Timothy Elmes v. United States

[DO NOT PUBLISH]

IN THE UNITED STATES COURT OF APPEALS
FILED
FOR THE ELEVENTH CIRCUIT U.S. COURT OF APPEALS
________________________ ELEVENTH CIRCUIT
FEB 1, 2008
No. 07-11029 THOMAS K. KAHN
________________________ CLERK

D. C. Docket No. 06-60501-CV-DLG

TIMOTHY J. ELMES,

Plaintiff-Appellant,

versus

UNITED STATES OF AMERICA,
through Internal Revenue Service,
through Kim Keelan, Revenue Agent,

Defendant-Appellee.

________________________

Appeal from the United States District Court
for the Southern District of Florida
_________________________

(February 1, 2008)

Before TJOFLAT, MARCUS and WILSON, Circuit Judges.

PER CURIAM:

At issue in this appeal is whether the United States District Court for the
Southern District of Florida properly enforced two summonses served on

American Express and Northern Trust Bank, respectively, by the Internal Revenue

Service (“IRS”). After thorough review, we affirm.

I.

In 2002, Timothy J. Elmes claimed to be a resident of the Virgin Islands and

ceased filing his U.S. tax returns. On March 22, 2006, IRS Agent Jim Keelan

issued summonses to the South Florida custodians of American Express and

Northern Trust Bank requesting bank account and credit card statements,

correspondence, and billing address information to determine whether Elmes was a

resident of the United States during the years 2002 through 2004.

Elmes petitioned to quash the summonses, and the Government thereafter

moved to dismiss his petition and to enforce the summonses. Along with that

motion, the Government included an affidavit signed by Agent Keelan declaring

that the summonses complied with the four factors laid out by the Supreme Court

in United States v. Powell, 379 U.S. 48, 57-58 (1964). On January 26, 2007, the

district court denied Elmes’ petition and ordered the enforcement of both

summonses. This timely appeal followed.

II.

“An order enforcing an IRS summons will not be reversed unless clearly

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erroneous.” United States v. Medlin, 986 F.2d 463, 466 (11th Cir. 1993).

Pursuant to 26 U.S.C. § 7602, “the Secretary of the Treasury, or the IRS as

his designee, may examine any books, papers, records, or other data which may be

relevant or material to . . . ascertaining the correctness of any return and may issue

summonses to those in possession, custody, or care thereof to appear and produce

them to the IRS.” La Mura v. United States, 765 F.2d 974, 979 (11th Cir. 1985)

(citation and internal quotation marks omitted).1 The “IRS’ power to investigate”

under 26 U.S.C. § 7602 is “broad and expansive.” Id. (citation and internal

quotation marks omitted). “This authority, however, is not unbounded. The subject

of an IRS investigation may petition to quash a third-party summons pursuant to 26

1
In pertinent part, 26 U.S.C. § 7602(a) provides:

For the purpose of ascertaining the correctness of any return, making a
return where none has been made, determining the liability of any person
for any internal revenue tax or the liability at law or in equity of any
transferee or fiduciary of any person in respect of any internal revenue tax,
or collecting any such liability, the Secretary is authorized --
(1) To examine any books, papers, records, or other data which may
be relevant or material to such inquiry;
(2) To summon the person liable for tax or required to perform the
act, or any officer or employee of such person, or any person having
possession, custody, or care of books of account containing entries
relating to the business of the person liable for tax or required to
perform the act, or any other person the Secretary may deem proper,
to appear before the Secretary at a time and place named in the
summons and to produce such books, papers, records, or other data,
and to give such testimony, under oath, as may be relevant or
material to such inquiry[.]

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U.S.C. § 7609(b),” and a “now-familiar scheme of shifting burdens, designed to

ensure only the basic propriety of the investigation, applies to such petitions.”

Mollison v. United States, 481 F.3d 119, 122 (2d Cir. 2007) (per curiam).

First, the Government must establish a prima facie case for enforcement of

the summons by satisfying each of the four factors laid out by the Supreme Court

in Powell. Medlin, 986 F.2d at 466. Specifically, the Government must

demonstrate “[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 IRS’ possession, [and 4] that the

administrative steps required by the Code have been followed.” Id. (citation and

internal quotation marks omitted). In addition, the Government must show that no

“Justice Department referral is in effect with respect to such person.” 26 U.S.C. §

7602(d)(1). “The IRS may satisfy its minimal burden merely by presenting the

sworn affidavit of the agent who issued the summons attesting to these facts.”

Medlin, 986 F.2d at 466 (citation and internal quotation marks omitted).

“Thereafter, the burden shifts to the party contesting the summons to disprove one

of the four elements of the government’s prima facie showing or convince the

court that enforcement of the summons would constitute an abuse of the court’s

process.” La Mura, 765 F.2d at 979-80. “The taxpayer’s burden is a heavy one,

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which he must meet by disproving the actual existence of a valid civil tax

determination or collection purpose by the IRS.” Mollison, 481 F.3d at 123

(citation and internal quotation marks omitted).

Here, Agent Keelan’s affidavit establishes the requisite elements for

enforcement of the summonses. First, Keelan stated that he was conducting an

investigation to determine Elmes’ tax liabilities for the years 2002 through 2004, a

purpose expressly authorized by Section 7602. See 26 U.S.C. § 7602(a) (“For the

purpose of . . . determining the liability of any person for any internal revenue

tax[.]”). Second, Keelan declared that he expected the records requested by the

summonses to reveal information necessary to a determination of Elmes’ tax

liability by providing insight into Elmes’ residency. Third, Keelan confirmed that,

as of the date of the investigation, the IRS was not already in possession of the

summoned information. Fourth, Keelan described how the summonses complied

with the Code’s procedures. Lastly, Keelan declared that no “Justice Department

referral was in effect” with respect to Elmes. 26 U.S.C. § 7602(d).

