United States District Court, W.D. New York
April 15, 2004.
NICK MURATORE, et al., Plaintiffs,
DEPARTMENT OF THE TREASURY, et al., Defendants
The opinion of the court was delivered by: DAVID LARIMER, Chief Judge, District
DECISION AND ORDER
Petitioners, Nick and Kathryn Muratore ("the Muratores") and
Executive Session, Inc. ("ESI"), filed a petition to quash several
summonses issued by the Internal Revenue Service ("IRS"), which seek
various information concerning petitioners' financial transactions, as
part of an investigation concerning Nick Muratore's*fn1 federal income
tax liability for the tax years 1999, 2000 and 2001. Respondents
Department of the Treasury, IRS and Special Agent Jarod Koopman*fn2
have filed a motion to enforce the summonses. DISCUSSION
I. General Principles
"Because our system of federal taxation relies on self-reporting, it is
essential that the IRS have the power to issue administrative summonses
in order to have effective oversight." Upton v. I.R.S.,
104 F.3d 543, 545 (2d Cir. 1997) (citing United States v. Arthur Young &
Co., 465 U.S. 805, 816 (1984), and United States v.
Bisceglia, 420 U.S. 141, 145-46 (1975)). To that end, in
26 U.S.C. § 7601, "Congress gave the IRS a `broad mandate to investigate and
audit persons' to insure compliance with federal tax laws."
Upton, 104 F.3d at 545 (quoting Bisceglia, 420 U.S. at
145); see also Miller v. United States, 150 F.3d 770, 772 (7th
Cir. 1998) ("the IRS is entitled to broad latitude in issuing summonses
to enforce the tax laws").
"As a necessary incident to the investigatory power," Congress has
given the IRS "expansive authority" to:
summon the person liable for tax . . . 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.
Upton, 104 F.3d at 545-46; 26 U.S.C. § 7602(a)(2)). The
Second Circuit has described this as a "wholesale grant of summons
authority" that is "only `subject to the traditional privileges and
limitations.'" United States v. Euge, 444 U.S. 707
, 711, 714
(1980)). Pursuant to 26 U.S.C. § 7609, whenever a summons is served upon a
the IRS must give notice of the summons
to the person who is identified as the subject of the records sought
(ordinarily the taxpayer who is the subject of an IRS audit or
investigation). 26 U.S.C. § 7609(a)(1). That person then has the
right to initiate a proceeding in federal court to quash the summons.
26 U.S.C. § 7609(b), (h)(1).
Although a taxpayer cannot bring a proceeding to quash an IRS summons
served on him personally, see Pylar v. United States, 835 F. Supp. 1033,
1035 (W.D.Mich. 1993); Tabar v. United States,
142 F.R.D. 343, 344 (D.Utah 1992), the taxpayer can refuse to comply with the
summons, and, "if the IRS seeks enforcement of the summons in district
court, challenge the summons in district court." United States v.
Ritchie, 15 F.3d 592, 597 (6th Cir.), cert. denied,
513 U.S. 868 (1994).
To obtain enforcement of a tax summons, whether in opposition to a
petition to quash or on its own motion to enforce the summons, the IRS
must show that it has complied with four requirements established by the
Supreme Court in United States v. Powell, 379 U.S. 48, 57-58
(1964): that the investigation has a proper purpose; the information
sought may be relevant to that purpose; the IRS does not already have the
information; and the IRS has followed the statutory requirements for
issuing a summons. These "requirements impose only a minimal burden" on the IRS.
Miller, 150 F.3d at 772. Affidavits by the investigating agent
ordinarily are sufficient to make out the prima facie case for
enforcement. PAA Mgmt., Ltd. v. United States, 962 F.2d 212, 219
(2d Cir. 1992).
