here - Fuerst Ittleman David & Joseph, PL

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Case 3:10-mc-00024-GEB Case: 11-1612 Document: -DEA Document 003110561288 25 Filed Page: 01/07/11 62 Date Page Filed: 9 of 06/13/2011 17 PageID: 473 to force him to settle a collateral dispute, or that the IRS is acting solely as an information-gathering agency for other departments, such as the Department of Justice, or the FBI, the summons will be unenforceable because of the IRS’s bad faith.” Pickel v. United States, 746 F.2d 176,185 (3d Cir. 1984) (reversing district court’s quashing of IRS summons, w<strong>here</strong> petitioners did not present evidence of bad faith) (citations omitted). The Circuit explained in Rockwell that the good faith inquiry in<strong>here</strong>s in the Powell consideration of a legitimate investigative purpose, in that “the 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.” 897 F.2d at 1262. Further, in the context of similar administrative summonses issued by the SEC, the Circuit has indicated that “non-frivolous allegations of [abuse of process] do constitute sufficient grounds for further proceedings, including discovery.” SEC v. Wheeling-Pittsburgh Steel Corp., 648 F.2d 118, 128 (3d Cir. 1981) (en banc). Other than the length of the investigation (five years), Petitioners have presented no evidence that the IRS has conducted its investigation of Petitioners with an improper purpose, such as harassment. Instead, Petitioners arguments, if correct, would invalidate any IRS summons issued pursuant to these policies to investigate tax anomalies in the Virgin Islands. Such a position does not present a non-frivolous claim of abuse-of-process, but challenges the IRS’s investigatory discretion. Cf. Wheeling-Pittsburgh, 648 F.2d at 127–29 (permitting discovery on the allegation that a Congressman improperly influenced the SEC’s investigative process, but noting that the court “w[ould] not countenance judicial interference with agency decisions to conduct investigations”). The Court finds that Petitioners’ “institutional bad faith” 9 A-000017
Case 3:10-mc-00024-GEB Case: 11-1612 Document: -DEA Document 003110561288 25 Filed Page: 01/07/11 63 Date Page Filed: 10 06/13/2011 of 17 PageID: 474 arguments are premature. The instant dispute, coming prior to the assessment of any tax penalties, does not involve a claim that the IRS violated Petitioners’ constitutional or statutory rights. Rather, it involves Petitioners’ claims that the IRS has exceeded the scope of its investigatory authority under law. The IRS has asserted a legitimate investigatory purpose—to determine whether or not Mr. Gangi was a bona fide resident of the Virgin Islands for purposes of determining whether or not he satisfied his federal income tax liabilities. (See Moss Decl. 3, 14.) As noted above, failure-to- file and fraudulent filing exceptions to the IRC statute of limitations may apply, and thus the IRC statute of limitations does not render the IRS’s investigation in this case illegitimate. Should the IRS ultimately seek to assess tax penalties in the future, Petitioners will then have the opportunity to assert these constitutional and statutory defenses, and the court will then have the opportunity to determine whether the IRS’s conduct deprived Petitioners of their constitutional and statutory rights. The TSA Report, while a reasonable policy proposal for improving the fairness, transparency, and efficiency of IRS investigations, does not demonstrate that the IRS has acted in bad faith by investigating Petitioners’ tax liabilities. Indeed, the TSA Report recognizes the existing exceptions to the IRC statute of limitations for failure-to-file and fraudulent filings. TSA Report at 396. Such policy arguments are properly directed towards the political branches of government. To countenance such a facial challenge to the IRS’s investigatory policies at this preliminary stage would effectively preclude the IRS from using administrative summonses to investigate instances of such tax misfeasance (failure-to-file, fraudulent filings) in the Virgin Islands, and would open the door to judicial management of IRS investigations, whenever a 10 A-000018
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here - Fuerst Ittleman David & Joseph, PL

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