IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
_______________________________
No. 00-31430
_______________________________
ZBIGNIEW EMILIAN MAZUREK,
Plaintiff-Appellant,
versus
UNITED STATES of AMERICA,
Defendant-Appellee.
_________________________________________________
Appeal from the United States District Court
for the Eastern District of Louisiana
_________________________________________________
November 7, 2001
Before GARWOOD and WIENER, Circuit Judges, and CLEMENT,* District
Judge.
WIENER, Circuit Judge:
Plaintiff-Appellant Zbigniew Emilian Mazurek challenges the
district court’s denial of his motion to quash the summons of the
U.S. Internal Revenue Service (the “IRS”), issued in response to a
request by the French Tax Authority (the “FTA”), for Mazurek’s
financial records. We conclude that, because the IRS acted in good
faith and met its burden under United States v. Powell,1 it is
*
Chief Judge of the Eastern District of Louisiana, sitting
by designation.
1
379 U.S. 48 (1964).
entitled to enforcement of its summons. We therefore affirm the
ruling of the district court.
I.
FACTS AND PROCEEDINGS
Mazurek is the subject of an investigation by the FTA
concerning his civil liability for French taxes. In the course of
its investigation, the FTA requested that the IRS obtain Mazurek’s
relevant financial information located in the United States. The
FTA made this request pursuant to the terms of the Convention
Between the Government of the United States and the Government of
the French Republic for the Avoidance of Double Taxation and the
Prevention of Fiscal Evasion with Respect to Tax on Income (the
“Treaty” or the “U.S.-France Tax Treaty”). In relevant part, the
Treaty provides for the exchange of tax and financial information
between France and the United States, but does not obligate either
country to supply information that is not obtainable under the laws
of either country.
Assistant IRS Commissioner (International) John T. Lyons,
designated under the Treaty as the Competent Authority for the
United States, reviewed the FTA’s request and found it to be within
the guidelines of the Treaty. After Lyons’s approval, an IRS agent
issued a summons to Bank One of Louisiana on behalf of the FTA,
ordering that bank to turn over Mazurek’s relevant financial
documents to the IRS. In accordance with Internal Revenue Code
(“I.R.C.”) § 7609, Mazurek was notified of the service of the
2
summons. In response, Mazurek exercised his statutory right under
I.R.C. § 7609 by filing a motion to quash the summons. The IRS
responded with a motion seeking to dismiss Mazurek’s motion for
failure to state a claim and to obtain an order enforcing the
summons.
The district court referred the matter to a magistrate judge
who, after hearing from both parties, issued a Report and
Recommendation. In it the magistrate judge concluded that
discovery and a full evidentiary hearing were not necessary, and
the summons should be enforced. Adopting the magistrate judge’s
Report and Recommendation, the district court denied Mazurek’s
motion to quash and granted the IRS’s motion to enforce.
During the course of these proceedings in the district court,
Mazurek initiated a separate action in a French forum, contesting
the FTA’s determination that he was a French resident for the
period covered by the FTA’s investigation. In his district court
motion to quash and his response to proceedings before the
magistrate judge (and again on appeal), Mazurek asserted that under
French law the FTA could not continue its investigation until a
final decision on his residency status is made, arguing that it
would therefore be improper for the IRS to provide his financial
information to the FTA at this time. The magistrate judge found
this argument to be inapposite, concluding that the IRS had
presented a prima facie case for enforcement and that Mazurek had
failed to allege facts or produce evidence sufficient to undermine
3
the government’s prima facie case. More to the point, the
magistrate judge determined that Mazurek had not alleged facts
sufficient to show that the IRS was acting in bad faith in issuing
the summons and seeking to enforce it on behalf of the FTA. The
magistrate judge observed that Mazurek’s arguments and requests for
information inappropriately focused on the legitimacy and bad faith
of the FTA in requesting the summons rather than on the good faith
of the IRS in seeking to comply with that request under the Treaty.
The magistrate judge was convinced that Mazurek’s arguments
regarding residency were directed at matters of French law best
left for French authorities to resolve. After the district court
adopted the magistrate judge’s report and entered judgment in favor
of the IRS, Mazurek timely appealed.
II.
ANALYSIS
A. Enforcement of the Summons
1. Standard of Review
In reviewing the district court’s grant of a motion to enforce
a summons, we accept all facts found by the district court unless
they are clearly erroneous.2 We then determine whether the
2
Fed. R. Civ. P. 52(a).
