Mottahedeh Spouse Chalks Up A Loss

[The Observer]

APRIL MOTTAHEDEH,
Plaintiff-Appellant,
PEYMON MOTTAHEDEH,
Plaintiff,
v.
USA,
INTERNAL REVENUE SERVICE,
CHRISTINE THAI,
REVENUE AGENT, IRS,
Defendants-Appellees.

Release Date: JANUARY 31, 2011

[DO NOT PUBLISH]

IN THE UNITED STATES COURT OF APPEALS
FOR THE ELEVENTH CIRCUIT

Non-Argument Calendar

Appeal from the United States District Court
for the Southern District of Florida

(January 31, 2011)

Before BARKETT, HULL and ANDERSON, Circuit Judges.

PER CURIAM:

April Mottahedeh, proceeding pro se, appeals from the district court's order denying her amended petition to quash an Internal Revenue Service ("IRS") third-party summons issued to her Florida credit union. She also appeals the district court's subsequent order denying her motion for leave to file a second amended petition and her motion for a change of venue.

We review for clear error the district court's enforcement of an IRS summons. Nero Trading, LLC v. U.S. Dep't of Treasury, Internal Revenue Serv., 570 F.3d 1244, 1248 (11th Cir. 2009). We review for abuse of discretion the district court's denial of a motion to file an amended pleading, Corsello v. Lincare, Inc., 428 F.3d 1008, 1012 (11th Cir. 2005), and a motion for a change of venue, Palmer v. Braun, 376 F.3d 1254, 1257 (11th Cir. 2004).

The IRS is statutorily authorized to examine any books, papers, records, or other data which may be relevant or material to determine the correctness of a tax return or the liability of a taxpayer. 26 U.S.C. section 7602(a)(1). Thus, the IRS may issue a summons to either the person liable for the tax or any third party "having possession, custody, or care of books of account containing entries relating to the business of the person liable for" the tax. Id. section 7602(a)(2). The IRS's power to so investigate is broad and expansive. La Mura v. United States, 765 F.2d 974, 979 (11th Cir. 1985).

Nonetheless, any individual named in a third-party summons is entitled to notice and may petition to quash the summons. 26 U.S.C. section 7609(a)-(b). In that case:

[t]o obtain enforcement of a summons, the IRS must
demonstrate (1) that the investigation will be conducted
pursuant to a legitimate purpose, (2) that the inquiry
will be relevant to that purpose, (3) that the information
sought is not already in the IRS' possession and,
(4) that it has taken the administrative steps necessary
to the issuance of a summons.

La Mura, 765 F.2d at 979 (citing United States v. Powell, 379 U.S. 48, 57-59 (1964)). "The IRS can satisfy this burden merely by presenting the sworn affidavit of the agent who issued the summons attesting to these facts." La Mura, 765 F.2d at 979. If the IRS meets its burden, "the burden shifts to the party contesting the summons to disprove one of the four elements of the government's prima facie showing or convince the court that enforcement of the summons would constitute an abuse of the court's process." Id. at 979-80.

In this case, the district court did not clearly err by enforcing the summons. The government established a prima facie case through the declaration and testimony of IRS agent Christine Thai. Thus, the burden shifted to Mottahedeh to disprove an element of the government's prima facie case. She failed to do so. Although she argues that the summons was an improper attempt to investigate her husband and deter them from exercising their right to free speech, she presented no evidence to rebut Thai's testimony that the purpose of the summons was to investigate Mottahedeh's tax liability. See id. at 980-81. Furthermore, Mottahedeh argues that other summonses issued by the IRS were procedurally improper, but she has failed to show that there was any such defect with respect to the summons at issue in this case. In this regard, the district court did not abuse its discretion by denying Mottahedeh's motion to file a second amended petition, as she was not attempting to rebut the government's prima facie case with respect to the summons at issue. We further find no abuse of discretion in the district court's denial of her motion for a change of venue. Accordingly, we affirm.

AFFIRMED.

[Judge Roy Bean]

Not to be contrarian or cynical but there is something disturbing in this:

t]o obtain enforcement of a summons, the IRS must demonstrate
(1) that the investigation will be conducted pursuant to a legitimate purpose,
(2) that the inquiry will be relevant to that purpose,
(3) that the information sought is not already in the IRS' possession and,
(4) that it has taken the administrative steps necessary to the issuance of a summons.

La Mura, 765 F.2d at 979 (citing United States v. Powell, 379 U.S. 48, 57-59 (1964)). "The IRS can satisfy this burden merely by presenting the sworn affidavit of the agent who issued the summons attesting to these facts."