Once the government has met its prima facie burden, "the taxpayer faces
a `heavy burden' to either present facts to disprove one of the
Powell factors, or to show that the IRS issued the summons in
bad faith." Miller, 150 F.3d at 772 (quoting 2727 Arlington
Heights Corp. v. IRS, 109 F.3d 1221, 1224 (7th Cir. 1997)); see
also United States v. LaSalle Nat'l Bank, 437 U.S. 298, 316 (1978)
(taxpayer's burden is a "heavy" one, which he must meet by "disprov[ing]
the actual existence of a valid civil tax determination or collection
purpose by the Service"); United States v. Insurance Consultants of
Knox, Inc., 187 F.3d 755, 759 (7th Cir. 1999) ("The taxpayer can
rebut the government's prima facie case only by alleging `specific facts'
in rebuttal") (quoting Crystal v. United States, 172 F.3d 1141,
1144 (9th Cir. 1999)), cert. denied, 528 U.S. 1081 (2000);
United States v. Derr, 968 F.2d 943, 945 (9th Cir. 1992)
("Enforcement of a summons is generally a summary proceeding to which a
taxpayer has few defenses"); United States v. White,
853 F.2d 107, 111 (2d Cir. 1988) ("the taxpayer's burden of proof to establish
that enforcement would be improper is significantly greater than the
burden on the government to show a legitimate purpose"); United
States v. Kis, 658 F.2d 526, 535 (7th Cir. 1981) (noting taxpayer's
"extraordinarily heavy burden" to rebut IRS's prima facie case),
cert. denied, 455 U.S. 1018 (1982).
Because " [s]ummons enforcement proceedings are intended to be summary
in nature so that an investigation can advance to an ultimate
determination as to whether tax liability exists," White, 853
F.2d at 111, "the primary issue presented by a summons enforcement
proceeding is not whether the IRS has established, or is even likely to
establish guilt or liability on the taxpayer's part; rather, the issue is whether the IRS had a valid tax determination or
collection purpose in issuing its summons." In addition, "[u]nless a
taxpayer opposing enforcement of a summons makes a `substantial
preliminary showing' of an alleged abuse, neither an evidentiary hearing
nor limited discovery need be ordered by the district court." United
States v. Tiffany Fine Arts, Inc., 718 F.2d 7, 14 (2d Cir. 1983)
(quoting United States v. Morgan Guaranty Trust Co.,
572 F.2d 36, 42-43 n. 9 (2d Cir.), cert. denied, 439 U.S. 822 (1978)),
aff'd, 469 U.S. 310 (1985)*fn4; see also 2121 Arlington
Heights Corp., 109 F.3d at 1226 ("Summons enforcement proceedings
are intended to be summary in nature," and it is left to the district
court's discretion to determine whether a hearing is necessary)
Applying these standards to the case at bar, I find that the IRS has
made out a prima facie case, and that petitioners have failed to meet
their burden of disproving any of the Powell factors or of
showing bad faith on the IRS's part.
In general, petitioners' challenge to the summonses rests on their
assertion that the summonses are overly broad, and that the IRS has not
demonstrated the relevance of many of the documents sought. Under
26 U.S.C. § 7602, however, the IRS is entitled even to information that
has only "potential relevance" to its investigation, and it is not
"required to establish that the documents it seeks are actually relevant
in any technical, evidentiary sense." See Arthur Young, 465 U.S. at 814; see also United States v. Norwest Corp.,
116 F.3d 1227, 1233 (8th Cir. 1997) ("The IRS need not state with certainty
how useful, if at all, the summoned material will in fact turn out to
be") (citing Arthur Young, 465 U.S. at 813-14 & n. 11).
Here, the IRS has met its prima facie burden of showing that the
documents sought may be relevant to a proper purpose of its
investigation. As explained in the declaration of Special Agent Jarod J.
Koopman (Docket #6), he is conducting a criminal investigation to
determine Muratore's correct federal income tax liabilities for the tax
years 1999, 2000 and 2001, and to determine whether Muratore has
committed any tax offenses with respect to those tax years. Koopman Decl.
¶ 3. The summonses themselves relate to the Muratores' financial
transactions during the period under investigation,*fn5 as well as
transactions involving ESI, of which Muratore is president and sole
Petitioners' conclusory assertion that the requests are overbroad is
without merit. In effect, petitioners seek to turn the Powell
standard on its head, requiring the IRS to come forward with specific
evidence showing precisely how each document sought is expected to yield
information of evidentiary value. That is not what the law requires.
