Written Communication Address:
Jon N C.
c/o 4400 North Scottsdale Road, Suite 9-121
Scottsdale, Arizona 85251
UNITED STATES DISTRICT COURT DISTRICT OF ARIZONA JON N C., ) Petitioner, ) Case No.:09-MC-0xxxxx vs. ) UNITED STATES OF AMERICA; ) PETITIONERS’ RESPONSE TO UNITED STATES’ WELLS FARGO BANK, NA; ) MOTION TO DISMISS PETITIONER’S AND JPMORGAN CHASE BANK, NA, ) PETITION TO QUASH SUMMONSES Respondents )
Petitioner Jon N C. (“Petitioner”) hereby moves this honorable court to dismiss with prejudice Respondent United States of America’s (“United States”) United States’ Motion to Dismiss Petitioner’s Petition to Quash Summonses (“Motion to Dismiss”) for the meritorious reasons set forth herein.
I. THIS COURT HAS SUBJECT MATTER JURISDICTION PURSUANT TO FED. R. CIV. P. 12(B)(1) BECAUSE THE UNITED STATES HAS WAIVED SOVEREIGN IMMUNITY UNDER I.R.C. § 7609.
A. Petitioner is entitled to Notice of Summons thereby constituting a waiver of sovereign immunity.
A summons issued to a third-party with respect to the tax liability of another is governed by special rules under I.R.C. § 7609. In general, the IRS must give timely notice to the taxpayer whose tax liability is the subject of such a summons. See I.R.C. § 7609(a). The taxpayer has certain statutory rights to contest the summons, including the right to file a petition to quash the summons within 20 days after the date the notice is given, or to intervene in a summons enforcement proceeding commenced by the United States. See I.R.C. § 7609(b). It is well known that in most instances in which a taxpayer files a petition to quash, the United States will counterclaim for enforcement of the summons. See I.R.C. § 7609(b)(2)(A).
I.R.C. §7609(b)(2)(A) states in pertinent part that “any person who is entitled to notice of a summons under subsection (a) shall have the right to begin a proceeding to quash such summons. Petitioner does not fall into any exceptions to notice under §7609 and therefore is one entitled to Notice of Summons under same section. Since §7609(b)(2) allows Petitioner to bring a proceeding to quash an IRS summons to be brought against the United States, the same therefore constitutes a waiver of sovereign immunity. See Ponsford v. United States, 771 F.2d 1305, 1309 (9th Cir. 1985).
B. Respondent’s Summons is issued for purposes other than “in aid of collections.”
Respondent attempts to use the exception to the notice rule found in I.R.C. §7609(c)(2)(D) that states that notice is not required when the summons is “issued in aid of the collection of . . . an assessment made or judgment rendered against the person with respect to whose liability the summons is issued.” Therefore, the notice exception identified in I.R.C. §7609(c )(2)(D) applies only if two conditions apply: (1) Petitioner is the person named in the Summons, and against whom the alleged liability exists; and, (2) the summons is “issued in aid of the collection”.
The first condition is satisfied, as Petitioner is certainly the subject of the Summons, and against whom the IRS has alleged liability. The second condition, however, that the Summons is “issued in aid of the collection,” needs more thorough and careful analysis to determine if the notice exception identified in I.R.C. §7609(c )(2)(D) applies. Petitioner alleges that, in fact, the Summons was not simply “issued in aid of the collection”, but rather in advance of, or in conjunction with a criminal investigation.
C. Respondent proceeds in bad faith, the Summons is not simply “issued in aid of the collection and Respondent is determined to prosecute Petitioner.
The IRS has abandoned any attempt to proceed in good faith in the instant matter because the IRS is committed to prosecuting Petitioner for participating in an alleged “tax scheme. By its actions and inactions, IRS and IRS Revenue Officer Vahe (“Vahe”) have repeatedly demonstrated their intent to unlawfully prosecute Petitioner for reasons known only to the IRS.
