United States Court of Appeals
For the First Circuit
No. 08-2515
SUGARLOAF FUNDING, LLC; DERRINGER TRADING, LLC;
KNIGHT TRADING, LLC; PORTFOLIO PROPERTIES, INC.;
WARWICK TRADING, LLC; JOHN E. ROGERS,
Petitioners, Appellants,
v.
U.S. DEPARTMENT OF THE TREASURY,
Respondent, Appellee.
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MASSACHUSETTS
[Hon. William G. Young, U.S. District Judge]
Before
Torruella, Lipez and Howard,
Circuit Judges.
Jerome R. Weitzel, with whom Paul J. Kozacky, Kozacky &
Weitzel, P.C., Richard E. Quinby, Lauren J. Coppola and Craig &
MaCauley, were on brief, for appellants.
Rachel I. Wollitzer, Attorney, Tax Division, Department of
Justice, with whom Michael J. Sullivan, United States Attorney,
John A. DiCicco, Acting Assistant Attorney General, Gilbert S.
Rothenberg, Acting Deputy Assistant Attorney General and Robert
W. Metzler, Attorney, Tax Division, Department of Justice, were
on brief, for appellee.
October 7, 2009
HOWARD, Circuit Judge. This case is one of more than a
dozen in federal courts across the country related to an Internal
Revenue Service ("IRS") investigation into possible improper tax
shelters.1 As in the other cases, the targets of the investigation
petitioned the district court to quash administrative summonses
issued by the IRS. Approving a magistrate judge's report and
recommendation, the district court denied the motions to quash and
ordered the summonses enforced. The petitioners timely appealed.
Consistent with every other court to address this issue, we affirm
the district court.2
1
See In re: Good Karma, LLC, 528 F. Supp. 2d 1361, 1362-63
sch. A (J.P.M.L. 2007)(denying motion for consolidation of pre-
trial proceedings).
2
See, e.g., Bodensee Fund, LLC v. United States, No. 07-3209,
2008 WL 4490361 (D.N.J. Sept. 30, 2008); Howa Trading, LLC v.
United States Dep't of Treasury-Internal Revenue Service, No.
3:07CV324-R, 2008 WL 2323872 (W.D.N.C. June 2, 2008); Bodensee
Fund, LLC v. United States Dep't of Treasury, No. 07-MC-0111, 2008
WL 1930967 (E.D. Pa. May 2, 2008); Ironwood Trading, LLC v. United
States, No. 8:07-mc-59-T-30MSS, 2008 WL 817066 (M.D. Fla. Mar. 25,
2008), aff'd, Nero Trading, LLC v. United States, 570 F.3d 1244
(11th Cir. 2009); Good Karma, LLC v. United States, 546 F. Supp. 2d
597 (N.D. Ill. 2008); Sterling Trading, LLC v. United States, 553
F. Supp. 2d. 1152 (C.D. Cal. 2008); Lyons Trading, LLC v. United
States, No. 3:07-mc-13, 2008 WL 361533 (E.D. Tenn. Feb. 8, 2008);
Rook Trading, LLC v. United States, No. 1:07-651 (W.D. Mich. Dec.
19, 2007); Tiberius Trading, LLC v. United States, No. 1:07-718
(W.D. Mich. Dec. 19, 2007).
