Fellowship." Kennedy explains that during the 2006, 2007, and 2008 16 years, plaintiff received 1099 non-employee compensation from "Life 17 Change Christian Center" and "The City Church" in small amounts of 18 $1,000 or $2,000 per year. 19 Kennedy discovered that Hernandez was paying mortgage interest of 20 between $9,000 and $10,000 per year. Id. Additionally, in January 21 2010, Hernandez sent a letter to the IRS claiming that he was not 22 required to file tax returns because his income was too low. 23 at ¶ 5. 24 completed "Application for Exemption from Self-Employment Tax for 25 Use by Ministers, Members of Religious Orders and Christian Science 26 Practitioners," Form 4361. Exh. A to Petition to The summons makes no mention of the "Gresham Christian Kennedy Declr. at ¶ 3. Nonetheless, Id. Included in that letter were copies of the 1099s and a Id. 27 In an April 15, 2010 letter to Kennedy in which Hernandez 28 stated that he would not appear for his rescheduled April 20, 2010 7 - OPINION & ORDER 1 interview, he claimed that the only bank account he had was a US 2 Bank checking account opened in 2005 with a balance of $25 and 3 which was inactive. 4 agreement with PNC Mortgage, but asserted that it was paid by the 5 church and was for church parsonage. 6 received 7 response to a summons, showing that payment for utility bills on 8 Hernandez's residence was being drawn on the Wells Fargo account 9 referenced above. documents Id. at ¶ 8. from Portland He admitted he had a loan Id. General In July 2010, Kennedy Electric Company in Id. at ¶ 10. 10 Kennedy affirmatively states that she had no intention of 11 obtaining records of Gresham Christian Fellowship at Wells Fargo 12 when she issued the summons. 13 an examination of the Gresham Christian Fellowship and did not 14 issue the summons to obtain the Fellowship's financial records. 15 Id. at ¶ 13. 16 the accounts at Wells Fargo of Hernandez, including the accounts of 17 "Luis A. Hernandez, A Corporate Sole." 18 the summons at issue seeks financial information that may be 19 relevant in determining Hernandez's federal income tax liability 20 for tax years 2006, 2007, and 2008. Id. at ¶ 12. She is not conducting The intent of the summons is to obtain information on Id. Kennedy states that Id. at ¶ 15. 21 Because the IRS issued the summons as part of an examination 22 of Hernandez individually, and neither had nor has any intent or 23 interest in the records of Gresham Christian Fellowship, and 24 because 25 individually and the United States is not currently seeking the 26 records of the Gresham Christian Fellowship, Hernandez's arguments 27 lack merit. 28 the summons seeks records pertaining to Hernandez Next, Hernandez argues that the summons must be quashed 8 - OPINION & ORDER 1 because the IRS did not follow special restrictions on church tax 2 inquiries under 26 U.S.C. § 7611. 3 tax inquiry" means 4 Under section 7611, a "church any inquiry to a church . . . to serve as a basis for determining whether a church- 5 (A) is exempt from tax under section 501(a) by reason of its status as church, or 6 7 (B) is carrying on an unrelated trade or business . . . or otherwise engaged in activities which may be subject to taxation under this title. 8 9 26 U.S.C. § 7611(h)(2). 10 The IRS is not attempting to ascertain the tax exempt status 11 of Gresham Christian Fellowship or attempting to ascertain if 12 Gresham Christian Fellowship is carrying on any taxable activities. 13 Kennedy Declr. at ¶ 14. As explained above, the summons was issued 14 as part of an examination into Hernandez's individual tax liability 15 and it seeks information about accounts related to him at Wells 16 Fargo. The IRS is not conducting a church tax inquiry into Gresham 17 Christian Fellowship and the restrictions of section 7611 do not 18 apply. 19 1986) (rejecting challenge under section 7611 because "[t]hose 20 provisions apply only when the government is investigating the tax 21 liability of a church)." 22 tax inquiry is without merit. 23 See Kerr v. United States, 801 F.2d 1162, 1164 (9th Cir. Hernandez's argument regarding a church Hernandez also contends that enforcement of the summons will 24 violate the First Amendment rights of the Gresham Christian 25 Fellowship. 26 Fellowship and has "signatory authority along with three (3) others 27 on church accounts." 