Frank Gangi v. United States , 453 F. App'x 255 ( 2011 )

NOT PRECEDENTIAL
UNITED STATES COURT OF APPEALS FOR THE THIRD CIRCUIT
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No. 11-1612
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FRANK GANGI; FERROUS MINER HOLDINGS INC.;
BABP VI LLC; GLOBAL NAPS INC.
v.
UNITED STATES OF AMERICA
FRANK GANGI,
Appellant
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Appeal from the United States District Court for the District of New Jersey
(No. 3:10-mc-0024)
District Judge: Honorable Garrett E. Brown, Jr.
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Submitted under Third Circuit LAR 34.1(a)
November 18, 2011
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Before: FUENTES and CHAGARES, Circuit Judges
and POGUE,* Judge
(Opinion Filed: November 30, 2011)
*
Hon. Donald C. Pogue, Chief Judge, United States Court of International Trade, sitting by
designation.
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OPINION
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POGUE, Judge,
Appellant, Frank Gangi, appeals the District Court’s grant of the Government’s
motion to enforce Internal Revenue Service (“IRS”) summonses served on CitiBank and
Sovereign Bank for the purposes of determining Gangi’s tax liability. For the following
reasons, we will affirm the District Court’s decision.
I. BACKGROUND
Because we write for the parties’ benefit, we will recite only the essential facts.
Those facts begin in 2004, when the IRS opened an audit to determine if Gangi was a
bona fide resident of the Virgin Islands, whether he was obligated to report income on a
U.S. federal income tax return and whether he reported the proper amounts of income.
Internal Revenue Agent Jackie Moss (“Agent Moss”) served third-party summonses on
CitiBank and Sovereign Bank on February 2, 2010 and May 10, 2010, respectively. The
summonses sought information and documents for the purposes of determining Gangi’s
tax liability.
Gangi petitioned to quash the summonses, alleging that the summonses failed to
comply with the requirements articulated in United States v. Powell, 379 U.S. 48 (1964).
On August 25, 2010, the Magistrate Judge issued an opinion and order denying Gangi’s
petition and granting the Government’s motion to enforce. On January 7, 2011, the
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District Court adopted, with modifications, the Magistrate Judge’s Report and
Recommendations. The Government appealed and Gangi cross-appealed. The
Government’s appeal was later voluntarily dismissed, leaving only Gangi’s appeal.
II. JURISDICTION & STANDARD OF REVIEW
As the District Court had jurisdiction pursuant to 26 U.S.C. §§ 7402(b) and
7609(h), we have jurisdiction pursuant to 28 U.S.C. § 1291.
In reviewing the District Court’s order to enforce an IRS summons, we review
questions of fact for clear error and questions of law de novo. See Lozano v. City of
Hazleton, 620 F.3d 170, 181 (3d Cir. 2010); see also United States v. Ins. Consultants of
Knox, Inc., 187 F.3d 755, 759 (7th Cir. 1999).
III. ANALYSIS
Section 7602(a) of the Internal Revenue Code (“IRC”) authorizes the IRS to issue
summons “[f]or the purpose of ascertaining the correctness of any return, making a return
where none has been made, determining liability of any person for any internal revenue
tax . . . , or collecting any such liability.” To establish a prima facie case for the legality
of a summons, the IRS must show that: (1) the investigation will be conducted pursuant
to a legitimate purpose; (2) the inquiry may be relevant to the purpose; (3) the information
sought is not already within the Commissioner’s possession; and (4) the administrative
steps required by the IRC have been followed. Powell, 379 U.S. at 57–58. Once the IRS
has made its prima facie case, the taxpayer bears the burden of disproving any one of the
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four Powell elements or otherwise demonstrating that “enforcement of the summons will
result in an abuse of the court’s process.” United States v. Rockwell Int’l, 897 F.2d 1255,
1262 (3d Cir. 1990). The burden of showing an abuse of the court’s process is on the
taxpayer. Powell, 379 U.S. at 58.
Gangi contends that the District Court erred in concluding that enforcement of the
summonses would not result in an abuse of process. He presents two arguments to
support his abuse of process claim: a constitutional argument, related to the IRS’s
interpretation of the statute of limitations on the assessment of taxes, and an institutional
bad faith argument.
A. Statute of Limitations
First, Gangi argues that the IRS’s failure to acknowledge that the statute of
limitations for assessment of taxes has expired constitutes an infringement of his Fifth
Amendment due process rights. This claim lacks merit.
The statute of limitations for assessment of taxes is three years from the latter of
the date the return was due or filed. IRC § 6501. Powell, however, makes it clear that the
statute of limitations applies only to assessments of taxes, not to summonses or other
investigative procedures. Powell, 379 U.S. at 57 (“[T]he [IRS] Commissioner need not
meet any standard of probable cause to obtain enforcement of his summons, either before
or after the three-year statute of limitations on ordinary tax liabilities has expired.”).
Since the dispute in this case concerns summonses and not assessments, the § 6501 statute
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of limitations upon which Gangi relies is inapplicable to the summonses at issue.
Therefore, any due process claims based on the expiration of the statute of limitations
must fail.1
The statute of limitations for assessment does not preclude the summonses at issue.
Accordingly, we need not address Gangi’s constitutional claims based on the statute of
limitations.
B. Institutional Bad Faith
Second, Gangi claims that the summonses evidenced institutional bad faith on the
part of the IRS. Gangi bases this argument on his constitutional challenge, arguing that
the IRS is pursuing its investigation despite the asserted unconstitutionality of its
interpretation of the statute of limitations for assessment of tax liability in the Virgin
Islands. Gangi further relies on a legislative recommendation contained in a 2009 report
to Congress by the IRS Taxpayer Advocate Service (“TSA”).
A good faith inquiry satisfies the first prong of Powell – a legitimate investigative
purpose. Rockwell, 897 F.2d at 1262 (“[T]he requirement of legitimate purpose means
nothing more than that the government’s summons must be issued in good faith pursuant
to one of the powers granted under 26 U.S.C. § 7602.”). Examples of bad faith requiring
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IRC § 6501(c)(1)–(3) also provides exceptions for false returns, willful attempts to evade tax,
and the failure to file a return. If the IRS determines that Gangi was not a bona fide resident of
the Virgin Islands, then he was obligated to file U.S. federal tax returns. It is uncontested that
Gangi did not file U.S. federal tax returns for the period at issue. It follows that the statute of
limitations would not preclude the summonses for purposes of determining the applicability of
these exceptions.
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a court to quash a summons include summonses issued “solely to harass [a taxpayer], or
to force him to settle a collateral dispute,” or to gather information for other federal
agencies. Pickel v. United States, 746 F.2d 176, 185 (3d Cir. 1984).
Gangi has failed to present evidence that the IRS acted in bad faith. The IRS has
asserted a legitimate investigatory purpose – to determine whether Gangi was a bona fide
resident of the Virgin Islands and thus whether he has satisfied his tax liabilities. As the
District Court has noted, the TSA Report, on which Gangi relies, presents tax policy
arguments rather than any evidence of institutional bad faith, which is a legal standard.
Gangi v. United States, No. 10-24, 2011 WL 1363816, at *6 (D.N.J. Jan. 07, 2011).
Furthermore, because the statute of limitations does not preclude summonses, the
constitutional challenge presented by Gangi is not relevant to the question of whether the
IRS acted in bad faith in issuing the summonses. Accordingly, the IRS’s issuance of the
summonses does not constitute institutional bad faith.
IV. CONCLUSION
For the foregoing reasons, we will affirm the District Court’s order denying
Gangi’s petition and granting the Government’s motion to enforce.
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