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Badman v. Internal Revenue Service

January 11, 2007

FRED S. BADMAN, PETITIONER
v.
INTERNAL REVENUE SERVICE, ET AL., RESPONDENTS



The opinion of the court was delivered by: William W. Caldwell United States District Judge

MEMORANDUM

I. Introduction

On September 11, 2006, Fred S. Badman filed a petition to quash a summons served upon PNC Bank ("PNC") by an agent of the Internal Revenue Service ("IRS"). (doc. 1). The summons was issued to PNC as a third-party record-keeper in an IRS investigation of Badman. In opposing Badman's petition, the IRS seeks an order enforcing the summons. (doc. 7, p. 7). We will deny Badman's petition and require PNC to comply with the summons.

II. Background

Badman's petition to quash the summons arises from an IRS investigation into his federal tax liability from 2000 through 2003. In conducting the investigation, Donna Lamonna, the IRS Revenue Agent assigned to the matter, discovered that Badman operated businesses which used PNC Bank for financial services. (doc. 7, p. 5). On August 21, 2006, Lamonna issued and served a summons on PNC Bank directing it to provide testimony and documents regarding Badman's businesses.*fn1 (doc. 5, ex. 101). The summons required PNC Bank to provide this information on September 20, 2006. Id. Lamonna notified Badman of the summons by mail on August 21, 2006. (doc. 7, ¶ 8).

PNC failed to provide testimony on September 20, 2006, or turn over the documents requested in the summons. Additionally, on September 11, 2006, Badman filed a petition to quash the summons issued to PNC. (doc. 1). The IRS moved to dismiss Badman's petition for lack of jurisdiction; however, we denied the motion. (doc. 6). On November 30, 2006, the IRS filed its response to Badman's petition to quash. (doc. 7).

Badman's petition presents five arguments in support of quashing the summons. First, Badman claims that the summons is "fraudulent on its face." (doc. 1, p. 3). Second, the summons "fails to comply with Internal Revenue Service Policy." Id. Third, Lamonna, the revenue agent who issued the summons, lacks authority to serve a summons under IRS policy. Id. at 4. Fourth, the summons is an abuse of administrative process because the information is sought "for the purpose of obtaining information for a planned criminal proceeding." Id. at 1-2. Finally, Badman claims that the summons failed to meet three of the four requirements established by the Supreme Court for a valid IRS summons. Id. at 2. Badman has also submitted an affidavit supporting his motion to quash the summons. (doc. 2).

The IRS filed an opposition to Badman's motion to quash. (doc. 7). The brief discusses the bases for the summons served by Lamonna and mirrors the Declaration submitted in the IRS's motion to dismiss the petition to quash for lack of jurisdiction. See doc. 5, "Declaration of Donna Lamonna."

III. Discussion

Badman's affidavit fails to rebut the prima facie showing made by the IRS in support of enforcing the summons. Therefore, we will dismiss Badman's petition to quash the summons and require PNC Bank to comply with the summons.

A. Applicable Legal Standard for Summons Proceedings

Pursuant to 26 U.S.C. § 7602(a)(2), the IRS may issue and serve a summons on a third-party record-keeper for, among other reasons, an investigation of a taxpayer's federal income tax liability. The taxpayer subject to the investigation, however, may initiate a proceeding to quash the summons served upon the third-party record-keeper. 26 U.S.C. § 7609(b)(2)(A). We have jurisdiction to consider Badman's petition to quash the summons served upon PNC Bank pursuant to 26 U.S.C. § 7609(h)(1).

To enforce an administrative summons, the IRS must make a four-part, prima facie showing that it issued the summons in good faith. To make the prima facie showing, the IRS must show: (1) the investigation is being conducted for a legitimate purpose; (2) the summons seeks information relevant to that purpose; (3) the IRS does not already possess the information; and (4) the IRS has followed the proper procedural steps in issuing and serving the summons. United States v. Rockwell Int'l, 897 F.2d 1255, 1262 (3d Cir. 1990) (discussing United States v. Powell, 379 U.S. 48, 57-58, 85 S.Ct. 248, 255, 13 L.Ed.2d 112 (1964)). An affidavit from the IRS Agent who issued the summons and is seeking its enforcement is sufficient to make the prima facie showing. United States v. Garden State Nat'l Bank, 607 F.2d 61, 68 (3d Cir. 1979).

With respect to the purpose of the summons, "[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." Rockwell, 897 F.2d at 1262. Section 7602 permits the IRS to issue a summons "[f]or the purpose of ascertaining the correctness of any return, making a return where none has been made, determining the liability of any person for any internal revenue tax . . . or collecting any such liability . . . ." Additionally, the purpose of the summons may include "inquiring into any offense connected with the administration or enforcement of the internal revenue laws." 26 U.S.C. § 7602(b). Thus, the IRS may issue a summons in a civil or criminal investigation related to the administration or enforcement of internal revenue laws. Pickel v. United States, 746 F.2d 176, 184 (3d Cir. 1984). Once the IRS has made a referral ...


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