On August 5, 2011, Petitioners filed a Motion to quash a subpoena for
financial records issued by the Government on July 21, 2011, to
non-party Bank of America. Dkt. No. 1 ("Motion to quash"). Magistrate
Judge George H. Lowe denied Petitioners' Motion to quash in an Order
issued December 13, 2011. Dkt. No. 12 ("December Order").*fn2
Presently before the Court is Petitioners' Appeal of the
December Order, as well as Petitioners' Motion for a stay of
compliance with the Government's subpoenas.*fn3 Dkt.
Nos. 13 ("Appeal"); 13-1 ("Motion for stay"). Petitioners submitted a
memorandum of law outlining their objections to Judge Lowe's December
Order. Dkt. No. 13-2 ("Objections"). Petitioners also filed a Motion
for a Temporary Restraining Order on December 19, 2011, which the
Court denied on December 20, 2011. See Dkt. Nos. 14, 15. For the
following reasons, the Court affirms Judge Lowe's December Order and
denies Petitioners' Appeal and Motion for stay.
The Court assumes familiarity with the facts underlying this action and will recount only those pertinent to the pending Appeal and Motion.
On September 25, 2008, the parties in Step Plan Servs., Inc. et al. v. Koresko Assocs., Court of Common Pleas of Philadelphia County, Civil Action No. 7718 ("the Pennsylvania action"), reached a $4.5 million settlement in favor of Petitioners Benistar Admin Services, Inc. ("Benistar Admin"); STEP Plan Services, Inc.; Benistar Insurance Group, LLC; and Benistar 419 Plan Services, as well as non-party Wayne H. Bursey. Respondent's Opposition to motion to quash (Dkt. No. 8) ("Respondent's Opposition"), at 2.
On August 10, 2009, the Internal Revenue Service ("IRS") notified Petitioners Benistar Admin and Benistar 419 Plan Services that it had assessed a tax penalty of $1.12 million against them. Declaration of Jack E. Robinson, Esq. (Dkt. No. 1-1) ("Robinson Decl.") ¶ 3. The IRS then sent Benistar Admin and Benistar 419 Plan Services notices of intent to levy on June 18, 2010, and August 2, 2010, respectively. Id. ¶ 4. Both Benistar Admin and Benistar 419 Plan Services then requested collection due process ("CDP") hearings pursuant to Internal Revenue Code ("IRC") § 6330(a)(3)(B). Id. ¶ 5.
In an unrelated case in United States District Court for the District of Massachusetts, several plaintiffs brought an action against Benistar Admin, et al., attempting to reach the settlement proceeds from the Pennsylvania action to satisfy an earlier judgment. Resp't's Opp. at 2-3; Iantosca, Civil No. 08-11785. Respondent United States of America ("Respondent" or "the Government") intervened as a plaintiff in Iantosca in order to enforce federal tax liens -- associated with the tax penalties it had assessed against Benistar Admin and Benistar 419 Plan Services -- against those same settlement proceeds. Resp't's Opp. at 2. The Government, attempting to secure financial records relevant to their ability to enforce these tax liens, then issued the subpoena to non-party Bank of America that Petitioners seek to quash. Id. at 3. Presently before the Court is Petitioners' Appeal of Magistrate Judge Lowe's December Order denying the Motion to quash.
Petitioners' Motion to quash was referred to Magistrate Judge Lowe pursuant to 28 U.S.C. § 636(b)(1)(A) and FED. R. CIV. P. 72(a). Accordingly, in reviewing Petitioners' Objections to Judge Lowe's December Order, the Court will "modify or set aside any part of the order that is clearly erroneous or contrary to law." FED. R. CIV. P. 72(a). An order is clearly erroneous where a reviewing court is left "with the definite and firm conviction that a mistake has been committed." United States v. United States Gypsum Co., 333 U.S. 364, 395 (1948). An order will be deemed contrary to law "'if it fails to apply or misapplies relevant statutes, case law or rules of procedure.'" State of New York v. Oneida Indian Nation of New York, No. 1:95-CV-554, 2007 WL 2287878, at *11 (N.D.N.Y. Aug. 7, 2007) (Kahn, J.) (quoting Mitchell v. Goord, No. 9:03-CV-00019, 2005 WL 701096, at *2 (N.D.N.Y. Mar. 21, 2005)); see Pall Corp. v. Entegris, Inc., 655 F. Supp. 2d 169, 172 (E.D.N.Y. 2008) (citation omitted) ("a magistrate judge's decision is contrary to law only where it runs counter to controlling authority").
B. Appeal of December Order
Petitioners object to the December Order on the basis that it: (1) permits the IRS to violate the statutory suspension of tax penalty collections pursuant to I.R.C. § 6330(e)(1); (2) erred in holding that the challenged subpoena was not overly broad; and (3) contains material mistakes.The Court rejects each of these arguments in turn.
1. Suspension of Collections under I.R.C. § 6330 When the IRS seeks to impose an administrative levy on a taxpayer's property pursuant to I.R.C. § 6331, the taxpayer may request a collection due process ("CDP") hearing under I.R.C. § 6330 to challenge the levy. See I.R.C. § 6330(c). Once a taxpayer requests a CDP hearing, "the levy actions which are the subject of the requested hearing . . . shall be suspended for the period during which such hearing [and any appeals] are pending." I.R.C. § 6330(e).
Petitioners argue that the Government's subpoena of financial records is a "levy action," and should therefore be suspended while the CDP hearings requested by Benistar Admin and Benistar 419 Plan Services are pending. Obj. at 4-9. This argument fails. According to Treasury Department regulations promulgated pursuant to I.R.C. § 6330, a pending CDP hearing does not prevent the IRS from "tak[ing] other non-levy collection actions such as initiating judicial proceedings to collect the tax shown on the CDP notice." 26 C.F.R. § 301.6330-1(g)(2). This regulation makes clear that the statute prevents the IRS only ...