4
government has demonstrated a prima facie case by fulfilling the
four factors delineated in Powell.3 The burden on the government
to produce a prima facie case is “slight” or “minimal.”4 Next, if
the government meets its burden, we assess whether the opponent of
the summons fulfills his “heavy” burden of rebutting the
proponent’s case by either undermining the proponent’s contentions
regarding any of the Powell factors or by demonstrating that
enforcement of the summons would result in an “abuse” of the
court’s process.5
2. The IRS meets the Powell Factors
In Powell, the Supreme Court identified four factors that the
government must show to establish a prima facie case for summons
enforcement: (1) The investigation is conducted pursuant to a
legitimate purpose; (2) the inquiry is relevant to that purpose;
(3) the information sought is not already within the IRS’s
possession; and (4) the administrative steps required by the I.R.C.
3
379 U.S. 48 (1964).
4
See Barquero v. United States, 18 F.3d 1311, 1317 (5th Cir.
1994); United States v. Davis, 636 F.2d 1028, 1034 (5th Cir. 1981);
see also Lidas v. United States, 238 F.3d 1076, 1082 (9th Cir.
2001) (citing Barquero and interpreting the same Treaty provision
as the instant case).
5
See United States v.Southeast First Nat. Bank, 655 F.2d
661, 664-65 (5th Cir. 1981); see also Lidas, 238 F.3d at 1081
(resolving a summons dispute under the U.S.-France Tax Treaty and
holding that an affidavit by Lyons, making the same declarations as
in the instant case, established a prima facie case and that
petitioners could not meet their heavy burden of rebutting the
affidavit).
5
have been followed.6 The government’s minimal burden at this stage
can be fulfilled by a “simple affidavit” by the IRS agent issuing
the summons.7 The Powell framework is employed even when, as here,
we consider a summons issued pursuant to a request by a treaty
partner.8
Assistant IRS Commissioner Lyons reviewed the FTA’s request
and submitted an affidavit to the district court stating that: (1)
The FTA’s request was properly made; (2) the requested information
was not already in the possession of either the IRS or the FTA; (3)
the requested information could be relevant to an investigation of
Mazurek’s French civil tax liability; and (4) the same type of
information could be obtained by the FTA under French law and, if
the situation were reversed, the United States could properly
request such information from France. On its face, the affidavit
establishes the IRS’s compliance with Powell’s last three factors.
In addition, the IRS meets Powell’s first (“legitimate purpose”)
requirement because it is attempting to fulfill the United States’s
obligations under the Treaty efficiently. Assisting the
investigation of a foreign tax authority has been held to be a
legitimate purpose by itself.9 With the Lyons affidavit,
6
379 U.S. 48 at 57-8.
7
Davis, 136 F.2d at 1034; Lidas, 238 F.3d at 1082.
8
United States v. Stuart, 489 U.S. 353, 356 (1989).
9
See United States v. A.L. Burbank & Co., 525 F.2d 9, 16-7
(2d. Cir. 1975) (“American administrative procedures (which include
6
therefore, the IRS established a prima facie case under Powell.
B. Mazurek’s Failed Challenge
To rebut the government’s prima facie case, Mazurek had either
to refute one of the Powell factors that the IRS established or to
show that enforcement in the district court would amount to an
“abuse” of the judicial process.10 An abuse of the judicial process
occurs when a summons is sought for an “improper purpose, such as
... harass[ing] the taxpayer, ... put[ting] pressure on him to
settle a collateral dispute” or obtaining information solely for a
criminal prosecution under the guise of a civil liability
investigation.11
1. Abuse of Process
As already noted, in contrast to the IRS’s slight prima facie
burden, the taxpayer’s burden at the rebuttal stage is heavy.
Mazurek cannot show that the IRS’s summons constituted an abuse of
the judicial process. He has adduced no evidence, and indeed has
not even alleged, that the summons is being used to harass, to
gain leverage, or pretextually to develop a criminal investigation.
Furthermore, even if we were to look into Mazurek’s legal
the administrative summonses in issue here) are properly utilized
where the purpose is solely to assist the investigation of a
Canadian potential tax liability.”) (parentheses in original)
(emphasis added).
10
Powell, 379 U.S. at 58; Davis, 636 F.2d at 1034.