28 the enforcement of the summons "would identify the members of and He asserts he is an "agent and pastor" of the 9 - OPINION & ORDER Petition to Quash at ¶ 14. He claims that 1 contributors to Gresham Christian Fellowship" and would discourage 2 membership with or contributions to the church. 3 As 4 individually. 5 of the investigation and the records sought are those which pertain 6 to Hernandez. 7 Christian Fellowship, the disclosure of his personal bank account 8 information to determine his individual tax liability is not 9 related to the Gresham Christian Fellowship and does not, without 10 noted above, the IRS is Id. at ¶ 30. investigating Hernandez The Gresham Christian Fellowship is not the target While Hernandez may be a pastor at the Gresham more, raise First Amendment concerns. 11 Here, additionally, there is no indication that Hernandez is 12 licensed to practice law and thus, he cannot represent Gresham 13 Christian Fellowship and assert claims on its behalf. 14 Simon v. Hartford Life, Inc., 546 F.3d 661, 664 (9th Cir. 2008) 15 ("[C]ourts have routinely adhered to the general rule prohibiting 16 See, e.g., pro se plaintiffs from pursuing claims on behalf of others in a 17 representative capacity."). Thus, Hernandez is prohibited from 18 asserting any First Amendment claims of the Fellowship. 19 More importantly, even if Hernandez could assert the claim on 20 behalf of the Fellowship, the summons is appropriately directed at 21 Hernandez's records and does not unconstitutionally implicate the 22 First Amendment rights of the Fellowship. 23 Trader's State Bank, 695 F.2d 1132 (9th Cir. 1983), the IRS was 24 conducting an investigation into the tax liability of a Mr. and 25 Mrs. Kerr who were founders and trustees of the Life Science Church 26 of Billings, Montana. 27 institutions, Trader's State Bank and First Northwestern National 28 Bank, which were entitled "[i]n the matter of the Tax Liability of 10 - OPINION & ORDER In United States v. The IRS issued summonses to two financial 1 Thomas M. Kerr, d/b/a/ Life Science Church of Billings," and 2 seeking 3 correspondence, and records relating to bank accounts, safe deposit 4 boxes, and loans held by Mr. or Mrs. Kerr or the Church." 5 1133. "the production of all types of bank statements, Id. at 6 The Church moved to quash the summonses, contending they were 7 overbroad and violative of the Church's First Amendment freedoms of 8 association and religion. 9 enforcement of the summonses because "the summonses require[d] 10 disclosure of all church banking transactions, not only those 11 related to the Kerrs." The Ninth Circuit vacated the order of Id. 12 After the Ninth Circuit decision, the IRS issued new summonses 13 which "direct[ed] the banks to produce various documents concerning 14 accounts in the Kerrs' names, or over which they have signatory 15 authority, 16 beneficiary." 17 arguing 18 enforcement [would] therefore violate the First Amendment rights of 19 the taxpayers and the Church." 20 summonses because they had been sufficiently narrowed by seeking 21 accounts the Kerrs controlled and thus, "exclud[ed] documents and 22 records that 'solely concern the Church.'" 23 concluded, the "government has established the requisite relation 24 between the documents sought and the 'legitimate governmental end 25 of assessing the Kerrs' tax liability.'" 26 State Bank, 695 F.2d at 1133); see also Morris v. United States, 27 616 F. Supp. 246, 249 (E.D. Mich. 1985) ("In this case, the IRS 28 limited the summons to those bank records on an account over which or that upon which they are Kerr, 801 F.2d at 1163. the 11 - OPINION & ORDER summonses were Id. named as trustee and/or The Kerrs moved to quash, "overbroad because their The Ninth Circuit upheld the Id. Thus, the court Id. (quoting Trader's 1 [the taxpayer] has signatory authority. 2 concerns which formed the basis of the decision in Trader's State 3 Bank are not present in this case."). 4 The First Amendment The summons at issue here meets the standard set in Kerr. 5 Like the summonses in Kerr, the summons here seeks bank accounts of 6 which Hernandez has signatory authority. 7 records pertaining only to Hernandez and does not seek records that 8 would "solely concern the Church." 