My dilemma stems from the fact that it appears the ruling ordains the affiant with sole discretion to determine if the four tests have been met.

Granted, my speciality is far from tax matters, but I would have thought there would be additional rigor in terms of avoiding fishing expeditions that can have permanently damaging affects on those who might be targeted by ambitious or otherwise "improperly-motivated" agents.

[Famspear]

Not to be contrarian or cynical but there is something disturbing in this:

t]o obtain enforcement of a summons, the IRS must demonstrate
(1) that the investigation will be conducted pursuant to a legitimate purpose,
(2) that the inquiry will be relevant to that purpose,
(3) that the information sought is not already in the IRS' possession and,
(4) that it has taken the administrative steps necessary to the issuance of a summons.

La Mura, 765 F.2d at 979 (citing United States v. Powell, 379 U.S. 48, 57-59 (1964)). "The IRS can satisfy this burden merely by presenting the sworn affidavit of the agent who issued the summons attesting to these facts."

My dilemma stems from the fact that it appears the ruling ordains the affiant with sole discretion to determine if the four tests have been met.

Granted, my speciality is far from tax matters, but I would have thought there would be additional rigor in terms of avoiding fishing expeditions that can have permanently damaging affects on those who might be targeted by ambitious or otherwise "improperly-motivated" agents.

I read it as saying only that the affidavit satisfies the government's initial burden of production. The burden then shifts to the taxpayer. For example, the taxpayer might introduce evidence that the IRS investigation is for an improper purpose -- that the IRS employee is actually the estranged wife of the taxpayer who is engaged in an unrelated fight with the taxpayer over the terms of the divorce, etc. Or the taxpayer could introduce evidence indicating that the information is already in the hands of the IRS (copy of taxpayer's tax return, for example, that the IRS has already acknowledged was filed).

EDIT: Read on further down in the Court's opinion:

If the IRS meets its burden, "the burden shifts to the party contesting the summons [i.e., typically the taxpayer] to disprove one of the four elements of the government's prima facie showing or [to] convince the court that enforcement of the summons would constitute an abuse of the court's process."

(bolding added).

[Dr. Caligari]

Famspear is right as a matter of doctrine, but as a practical matter few courts ever find that the Government's showing was rebutted.

[Famspear]

Famspear is right as a matter of doctrine, but as a practical matter few courts ever find that the Government's showing was rebutted.

Yeah, I agree it is probably difficult to convince a judge that any of the four elements have not been met.

[Dr. Caligari]

I once had a federal judge praise me on the record and say that the papers I filed were the best set of papers he had ever seen filed on behalf of a taxpayer in an IRS summons enforcement proceeding, in his entire 20 years on the federal bench. He then went ahead and enforced every item of each of the summonses I had challenged.

[wserra]

Every litigator knows the feeling. You know you're in trouble when the judge tells you how good your argument is.

[Cpt Banjo]

Just ask Vinny Gambini:

Vinny Gambini: I object to this witness being called at this time. We've been given no prior notice he would testify. No discovery of any tests he's conducted or reports he's prepared. And as the court is aware, the defense is entitled to advance notice of all witnesses who will testify, particularly those who will give scientific evidence, so that we can properly prepare for cross-examination, as well as give the defense an opportunity to have his reports reviewed by a defense expert, who might then be in a position to contradict the veracity of his conclusions.

Judge Chamberlain Haller: Mr. Gambini?

Vinny Gambini: Yes, sir?

Judge Chamberlain Haller: That is a lucid, intelligent, well thought-out objection.

Vinny Gambini: Thank you, sir.

Judge Chamberlain Haller: Overruled.

[Dr. Caligari]

Every litigator knows the feeling. You know you're in trouble when the judge tells you how good your argument is.

Yup. It was Peter Leisure in my summons case, BTW.

[Judge Roy Bean]

I think the issue of concern centers more on the ability for an IRS agent to issue a summons for personal financial records, i.e., bank account data, without any oversight, knowing that it is extremely unlikely it could be overturned.

The secondary question then becomes, how many of these potential fishing expeditions result in actual enforcement/recovery cases?

And out of curiosity, what happens to the information the agent collects?

Or is there something I'm missing in the administrative procedures that would preclude such a thing?

[Dr. Caligari]

The secondary question then becomes, how many of these potential fishing expeditions result in actual enforcement/recovery cases?

Most of them, in my experience.

And out of curiosity, what happens to the information the agent collects?

It is protected by the confidentiality provisions of IRC section 6103.

[Imalawman]

Famspear is right as a matter of doctrine, but as a practical matter few courts ever find that the Government's showing was rebutted.

