ORDER GRANTING MOTION TO DISMISS AMENDED PETITION
Re: Dkt. No. 43
JON S. TIGAR, United States District Judge.
Maxcrest Limited filed an amended petition seeking to quash a summons the Internal Revenue Service directed to a third party. ECF No. 33. Now before the Court is the United States' motion to dismiss the amended petition. ECF No. 43. The Court will grant the motion and compel compliance with the summons.
A. The First Summons
This case deals with a third-party summons directed to Google Inc. regarding the
In October 2014, the Russian Federation made an "exchange of information request" to the United States regarding the tax liabilities of NefteGasIndustriya-Invest ("Nefte-Invest"), specifically for information regarding Platten Overseas Ltd. from Google.
Rather than act promptly on the request, the Internal Revenue Service ("IRS") did not issue a summons directed to Google until September 16, 2015.
Maxcrest filed a petition on November 13, 2015, requesting that the Court quash the IRS summons because the United States failed to give proper notice. ECF No. 1. On January 11, 2016, the United States moved to dismiss the petition, ECF No. 12, and on February 1, 2016, Maxcrest filed its opposition to the motion, ECF No. 20.
On February 12, 2016, the United States withdrew the summons ("the first summons").
On March 17, 2016, the United States served another summons ("the second summons") on Google and served notice on Maxcrest by certified mail. ECF No. 32; ECF No. 33 ¶ 34.
On March 25, 2016, Magistrate Judge Laporte issued her Report & Recommendation ("R&R") regarding the United States' motion to dismiss the petition. ECF No. 29. Judge Laporte recommended granting the United States' motion and dismissing Maxcrest's petition with leave to amend to challenge the second summons.
On April 7, 2016, the parties filed a stipulation agreeing that Maxcrest could file an amended petition to quash the second summons. ECF No. 32. That same day, Maxcrest filed an amended petition. ECF No. 33. On April 20, 2016, the United States filed a motion to dismiss the amended petition. ECF No. 43.
In light of the amended petition, the Court denied the United States' motion to dismiss the petition as moot and terminated Judge Laporte's R&R. ECF No. 49.
B. The Second Summons
As described above, the Internal Revenue Service ("IRS") issued the second summons directed to Google on March 17, 2016. ECF No. 33 ¶ 32. The second summons was sent by certified mail, with postage dated March 21, 2016.
The second summons directs Google to produce the following information:
Maxcrest filed an amended petition seeking to quash the summons. ECF No. 33. Maxcrest argues that notice of the second summons was not timely, and the United States acted in bad faith in issuing the second summons.
The United States seeks to dismiss the amended petition and to enforce the second summons. ECF No. 43.
II. LEGAL STANDARD
In response to a summons issued by the IRS, a person under IRS investigation may bring a proceeding to quash the summons or intervene in the action. 26 U.S.C. § 7609(b). Subsequently, the United States may seek to enforce the summons and/or move to dismiss the petition pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure.
When the United States moves to dismiss and also seeks enforcement of the summons, the government must establish the following four requirements: (1) the investigation will be conducted for a legitimate purpose; (2) the material being sought is relevant to that purpose; (3) the information sought is not already in the IRS's possession; and (4) the IRS complied with all the administrative steps required by the Internal Revenue Code.
If the government meets the
The United States requests that the Court deny the amended petition and enforce the second summons directed to Google.
Article 25 of the Convention Between the United States of America and the Russian Federation for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income and Capital (the "Convention") governs the exchange of tax information between the United States and the Russian Federation.
Under the Internal Revenue Code, the IRS is authorized to issue a summons relevant to the investigation of any taxpayer's liability. Summons may be issued for the purposes 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 or ... collecting any such liability." 26 U.S.C. § 7602(a). A taxpayer identified in an IRS summons served on a third-party record keeper may begin proceedings to quash the summons. 26 U.S.C. § 7609.