1. IRS and Revenue Officer Vahe are totally non-responsive to Petitioners inquiries.
Petitioner’s numerous and frequent attempts to make contact with Vahe have been repeatedly ignored. Petitioner called Vahe on four (4) separate occasions after Vahe stopped by Petitioner’s address of record without appointment or prior contact. Although Petitioner was not at the address of inquiry, Petitioner called Vahe on four (4) separate occasions over the next several months, in a good faith attempt to resolve any outstanding matters, discuss the underlying and supporting documents that the IRS seems to routinely “misplace”, and proactively clarify any issues that Vahe may have relating to any outstanding alleged liability. Vahe’s non-responsiveness demonstrates bad- faith effort to resolve any controversy using an administrative process.
2. Revenue Officer Vahe attests that Petitioner has committed fraud.
Vahe attests that Petitioner received a “falsely-obtained tax refund for tax year 2007.” See Vahe Decl., at ¶¶ 6-7. Vahe attests further that Petitioner engaged in “abusive tax reporting” which is consistent with, and “commonly referred to by the IRS as a ‘Form 1099-OID’ fraudulent refund scheme.” Id. at 4. By her own words, Vahe demonstrates her conviction that Petitioner has committed fraud against the United States.
Further, even the IRS has implied indirectly that Petitioner has committed fraud by publicizing that the “Form 1099-OID” fraudulent refund scheme is part of the IRS’ 2009 “Dirty Dozen” Tax Scams. The IRS states that “tax schemes are illegal [and can result in] possible criminal prosecution. See Internal Revenue Service, http://www.irs.gov/newsroom/article/0,,id=206370,00.html. Even a cursory search of the IRS and Department of Justice websites and manuals contain numerous references to their collective institutional commitment to prosecute participants in a “tax fraud scheme.”
3. Revenue Officer Vahe committed perjury on this Court by attesting that Vahe and IRS had not been provided supporting documents on which Petitioner’s Form 1040 was based.
The Courts have recognized the IRS authority to issue summonses in certain circumstances, while limiting its authority in others. The authority to issue summonses is delegated to agents of the Examination, Collection, and Criminal Investigation divisions of the IRS. See United States v. Derr, 968 F.2d 943, 947 (9th Cir. 1992) (holding that Examination Revenue Agents may issue all summonses, other than a John Doe summons); See also Codner v. United States, 17 F.3d 1331, 1333 (10th Cir. 1994) (holding that a special agent did not need the advance approval of a superior to issue a summons). HOWEVER, notwithstanding the broad statutory authority for issuance of a summons, the well-established IRS administrative practice is to obtain information and documents by means other than a summons wherever possible. I.R.M. 188.8.131.52(1).
Petitioner and Petitioners licensed Certified Public Accountant, who prepared the relevant tax year returns, sent to IRS and Vahe by facsimile and USPS certified mail, return receipt requested, documentation sufficient to support and substantiate reported OID withholdings, and subsequent request of return of said withholdings on four (4) separate occasions. Petitioner never received a response from IRS or Vahe at any time. Receipt was confirmed after each successful transmission or mailing. Vahe’s willful perjury on this Court is further proof of an institutional commitment to prosecute Petitioner for Petitioners good-faith effort to respond to each piece of IRS correspondence and comply with all applicable tax and revenue laws to which Petitioner is subject. The court should take notice that Petitioner hired a licensed Certified Public Accountant (“CPA”) in preparation of the Form 1040 for tax year(s) at issue, CPA completed, approved of, supported and filed with the IRS all supporting documents for tax year(s) at issue. Petitioner sees no explanation for IRS’s failure to find within the IRS’s records Petitioners supporting documents other than the IRS’s adherence to its institutional commitment to prosecute Petitioner for an alleged tax crime.
