United States v. Philip Kaiser ( 2005 )

United States Court of Appeals
FOR THE EIGHTH CIRCUIT
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No. 04-1349
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United States of America, *
*
Plaintiff-Appellee, *
* Appeal from the United States
v. * District Court for the
* Eastern District of Missouri.
Philip A. Kaiser; *
Douglas M. Mueller, *
*
Defendants-Appellants. *
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Submitted: January 10, 2005
Filed: February 10, 2005
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Before LOKEN, Chief Judge, MORRIS SHEPPARD ARNOLD and MURPHY,
Circuit Judges.
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MURPHY, Circuit Judge.
Philip Kaiser and Douglas Mueller appeal from an order enforcing Internal
Revenue Service (IRS) summonses seeking tax shelter information. They argue that
the district court1 erred in finding that the IRS had a legitimate purpose for its
investigation and that the information sought was relevant to such a purpose. We
affirm.
1
The Honorable Henry E. Autrey, United States District Judge for the Eastern
District of Missouri.
After investigating a charitable family limited partnership which two clients of
Kaiser and Mueller had used to obtain significant deductions for charitable
contributions, IRS Agent Cheryl Kiger concluded that the partnership was an abusive
tax shelter. She sought approval from the IRS Lead Development Center for an
investigation into whether Kaiser and Mueller were promoting or distributing abusive
tax shelters, in violation of I.R.C. § 6700, and whether injunctive relief should be
pursued under I.R.C. § 7408. The Center gave its approval on July 23, 2002 and the
case was assigned to Agent Kiger, who first recorded work on the matter in late
December. In the interim Kiger had completed her investigation of the two clients
and issued a report proposing substantial adjustments to their tax liability. In January
Mueller informed Agent Kiger that his clients would protest her report. Both Kaiser
and Mueller had previously succeeded in obtaining reductions of adjustments
proposed by Agent Kiger.
In February 2003 Agent Kiger sent letters notifying Kaiser and Mueller of her
investigation. Kaiser requested a meeting with her, and Kiger and three other IRS
officials met with appellants about the investigation on March 6, 2003. At the end
of the meeting, Agent Kiger issued eight summonses to Kaiser and Mueller. The
summonses requested information concerning a number of tax shelters described on
a website they maintained, a site she had discovered during her earlier investigation
of their clients. The summonses also sought information regarding the purchasers of
these tax shelters.
Kaiser and Mueller appeared before Agent Kiger on March 17, 2003. Mueller
produced a number of documents but refused to provide the IRS with any materials
disclosing client identities, offering redacted versions in their place. IRS counsel
thereafter referred the summonses to the Department of Justice, which petitioned the
district court for their enforcement.
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Applying the standard articulated in United States v. Powell, 379 U.S. 48, 57-
58 (1964), the district court held that the government had established a prima facie
case for enforcement of the summonses. The court concluded that they had been
issued for the legitimate purpose of determining whether Kaiser and Mueller had
unlawfully promoted abusive tax shelters; that information regarding their dealings
with other clients was material and necessary to determine whether they had acted
unlawfully and whether injunctive relief should be pursued; that the IRS did not
already have the information sought; and that the IRS had completed all of the
necessary administrative steps for a summons to issue. The court also rejected
appellants' argument that it would be an abuse of process to enforce the summonses
because Agent Kiger was motivated to retaliate for their prior success in appealing
her proposals.
Kaiser and Mueller appeal on two separate grounds. First, they argue that the
investigation of their conduct was "lousy with improper purpose" and that the
government has not shown that the IRS had a legitimate basis for its inquiry. They
complain that Agent Kiger had a conflict of interest by investigating their clients and
them simultaneously; that Kiger pursued her investigation in retaliation for their
clients' appeal of her proposed adjustment; that Kiger intended her investigation to
drive a wedge between them and their clients; that Kiger lacked sufficient familiarity
with their clients' charitable family limited partnership to justify her recommendation
of an investigation; and that neither this partnership nor other entities described on
the Kaiser and Mueller website had been listed by the IRS as abusive tax shelters.
Second, appellants argue that the identity of their clients is not relevant to the IRS
investigation and that they had offered the agency all of the records sought, only
redacting identifying information.
After reviewing the district court's decision for clear error, see Tax Liabilities
of John Does v. United States, 866 F.2d 1015, 1019 (8th Cir. 1989), we cannot say
that enforcement of the summonses was improper. The government demonstrated
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that its investigation was supported by the legitimate purpose of determining whether
Kaiser and Mueller had violated I.R.C. § 6700 and could thus be subject to injunctive
relief under I.R.C. § 7408. See I.R.C. § 7602(b) (summonses permitted for "purpose
of inquiring into any offense connected with the administration or enforcement of the
internal revenue laws"). The government also demonstrated that the client
information sought was directly relevant to these ends. Kaiser and Mueller's
speculative assertions of impropriety do not meet the heavy burden required to
disprove the legitimacy of the IRS investigation nor the relevance of the records it
pursues. United States v. Claes, 747 F.2d 491, 494 (8th Cir. 1984).
For these reasons we affirm the order of the district court.
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