11
Powell, 379 U.S. at 58; United States v. Southeast First
Nat. Bank, 655 F.2d 661, 665 (5th Cir. 1981).
7
proceedings in France, we would not find that he has demonstrated
that the FTA’s Treaty request for a summons constituted an abuse of
judicial process, i.e., that the French investigation was or is
being conducted for an illegitimate purpose. Mazurek incorrectly
conflates his challenge to his residency determination and the
alleged illegitimacy of the FTA’s investigation. It does not
follow, simply because Mazurek challenges the FTA’s residency
determination, that the FTA’s investigation is being conducted for
an improper purpose. Mazurek has presented no evidence to suggest
that the FTA is investigating him so as to harass or gain leverage.
To the contrary, Mazurek concedes that the FTA’s sole purpose is to
determine his civil liability for French taxes. Therefore, even if
French law requires the FTA to suspend its investigation pending
resolution of the residency appeal, there is no indication that the
FTA’s purpose is not legitimate in any way. Thus, Mazurek must
challenge the four Powell factors directly.
2. The Powell Factors
Of the four Powell factors, the only one that Mazurek could
conceivably contest is the “legitimate purpose” requirement. He
attempts to do this by arguing that, because he was not a resident
of France for the periods implicated by the FTA investigation, any
request for information covered by the investigation is not for a
legitimate purpose. Essentially, Mazurek contends that, during the
time that the determination of his residency status is awaiting
final resolution in a French court, the FTA’s request cannot be
8
legitimate.
The problem with this reasoning, as the magistrate judge
noted, is that Mazurek focuses on the legitimacy of the FTA’s
investigation, not on the legitimacy of the IRS’s compliance with
the FTA’s request. Yet, to rebut the Powell requirement, Mazurek
must show that the IRS is acting in bad faith.12 As long as the IRS
acts in good faith, it need not also attest to — much lest prove —
the good faith of the requesting nation.13 Requiring district
courts and the IRS to look into the good faith of the requesting
country’s investigation would — at least when, as here, the
taxpayer concedes that the treaty partner is interested only in
civil tax collection — unwisely necessitate an inquiry into the
propriety of the FTA’s actions under French law. And, under the
plain language of Stuart, Mazurek has failed to show that the IRS
acted improperly.
Perhaps Mazurek’s strongest argument for quashing the summons
is his contention that executing the summons would expand the FTA’s
rights by allowing it access to information, through IRS
compliance, that it could not obtain under French law. Mazurek
does not dispute that, if he were a French resident, the FTA would
have the right to request such information from the United States.
12
Stuart, 489 U.S. at 370 (“So long as the IRS itself acts
in good faith, as the term was explicated in United States v.
Powell [citation omitted] and complies with applicable statutes, it
is entitled to enforcement of its summons.”).
13
Id.
9
Rather, he claims that, under French law, the FTA must suspend its
investigation once he challenges his residency and may not
reinstate it while the determination of his residency status for
the years in question is pending. If the FTA must suspend its
investigation during the appeal, Mazurek reasons, then allowing the
IRS to provide the FTA with the requested information during that
time permits the FTA to circumvent French law and obtain
information at a time that it could not obtain it directly.14
It is at least arguable that the FTA cannot use United States
authority to expand its own rights and procure information that the
FTA could not acquire under French laws. Mazurek would support
this argument by references to the Commentary to the Model Tax
Treaty and to non-precedential case law addressing the exchange
provisions of other U.S. Tax Treaties. The Commentary to the Model
Tax Treaty, which contains language similar to the U.S.-France Tax
14
The IRS submitted affidavits from Competent U.S.
Authorities which indicate that the proceedings in French court do
not affect the exchange of information between the U.S. and France.
The Supplemental Declaration of John T. Lyons states:
Upon being advised of this proceeding and certain
represenations being made to the Court by Mr. Mazurek,
Christiane Marechal, Tax Attache3 to the Embassy of
France, and current Competent Authority for the French
Government, has informed me as follows:
....
(b) Under French law, the filing of Mr. Mazurek’s
appeal of the residency determination does not
affect or require the suspension of the prior
request for exchange of information forwarded to
the United States pursuant to Article 27 of the
Convention.