-2-
I. Background
The IRS investigation is focused on transactions that
generated losses claimed from writing down the value of "distressed
debt" consisting of consumer accounts receivable obtained from one
or more Brazilian retail stores. According to an IRS Coordinated
Issue Paper ("CIP")3 issued in April 2007, such "distressed asset
and debt" transactions (known as "DAD tax shelters") generate tax
losses that are not allowable as deductions. In a DAD shelter, a
foreign entity that does not pay United States taxes sells
purportedly high-basis, low-value debt (the "distressed debt") to
a United States entity taxed as a partnership in exchange for a
payment that is a very small percentage of the face value of the
debt. The United States entity then contributes the distressed
debt to other entities taxed as partnerships -- partnerships in
which interests are sold to tax shelter participants. The shelter
participants then claim some or all of the face value of the
distressed debt as a loss to offset other earned income. The IRS
contends that U.S. taxpayers participating in the Brazilian debt
DAD shelters claimed losses of approximately $39 million in 2003
and $119 million in 2004. The IRS is investigating the veracity of
these claimed losses by examining the returns filed by the entities
3
The IRS issues CIPs to "provid[e] guidance to field examiners
and to ensur[e] uniform application of the law" relating to
"complex and significant industry wide issues." Internal Revenue
Service publication, available at http://www.irs.gov/businesses/
article/0,,id=96445,00.html.
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that pass on the losses to U.S. taxpayers and those filed by the
individual taxpayers.
II. The parties
The appellants are engaged in the business of consumer
receivables management and collection. They partner with creditors
for the servicing and collecting of consumer receivables in a
global industry fueled by increasing levels of consumer debt,
increasing defaults of the receivables, and utilization of third-
party providers to collect such receivables.
Appellant John E. Rogers, an attorney with an MBA in
international finance, was the driving force behind the appellants'
involvement in the Brazilian debt market. Jetstream Business,
Ltd.4 ("Jetstream") was Rogers's platform for international
investment opportunities. Jetstream is the Tax Matters Partner of
appellants Derringer Trading, LLC ("Derringer") and Knight Trading,
LLC ("Knight"). Rogers, in turn, is the sole shareholder of
appellant Portfolio Properties, Inc. ("Portfolio"), an Illinois
corporation that is the sole shareholder of Jetstream. Appellant
Warwick Trading, LLC ("Warwick"), was formed by Jetstream as a
possible vehicle through which to invest. In 2006, Derringer and
Knight were transferred to appellant Sugarloaf Fund, LLC
4
Jetstream was a British Virgin Islands limited company during
the time period relevant to this appeal.
-4-
("Sugarloaf"), a Delaware company. Rogers is the general manager
of Sugarloaf.
III. The summonses and prior proceedings
In June 2007, the IRS issued a set of administrative
summonses to Massachusetts resident Michael Hartigan ("Hartigan"),
an attorney, directing him to appear before IRS Revenue Agent Larry
Weinger to testify and produce for examination documents and
information relating to Derringer, Knight, Portfolio, Sugarloaf and
Warwick. A few days later, Hartigan received a second summons from
the IRS, directing him to appear before IRS Agent Kimberlee Loren
to testify and produce documents regarding Rogers. The first set
was served on Hartigan because he claimed losses on his joint
income tax return based on his wife's interest in Derringer and
Knight.5 The second was based on his relationship with Rogers, as
5
The summons regarding Sugarloaf was typical of this first set
served on Hartigan. It sought:
1. All documents, including but not limited to engagement
letters, representation letters, agreements, invoices,
billing records, fee allocations, and correspondence
related to any fees for legal, professional, management,
accounting and tax advice and assistance incurred by you
and/or any entity controlled by you in connection with
Sugarloaf Fund, LLC, and/or its activities.
2. All minutes, notes, correspondence, emails, calendar
entries, and other recordings relating to or reflecting
meetings, conferences and telephone conversations in
which Sugarloaf Fund, LLC, and/or its activities was
discussed.
3. All documents showing payments of any funds,
including, but not limited to fees, paid or received by
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the IRS believed that Hartigan, in addition to receiving fees from
participants, also assisted Rogers in organizing, managing and
selling interests in the various entities.6
The petitioners timely filed a motion to quash the
summonses, claiming that the IRS was engaging in a nationwide
pattern of harassment.7 The government moved to deny the motion to
quash and for enforcement of the summonses. After a hearing on the
petitioners' motion for an evidentiary hearing, the magistrate
judge denied both the motion for a hearing and the motion to quash,
while simultaneously recommending the enforcement of the summonses.