Although the IRS does have the initial burden of showing relevance, the
above-cited cases make clear that this burden is minimal, and that
relevance is not to be determined according to the standards that would
be applied at trial under the Federal Rules of Evidence. See Arthur
Young, 465 U.S. at 814 ("an IRS summons is not to be judged by the
relevance standards used in deciding whether to admit evidence in federal
court"); Norwest, 116 F.3d at 1233 ("`Relevance' under the
Powell test does not depend . . . on whether the information
sought would be relevant in an evidentiary sense, but merely whether that
information might shed some light on the tax return") (citingy4rt/mr
Young, 465U.S. at813-14 & n. 11). Rather, it is petitioners'
"significantly greater burden" to show lack of relevance,
White, 853 F.2d at 111, and they have failed to do so. See
also Spell v. United States, 907 F.2d 36, 38 (4th Cir. 1990)
(rejecting conclusory assertion of overbreadth).
Petitioners also contend that the summonses issued to them (as opposed
to those issued to third-party recordkeepers) infringe upon petitioners'
Fifth Amendment privilege against self-incrimination. This assertion,
too, lacks merit.
First, with respect to the summons issued to Muratore on November 5,
2003, that summons was directed to "Nick B. Muratore, President of
Executive Session, Inc.," and sought production only of corporate records
of ESI. See Docket #6, Ex. 1. Although generally, an
individual may have a Fifth Amendment privilege to refuse to
produce documents in response to an IRS summons, see United States v.
Doe, 465 U.S. 605, 612-13 (1984); United States v. Fox,
721 F.2d 32 (2d Cir. 1983), corporations have no privilege against
self-incrimination. See Braswell v. United States, 487 U.S. 99,
102 (1988); Wilson v. United States, 221 U.S. 361, 382 (1911).
Likewise, the custodian of corporate records cannot claim a Fifth
Amendment privilege with respect to those records. Such a claim "would be
tantamount to a claim of privilege by the corporation-which of course
possesses no such privilege." Braswell v. United States,
487 U.S. 99, 110 (1988).
The other summons issued to Muratore, on November 7, 2003, sought
production of records of the Muratores' tax preparer, Thomas Peters,
relating to the Muratores' tax returns and related information during the
relevant period. Docket #6, Ex. 4. Koopman states that he issued this summons when, after serving a similar summons on Peters himself,
Peters informed Koopman that he had turned over all such records to
Muratore. Koopman Decl. ¶ 16.
Petitioners' attempted assertion of a Fifth Amendment privilege with
respect to these documents is foreclosed by the Supreme Court's ruling in
Fisher v. United States, 425 U.S. 391 (1976):
A subpoena served on a taxpayer requiring him to
produce an accountant's workpapers in his
possession without doubt involves substantial
compulsion. But it does not compel oral testimony;
nor would it ordinarily compel the taxpayer to
restate, repeat, or affirm the truth of the
contents of the documents sought. Therefore, the
Fifth Amendment would not be violated by the fact
alone that the papers on their face might
incriminate the taxpayer, for the privilege
protects a person only against being incriminated
by his own compelled testimonial communications.
Id. at 409.
While it is therefore clear that petitioners' Fifth Amendment defense
to the summonses fails, two other points bear mention in this regard.
First, even if some of the papers sought could be considered "personal"
records of petitioners (which none of them appear to be), the Second
Circuit has held that "the Fifth Amendment does not protect the contents
of voluntarily prepared documents, business or personal." In re Grand
Jury Subpoena Duces Tecum Dated Oct. 29, 1992, 1 F.3d 87
, 93 (2d
Cir. 1993), cert. denied, 510 U.S. 1091
Second, a taxpayer may not claim the privilege against
self-incrimination through a generalized, blanket assertion. United
States v. Schmidt, 816 F.2d 1477, 1482 (10th Cir. 1987); accord
United States v. Argomaniz, 925 F.2d 1349, 1353 n. 8, 1356 (11th
Cir. 1991). Rather, to properly invoke the privilege, the taxpayer must
comply with the summons by appearing and by asserting the privilege on a
document-by-document basis. Schmidt, 816 F.2d at 1482.