4. IRS has labeled Petitioner a “Tax Protestor”; Petitioner has been selected for “selective handling.”
Based on previously reviewed Individual Master File (“IMF”) transcripts, and conversations with certain IRS customer service agents, Petitioner is aware that the IRS has classified Petitioner as a “Tax Protester.” In Petitioner’s case, therefore, the IRS has abandoned in an institutional sense the pursuit a civil tax determination or collection purpose and has made an institutional commitment to make a referral to the Department of Justice for prosecution, as it would merely like to gather evidence to aid a prosecution. US v. LaSalle Nat. Bank, 437 US 46 248, 98 S Ct 2357 (1978). Because of Petitioner’s “tax-protestor” label and subsequent “special and/or selective handling”, IRS is committed to ensure that, regardless of Petitioner’s compliance with revenue laws, Petitioner is held out to the public at large as a victory for the United States in pursuit of the IRS’s mission pillars: [to prosecute] criminal violations of the Internal Revenue Code and related financial crimes in a manner that fosters confidence in the tax system and compliance with the law. Id.
Under IRS Manual Supplement 9G-93, the procedural guideline for prosecuting those persons classified by said agency as "tax protesters", removes any discretion from the individual agents assigned to the case. MS 9G-93, IRM 9383.6 and other IRS procedures on persons similarly labeled as Petitioner, set forth a policy whereby the cases are totally criminal ab initio, to the extent that individual agents and the Service itself have not discretion or authority to compromise whatsoever in these cases. This manual demonstrates, by itself, the institutional commitment to prosecute.
5. The weight of evidence in support of the IRS bad-faith investigation implies that no clear, legitimate purpose exists for the issuance of the third party summons.
The IRS has not shown that the investigation is being conducted in good faith and for a legitimate purpose since they have not clearly identified what that purpose is. U.S. v. Powell, 379 U.S. 78,85 S. Ct. 248 (1964). I.R.C. § 7602 authorizes the Secretary to examine records and to take testimony as may be relevant or material 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 . . . collecting any such liability [or] . . . inquiring into any offense connected with the administration or enforcement of the internal revenue laws.” The courts have construed this provision to provide the IRS with expansive information-gathering authority. See e.g., United States v. Arthur Young & Co., 465 U.S. 805, 813-16 (1984) (deeming section 7602 the “centerpiece” of a Congressional scheme designed to endow the IRS with authority to conduct effective tax investigations). This authority does not, however, extend to require a taxpayer to produce documents not already in existence. See United States v. Davey, 543 F.2d 996, 1000 (2d Cir. 1976); United States v. Brown, 536 F.2d 117 (6th Cir. 1976).
The court’s role in an enforcement proceeding is not to second guess the judgment of the IRS, but to determine whether the particular summons is a legitimate exercise of the IRS’s investigative authority, i.e., that the IRS is seeking information that is relevant to its investigation, and not just conducting a “fishing expedition.” See Tiffany Fine Arts, Inc. v. United States, 469 U.S. 310, 323-24 (1985); United States v. Bisceglia, 420 U.S. 141, 150 (1975). The IRS has, or should have, in its possession all supporting and underlying documents on which to evaluate any alleged liability and the correctness of Petitioner’s Form 1040’s. Therefore, the IRS should be enjoined from wasting this Court’s and Petitioner’s time and resources.
Finally, Petitioner wonders what has happened to the referenced documents following successful transmission and receipt of same by IRS. Petitioner can only conclude that IRS’s has abandoned any good-faith motive in the instant matter.
6. IRS Summons includes requested items used primarily for criminal prosecution.
With proper discovery, Petitioner will prove to the Court that the IRS has made a formal recommendation to the Department of Justice for prosecution of Petitioner or has made an informal determination and withheld the formal recommendation in order to use this civil process to circumnavigate the decision of the Federal Courts. “The summons itself indicates that this is a criminal investigation as much of the information sought has no bearing on a civil investigation but is that generally exclusively used for criminal prosecution. Even if the Court could discover a general civil purpose for the tax investigation, this would not terminate judicial inquiry into whether the summons (or parts thereof) issued during investigation exceeded the services’ authority… If any one of many summons or parts thereof were issued solely for a criminal investigation, that particular summons should be suppressed, even in the face of an overwhelmingly civil purpose of the investigation as a whole. The IRS simply would lack statutory authority to issue that particular summons.” United States v. Genser 595 F. 2d 146 (NJ 1979).