The district court adopted the report and recommendation. This
appeal followed.
IV. Discussion
The IRS has “expansive information-gathering authority”
to determine tax liability under the Internal Revenue Code,
including by issuance of summonses to taxpayers and third-party
any party in connection with Sugarloaf Fund, LLC, and/or
its activities.
6
The second summons contained forty three specific document
requests, broken down into the following categories: 1) materials
related to Rogers's marketing efforts; 2) engagement letters and
documents related to participants' involvement; 3) documents
discussing expected tax benefits; 4) legal or tax opinions; 5)
information about fees paid in connection with the shelters; and 6)
documents related to Rogers's role.
7
Even though they were not the summoned parties, the
petitioners are permitted to move to quash. See 26 U.S.C. §
7609(b)(2).
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record holders. United States v. Arthur Young & Co., 465 U.S. 805,
816 (1984); 26 U.S.C. § 7602. Taxpayers may petition to quash such
summonses and the IRS may petition to enforce them. 26 U.S.C. §§
7604, 7609. Enforcement proceedings are designed to be summary in
nature. Donaldson v. United States, 400 U.S. 517, 529 (1971).
"The court's role is to ensure that the IRS is using its broad
authority in good faith and in compliance with the law." United
States v. Gertner, 65 F.3d 963, 966 (1st Cir. 1995).
Regardless of who initiates the action, the court follows
a familiar structured analysis in a summons enforcement proceeding.
Gertner, 65 F.3d at 966. The IRS must first make a prima facie
showing “[1] that the investigation will be conducted pursuant to
a legitimate purpose, [2] that the inquiry may be relevant to the
purpose, [3] that the information sought is not already within the
Commissioner's possession, and [4] that the administrative steps
required by the Code have been followed.” United States v. Powell,
379 U.S. 48, 57-58 (1964). The IRS need only make a “minimal”
showing. See Gertner, 65 F.3d at 966 ("This burden is not taxing,
so to speak."). An affidavit of the investigating agent that the
Powell requirements are satisfied is sufficient to make the prima
facie case. Id.; see also United States v. Dynavac, Inc., 6 F.3d
1407, 1414 (9th Cir. 1993); United States v. Alphin, 809 F.2d 236,
238 (4th Cir. 1987); In re Newton, 718 F.2d 1015, 1019 (11th Cir.
1983); United States v. Will, 671 F.2d 963, 966 (6th Cir. 1982);
-7-
United States v. Kis, 658 F.2d 526, 538 (7th Cir. 1981); United
States v. Garden State Nat'l Bank, 607 F.2d 61, 68 (3d Cir. 1979);
Howa Trading, 2008 WL 2323872 at *4; United States v. Thomas, 254
F. Supp. 2d 174, 180 (D. Me. 2003).
Once the IRS has made this showing, the burden shifts to
the taxpayer to disprove one or more of the Powell requirements, or
to show that enforcement would be “an abuse of process, e.g., that
the summons was issued in bad faith for an improper purpose.”
Sterling Trading, 553 F. Supp. 2d at 1155-56 (C.D. Cal. 2008)
(citing Liberty Fin. Serv. v. United States, 778 F.2d 1390, 1392
(9th Cir. 1985)). The taxpayer's burden is heavy, and he “must
allege specific facts and evidence to support his allegations.”
Id. at 1156. The district court found that the appellants failed
to meet their ultimate burden. After reviewing the ruling on the
motions to quash for abuse of discretion, Bogosian v. Woloohojian
Realty Corp., 323 F.3d 55, 66 (1st Cir. 2003), we affirm.
A. The prima facie case
The appellants first argue that the district court erred
when it concluded that the sworn declarations from Weigner and
Loren were sufficient to establish the IRS's prima facie case under
Powell.