10
Treaty, states, in relevant part:
[A] Contracting State cannot take advantage of the
information system of the other Contracting State if it
is wider than its own.15
The United States tax treaties currently in force are based, in
large part, on the Model Treaty.16 Hence, contends Mazurek, the
Commentary to the Model Treaty should provide some guidance in
interpreting the Treaty at issue. In addition, United States v.
Lincoln First Bank, one of the first cases to address the
discretionary exchange provisions of U.S. Tax Treaties like the one
here at issue, appears to support Mazurek’s contention that a
foreign nation may not use the administrative processes and
governmental agencies of the United States to obtain information
that the foreign nation cannot obtain under its own laws.17
Although these assertions are correct in the abstract, there
are several reasons why Mazurek’s argument is not wholly convincing
under the instant circumstances. First, the Treaty provides in
relevant part:
15
Organization for Economic Co-Operation and Development,
Model Treaty, Art. 26, 1977 Revised Commentary.
16
Dennis D. Curtin, Exchange of Information Under the United
States Tax Treaties, 12 Brook. J. Int’l L. 35, 45-46 (1986).
17
United States v. Lincoln First Bank, 1980 WL 1500 (S.D.N.Y.
1980)(interpreting the U.S.-Norway Tax Treaty, which included a
provision identical to the one at issue, and stating, “The
governmental agencies of the United States should not be employed
to provide information to a foreign country which could not be
obtained under the laws of that country. A holding to the contrary
could result in an unintended circumvention of applicable foreign
laws and related domestic laws.”).
11
In no case shall the provisions of paragraph 1 [detailing
the information that can be properly requested and the
proper treatment of that information by the requesting
State] be construed so as to impose on a Contracting
State the obligation:
(a) to carry out administrative measures at
variance with the law or the administrative
practice of that or of the other Contracting State;
(b) to supply particulars that are not obtainable
under the laws or in the normal course of the
administration of that or of the other Contracting
State.18
Thus, even though it does not mandate the exchange of information
at variance with French law, neither does the plain language of the
Treaty forbid compliance with an otherwise proper treaty request.
Second, although the Commentary to the Model Treaty provides
guidance, the IRS’s specific commentary and advice on the U.S.-
France Tax Treaty should be given greater weight. As the IRS notes,
the Treasury Department’s Technical Explanation of Article 27
provides only that “[e]ither Contracting State may ... at its
discretion, subject to the limitation of the paragraph and domestic
law, provide information that it is not obligated to provide under
the provisions of this paragraph.”19 The Treasury Department
apparently intended to provide broad discretionary authority to the
Competent Authority when considering a treaty partner’s request.
Moreover, the Treasury Department’s Technical Explanation of
Article 27 does not restrict the plain meaning of the Treaty
18
U.S.-France Income Tax Treaty, Art. 27 ¶ 2 (emphasis
added).
19
See Treasury Department’s Technical Explanation of Article
XXVII, 2 Tax Treaties (CCH) ¶ 3058 at 27, 199-43.
12
language in any way.
Third, Lincoln’s continued viability is questionable. The
Supreme Court’s language in Stuart seems to end the enforcement
inquiry with a determination that the IRS is acting in good faith.
A reasonable reading of Stuart suggests that an assessment of what
would be allowed or disallowed under a foreign nation’s law is
unnecessary. Moreover, a recent case from the Southern District of
New York, where Lincoln was decided, indicates that Lincoln may no
longer be good law, even within the jurisdiction that decided it.20
Finally, even if we were to assume that this country is
prohibited from supplying information that the FTA could not obtain
under French law, Mazurek’s contention in the instant case would
fail because the prohibition he asserts is merely temporal rather
than substantive. In other words, the gravamen of his contention
is that French law prohibits the FTA from gathering materials for
20
Azouz v. United States, 1999 WL 1581401, *1 (S.D.N.Y. 1999)
(interpreting Art. XXVII of the U.S.-Canada Tax Treaty, which is
identical to the provision at issue, and rejecting, as inapposite,
petitioner’s contention that the summons violated Canadian law):
Petitioner’s reliance on United States v. Lincoln First
Bank [citation omitted] does not change this result.
Lincoln First Bank predates the Supreme Court’s ruling in
Stuart and the Treasury Department’s Technical
Explanation of Article XXVII, CCH Tax Treatise ¶ 1950, at
21, 016-3 (contracting States may ‘provide information
that would not be available to the requesting State under
its law or administrative practice or that in different
circumstances would not be available to the State
requested to provide the information.’). Lincoln First
Bank is also at odds with the avowed goals of the
Convention and its predecessor. See, e.g., A.L. Burbank
[citation omitted].
