Kimberly Gaetano v. United States ( 2021 )

NOT RECOMMENDED FOR PUBLICATION
File Name: 21a0343n.06
No. 20-2182
UNITED STATES COURT OF APPEALS
FOR THE SIXTH CIRCUIT
KIMBERLY BASEHART GAETANO; RICHARD )
FILED
Jul 16, 2021
GAETANO, )
DEBORAH S. HUNT, Clerk
)
Petitioners-Appellants, )
) ON APPEAL FROM THE
v. ) UNITED STATES DISTRICT
) COURT FOR THE EASTERN
UNITED STATES OF AMERICA, ) DISTRICT OF MICHIGAN
)
Respondent-Appellee. )
)
BEFORE: BOGGS, CLAY, and WHITE, Circuit Judges
BOGGS, Circuit Judge. The Internal Revenue Service issued summonses to nine financial
institutions as part of a criminal investigation into Kimberly Basehart-Gaetano and Richard
Gaetano (appellants). The IRS is investigating appellants’ quarterly and annual tax returns, and
the summonses seek records from January 1, 2015 to November 1, 2019. Appellants brought a
petition in the District Court for the Eastern District of Michigan to quash the summonses, and the
government responded with a motion to dismiss the petition and enforce the summonses. Adopting
the magistrate judge’s report and recommendation, the court dismissed appellants’ petition and
ordered enforcement. Appellants now argue that the district court erred because there are no tax
periods that end on November 1, 2019, and thus (1) the investigation did not have a legitimate
purpose and (2) the inquiry did not seek records relevant to a legitimate investigation. Because an
No. 20-2182, Gaetano v. United States
investigatory summons may seek records from dates outside the specific tax period under
investigation, we affirm.
I
The district court had jurisdiction to review the petition to quash under 26 U.S.C. § 7609.1We have jurisdiction under 28 U.S.C. § 1291 and must affirm unless the district court’s order is
clearly erroneous. United States v. Monumental Life Ins. Co., 440 F.3d 729, 732 (6th Cir. 2006).
“Issues of statutory interpretation, however, are reviewed de novo.” Ibid.II
A
“For the purpose of ascertaining the correctness of any return . . . ,” as well as for “the
purpose of inquiring into any offense connected with the administration or enforcement of the
internal revenue laws,” the IRS may issue summonses and “examine any books, papers, records,
or other data which may be relevant or material” to an investigation. 26 U.S.C. §§ 7602, 7603.
“The IRS, however, has no power of its own to enforce the summons but must apply to the district
court in order to compel production of the requested materials.” United States v. Will, 671 F.2d
963, 966 (6th Cir. 1982) (citing 26 U.S.C. § 7604). In United States v. Powell, the Supreme Court
held that the government can establish a prima facie case for judicial enforcement of an
investigatory summons by demonstrating that (1) “the investigation will be conducted pursuant to
a legitimate purpose,” (2) “that the inquiry may be relevant to the purpose,” (3) “that the
1
Jurisdiction over a petition to quash lies in “the district within which the person to be
summoned resides or is found.” 26 U.S.C. § 7609(h)(1). Although only two of the summonses
reflect service on addresses in the Eastern District of Michigan, appellants allege, and the
government does not contest, that each recipient “either resides or is found” in that district. We
have no reason to doubt that each organization is, at least, found in the Eastern District of
Michigan.
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information sought is not already within the [IRS] Commissioner’s possession, and” (4) “that the
administrative steps required by the [Internal Revenue] Code have been followed.” 379 U.S. 48,
57–58 (1964); Will, 671 F.2d at 966.
The government generally makes this prima facie showing for enforcement through “the
submission of the affidavit of the agent who issued the summons . . . .” Will, 671 F.2d at 966. If
the government makes this showing, “the burden shifts” to the taxpayer to disprove any of the
required elements or to demonstrate that enforcement of the summons would be an abuse of the
court’s process.2 Monumental Life, 440 F.3d at 733. “Such an abuse would take place if the
summons had been issued for an improper purpose . . . .” Powell, 379 U.S. at 58. That said, a
taxpayer must provide “specific facts and evidence” to meet the heavy burden necessary to
demonstrate an abuse of process. Byers v. United States, IRS, 963 F.3d 548, 560 (6th Cir. 2020)
(quoting Cypress Funds, Inc. v. United States, 234 F.3d 1267, 2000 WL 1597833, at *4 (6th Cir.