Weigner's declaration stated that the summonses were
issued for the purpose of investigating the appellants' returns
because they may be involved in potentially abusive DAD tax
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shelters. More specifically, Weinger stated that the IRS
examinations concerned the correctness of partnership returns filed
by Sugarloaf, Warwick, Derringer and Knight for various tax years
between January 1, 2003 and December 31, 2005. The examination
also implicated returns filed by individual participants who
claimed losses through their interests in these entities.
Weinger further stated that Portfolio's S-corporation
return for tax years 2003-2005 was a subject of his examination, as
was Rogers, indirectly, because he was Portfolio's sole
shareholder, and Portfolio's losses flowed directly through to his
individual returns.
Regarding the summonses at issue, Weinger stated that
after following all IRS procedural requirements, the summonses were
issued to Hartigan because he, through his wife (with whom he files
a joint tax return) purchased tax shelters involving several tiers
of LLCs receiving and contributing distressed debt to other LLCs,
transactions appearing similar to the DAD shelters described in the
CIP. Hartigan also promoted the sale of interests in similar LLCs
to others. According to Weinger, Hartigan's wife indirectly owned
between 96 and 98 percent of Derringer, and over 96 percent of
Knight, during the relevant time period. Losses from each entity
were claimed on the Hartigans' joint returns. Weinger also stated
that an investor in and seller of tax shelters, such as Hartigan,
should have documents and information responsive to the summonses,
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and that such documents would provide information to the IRS about
income and expenses, the circumstances surrounding the loss-
generating transactions and their anticipated tax benefits, all of
which would be relevant to the IRS investigation. In addition,
Hartigan would be expected to have information important to the IRS
in making a penalty determination, such as the nature of due
diligence performed by the appellants, and the extent of their
reliance on an advisor. Finally, Weinger stated that while the IRS
had obtained some information from taxpayers and third parties, it
was not in possession of the summoned information.
Agent Loren's declaration indicated that she was assigned
to examine Rogers's role in organizing, managing and selling tax
shelters; his compliance with various IRS registration and list
maintenance requirements and potential penalties for violating
them; and whether he made false or fraudulent statements in
connection with selling and organizing the shelters. The
declaration noted that the forty-three specific document requests
would provide information to the IRS relevant to the Rogers
examination. For example, where Hartigan personally marketed to
participants, he would ordinarily have correspondence addressing
tax implications. Such documents might help determine the legality
of the shelters, the extent of Rogers's involvement and any
liability for penalties. Also, information about fees paid to
Rogers or Hartigan would go toward explaining Rogers's role in
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particular transactions. While Loren noted that the IRS had
obtained copies of documents purportedly prepared by Rogers or
Hartigan, those documents were obtained from third parties.
The district court concluded that the IRS easily met
Powell's prima facie test. Considering the hearty content of the
agents' declarations, and that even "bareboned allegations" can
suffice to support the prima facie showing, cf. Gertner, 65 F.3d at
968, we agree that the IRS met its initial burden.
B. The appellants' response
The appellants advance three theories in support of their
argument that, contrary to the district court's conclusion, they
successfully rebutted the IRS's prima facie case. The first is
that the summoned information is not relevant to a legitimate
purpose. Next, they argue that the summonses themselves were not
issued for a legitimate purpose. And finally, they claim that the
summoned documents are already in the IRS's possession. We discuss
each in turn.
1. Relevance to a legitimate purpose
The appellants' first substantive argument is that the
information sought by the summonses is not relevant to a legitimate
purpose. They set forth three supporting reasons: first, that the
transactions in which they are engaged are different from the DAD
shelter described in the CIP; second, that the IRS improperly
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targeted Hartigan's (and others') motives; and third, that the
summonses were overbroad.