B. Summons Enforcement
The United States argues that it satisfies the four-part test enunciated in
Because the United States seeks to enforce the summons, it bears the initial burden of establishing the four
1. Legitimate Purpose
The first element requires the government show the investigation is being conducted for a legitimate purpose.
The United States has established a legitimate purpose.
The second prong under
This element is met because the information requested is relevant to the Russian Federation's investigation of Nefte-Invest. ECF No. 43-1, O'Donnell Decl. ¶ 11. The Competent Authority for the Russian Federation stated that Nefte-Invest exported a significant amount of heating oil out of Russia in 2012 through Platten; in 2012 one million metric tons of heating oil was exchanged for over $600 million.
Maxcrest argues that the second summons is overly broad and calls for irrelevant information. Maxcrest states the IRS fails to establish "a realistic expectation rather than an idle hope that something may be discovered." ECF No. 45 at 13 (citing
The summons identifies information such as the subscriber's name and address, the length of service utilized, telephone number or other identifying information, and the Internet Protocol address. Such information is relevant as it might shed light on whether Nefte-Invest and Platten shared common ownership or were related companies. Although the specific transactions being investigated occurred during 2012, if the email@example.com account has been accessed by a user, common to both Platten and NGI, in the same or similar location, that might be relevant to the question of common ownership — even if the access took place after 2012.
The United States has established that the information requested may be relevant to the Russian Federation's investigation of Nefte-Invest's income tax liabilities.
3. Possession of Information
O'Donnell asserts in his declaration that at the time the summons was prepared, issued, and served, the summoned information was not in the possession of the IRS or the Russian Competent Authority. ECF No. 43-1, O'Donnell Decl. ¶¶ 12-13; ECF No. 43-2, Atherly Decl. ¶ 12.
4. Compliance with Administrative Steps
The United States contends that the IRS issued the summons in conformity with the applicable statutes and properly informed Platten.
Maxcrest contends that the second summons must be quashed because notice was not timely. ECF No. 33 ¶¶ 47-48.
a. Timely Notice
Section 7609(a)(1) of the Internal Revenue Code requires that notice must be given to any person identified in the summons "within 3 days of the day on which such service is made, but no later than the 23rd day before the day fixed in the summons as the day upon which such records are to be examined." 26 U.S.C. § 7609(a)(1). However, if the last day for performing an act falls on Saturday, Sunday, or a legal holiday, the performance of that act is timely if it is performed on the next succeeding that is not a Saturday, Sunday, or legal holiday.
The second summons directed to Google was served on Thursday, March 17, 2016. The last day to give notice under § 7609(a)(1) would have been Sunday, March 20, 2016. However, § 7503 extended the last day of notice to Monday, March 21, 2016. The United States satisfied the requirements of § 7609(a)(1), because the second summons was sent by certified mail and postmarked on March 21, 2016 and the date fixed for Google's appearance was more than 23 days after notice was given. Maxcrest does not dispute the United States' argument in its opposition and raises no other argument regarding the United States' compliance with the Internal Revenue Code's administrative steps.
The Court concludes Maxcrest received timely notice of the second summons and complied with the appropriate administrative steps.
C. Bad Faith
Once the IRS establishes a prima facie case under
As the United States has met its burden of establishing a prima facie case for enforcing the third-party summons, the burden has shifted to Maxcrest to demonstrate the lack of good faith. Maxcrest argues that the second summons was improperly issued and constitutes an abuse of process. ECF No. 33 ¶¶ 49-71. Maxcrest's theory is that the IRS allegedly acted in bad faith when issuing the first summons, tainting the second summons because that
The Court finds the argument unpersuasive. In addition to the lack of legal support, the Court notes that even if the United States' alleged bad faith regarding the first summons were at issue, Maxcrest's arguments regarding that alleged bad faith are speculative and contingent.
On this record, Maxcrest has not shown specific facts or circumstances that plausibly raise an inference of bad faith.
The Court finds that the United has met its burden of showing that the elements of the
The Clerk shall close the file.
IT IS SO ORDERED.