13
its investigation while he continues to appeal the French
determination of his residency. Mazurek cannot, and does not,
contend that as a general, substantive matter of French law, the
FTA cannot obtain access to such financial information at all.
Thus, even if under French law the FTA was not permitted to
continue its investigation pending final determination of the
residency issue, the FTA retains the substantive right to procure
the requested information. Viewed in this light, enforcement of
this IRS summons, issued pursuant to the FTA’s request before
commencement of Mazurek’s residency appeal, would not constitute an
expansion of the rights that the FTA otherwise possesses under
French law — or under the laws of this country for that matter.
C. Mazurek’s Request for Discovery and an Evidentiary Hearing
1. Standard of Review
The scope of discovery and availability of a hearings on a
motion to quash a summons is left to the sound discretion of the
district court.21 Therefore, we review that court’s denial of
Mazurek’s request for discovery, and for a full evidentiary
hearing, for abuse of discretion.
2. Denial of Mazurek’s Request
Mazurek argues that he should have been afforded an
21
See Hintze v. Internal Revenue Service, 879 F.2d 121, 126
(4th Cir. 1989) (“[W]hether to conduct an evidentiary hearing in
the course of summons enforcement proceedings is a matter committed
to the sound discretion of the district court.”) overruled on other
grounds, United States v. Church of Scientology, 506 U.S. 9 (1992).
14
opportunity for discovery and a full evidentiary hearing. The
magistrate judge decided, however, that discovery was unnecessary
and granted the IRS a protective order covering the documents
Mazurek requested. In so doing, the magistrate judge stated that
“[t]he court agrees with the government’s argument that plaintiff’s
discovery requests and requests for admission would deal with
French governmental actions and interpretations of French law which
are beyond the power of this court to review.” Nevertheless, the
magistrate judge did allow Mazurek to supplement the record with
any evidence related to his motion to quash the summons.
Mazurek has not established any abuse of discretion. First,
as noted by the Supreme Court, allowing full opportunities for
discovery would contravene the purpose of a summons enforcement
proceeding, which is summary in nature.22 The Fourth Circuit
reviewed case law from several circuits (including this one) in
relation to discovery and evidentiary hearings for summons
proceedings and concluded that “[t]here is no requirement that the
court conduct such a hearing or permit discovery in each and every
case.”23
22
Stuart, 489 U.S. at 369 (citing the legislative history of
I.R.C. § 7602(c)).
23
Hintze, 879 F.2d at 126-27 (4th Cir. 1989)(quoting United
States v. Harris, 628 F.2d 875, 879 (5th Cir. 1980) (“A taxpayer’s
right to an adversary hearing on the good faith issue is not
absolute.”); United States v. Southern Tanks, Inc. 619 F.2d 54, 56
(10th Cir. 1980) (“As a general rule, discovery is available in
summons enforcement proceedings only in extraordinary
situations.”)).
15
Second, as Mazurek’s argument on appeal confirms, the
information he sought to procure through discovery and to present
during an evidentiary hearing relates to the propriety of the FTA’s
investigation under French civil tax law. His document requests
reflect this same focus. Producing evidence that may demonstrate
the bad faith of a French tax agency purely as a matter of French
civil tax law is irrelevant to the only good faith issue under
Powell, ie., the good faith of the IRS in honoring the French
request. And, Mazurek does not seek to discover, or allege that he
needs to discover, information that would impugn the good faith of
the IRS in issuing the summons or enforcing it in compliance with
the FTA’s request.
District courts are afforded wide leeway in fashioning the
scope of discovery in summons enforcement proceedings because
ultimate issues of responsibility are not decided in these
proceedings. Given this broad discretion and Mazurek’s misdirected
discovery requests, we are satisfied that the district court acted
well within its discretion in denying discovery and an evidentiary
hearing.
III.
CONCLUSION
For the foregoing reasons, Mazurek’s appeal from the denial
of his motion to quash the IRS’s summons is denied. The district
court’s rulings are, in all respects,
AFFIRMED.
16
17
Mazurek v. United States
Court: Court of Appeals for the Fifth Circuit
Date filed: 2001-11-07
Citations: 271 F.3d 226
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