We start our analysis by noting that "the concept of
relevance under § 7602 is broader than that under the Federal Rules
of Evidence." Zugerese Trading LLC v. Internal Revenue Service,
2009 WL 1706583, No. 08-30894 (5th Cir. June 18, 2009) (citing
Arthur Young & Co., 465 U.S. at 813-14 n.11). Moreover, the IRS
may investigate "merely on suspicion that the law is being
violated, or even just because it wants assurance that it is not."
Powell, 379 U.S. at 57 (quoting United States v. Morton Salt Co.,
338 U.S. 632, 642-43 (1950)).
The gist of the appellants' first argument is that the
transactions at issue here are not unlawful DAD shelters. Given
the broad sweep of the IRS's investigative powers, however, such a
determination is beyond the scope of the inquiries undertaken by
the district court and this court in the summons enforcement
context. See Superior Trading, 2008 WL 5192379 at *6, n. 10
(court in summons enforcement proceeding "need not address whether
transactions were lawful"). "The function of the [court] in an
enforcement proceeding is not to test the final merits of the
claimed tax deduction, but to assess within the limits of Powell
whether the IRS issued its summons for a legitimate tax
determination purpose." Howa Trading, 2008 WL 2323872 at *4
(citing United States v. White, 853 F.2d 107, 116 (2nd Cir. 1988)).
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Accordingly, we reject the appellant's argument that the claimed
legality of their transactions provides a basis to quash the
summonses.
The appellants next argue that the motives of Hartigan
and other persons or entities involved in the transactions at issue
are "completely irrelevant" to the IRS's investigation. Again,
given the wide breadth of relevance in the present context, we
disagree. In a broad sense, the IRS is investigating the validity
of the partnerships themselves for purposes of assessing the
validity of the claimed tax losses. Thus, the IRS is permitted to
inquire as to whether the parties "intended to join together as
partners to conduct business activity for a purpose other than tax
avoidance." Adantech LLC v. Comm'r, 331 F.3d 972, 978 (D.C. Cir.
2003).
Next, the appellants' overbreadth argument focuses on the
summonses' inclusion of the term, "all documents," which, they
claim, makes the summonses overbroad as a matter of law. The two
cases upon which they rely, however, do not support this
proposition. Both United States v. Theodore, 479 F.2d 749 (4th
Cir. 1973) and Racca v. United States, 2007 WL 1108872, No. C06-
1822RSM, (W.D. Wash. Apr. 11, 2007), contain fact-specific analyses
that do not necessarily apply beyond their particular
circumstances. Indeed, there are no cases that universally
proscribe the use of "all documents" language. To the contrary, as
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the Fifth Circuit noted in rejecting an overbreadth claim in one of
the many cases involving the same players and issues present here,
a summons is not overbroad if it "describes the requested material
with sufficient particularity to permit the summoned party to
respond adequately." Zugarese Trading, 2009 WL 1706583 at *1.8
Here, the use of the term "all documents" is limited by reference
to particular subject matters. We therefore conclude that the
summonses are not overly broad.
2. Issuance for a legitimate purpose
The appellants next argue that the IRS did not issue the
summonses for a legitimate purpose. Specifically, they claim that
the IRS intended to use the summonses in order to avoid more
restrictive Tax Court discovery rules, to harass them, and to
improperly extend the statute of limitations applicable to the
examination of tax returns.
By way of background, a notice of deficiency permits an
individual taxpayer to bring a Tax Court proceeding to challenge
the tax liability claimed by the IRS in the notice. 26 U.S.C. §
6213. In the partnership context, a notice of final partnership
administrative adjustment (FPAA) is analogous to a notice of
deficiency. 26 U.S.C. § 6226. Discovery in Tax Court proceedings
is more limited than that permitted under the Federal Rules of
8
Hartigan, the "summoned party" has interposed no objections
to the summonses.
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Civil Procedure. Schneider Interests, L.P. v. Comm'r, 119 T.C. 151
(2002); see also United States v. Admin. Enter. Inc., 46 F.3d 670,
672 (7th Cir. 1995) ("Discovery in Tax Court proceedings is
traditionally informal and noncoercive . . . .").