9 raise the First Amendment concerns of the Fellowship, the argument 10 11 The summons here seeks Thus, even if Hernandez could has no merit. Finally, two arguments made by Hernandez in response to the 12 government's motion require some discussion. Hernandez spends 13 several pages of his response discussing the "corporate sole" 14 entity and arguing that the Wells Fargo account targeted by the 15 summons is part of a "corporation sole" which has no relevance to 16 his individual tax liability. He maintains that Louie Hernandez is 17 a distinct entity from Louie Hernandez, corporation sole. 18 Under Oregon law, 19 (1) Any individual may, in conformity with the constitution, canons, rules, regulations and disciplines of any church or religious denomination, form a corporation hereunder to be a corporation sole. Such corporation shall be a form of religious corporation and will differ from other such corporations organized hereunder only in that it shall have no board of directors, need not have officers and shall be managed by a single director who shall be the individual constituting the corporation and its incorporator or the successor of the incorporator. 20 21 22 23 24 25 26 (2) The name of such corporation shall be the same as the office within the church or religious denomination held by the incorporator, and shall be followed by the words "and successors, a corporation sole." 27 28 (3) All of the provisions of ORS 65.044 to 65.067 shall apply to such corporation. If the corporation has no 12 - OPINION & ORDER 1 2 officers, the director may perform any act required by or permitted by an officer in the same manner and with the same effect as though such act were performed by one or more officers of the corporation. 3 Or. Rev. Stat. § (O.R.S.) 65.067. 4 Hernandez's "corporation sole" argument fails for several 5 reasons. First, the appellation "Louie A. Hernandez, A. Corp. 6 Sole," does not comply with O.R.S. 65.067(2)'s requirements for 7 naming a corporation sole. Second, as Judge Aiken explained in a 8 2004 decision, "[w]hile true that corporations sole are recognized 9 under Oregon state law, Or. Rev. Stat. § 65.067, these corporations 10 do not receive special tax exempt status under federal tax law. In 11 other words, to receive special tax status under federal law, under 12 the circumstances, the entity must independently qualify as a 13 religious or other charitable organization under IRC § 501(c)(3)." 14 United States v. Harkins, 355 F. Supp. 2d 1175, 1179 (D. Or. 2004). 15 Thus, even if Hernandez himself may be considered a "corporation 16 sole," that does not protect him from an inquiry into his tax 17 liabilities. Finally, a summons is valid when seeking information 18 that "may be" relevant to potential tax liability. 26 U.S.C. § 19 7602(a)(1). Potential relevance is sufficient. United States v. 20 Arthur Young & Co., 465 U.S. 805, 814 (1984). A bank account over 21 which Hernandez, and presumably his wife Janice, have signatory 22 authority appears to have been used to pay Hernandez's utility 23 bills and could likely be used to pay other personal expenses. The 24 contents and activity of such an account may be relevant in 25 determining whether Hernandez has income tax liability for the tax 26 years in question. The discussion of the "corporation sole" entity 27 is not relevant to the question of Hernandez's individual income 28 13 - OPINION & ORDER 1 tax liability. 2 "corporation sole," it would still be relevant to the IRS's inquiry 3 because it could still be paying for Hernandez's personal expenses 4 which could be considered income for purposes of determining his 5 tax liability for the years in question. 6 Even if the account is properly in the name of a Finally, Hernandez's vow of poverty is irrelevant to the 7 petition to 8 attempting to ascertain Hernandez's income. 9 exclude whatever income he has received from his gross income is a 10 question to be addressed later. Whatever potential exclusions from 11 income he may try to claim are not relevant to the question of 12 whether 13 enforced. the quash the summons 14 15 16 17 summons. to obtain At this income point, the IRS is Whether Hernandez can information should CONCLUSION The government's motion to dismiss [3] is granted. Plaintiff's motion to correct filing [8] is denied. IT IS SO ORDERED. 18 Dated this 16th day of December , 2010. 19 20 /s/ Ancer L. Haggerty 21 Ancer Haggerty United States District Judge 22 23 24 25 26 27 28 14 - OPINION & ORDER be
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