Petitioners have not done so here. Petitioners also contend that the summonses amount to a "general demand
for paper" that violates the Fourth Amendment's proscription of
unreasonable searches and seizures. As to the third-party summonses,
however, because the documents sought have already been exposed to a
third party, petitioners have no reasonable expectation of privacy, and,
consequently, no Fourth Amendment objection to production of the
documents. See S.E.C. v. O `Brien, 467 U.S. 735, 743 (1984);
United States v. Miller, 425 U.S. 435, 441-43 (1976);
Donaldson v. United States, 400 U.S. 517, 522 (1971); Harris
v. United States, 758 F.2d 456, 457 (9th Cir. 1985); United
States v. McAnlis, 721 F.2d 334, 337 (11th Cir. 1983), cert.
denied, 467 U.S. 1227 (1984); Reimer v. United States,
43 F. Supp.2d 232, 237 (N.D.N.Y. 1999).
With respect to the November 5, 2003 summons issued to Muratore seeking
ESI's business records, the Supreme Court has held that "a corporation
has no . . . right to privacy." Browning-Ferns Industries of Vermont,
Inc. v. Kelco. Disposal, Inc., 492 U.S. 257, 284 (1989) (citing
United States v. Morton Salt Co., 338 U.S. 632 (1950)). A demand
for ESI's corporate documents, then, does not implicate the Fourth
As to the November 7 summons seeking petitioners' tax records,
petitioners have failed to show how enforcement would impinge on any
privacy interests protected by the Fourth Amendment. A summons that is
"reasonable in scope and issued for a proper purpose . . . d[oes] not
constitute an unlawful search and seizure in violation of the Fourth
Amendment." United States v. Schlom, 420 F.2d 263, 266 (2d Cir.
1969), cert. denied, 397 U.S. 1074 (1970). Accordingly, "[t]he
enforcement of an IRS summons does not violate the [F]ourth [A]mendment
as long as the IRS has complied with the Powell requirements."
United States v. Reis, 765 F.2d 1094, 1096 (11th Cir. 1985).
See also Fisher, 425 U.S. at 401 n. 7 (stating that although
taxpayers had not raised any Fourth Amendment arguments, they "could not be successful if they had. The summonses
are narrowly drawn and seek only documents of unquestionable relevance to
the tax investigation").
Petitioners also allege that the IRS has already seen some of the
documents sought by the summonses. Although this allegation is
conclusory, it would fail even if supported by specific facts. "The
burden of showing an abuse of the court's process is on the taxpayer, and
it is not met by a mere showing . . . that the records in question
have already been once examined" Powell, 379 U.S. at 58 (emphasis
In a related argument, petitioners contend that the summonses violate
26 U.S.C. § 7605(b), which provides in part that "only one inspection
of a taxpayer's books of account shall be made for each taxable year
unless the taxpayer requests otherwise or unless the Secretary, after
investigation, notifies the taxpayer in writing that an additional
inspection is necessary." The IRS states, however, and petitioners have
presented no evidence to the contrary, that although an IRS revenue agent
did inspect some of ESI's corporate records prior to Koopman's issuance of
the summonses, it was based on that prior review that the matter was
referred to the IRS's Criminal Investigation Office and Agent Koopman.
Thus, the revenue agent's review of the documents and the later issuance
of the summonses were both part of one, ongoing investigation.
Under these circumstances, no notice was necessary. As explained by the
[t]he federal courts uniformly have interpreted
§ 7605(b) to require the issuance of a notice
only when the second inspection of a taxpayer's
books is part of a second audit. Thus, when the
agent's initial audit or examination has been
suspended by referral to the Criminal
Investigation Division upon an indication of
fraud, the joint investigation under the direction
of the special agent is a continuation of the
revenue agent's audit and no second inspection
notice is necessary.
United States v. Morgan, 761 F.2d 1009
, 1011 (4th Cir. 1985)
(collecting cases). Petitioners also note that the IRS, by its own admission, did not give
notice to Kathryn Muratore of summonses issued to third-party
recordkeepers seeking documents pertaining to her, as required by
26 U.S.C. § 7609(a)(1). The case law establishes, however, that courts
decline to elevate form over substance and reject
the suggestion that every infringement of a
requirement of the Internal Revenue Code
absolutely precludes enforcement of an IRS
summons. Nothing in the language of the Code
itself mandates this sanction for infringement.