"Courts look to the timing of a summons relative to the
commencement of [tax court] litigation in order to evaluate
validity in the face of such allegations." Sterling Trading, 553
F. Supp. 2d at 1159-60 (citing PAA Mgmt., Ltd. v. United States,
962 F.2d 212, 219 (2d Cir. 1992)). "Where the summons is issued
before the commencement of judicial proceedings, that summons is
generally not found to undermine the discovery process." Id.
Here, as the district court noted, it is undisputed that the IRS
issued the summonses before issuing the FPAA to Derringer.9 Thus,
"the timing of the summons does not suggest that the IRS intended
the summons as a pre-litigation discovery tool . . . ." Id.
The appellants argue that because the FPAA was a "final"
determination of Derringer's tax liability, the summons could only
have been for illegitimate purposes. This position, however,
overstates the impact of the FPAA. "The FPAA is not 'final' in the
sense that its issuance necessarily obviates the need for further
information, [or] brings the curtain down on the IRS's
administrative or investigative role . . . ." PAA Mgmt., 962 F.2d
9
The Derringer FPAA was issued approximately six weeks after
the summons and two weeks after the summons return date.
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at 219. Against this backdrop, the issuance of the FPAA does not
invalidate the legitimacy of the Derringer summons.
The appellants also rely on Rogers's version of a
conversation with Weinger in which Weinger allegedly said that the
IRS auditors were "being guided by district counsel who planned to
litigate regardless of the result of the audit and notwithstanding
whether petitioners were able to prove bad business debt through
the audit." The appellants rely on PAA Mgmt. Ltd. v. United
States, No. 91C168, 1992 WL 346314 (N.D. Ill. Nov. 19, 1992), for
the proposition that the motive to use in litigation materials
obtained by summons is evidence of an improper purpose. In PAA
Mgmt, however, the court found that the IRS agent explicitly
admitted that the IRS did not need the summoned materials for its
examination, but rather that it only sought the material to
“protect the government's interests" in Tax Court. 1992 WL 346314
at *5-6. There is no such admission here. Instead, the
declaration in this case states that the information sought in the
Derringer summons "is still necessary" to the determination of the
accuracy of Derringer's returns. And contrary to the appellants'
assertions, Weinger's alleged statement (which was in connection
with a different summons enforcement proceeding10) does not compel
an outcome in their favor here, particularly in light of the fact
that in the other proceeding Weinger expressly denied being
10
Ironwood Trading, supra.
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directed by counsel to seek specific documents. Moreover, there is
no prohibition against IRS agents speaking with district counsel
during an examination. Good Karma, LLC, 546 F. Supp. 2d at 604.
Accordingly, we reject the appellants' discovery claim.
The appellants' claim of harassment11 is based on two
specific claims, neither of which is sufficient to merit relief.
First, they argue that the IRS threatened the imposition of severe
penalties if they did not settle. The IRS does not dispute that it
sought settlement; however, "The mere fact that the IRS attempted
to settle with taxpayers . . . hardly amounts to a 'threat.'"
Sterling Trading, 553 F. Supp. 2d at 1158. Next, the appellants
claim that the IRS threatened one of their attorneys. According to
an affidavit from the attorney, IRS agents believed that the
attorney's responses to document requests were incomplete and told
the attorney that failure to respond could result in a disciplinary
referral. This conduct does not rise to the level of harassment,
either. In the first place, the attorney did not characterize the
agents' communications as "threats," nor have other courts viewed
them as "threats." See, e.g., Superior Trading, 2008 WL 5192379 at
*6 (citing Ironwood Trading, 2008 WL 817006 at *3). Perhaps more
importantly, the alleged threats involved an individual and
11
The appellants' overarching theory is that the large number
of pending legal proceedings is evidence of a nationwide harassment
effort.
