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United States v. Trenk

November 20, 2006

UNITED STATES OF AMERICA, PETITIONER,
v.
STEVEN TRENK, RESPONDENT.



The opinion of the court was delivered by: Mary L. Cooper United States District Judge

MEMORANDUM OPINION

Petitioner, the United States of America ("United States"), seeks to enforce a summons issued under 26 U.S.C. § ("Section") 7604. Respondent, Steven Trenk, opposes enforcement, and asserts counterclaims against the United States. The United States moves to dismiss the counterclaims for lack of jurisdiction. Trenk cross-moves to (1) join the Internal Revenue Service ("IRS") as a party, and (2) enter summary judgment in his favor as to the counterclaims. The Court will (1) enforce the summons, (2) grant the motion to dismiss, and (3) deny the cross motion.

BACKGROUND

Trenk is the president of Gold Crown Insurance Inc. ("GCI"), which is organized under the laws of the British Virgin Islands. (Trenk Stmt. of Facts, at 2.) GCI is the corporate successor to TechTron Holding, Inc. ("TTH"), (1) which was a Delaware corporation operating in New Jersey, and (2) of which Trenk also was president. (Id.; Pet., at 2.) The IRS is examining TTH's tax liability for the tax year ending December 31, 2000. (U.S. Pet. Br., at 1.) It is investigating a possible tax avoidance scheme surrounding TTH's receipt of a $5.2 million settlement award. (Id. at 2.) IRS agent Richard Schloemer is assigned to the TTH investigation. (Pet. at, 2.)

The IRS issued a summons to Trenk, as GCI's president, on August 26, 2005, in connection with the TTH investigation. (Id. at 4.) It directed Trenk to appear on September 10, 2005, to "giv[e] testimony and produc[e] for examination books, papers, records, or other data described in the summons." (Id.) The appearance date was changed to October 10, 2005, as September 10 was a Saturday. (Id.) The IRS asserts that the summons requests fifty-two categories of documents that are relevant to the TTH investigation. (Id.)

The IRS contends that Trenk has refused to comply with the summons. (Id.) The United States thus petitioned to enforce the summons. (Dkt. entry no. 1.) The Court ordered Trenk to show cause why the summons should not be enforced. (Dkt. entry nos. 2, 4.) Trenk opposed the enforcement of the summons and asserted five counterclaims against the United States. The counterclaims seek the production of documents pursuant to the Freedom of Information Act ("FOIA"), the Privacy Act, and various provisions of the Internal Revenue Code. (See Answer.)

The United States moves to dismiss the counterclaims for lack of jurisdiction. (Dkt. entry no. 12.) Trenk opposes, and cross-moves (1) to add the IRS as a party, and (2) for the entry of summary judgment in his favor as to the counterclaims. (Dkt. entry no. 17.) The Court heard oral argument on the petition, motion, and cross motion.

DISCUSSION

I. Petition to Enforce Summons

The United States argues that the summons should be enforced because (1) it has made a prima facie case for enforcement, and (2) Trenk has not met his burden to establish affirmative defenses to enforcement. (U.S. Pet. Br., at 7-9; U.S. Reply, at 5-21.) In opposition, Trenk argues that (1) he has fully complied with the summons, (2) the summons was not issued in good faith, (3) the testimony requested is privileged or barred by the Fifth Amendment, and (4) the summons was not issued pursuant to proper procedure. (Trenk Pet. Br., at 2, 3, 8, 12, 16.)

A. Applicable Legal Standard

The Secretary of the Treasury or the Secretary's delegate may summon a taxpayer to appear before the Secretary to produce documents and give testimony to enable the IRS to determine tax liability. 26 U.S.C. § 7602(a)(2). If a taxpayer fails or refuses to comply with the summons, "the United States district court for the district in which such person resides shall have jurisdiction by appropriate process to compel such attendance, testimony, or production of books, papers, records, or other data." 26 U.S.C. § 7604(a).

The United States, to establish a prima facie case in favor of enforcement of a summons, must show that (1) the investigation is being conducted by the IRS for a legitimate purpose, (2) the inquiry is relevant to the purpose, (3) the information sought is not already in the IRS's possession, and (4) the administrative steps required by the tax code have been followed. United States v. Powell, 379 U.S. 48, 57-58 (1964); see United States v. Rockwell Int'l, 897 F.2d 1255, 1262 (3d Cir. 1990). "The requisite showing is generally made by affidavit of the agent who issued the summons and who is seeking enforcement." United States v. Garden State Nat'l Bank, 607 F.2d 61, 68 (3d Cir. 1979); see United States v. Lawn Bldrs. of New Eng., 856 F.2d 388, 392 (1st Cir. 1988) (stating same). Even if the United States shows the elements of a prima facie case, a taxpayer nevertheless may challenge the summons on "any appropriate ground." Powell, 379 U.S. at 58; see Rockwell, 897 F.2d at 1262. An appropriate ground exists when the taxpayer disproves one of the four Powell elements, or demonstrates that enforcement of the summons will result in an abuse of process. Rockwell, 897 F.2d at 1262. An abuse of process occurs when the IRS "abandons in an institutional sense . . . the pursuit of civil tax determination or collection." Garden State, 607 F.2d at 68 (internal quotes and cites omitted).

The burden to show an abuse of process is on the taxpayer. Powell, 379 U.S. at 58. The burden is a heavy one. Garden State, 607 F.2d at 68. A summons is issued for a legitimate purpose when it is issued in good faith pursuant to one of the powers granted under Section 7602. Rockwell, 897 F.2d at 1262. The United States need not delineate a specific and narrow purpose for the summons. Id. at 1263. If a case has not yet been submitted to the Justice Department for criminal prosecution, a summons is presumptively valid. Garden State, 607 F.2d at 67. The taxpayer must factually oppose the summons by affidavit; legal conclusions and memoranda of law are not sufficient. Id. at 71. When the taxpayer does not refute the prima facie case or cannot factually support an affirmative defense, the Court should enforce the summons without an evidentiary hearing. Id.

B. United States Has Met Powell Burden

A declaration filed by Schloemer, who is assigned to the IRS's examination of federal income tax liabilities of TTH and its subsidiaries, satisfies the Powell burden. (Schloemer Decl., at 1.) Schloemer declares that (1) the examination will determine TTH's correct federal income tax liability for the taxable year ending December 31, 2000, (2) "the internal revenue summons seeks relevant information which may shed light on the taxpayer's correct tax liability for the tax year ending December 31, 2000," (3) "the corporate books, papers, records, data, and testimony sought by the summons are not already in the possession of the [IRS]," and (4) "all administrative procedural steps" required by the Internal Revenue Code have been followed. (Id. at 2-4.)*fn1 Schloemer also states that (1) "no 'Justice Department referral' is in effect with respect to the taxpayer," (2) the IRS has made no recommendation to the Department of Justice for a grand jury investigation or criminal prosecution of the taxpayer, and (3) the ...


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