The correct approach for determining whether to
enforce a summons requires the court to evaluate
the seriousness of the violation under all the
circumstances, including the government's good
faith and the degree of harm imposed by the
United States v. Bank of Moulton, 614 F.2d 1063
, 1066 (5th
Cir. 1980); accord Sylvestre v. United States, 978 F.2d 25
27-28 (1st Cir. 1992) (district court did not abuse discretion in
refusing to quash summonses, since taxpayer had not been harmed by IRS' s
failure to provide him with timely notice), cert. denied,
507 U.S. 994 (1993); see also Cook v. United States, 104 F.3d 886,
889 (6th Cir. 1997) ("The district courts possess discretionary authority
to excuse the Service's technical notice errors where the party in
interest suffered no actual prejudice"); United States v. Texas Heart
Inst., 755 F.2d 469
, 478 (5th Cir. 1985) (where the taxpayer has
received every benefit of the administrative steps required by the Code
and has not shown any prejudice resulting from the failure to follow the
strictures of the notice requirement, such failure by the IRS is harmless
and enforcement of the summons is not barred), overruled in part on
other grounds, United States v. Barrett, 837 F.2d 1341
1988) (en banc) (per curiam), cert. denied, 492 U.S. 926
Villella v. United States, No. 99 CIV 3975, 2000 WL 968773, at
*6 (S.D.N.Y. July 12, 2000) (holding that the failure to comply with the
taxpayer notice requirements of section 7609 does not necessarily warrant
the quashing of third-party summonses). Here, there has been no showing by petitioners that the IRS's failure
to give notice to Kathryn Muratore in any way prejudiced her. She filed a
petition to quash the summonses on November 25, 2003, prior to the
earliest date for compliance with any of the summonses. See
Koopman Decl. ¶ 59 and Exs. 2, 3. This procedural defect, then, is
not a sufficient reason to quash the summonses.
Although petitioners assert that the summonses were issued in bad
faith, they have presented virtually no evidence to support that
assertion, other than the specific arguments addressed above, all of
which I have rejected. I therefore deny petitioners' request for an
evidentiary hearing in this case to determine whether the summonses were
issued in good faith. See 2121 Arlington Heights Corp., 109 F.3d
at 1226 (determination of whether hearing is necessary is left to
district court's discretion); accord Mazurek v. United States,
271 F.3d 226, 231 n. 21 (5th Cir. 2001); United States v.
Gertner, 65 F.3d 963, 969 (1st Cir. 1995); Hintze v.
I.R.S., 879 F.2d 121, 126 (4th Cir. 1989).
One matter remains to be addressed. Petitioners note that although the
tax years under investigation are 1999, 2000 and 2001, the summonses state
that the periods to which they relate are "1999, 2000, 2001, 2002."
See, e.g., Docket #6, Ex. 1 at 1. In addition, the attachments
to the summonses, which set forth the specific documents sought, state
that they seek those documents for the years "1999-Present."
See, e.g., Docket #6, Ex. 1 at 3. The summonses themselves were
issued in November 2003.
The IRS contends that documents generated after the investigation
period may be relevant as evidence of financial transactions that
occurred during the investigation period. For example, a check written in
December 2001 might not have been cashed or deposited until some time in
2002. I agree that, given the expansive definition of "relevance" where IRS
summonses are concerned, see Arthur Young, 465 U.S. at 814, the
IRS should not be limited to seeking documents only from the precise time
period under investigation. See, e.g., Martin v. United States,
No. CIV-88-539, 1988 WL 138758, at *2 (W.D.N.Y. Dec. 16, 1988) (finding
that "the [third-party recordkeeper] bank's records for the stated years
prior to and after the years under investigation are relevant in light of
the need to use such indirect means as net worth or cash expenditures
method to obtain a trustworthy picture of the petitioner's financial
assets at the beginning and at the end of each of the 1983-1986 tax
years"). Nevertheless, I also believe that at some point, the temporal
distance from the period under investigation becomes so great that even
that minimal relevancy threshold cannot be met. Accordingly, I will deny
the IRS's motion to enforce the summonses, but only to the extent that
the summonses seek documents or other records that were created after
December 31, 2002.*fn6 CONCLUSION
Petitioners' petition to quash Internal Revenue Service summonses
(Docket #1) is denied, and the petition is dismissed.
Respondents' motion to dismiss the petition to quash the summonses
issued to summarily deny the petition to quash the remaining summonses,
and to enforce the summonses (Docket #6) is granted in part and denied in
part: the summonses should be enforced and petitioners' and third-party
recordkeepers are directed to comply with the request to produce within
twenty (20) days of entry of this order; respondents' motion to enforce
is denied to the extent the summonses seek documents created after
December 31, 2002.
Respondents' motion to strike the declaration of Nick Muratore dated
February 4, 2004 (Docket #8) is denied as moot.
IT IS SO ORDERED.