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partnership entity distinct from any in this case. Accordingly,
the appellants' claim of harassment fails.
We also reject the appellants' argument that the
summonses were issued as a means to improperly extend the
applicable statutes of limitation.12 As the district court noted,
and as the appellants concede, it was the filing of the petition to
quash that tolled the statute, not the issuance of the summonses.
26 U.S.C. § 7609(e)(1). The statute is also tolled if the summoned
party does not comply within six months. 26 U.S.C. § 7609(e)(2).13
In the end, the appellants fail to cite any evidence in support of
their statute of limitations argument.
Based on the foregoing, we affirm the district court's
finding that the summonses were not issued for an improper purpose.
3. Documents already possessed
The appellants' final substantive argument is that the
IRS is already in possession of the summoned documents. They rely
on the fact that Rogers and the appellants' accountant have already
appeared for interviews and produced documents. As previously
noted, however, the IRS is entitled to obtain relevant records from
third parties to compare for accuracy any records obtained from the
12
The IRS is generally authorized to audit tax returns within
three years of their filing. 26 U.S.C. §§ 6501, 6229.
13
The limitations period with respect to Derringer and Rogers
were tolled by the issuance of an FPAA and deficiency notice,
respectively.
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taxpayer. While the appellants claim that "more than one million
pages of documents" have been produced, they do not suggest how
those documents are responsive to the summonses issued to Hartigan.
See Sterling Trading, 553 F. Supp. 2d at 1161 (rejecting identical
argument). Nor do they dispute that Hartigan has not yet provided
testimony, as was requested. The appellants' claim that the IRS is
already in possession of the summoned documents therefore fails.
C. Other arguments
The appellants make two additional arguments, neither of
which require extended discussion. The first is that the district
court should have stricken the IRS's petition to enforce, or deemed
all of the appellants' allegations below admitted, because the IRS
did not file an answer or a motion under Rule 12 or Rule 56 of the
Federal Rules of Civil Procedure, but instead responded to the
petition with its own motion to deny that of the appellants and to
enforce the summonses. We disagree. While the federal rules apply
to these proceedings, "they are not inflexible in this
application," Donaldson, 400 U.S. at 528, since Rule 81(a)(5)
explicitly states that the rules may be limited by the district
court. Moreover, given that the IRS's motion "mirror[ed] a
12(b)(6) motion to dismiss," Cosme v. United States, 708 F. Supp.
45, 48 (E.D.N.Y. 1989), we agree with the Fifth Circuit that the
IRS "sufficiently responded to the petition to quash . . . ."
Zugerese, 2009 WL 1706583 at *2.
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The appellants also claim that the district court erred
in denying them discovery and an evidentiary hearing before ruling
on the dueling motions. Yet as the Supreme Court has held,
"Summons enforcement proceedings should be summary in nature and
discovery should be limited." United States v. Stuart, 489 U.S.
353, 369 (1989). Accordingly, the decision whether to conduct an
evidentiary hearing in a summons enforcement proceeding is within
the district court's discretion. United States v. Tiffany Fine
Arts, 469 U.S. 310, 324 n.7. (1985); Gertner, 65 F.3d at 969.
"There is no hard-and-fast rule compelling an evidentiary hearing,"
Gertner, 65 F.3d at 967, and the "district court may, in
appropriate circumstances, forgo such a hearing and decide the
issues on the existing record." Id. In order to proceed to an
evidentiary hearing, a taxpayer must make a sufficient threshold
showing that there was an improper purpose behind an IRS summons.
Copp v. United States, 968 F.2d 1435, 1438 (1st Cir. 1992). To
make this showing, the taxpayer must do more than allege an
improper purpose; he must introduce evidence to support his
allegations. Id. Here, the district court supportably found that
the appellants failed to make this threshold showing. In so
finding, the district court did not abuse its discretion.
V. Conclusion
The judgment of the district court is affirmed.
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