Robert Rains v. United States ( 2019 )

NOT FOR PUBLICATION FILED
UNITED STATES COURT OF APPEALS OCT 24 2019
MOLLY C. DWYER, CLERK
U.S. COURT OF APPEALS
FOR THE NINTH CIRCUIT
ROBERT C. RAINS; RENEE RAINS, No. 18-55992
Petitioners-Appellants, D.C. Nos.
2:17-mc-00074-DMG-MRW
v. 2:17-mc-00075-DMG-MRW
2:17-mc-00076-DMG-MRW
UNITED STATES OF AMERICA,
Respondent-Appellee. MEMORANDUM*
Appeal from the United States District Court
for the Central District of California
Dolly M. Gee, District Judge, Presiding
Submitted October 22, 2019**
Pasadena, California
Before: CALLAHAN and OWENS, Circuit Judges, and RESTANI,*** Judge.
Robert and Renee Rains (“the Rainses”) appeal from the district court’s
judgment denying the Rainses’ petitions to quash three third-party summonses
*
This disposition is not appropriate for publication and is not precedent
except as provided by Ninth Circuit Rule 36-3.
**
The panel unanimously concludes this case is suitable for decision
without oral argument. See Fed. R. App. P. 34(a)(2).
***
The Honorable Jane A. Restani, Judge for the United States Court of
International Trade, sitting by designation.
issued by the Internal Revenue Service (“IRS”) in connection with its audit of the
Rainses’ individual tax returns. We review for clear error the district court’s denial
of a petition to quash an IRS summons, except to the extent that the district court
interpreted statutory law, which we review de novo. Fortney v. United States, 59
F.3d 117, 119 (9th Cir. 1995). We review for abuse of discretion a district court’s
denial of an evidentiary hearing. Id. at 121. As the parties are familiar with the
facts, we do not recount them here. We affirm.
1. The district court did not clearly err by denying the Rainses’ petitions
to quash the summonses. To defeat a petition to quash a summons, the
government must make a prima facie showing of good faith by establishing the
Powell requirements, which include that the summons was issued for a legitimate
purpose and that the information being sought is not already in the IRS’s
possession. Crystal v. United States, 172 F.3d 1141, 1143-44 (9th Cir. 1999)
(citing United States v. Powell, 379 U.S. 48, 57-58 (1964)). “The government’s
burden is a slight one, and may be satisfied by a declaration from the investigating
agent that the Powell requirements have been met.” Id. at 1144 (citation omitted).
Once the government makes a prima facie showing of good faith, the taxpayer
challenging the summons bears the “heavy” burden of showing the summons was
issued in “bad faith” or for an “improper purpose.” Id. (citation omitted).
Here, the government made a prima facie showing of good faith, which
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included the IRS agent’s declaration that she issued the three summonses to
determine whether the Rainses had committed fraud. The Rainses argue that the
summonses were not issued for a legitimate purpose, and the IRS already
possessed the information sought, because the IRS purportedly had made a fraud
determination prior to issuing the summonses. However, the record does not
support the Rainses’ contentions. The Rainses have not carried their “heavy”
burden of showing that the summonses were issued in “bad faith” or for an
“improper purpose.” Id. (citation omitted).
2. The district court properly determined that the IRS did not violate the
“one inspection” rule of 26 U.S.C. § 7605(b). Section 7605(b) provides that “[n]o
taxpayer shall be subjected to unnecessary examination or investigations, and only
one inspection of a taxpayer’s books of account shall be made for each taxable
year[.]” 26 U.S.C. § 7605(b) (emphasis added). The Rainses argue that the IRS
violated § 7605(b) by auditing their individual tax returns after auditing the
corporate tax returns of The Complete Logistics Company Inc., a corporation
wholly-owned by the Rainses through a living trust. However, the IRS did not
violate the plain language of § 7605(b) because the two audits involve different
“taxpayer[s].” 26 U.S.C. § 7605(b); see also Kolom v. Comm’r, 644 F.2d 1282,
1289 (9th Cir. 1981) (noting that corporate audit differed from individual audit for
purposes of § 7605(b)).
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3. Finally, the district court did not abuse its discretion by denying the
Rainses an evidentiary hearing. The Rainses fail to “point to specific facts or
circumstances plausibly raising an inference of bad faith” by the government in
issuing the summonses. United States v. Clarke, 573 U.S. 248, 254 (2014).
AFFIRMED.
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