Yeah, I agree it is probably difficult to convince a judge that any of the four elements have not been met.

As a matter of course, you're really just postponing the inevitable when seeking to quash a summons. If you win on the 4 elements (unless the IRS already has it, in which case, whoopdedoo you win...) they'll just re-file the summons, correcting any defects.

The only real defense is privilege and constitutional. If you're relying on the 4 elements, you're just wanting to buy some time. I rarely seek to quash a summons on those grounds, it's just kind of pointless.

[Famspear]

I think the issue of concern centers more on the ability for an IRS agent to issue a summons for personal financial records, i.e., bank account data, without any oversight, knowing that it is extremely unlikely it could be overturned.

Some IRS personnel can issue a summons without obtaining higher internal approval. Here are some excerpts from the IRS Summons Manual.

[Internal Revenue Manual] 25.5.1.3.2 (10-31-2006)
Authority to Issue Summonses Except "John Doe" Summonses

The following IRS officers and employees have the authority to issue any summons other than a John Doe summons:

Special Agents and Special Agents in Charge

Team Managers and Group Managers responsible for Examination, Collection and /or Compliance, EP/EO and Government Entities matters.

These officers and employees also have the authority to serve and enforce summonses, to set the time and place for appearance, to take the summoned person's testimony under oath, to receive and examine data produced in compliance with the summons, and to perform other related duties described in IRC sections 7609(g) and (i)(2).

[Internal Revenue Manual] 25.5.1.3.3 (10-31-2006)
Authority to Issue Summonses Requiring Approval (Except " John Doe" Summonses)

The following officers and employees have the authority to issue summonses to the taxpayers being investigated. These officers and employees also have the authority to issue summonses to third-party witnesses but only when the employee's manager, or any supervisory official above that level, has given prior approval.

Internal Revenue Agents,

Estate Tax Attorneys,

Estate Tax Examiners,

Revenue Service and Assistant Revenue Service Representatives,

Tax Auditors

Revenue Officers, GS–9 and above,

Tax Law Specialists,

Compliance Officers,

Tax Resolution Representatives,

Property Appraisal and Liquidation Specialists GS-12 and above

To approve the issuance of a third-party summons, the supervisor must sign the summons as the approving officer. Alternatively, the issuing employee may write and sign a statement on the summons indicating that he or she had prior authorization to issue the summons and identifying the name and title of the approving supervisor and the date of the approval. This statement may be written in any blank space on the front of the original summons and all copies.

The officers and employees listed above in IRM 25.5.1.3.3(1) a. - j. are also authorized to perform all other acts listed above in IRM 25.5.1.3.2(2).

JRB wrote:

The secondary question then becomes, how many of these potential fishing expeditions result in actual enforcement/recovery cases?

hmmmm...... Good question.

And out of curiosity, what happens to the information the agent collects?

Yeah, good question. Much of the information received by the IRS pursuant to a summons might be classified as "return information" for purposes of Internal Revenue Code section 6103(b)(2). In such case, the unauthorized disclosure of that information by a government officer or employee could be a felony under section 7213. But the key word is "unauthorized." For example, section 6103(h)(4) authorizes the disclosure of such information in a civil or criminal judicial proceeding "pertaining to tax administration" involving the taxpayer in certain circumstances (such as, determining the taxpayer's civil or criminal liability with respect to any tax imposed under the Code, or the collection of the civil liability for any such tax). The exceptions under section 6103 are voluminous. In fact, as far as I know, section 6103 is the longest section in the entire Internal Revenue Code -- running over 40 pages depending on your printer format.

EDIT: Note that the definition of "return information" under section 6103 is not limited to information the taxpayer showed on a tax return, but may include data obtained from other sources:

....“return information” means—

(A) a taxpayer’s identity, the nature, source, or amount of his income, payments, receipts, deductions, exemptions, credits, assets, liabilities, net worth, tax liability, tax withheld, deficiencies, overassessments, or tax payments, whether the taxpayer’s return was, is being, or will be examined or subject to other investigation or processing, or any other data, received by, recorded by, prepared by, furnished to, or collected by the Secretary [of the Treasury or his delegate] with respect to a return or with respect to the determination of the existence, or possible existence, of liability (or the amount thereof) of any person under this title for any tax, penalty, interest, fine, forfeiture, or other imposition, or offense,

(B) any part of any written determination or any background file document relating to such written determination (as such terms are defined in section 6110 (b)) which is not open to public inspection under section 6110,

(C) any advance pricing agreement entered into by a taxpayer and the Secretary and any background information related to such agreement or any application for an advance pricing agreement, and

(D) any agreement under section 7121, and any similar agreement, and any background information related to such an agreement or request for such an agreement [ . . . .]

