United States District Court, S.D. New York
MEMORANDUM OPINION AND ORDER
LAURA TAYLOR SWAIN, District Judge.
In this action, petitioner James Haber ("Petitioner" or "Haber") seeks an order quashing an Internal Revenue Service ("IRS") administrative summons issued to Signature Bank. The case is now before the Court upon the motions of respondent United States ("Respondent" or the "Government"), one, to dismiss the Petition for lack of subject matter jurisdiction pursuant to Federal Rule of Civil Procedure 12(b)(1) and, two, for a protective order barring jurisdictional discovery. Signature Bank has not appeared in this matter. The Court heard oral argument regarding the motions on June 16, 2015, and has carefully considered the parties' written submissions and arguments. For the following reasons, the Government's motions are granted.
The IRS has assessed a $25 million tax penalty against Petitioner and his company, Diversified Group, Inc., in connection with the alleged failure to register certain transactions as "tax shelters." (Joint Pre-Conf. Stmt. ¶¶ 6-7, Docket Entry No. 24.) Petitioner and his company collectively paid less than $35, 000 of the penalty and have commenced separate proceedings seeking a refund. (Id. ¶¶ 8, 10.) The IRS has filed lien notices against Petitioner for the remaining unpaid portion of the penalty; Petitioner has filed a request for a Collection Due Process hearing. (Id. ¶ 9.)
On September 26, 2014, IRS Revenue Officer Linda Thomas (a registered pseudonym) served a summons (the "Summons") on Signature Bank. (Id. ¶ 5.) The Summons was captioned "[i]n the matter of [Petitioner] James Haber" and requested documents relating to the bank accounts of Jill Haber, Petitioner's wife ("Mrs. Haber"). (Summons, Am. Pet., Ex. A., Docket Entry No. 22-1.) No penalties have been assessed against Mrs. Haber. (Joint Pre-Conf. Stmt. ¶ 12.) The Summons calls for the production of testimony and "data relating to the tax liability or the collection of the tax liability for the purpose of inquiring into any offense connected with the administration or enforcement of the internal revenue laws concerning" Petitioner. (Summons, Am. Pet., Ex. A.)
Petitioner commenced the instant proceeding on October 17, 2014, asserting, inter alia, that the Summons should be quashed because the IRS failed to give notice of the Summons when it was issued. Petitioner subsequently filed an Amended Petition. Petitioner also argues that Respondent was not authorized to conduct an investigation in aid of collection of the assessed penalty because a criminal referral remained outstanding. Respondent moved pursuant to Federal Rule of Civil Procedure 12(b)(1) to dismiss the Petition, arguing, inter alia, that the Court lacks subject matter jurisdiction of the action in that neither Petitioner nor Mrs. Haber was entitled to notice of the Summons, and proceedings to quash such a summons are not statutorily authorized where the party to whom the summons was directed is not entitled to prior notice. In support of its contention that the Summons was issued in aid of collection of the penalty previously assessed against Petitioner and thus excepted from any notice requirement, Respondent served with its motion papers the declaration of Revenue Officer Thomas, who asserted that the "sole purpose" of her investigation was "to locate assets to satisfy Petitioner's existing assessed federal tax liability, and not to determine additional federal tax liabilities of Petitioner or any other person." (Thomas Decl. ¶ 4., Docket Entry No. 28.) Revenue Officer Thomas also stated that the information sought "may assist the IRS in locating assets that are held by Jill Haber, as the nominee or alter-ego or transferee of Petitioner. The IRS may use these assets to satisfy the... liability of Petitioner." (Id. ¶ 7.)
Petitioner then served document requests on the United States regarding the purpose of the Summons, and noticed the deposition of Revenue Officer Thomas. Respondent moved for a protective order, arguing that Petitioner is not entitled to jurisdictional discovery concerning the nature of Revenue Officer Thomas' investigation or the purpose of the Summons. In a supplemental declaration filed in support of the protective order motion, Revenue Officer Thomas represents that the IRS' criminal investigation of Mr. Haber, and proceedings commenced by the Department of Justice in connection therewith, are closed, and proffers correspondence to that effect from the Tax Division of the Department of Justice. (Thomas Supp. Decl., Docket Entry No. 39.)
Motion To Dismiss Petition For Lack Of Subject Matter Jurisdiction
A plaintiff has the burden of proving, by a preponderance of the evidence, that the court has subject matter jurisdiction of his suit. Makarova v. United States, 201 F.3d 110, 113 (2d Cir. 2000). In deciding a Federal Rule of Civil Procedure 12(b)(1) motion to dismiss for lack of subject matter jurisdiction, a court may consider evidence outside the pleadings. Kamen v. Am. Tel. & Tel. Co., 791 F.2d 1006, 1011 (2d Cir. 1986).
The United States is immune from legal action unless Congress unequivocally waives immunity. United States v. Mitchell, 445 U.S. 535, 538 (1980). Courts lack jurisdiction over suits against the United States with respect to matters for which the United States has not waived its immunity. Wyler v. United States, 725 F.2d 156, 159 (2d Cir. 1983). The question thus before this Court is whether Petitioner's suit falls within a waiver of the United States' immunity.
In its pursuit of tax collection, the IRS has "broad latitude" to summon persons and information. United States v. Clarke, 134 S.Ct. 2361, 2365 (2014). The IRS' collection efforts often lead it to issue summonses calling for information from third parties (i.e., entities other than the assessed taxpayer). In such instances, the IRS generally must give notice to any individual "identified in the [third-party] summons." 26 U.S.C.S. § 7609(a) (LexisNexis 2014). Those entitled to notice can bring suit against the United States to quash the summons. Id . § 7609(b)(2)(A). This right to notice and concomitant waiver of sovereign immunity are, however, limited. Notice is not required where a summons is "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 at law or in equity of any transferee... of any person referred to in clause (i)." Id . § 7609(c)(2)(D). This exception reflects a concern that a delinquent taxpayer might withdraw funds before the summons can be enforced. Barmes v. United States, 199 F.3d 386, 389 (7th Cir. 1999).
The Summons at issue here states that it pertains to the "matter of [Petitioner] James Haber." IRS Officer Thomas has indicated in her declaration that the purpose of the Summons is to investigate accounts that Petitioner may have maintained in his wife's name in order to shield them from the IRS. Therefore, the Summons served on Signature Bank appears to have been "issued in aid of the collection" of Petitioner's tax penalty. Notice to Petitioner of a summons issued in aid of collection is not required, and the United States has not waived its immunity to permit actions to quash such summonses. Therefore, the Government argues, the Court lacks jurisdiction over Petitioner's claim.
Petitioner raises three principal arguments in support of his contention that the Court has subject matter jurisdiction of his challenge to the Summons. Petitioner first suggests that, even if a summons is issued in aid of collection, this Court nonetheless has jurisdiction to quash that summons if it is invalid. According to Petitioner, the Summons issued to Signature Bank is invalid because the IRS has recommended that the United States Attorney General undertake a grand jury investigation of Petitioner, and the Government has not documented the termination of the ensuing criminal investigation in precisely the manner contemplated by the statute. See 26 ...