The IRS only has the authority granted to it by congress. The Congress has given the IRS administrative summons powers in IRC §7603 and §7604 to be used only in civil cases and has not yet given this administrative agency mandatory criminal investigatory powers. Therefore, the IRS simply does not have the authority to summons those particular third party records, which would be used only in criminal prosecution. An examination of the "list of items" requested in the summons proves this fact. The following records have no bearing in a "civil case", but are of tremendous value in a "criminal prosecution”:
a. Bank Signature Cards in effect; and,
b. Loan Applications, agreements and related records.
Again, the IRS Summons are not issued in good faith as the information sought by the individual summons are (1) too broad, (2) too sweeping in detail, (3) and used by the IRS for purposes other than simply to prove the actual existence of a valid civil tax determination, or for a collection purpose. Almost all of the items sought by the Summons are only needed by the Justice Department to aid in a criminal prosecution
D. Respondent has demonstrated IRS’ institutional commitment to prosecute use of alleged “tax schemes.”
Petitioners' case is similar to that found in United States v. LaSalle Nat’l Bank, 437 U.S. 248, 98. Ct. 2357(1978) wherein the Court held that summonses issued under I.R.C. § 7602, 26 U.S.C. § 7602, were unenforceable. The LaSalle criteria, as written by Justice Blackman, states the following: The Summons must not “broaden the Justice Department’s right of criminal litigation discovery,” Id. at 2365; the summons must not “Infringe on the role of the grand jury as the principal tool of criminal accusation.” Id.; there cannot be “post-referral use of the summons authority”, after the IRS “loses its ability to compromise both the criminal and civil aspects of fraud case.” Id. (holding that use by IRS of civil summons after referring the case to the Department of Justice for criminal prosecution is inappropriate at it creates the risk that discovery broadens upon referral.); the IRS must use its summons authority in “good faith” which consists of several elements. United States v. Powell, 379 U.S. 58 (1964).
1. “[The Service] must show that the investigation will be conducted pursuant to a legitimate purpose.” Id. at 57.; and,
2. “that the inquiry may be relevant to that purpose.” Id.; and,
3. “that the information sought is not already within the Commissioner’s possession.” Id. at 57, 58.; and,
4. “the administrative steps required by the Code had been followed.” Id. at 58.
5. that the “summons had [not] been issued for an improper purpose, such as to harass the taxpayer or to put pressure on him to settle a collateral dispute, or for any other purpose reflecting on the good faith of the particular investigation.” Id.
The LaSalle court continues by stating the following:
1. “Another improper purpose . . . is to gather evidence solely for a criminal investigation.” LaSalle at 2366.
2. Delaying “in submitting a recommendation to the Justice Department when there is an institutional commitment to make a referral.” Id. at 2367.
3. Using the civil summons when “the service merely would like to gather additional evidence for the prosecution.” Id. at 2368.
4. Delaying the recommendation for prosecution to the prosecutors to “permit the Government to expand its criminal discovery rights.” Id.
5. Violating the “good-faith standard” by permitting the IRS to become an information gathering agency for the other departments, including the Department of Justice.” Id.
6. These LaSalle “requirements are not intending to be exclusive. Future cases may reveal the need to prevent other forms of agency abuse of congressional authority and judicial process.” Id. (emphasis added)
In Donaldson v. United States, 400 U.S. 517 (1971), the District Court correctly refused to enforce IRS summonses when it specifically found that the special agent who issued them "was conducting [her] investigation solely for the purpose of unearthing evidence of criminal conducts".
In Reisman v. Caplin, 375 U.S. 440, 449 (1964), the Court said it was an improper use of the summons" to serve it solely for the purpose of obtaining evidence for use in criminal prosecution." Again, in United States v. Powell, 379 U.S. 48, 57-58 (1964) "A court may not permit its process to be abused. Such an abuse would take place if the summons had been issued for an improper purpose, such as to harass the taxpayer or to put pressure on him to settle a collateral dispute, or for any other purpose reflecting on the good faith of the particular investigation." Ibid. (Footnote omitted). Also, in Abel v. United States, 362 U.S. 251 (Mass. 1960), the courts states: The likelihood that discovery would be broadened or the role of the grand jury infringed is substantial if post-referral use of the summons authority were permitted.