2000) (table)).
B
As to the relevance requirement of § 7602 and the Powell framework, the words “may be
[relevant]” reflect “Congress’ express intention to allow the IRS to obtain items of even potential
relevance to an ongoing investigation . . . .” United States v. Arthur Young & Co., 465 U.S. 805,
814 (1984). The relevance threshold needed to enforce a summons is lower than that required “to
admit evidence in federal court.” Ibid.; cf. Monumental Life, 440 F.3d at 736 (describing the
relevance threshold as “very low” (quoting United States v. Noall, 587 F.2d 123, 125 (2d Cir.
2
Where, as here, “the IRS issues a summons not to the investigated taxpayer herself, but to a third party who
may possess records related to the taxpayer . . . , the named taxpayer is entitled to notice that the summons has been
issued, and has the right to intervene in the summons-enforcement proceeding.” Byers v. United States, IRS, 963 F.3d
548, 553 (6th Cir. 2020) (citation omitted). No matter whether the IRS issues the summons to the investigated taxpayer
or a third party, “[t]he same standards apply.” Ibid.-3-
No. 20-2182, Gaetano v. United States
1978))). The critical inquiry is not whether the records sought are relevant, but whether they
“might throw light upon the correctness of a return.” Monumental Life, 440 F.3d at 735 (emphasis
added and internal quotation marks omitted).
Tax periods do not exist in a vacuum. Records from outside those designated timeframes
may be relevant to a taxpayer’s conduct in a given quarter or year. Noncontemporaneous records
may illuminate important aspects of an investigation into tax liability, including the taxpayer’s
knowledge of filing requirements, the sources of assets or income, and the true nature of
transactions with others. There is widespread acceptance that records from before or after the tax
period under investigation can meet the low relevance threshold necessary for a summons. See,
e.g., Boyd v. United States, 87 F. App’x 481, 484–85 (6th Cir. 2003) (holding that summonses
could seek tax returns and workpapers for years before those under investigation); Phillips v.
United States, 178 F.3d 1295, 1999 WL 228585, at *3 (6th Cir. 1999) (per curiam) (table) (holding
that summonses could seek financial records for years before and after those under investigation);
La Mura v. United States, 765 F.2d 974, 976, 982–83 (11th Cir. 1985) (same); Muratore v. Dep’t
of the Treasury, 315 F. Supp. 2d 305, 312–13 (W.D.N.Y. 2004) (holding that summonses could
seek “documents generated after the investigation period” because, “given the expansive definition
of ‘relevance’ . . . , the IRS should not be limited to seeking documents only from the precise time
period under investigation”).3
C
Appellants claim that the government failed to make out the case for enforcement because
the IRS issued the summonses for an improper purpose. Yet their sole support for that claim is the
3
As we previously noted in response to appellants’ similar challenge to another summons,
“[n]othing in § 7602 or § 7609 requires that a summons identify the tax period(s) the IRS is
investigating.” Gaetano v. United States, 994 F.3d 501, 511 (6th Cir. 2021).
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fact that no tax period ends on November 1, 2019. They argue that because no tax returns could
be due on that date, the requested records fail to meet the first and second Powell requirements for
enforcement: (1) a legitimate investigatory purpose and (2) an inquiry relevant to that purpose.
There is no basis to this claim. The government has demonstrated a prima facie case for
enforcement through a declaration of the agent who issued the summons. The agent stated that the
summonses’ purpose is “to determine whether [appellants] understated their tax liability for tax
years 2015 through 2018, and quarterly filings for 2019, in violation of the Internal Revenue
Code.” He further explained that the “records beyond the close of the tax periods under
investigation may shed light on the accuracy of income reported in the prior tax year.” The
declaration sufficiently demonstrates a legitimate investigatory purpose. And records from after
the tax period under investigation may be relevant to that inquiry.
III
Appellants have not disproved the government’s prima facie case for enforcement, nor
have they come close to meeting the heavy burden necessary to demonstrate an abuse of process.
They have not contested the type or breadth of records sought, and the mere fact that some records
relate to dates outside the period under investigation does not create doubt as to the IRS’s purpose
or the information’s potential relevance. The district court did not err in ordering enforcement.4
AFFIRMED.
4
To the extent appellants appeal the denial of their motion to take discovery, the district
court properly denied the request because appellants failed to “make[] a preliminary and
substantial demonstration of abuse.” Will, 671 F.2d at 968.
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