NOT FOR PUBLICATION FILED
UNITED STATES COURT OF APPEALS JUL 3 2017
MOLLY C. DWYER, CLERK
U.S. COURT OF APPEALS
FOR THE NINTH CIRCUIT
KEITH NGO, KNT-INC.,
KNT ENGINEERING, INC., and K-
BEAM, LLC, No. 15-16473
Petitioners - Appellants, D.C. No. 4:15-mc-80008-YGR
v.
MEMORANDUM∗
UNITED STATES OF AMERICA,
Respondent – Appellee.
Appeal from the United States District Court
for the Northern District of California
Yvonne Gonzalez Rogers, District Judge, Presiding
Argued and Submitted April 18, 2017
San Francisco, California
Before: SCHROEDERR and RAWLINSON Circuit Judges, and DRAIN, ** District
Judge.
Appellants Keith Ngo, KNT-Inc., KNT Engineering, Inc., and K-Beam,
LLC, appeal the district court’s order denying Appellants’ motion to quash and
∗
This disposition is not appropriate for publication and is not precedent
except as provided by Ninth Circuit Rule 36-3.
**
The Honorable Gershwin A. Drain, United States District Judge for the
Eastern District of Michigan, sitting by designation.
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granting the Appellee United States of America’s motion to enforce an
administrative summons, issued without notice, to East West Bank, requesting
financial records for accounts in the Appellants’ names. We have jurisdiction
pursuant to 28 U.S.C. § 1291.
1. An IRS summons may be quashed when the IRS has not acted in
“good faith.” United States v. Richey, 632 F.3d 559, 564 (9th Cir. 2011). The
Government has the burden to show that the summons (1) was issued for a
legitimate purpose, (2) the records and testimony sought by the summons are
relevant to that purpose, (3) the records are not already in the possession of the
IRS, and (4) the administrative steps required by the Code have been followed.
United States v. Clarke, 134 S. Ct. 2361, 2365 (2014) (quoting United States v.
Powell, 379 U.S. 48, 57-58 (1964)). An IRS agent’s sworn declaration
demonstrating the Powell factors have been met is generally sufficient to show
“good faith.” Liberty Fin. Servs. v. United States, 778 F.2d 1390, 1392 (9th Cir.
1985). When the Government sets forth a prima facie case, the petitioner bears the
“heavy burden” of alleging “specific facts and evidence” supporting its allegations
of bad faith. Id.
2. Here, the Government met its prima facie burden under Powell,
through the declaration of Internal Revenue Service Officer Nicholas Brunetti. The
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declaration established that the summons was issued for the legitimate purpose of
investigating Hoang Ngo’s earnings and assets and to determine if any of the
Appellants were his transferee, alter ego or nominee. The records sought are
relevant to the collection of Hoang Ngo’s outstanding tax liability. The IRS did
not already have possession of the summoned records. Lastly, all of the required
administrative steps were taken since the Appellants were not entitled to notice of
the summons.
3. Generally, notice must be given to the parties whose records are
summoned to avoid improper disclosure of records held by third-parties. See 26
U.S.C. § 7609. The exceptions to the general notice requirement that are relevant
to the instant appeal are found in 26 U.S.C. § 7609(c)(2)(D) and state that no
notice is required for a summons “issued in aid of the collection of—(i) an
assessment made or judgment rendered against the person with respect to whose
liability the summons is issued; or (ii) the liability of . . . any transferee or
fiduciary of any person referred to in clause (i).” 26 U.S.C. § 7609(c)(2)(D).
4. A third party is not entitled to notice that his records have been
summoned by the IRS if the third party is a fiduciary or transferee of an assessed
taxpayer, or the assessed taxpayer had “some legal interest or title in the object of
the summons.” Ip v. United States, 205 F.3d 1168, 1173, 1175 (9th Cir. 2000). To
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determine whether a taxpayer has a sufficient legal interest in the summoned
records, courts should consider “whether there was an employment, agency, or
ownership relationship between the taxpayer and the third party.” Viewtech, Inc. v.
United States, 653 F.3d 1102, 1106 (9th Cir. 2011).
5. Here, Hoang Ngo was the 100 % owner of KNT, Inc., in 2012 and an
officer and employee of KNT, Inc., until sometime in 2014. Appellants’ suggestion
that Hoang Ngo was required to have a “present connection” and “ownership
interest” in KNT, Inc. finds no support in the law. In Viewtech, the IRS issued its
administrative summons in 2009 even though the evidence it possessed concerning
the assessed taxpayer included his ownership and employment status in the years
2007 and 2008. Id. at 1103. Nonetheless, the Viewtech court concluded that there
was a “close legal relationship” between the assessed taxpayer and Viewtech’s
summoned bank records to invoke the notice exception of § 7609. Id. at 1106.
6. As to KNT Engineering, the evidence uncovered by the IRS
demonstrated that Hoang Ngo was the 100% owner in 2012, and that KNT
Engineering had paid him more than $194,000 in income that year. Moreover,
Keith Ngo has admitted that Hoang Ngo was a corporate officer of KNT
Engineering as late as 2013. Therefore, KNT Engineering was likewise not
entitled to notice pursuant to the clause (i) exception because of the close legal
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relationship between it and Hoang Ngo.
7. As to K-Beam, LLC, the IRS’s investigation revealed that Hoang Ngo
was either a member or manager of K-Beam, LLC pursuant to a “Statement of
Information” filed with the Secretary of State in November of 2013. A manager is
an agent under California law, see Cal. Corp. Code § 17703.01(a), thus Hoang Ngo
had a sufficient legal interest in K-Beam, LLC under the clause (i) exception to
preclude notice of the summons.
8. There is no merit to Appellants’ contention that in order for the clause
(ii) exception to apply, a determination of transferee liability is required. Neither
Ip nor Viewtech suggest that a determination of transferee liability must have been
made before clause (ii)’s notice exception may be relied upon by the IRS.
Appellants have admitted that Hoang Ngo transferred money into Keith Ngo’s
account. Thus, the clause (ii) exception applied to Keith Ngo.
9. Lastly, Appellants failed to meet their “heavy burden” with “specific
facts and evidence” that the summons was issued in bad faith or for an improper
purpose. For all of the above reasons, the district court properly denied Appellants’
motion to quash and granted the Appellee’s motion to enforce the summons issued
to East West Bank.
AFFIRMED.
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