The burden therefore shifts to Elmes either “to disprove one of the four

elements of the government’s prima facie showing or convince the court that

enforcement of the summons would constitute an abuse of the court’s process.” La

Mura, 765 F.2d at 979-80. Elmes does not dispute the Government’s assertion that

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no referral to the Department of Justice has been made, nor does he argue that

enforcement of the summonses would constitute an abuse of the court’s process.

Instead, he alleges that he is a bona fide resident of the Virgin Islands, and that, for

reasons flowing from this status, the Government has failed to satisfy three of the

four Powell factors.2 We disagree.

Elmes contends, first, that the Government’s investigation was not

conducted for a legitimate purpose. Specifically, Elmes argues that, because he is a

bona fide resident of the Virgin Islands, the United States has no authority either to

tax him or to investigate the possibility of taxing him. But a motion to enforce a

summons does not require us to determine whether Elmes is or is not a resident of

the Virgin Islands. The question we must address, rather, is whether an

investigation into Elmes’ residency -- and, therefore, his taxability -- is a legitimate

purpose of the summons power. The plain language of Section 7602 indicates that

it is. See 26 U.S.C. § 7602(a) . Moreover, even assuming that Elmes is a resident of

the Virgin Islands, the IRS would still have the authority to investigate his tax

liabilities because the IRS is allowed to tax residents of the Virgin Islands to the

extent they have not paid their Virgin Islands taxes in full. See 26 U.S.C. §

932(c)(4); see also Mollison, 481 F.3d at 123. Accordingly, Elmes has not met his

2
Elmes does not argue that the IRS was already in possession of the requested
information when it issued the summonses – the third Powell factor.

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“heavy” burden of refuting the Government’s prima facie showing that the

summonses were issued for a “legitimate purpose.”

Elmes next argues that the information sought was irrelevant to the

Government’s investigation. The Internal Revenue Code authorizes the

Government to examine “any books, papers, records, or other data which may be

relevant or material” to its inquiry. 26 U.S.C. § 7602(a)(1). “The government’s

burden of showing relevance in this context is slight. If the information sought by

an IRS summons might throw light upon the correctness of the taxpayer’s return,

then it is deemed to be relevant.” La Mura, 765 F.2d at 981 (internal quotation

marks omitted).

We agree with the Government that the bank records and financial

statements it seeks from American Express and Northern Trust Bank “might throw

light upon” the question of Elmes’ residency and, therefore, his tax liabilities. For

example, Elmes’ financial records may demonstrate that he conducts all, or a great

majority of, his banking in Florida, rather than in the Virgin Islands. Similarly, his

credit card statements may highlight the restaurants he frequents, the dry cleaners

he uses, and a host of other transactions relevant to where he actually resides.

Accordingly, Elmes has not met his “heavy” burden of refuting the Government’s

prima facie showing that the summonses were relevant to a determination of his

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residency.

Lastly, Elmes cites four cases -- United States v. Stuart, 489 U.S. 353

(1989), Barquero v. United States, 18 F.3d 1311 (5th Cir. 1994), Mazurek v.

United States, 271 F.3d 226 (5th Cir. 2001), and Lidas Inc. v. United States, 238

F.3d 1076 (9th Cir. 2001) -- for the proposition that the IRS must comply with the

procedures set forth in the Tax Implementation Agreement (“TIA”) between the

United States and the Virgin Islands before issuing a summons regarding a resident

of the Virgin Islands.3 But these cases all involve summonses to American

institutions issued by the IRS at the request of foreign treaty partners and pursuant

to foreign investigations. It is certainly the case, as Elmes suggests, that when the

taxing authorities of Canada, Mexico, France, or the Virgin Islands seek financial

information from an American entity -- as was the case in Stuart, Barquero,

Mazurek and Lidas, respectively -- they should submit their requests to the IRS, as

provided in the various tax agreements and treaties between those countries and the

United States. But where, as here, the IRS summons an American bank pursuant to

its own investigation, the Government need only follow the Code’s procedures.

See Mollison, 481 F.3d at 125 (quoting Powell, 379 U.S. at 58) (“[A] literal

reading of Powell requires compliance with only the Code’s procedures, ‘in

3
The TIA was signed by the Secretary of the Treasury and a representative of the Virgin
Islands on February 24, 1987.

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particular, that the Secretary or his delegate, after investigation, has determined the

further investigation to be necessary and has notified the taxpayer in writing to that

effect.’”).

Elmes concedes that he received proper notice, and the Government has said

it needs the summoned information for the purpose of determining Elmes’ tax

liabilities. See Powell, 379 U.S. at 53-54 (“If, in order to determine the existence

or nonexistence of fraud in the taxpayer’s returns, information in the taxpayer’s

records is needed which is not already in the Commissioner’s possession, we think

the examination is not ‘unnecessary’ within the meaning of § 7605(b).”).

Therefore, Elmes has failed to demonstrate that the summonses were procedurally

improper.4

AFFIRMED.

4
Elmes argues, also, that Agent Keelan, who issued the summonses, was not the
Secretary’s authorized “delegate.” But Internal Revenue Agents may issue summonses to third-
party witnesses where “the issuing officer’s manager, or any supervisory official above that
level, has authorized the issuance of the summons in advance (evidenced by the supervisor's
signature on the summons)[.]” IRS Delegation Order No. 4 Rev. 22, 1997 WL 33479254 (1997).
Here, both summonses bear the signature of Agent Keelan’s Group Manager, Larry Harris.

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