The opinion of the court was delivered by: MUIR
On January 25, 1982, the Internal Revenue Service served a summons upon Mid-State Bank & Trust Company (Mid-State Bank), Bellwood, Pennsylvania, directing Mid-State Bank to produce certain bank records relating to the Petitioner, sub judice, Konstantinos Moutevelis. Moutevelis was served with a copy of the summons on January 27, 1982. On February 11, 1983, Moutevelis instituted this action to quash the Internal Revenue Service summons directed to Mid-State Bank. This proceeding to quash an Internal Revenue Service summons is brought pursuant to 26 U.S.C. § 7609(b)(2) (1982). Jurisdiction over the matter is conferred on this Court by 26 U.S.C. § 7609(h)(1) (1982). Moutevelis's petition was originally docketed to Misc. No. 83-054 and after the matter became a contested proceeding, the Clerk of Court changed the number to Civil No. 83-0400, all in accordance with current directives of the Administrative Office.
Initially, the Court wishes to point out the absurdity of assigning one number to a petition to quash an IRS summons and then changing the number when the IRS contests the proceeding. Unless I miss my guess, there will rarely, if ever, be a petition to quash an IRS summons which will not be contested. This silly practice mandated by the Administrative Office causes unnecessary work and is productive of error.
On February 14, 1983, the Court issued a practice order. On February 15, 1983, the Court set a briefing schedule on the petition. Pursuant to the Court's briefing schedule, on February 25, 1983, Moutevelis filed a memorandum in support of his petition to quash the summons. On March 14, 1983, the Internal Revenue Service filed a motion and brief opposing the petition to quash and seeking summary enforcement of the summons. On March 23, 1983, Moutevelis filed an answer and reply to the memorandum of law of the Internal Revenue Service. This motion to quash is now ripe for disposition by the undersigned.
Special Agent William J. Yankovich of the Criminal Investigation Division of the Internal Revenue Service was assigned to investigate the federal tax liabilities of Moutevelis d/b/a S & M Exxon and Happy Valley Motors for the years 1978 through 1981. See Yankovich affidavit at para. 2. The purpose of Yankovich's investigation is to evaluate Moutevelis's tax liabilities for the years in question and to determine whether or not Moutevelis has violated any of the criminal provisions of the Internal Revenue Code of 1954. Yankovich affidavit at para. 3. During Yankovich's investigation, he learned that Moutevelis transacted business with Mid-State Bank and concluded that Mid-State Bank might be in possession of testimony, books, records, papers, and other data relating to Moutevelis's financial transactions for the years in question. Yankovich affidavit at para. 5. Consequently, Yankovich issued the subject Internal Revenue Service summons to Mid-State Bank. Yankovich affidavit at para. 6.
Moutevelis seeks to have the subject summons quashed because (1) the summons has been issued allegedly in bad faith and solely in furtherance of a criminal investigation; and (2) Moutevelis has never been contacted by or undergone an audit by the Internal Revenue Service to ascertain Moutevelis's civil liability for tax deficiencies. Petition to Quash at para. 5. The United States contends that the petition to quash should be dismissed or in the alternative the summons should summarily be enforced and argues that: (1) the summons has been issued in furtherance of a legitimate Internal Revenue Service investigation; (2) the materials sought by the summons are relevant to the investigation; (3) the materials sought by the summons are not already within the possession of the Internal Revenue Service; (4) the administrative prerequisites to issuance of the summons have been followed; and (5) no recommendation has been made by the Internal Revenue Service to the Department of Justice regarding criminal prosecution of Moutevelis for violation of the Internal Revenue Code of 1954.
The standards for enforcement of an Internal Revenue Service Summons are well established. There is an absolute ban on enforcement of Internal Revenue Service summonses issued after a case has been referred to the Justice Department for criminal prosecution of an alleged violation of the Internal Revenue Code of 1954. United States v. LaSalle National Bank, 437 U.S. 298, 98 S. Ct. 2357, 57 L. Ed. 2d 221 (1977); United States v. Garden State National Bank, 607 F.2d 61, 67 (3d Cir. 1979). Where, however, a matter has not yet been referred to the Justice Department for criminal prosecution, an Internal Revenue Service summons may be quashed only where the summons has not been issued in "good faith." LaSalle National Bank, 437 U.S. at 313-18; Garden State National Bank, 607 F.2d at 67. A prima facie showing of "good faith" for the purpose of enforcement of an Internal Revenue Service summons is established where: (1) the Internal Revenue Service investigation is being conducted for a legitimate purpose of civil tax collection; (2) the materials sought by the summons are relevant to the legitimate purpose of the investigation; (3) the information sought is not yet in the possession of the Internal Revenue Service; and (4) the proper administrative steps have been followed. United States v. Powell, 379 U.S. 48, 57-58, 13 L. Ed. 2d 112, 85 S. Ct. 248 (1964); Garden State National Bank, 607 F.2d at 67-68. "[Bad] faith" conduct by the Internal Revenue Service in this context "occurs when the Service . . . abandons in an institutional sense . . . the pursuit of civil tax determination or collection." Garden State National Bank, 607 F.2d at 68, citing United States v. Serubo, 604 F.2d 807, 811 (3d Cir. 1979).
Under the TEFRA, the burden is shifted to the taxpayer to institute an action to quash an Internal Revenue Service summons directed to a third-party recordkeeper. See 26 U.S.C. § 7609(b)(2) (1982). The announced reason for this change in procedure is set forth in the legislative history of the TEFRA as follows:
The [pre-1982] law rules relating to summonses of third-party recordkeepers were enacted in 1976 to protect the rights of persons whose records are held by third parties. The automatic stay provisions enacted in 1976 have been so easy to use that taxpayers have frequently delayed enforcement of summonses without considering the merit of any objection they might have. As a result, the Internal Revenue Service prevails in the vast majority of actions it brings to enforce third-party summonses. Indeed, most taxpayers fail to contest the summonses when the Internal Revenue Service seeks enforcement.
The [Senate] committee believes that shifting the burden of commencing litigation with respect to the validity of a third-party recordkeeper summons will eliminate most of the frivolous delay permitted under present law without adversely affecting the rights of taxpayers. S.Rep.No. 97-494 (Vol. 1) at 282, reprinted at 1982 U.S.C.A.A.N. 250.
Despite the shifting of the burden of instituting proceedings from the United States to the taxpayer, the relevant substantive law of summons enforcement is largely unchanged. See S.Rep. No. 97-494 at 283, reprinted at 1982 U.S.C.A.A.N. 251 ("Although an action to quash the summons must be instituted by the taxpayer, the ultimate burden of persuasion with respect to its right to enforcement of the summons will remain on the Secretary [of the Treasury] as under current law.").
In determining whether or not an Internal Revenue Service summons was issued "in good faith", LaSalle National Bank, 437 U.S. at 318, the Court must determine that the investigation is conducted pursuant to a legitimate purpose, that the inquiry is relevant to that purpose, that the information sought is not already within the possession of the Internal Revenue ...