--from section 6103(b) (bolding added).

[LPC]

I would have thought there would be additional rigor in terms of avoiding fishing expeditions [...]

It can reasonably be argued that the entire federal income tax system is one big fishing expedition.

[Judge Roy Bean]

I would have thought there would be additional rigor in terms of avoiding fishing expeditions [...]

It can reasonably be argued that the entire federal income tax system is one big fishing expedition.

I'm old enough to remember the Baker incident (Senator who someone in the IRS went after) and would hope there is less fishing and more hunting.

[Famspear]

On the limits of the IRS's ability to use an administrative summons under section 7602, an interesting case is United States v. Theodore, 479 F.2d 749 (4th Cir. 1973), a case involving a summons issued to an accountant with respect to all his clients. Excerpts:

The Fourth Amendment prohibition against unreasonable searches and seizures does not require that administrative summonses meet a "probable cause" standard in order to be enforceable. United States v. Powell, 379 U.S. 48, 85 S.Ct. 248, 13 L.Ed.2d 112 (1964). Nonetheless, the Internal Revenue Service is not to be given unrestricted license to rummage through the office files of an accountant in the hope of perchance discovering information that would result in increased tax liabilities for some as yet unidentified client. Section 7602 summonses were not meant to give the IRS such investigative and inquisitorial power.

[ . . . ]

Section 7602 summonses are not meant to serve as a tool to police the accounting profession. Nor are they to be used to obtain from large accounting firms the complete records of all clients so that the IRS might determine if there is an error in the return of some unknown taxpayer. Section 7602 provides that "[f]or the purpose of ascertaining the correctness of any return * * * determining the liability of any person * * * the Secretary or his delegate is authorized (1) to examine any books, papers, records or other data which may be relevant or material to such inquiry." (Emphasis added.) 755*755 We hold that this language only allows IRS to summon information relating to the correctness of a particular return or to a particular person and does not authorize the use of open-ended Joe Doe summonses. Therefore, we find the summons directing Charles Theodore to produce all of the returns and all of the work records relating to all of his clients for the years 1969-1971 is too broad and too vague to be enforced. We reverse the District Court's order enforcing the summons.

http://scholar.google.com/scholar_case? ... s_sdt=3,44

(bolding added).

Note: Certain references in the Court's opinion to restrictions on the use of the summons in a criminal investigation should be read with an understanding that section 7602 was later amended to specifically authorize the use of the summons for that purpose.

EDIT: I note in particular some dicta from the Court in Theodore:

Only where the sole objective of the investigation is to obtain evidence for use in a criminal prosecution will the purpose of the summons be said to violate the Fourth Amendment and enforcement be denied.

(bolding added).

The cases cited later in the paragraph (citations not reproduced here) do not seem to support the contention that where the sole objective is to obtain evidence for criminal prosecution, a summons would violate the Fourth Amendment. I question whether these obiter dicta constitute a correct statement of the law.

EDIT 2: I corrected a typo in the citation on the Theodore case; it's 4th Circuit, not 5th Circuit.

[Famspear]

Ironically, Peymon Mottahedeh himself has published internet literature on "HOW TO WIN AN I.R.S. SUMMONS, EVERY TIME!" (italics in original).

However, in the article, Mottahedeh is referring to a summons issued to the taxpayer, not to a third party.

Mottahedeh asserts that any demand under a summons to the taxpayer can be successfully deflected by the taxpayer asserting the Fifth Amendment privilege against compelled self-incrimination -- using the Act of Production Doctrine. Of course, the Act of Production Doctrine will work in some but not all cases.

For Mottahedeh's article, see:

http://www.livefreenow.org/content/view/79/82/

The Act of Production Doctrine will work for the taxpayer only if the taxpayer's act of producing the information has a testimonial aspect -- where the act constitutes testimony about either the existence, custody, or authenticity of the documents.

[LPC]

Ironically, Peymon Mottahedeh himself has published internet literature on "HOW TO WIN AN I.R.S. SUMMONS, EVERY TIME!" (italics in original).

Let me guess: Just stand back and hide behind your wife's skirts.

Am I the only one puzzled by the fact that it was Mrs. Mottahedeh, and not Mr. Mottahedeh, that appealed the adverse decision?

Is this a strategy intended to minimize the possible adverse commercial impact of a litigation loss? If it is, I expect it to fail miserably (which is result not that much different from all of Peymon's tactics).