Petitioner can clearly demonstrate to this Court that the IRS has abandoned any good-faith investigation into the actual existence of a valid civil tax determination or collection purpose; Petitioner needs adequate pre-hearing discovery for stated purpose. Given sufficient discovery, Petitioner can prove the following:
1. No further existence of a continuing civil purpose;
2. A pre-existing institutional commitment to prosecute;
3. The failure of the summons to advance a civil purpose; and,
4. Improper purpose, including political harassment.
II. Service of process was timely effected on Respondents.
A.Petitioner satisfied all notice requirement set forth in 26 CFR § 301.7609-(b)(2).
A summons issued to a third-party with respect to the tax liability of another is governed by special rules under I.R.C. § 7609. In general, the IRS must give timely notice to the taxpayer whose tax liability is the subject of such a summons. See I.R.C. § 7609(a). The taxpayer has certain statutory rights to contest the summons, including the right to file a petition to quash the summons within 20 days after the date the notice is given, or to intervene in a summons enforcement proceeding commenced by the United States. See I.R.C. § 7609(b). It is well known that in most instances in which a taxpayer files a petition to quash, the United States will counterclaim for enforcement of the summons. See I.R.C. § 7609(b)(2)(A). Petitioner instituted a timely proceeding to quash per 26 CFR §301.7609(b)(2). The code section clear states the following: “Not withstanding any other law or Rule of Law, any person shall have the right to begin a proceeding to quash such summons not later than 20 days. Such person shall mail by registered or certified mail a copy of the petition to the person summoned and to such office as the Secretary may direct in the notice referred to in subsection (a)(1).”
Petitioner caused a true and correct copy of the original petition to be mailed to all Respondents, the United States of America, and Internal Revenue Service, within 20 days of Respondent having served Wells Fargo NA and JP Morgan Chase Bank, NA (hereinafter “Third Party Record Keepers”) with the Financial Record Summons, Department of the Treasury Form 6639. Plaintiff has satisfied the notice requirements of I.R.C. § 7609.
B. Petitioner satisfied Fed. R. Civ. P. 12(b)(5) by establishing the record that the United States was properly served.
Pursuant to Fed. R. Civ. P. 4(l), Petitioner timely noticed the Court that the Internal Revenue Service (“IRS”), the United States Attorney for the District of Arizona, the United States of America have been served by United States Postal Service, Certified Mail, Return Receipt Requested, copies of Petitioner’s original Petition to Quash that began the instant proceedings. Thus, the United States was properly served, and the record reflects said notice.
The IRS has abandoned all good-faith efforts to establish Petitioner’s alleged liability, but rather proceeds down the path of an unlawful criminal prosecution. The Plaintiff respectfully requests that this court dismiss the United States’ Motion to Dismiss on all grounds and permit evidentiary proceedings, as was intended by 26 CFR §301.7609.
RESPECTFULLY submitted this ____ day of October 2009,
________________________ Jon N C. Petitioner Pro Se
CERTIFICATE OF MAILING
I hereby certify that on or about the date listed above, I caused to be mailed a copy of this document to Respondent United States.
________________________ Jon N C. Petitioner Pro Se
ORIGINAL of the foregoing hand-delivered this 5th day of October, 2009, to:
Clerk of the Court
401 W. Washington Street, Suite 130, SPC 1
Phoenix, AZ 85003-2118
COPY of the foregoing mailed this 5th day of October, 2009, to:
United States Attorney
District of Arizona
Diane J. Humetewa
Two Renaissance Square
40 N. Central Avenue, Suite 1200
Phoenix, AZ 85004
COPY of the foregoing mailed this 5th day of October, 2009, to:
Steven P. Johnson
Trial Attorney, Tax Division
U.S. Department of Justice
P.O. Box 683, Ben Franklin Station
Washington, D.C. 20044-0683