here - Fuerst Ittleman David & Joseph, PL

Case 3:10-mc-00024-GEB Case: 11-1612 Document: -DEA Document 003110561288 25 Filed Page: 01/07/11 59 Date Page Filed: 6 of 06/13/2011
17 PageID: 470
the United States and the Virgin Islands). It is undisputed that Mr. Gangi did not file a U.S. tax
return for these tax years. Thus, one of the aforementioned exceptions to the IRC statute of
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limitations (false return, willful evasion, failure to file) may apply, in which case the IRC statute
of limitations would not preclude further tax assessments against Petitioners. Consequently, the
Court rejects Petitioners’ objection to the extent that Petitioners maintain that the IRC statute of
limitations demonstrates that the IRS lacks a legitimate investigatory purpose under Powell.
2. Incomplete Legal Standard
Petitioners next argue that Magistrate Judge Arpert application of the Powell standard
was incomplete, because the R&R failed to account for Petitioners’ challenges on the
“appropriate ground[s]. . . . that enforcement of the summons will result in an abuse of the
court’s process.” (Petrs.’ Objections at 8.) Petitioners are correct that the Third Circuit in
Rockwell recognized that a taxpayer could challenge an IRS summons on such grounds, see
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In their original petition brief, Petitioners cited cases holding that failure-to-file
exceptions to Code limitations provisions did not apply to cases where the taxpayer submitted the
incorrect tax form, but still gave the IRS all the data it needed to assess the tax. See, e.g.,
Germantown Trust Co. v. Comm’r of Internal Revenue, 309 U.S. 304 (1940); Standard Office
Bldg. Corp. v. United States, 819 F.2d 1371 (7th Cir. 1987). Yet, neither case addressed whether
the failure to file tax returns with both the United States and the Virgin Islands, as required by
IRC § 932(a), constituted a failure-to-file exception to the statute of limitations, as opposed to a
wrong-form filing, which is not exempted from the limitations period. More importantly,
though, these cases dealt with a tax assessment, not an IRS summons, which is issued during the
investigative phase prior to a tax assessment. Even if the failure-to-file exception was
categorically not applicable to Petitioners’ failure to file U.S. tax returns, the other two
exceptions might still apply, if the IRS found that Petitioners filed a false return or willfully
attempted to evade tax liability. As noted above, at this stage—a petition to quash an IRS
subpoena—this Court need not consider the merits of Petitioners’ statute of limitations defense;
this Court need only determine whether the IRS has a legitimate investigatory purpose. Under
these circumstances, the Court cannot say that these cases or the IRC statute of limitations
demonstrates that the IRS does not have a legitimate investigation purpose to issue these
summonses.
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A-000014