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 64 Date Page Filed: 11 06/13/2011 of 17 PageID: 475 taxpayer objects to the IRS’s “institutional” bad faith. Such limitations would significantly hinder the IRS in its legitimate law enforcement functions. The Court finds this prospect inconsistent with the broad investigatory powers accorded to the IRS by IRC § 7602(a), and the “summary” nature of enforcement proceedings under Powell, see Rockwell, 897 F.2d at 1264. Besides the statute of limitations and institutional bad faith arguments, Petitioners do not contest that the IRS has a legitimate investigative purpose, under the first prong of Powell, to ascertain whether the taxpayers are bona fide residents of the Virgin Islands. The Government notes that the IRS has discovered a common tax scheme, w<strong>here</strong>by taxpayers can reduce their tax liabilities by up to 90% by (a) purporting to become a Virgin Islands resident by establishing certain contacts with the USVI; (b) purporting to terminate an existing employment relationship with one’s employer; (c) joining or establishing a business entity in the Virgin Islands; (d) having that business enter into a contract for the same services with the former employer; (e) continuing to provide services to the original employer via the new business entity, rather than as an employee; (f) funneling payment for these services through the new business entity; and (g) reporting this income on a tax return in the Virgin Islands and claiming tax benefits under the Virgin Islands’ Economic Development Program (EDP). See IRS Notice 2004-45, available at www.irs.gov; see also Twin Palms Resort LLC v. United States, Civ. No. 09-61062, unpublished order in Chambers, at 1–2 (S.D. Fla. Nov. 4, 2009) (Moss Decl. Ex. 100). This Court does not doubt that the IRS has a legitimate interest in ferreting out such fraudulent returns. 4. Materials Relevant to Legitimate Investigative Purpose Petitioners next contend that the Government cannot satisfy the second Powell prong, because the bank records sought in the summonses were not relevant to determining whether or 11 A-000019
Case 3:10-mc-00024-GEB Case: 11-1612 Document: -DEA Document 003110561288 25 Filed Page: 01/07/11 65 Date Page Filed: 12 06/13/2011 of 17 PageID: 476 not Mr. Gangi was a bona fide resident of the Virgin Islands. Such records are irrelevant, Petitioners argue, because modern technology permits individuals to maintain bank accounts and authorize transactions remotely from anyw<strong>here</strong> around the world. This Court disagrees. Because of the permissive language in IRC § 7602(a), the relevancy threshold under Powell is not demanding. See IRC § 7602(a)(1) (authorizing the Government to “examine any books, papers, records, or other data which may be relevant or material to [tax collections inquiries]” (emphasis added)). Indeed, the Third Circuit has recognized that IRC § 7602(a) sets a “rather liberal standard of relevance” that permits the Government to obtain “information that has only ‘potential relevance’ to the investigation.” Rockwell, 897 F.2d at 1263 (quoting United States v. Arthur Young & Co., 465 U.S. 805, 814 (1984)). Although the Court recognizes the conveniences of modern technology, the Court cannot categorically say that bank records have no relevance to a consideration of residency. See accord Twin Palms, Civ. No. 09-61062, unpublished order in Chambers, at 9; cf. Vazquez v. C.I.R., T.C. Memo. 1993-368, 1993 WL 315404, at *4 (T.C. Aug. 19, 1993) (considering taxpayer’s Puerto Rican bank account, in determining that he was a bona fide resident of Puerto Rico for tax purposes). 5. Non-Compliance With IRC § 7602(c)’s Advance Notice Requirement Finally, Petitioners object that the R&R summarily rejected their position with regard to the fourth prong of the Powell test, compliance with applicable administrative procedures under the IRC. Petitioners contend that the administrative summonses themselves revealed that the IRS failed to give the advance notice required by IRC § 7602(c), and that Magistrate Judge Arpert improperly relied on the declaration of Agent Moss, which stated that the IRS had complied with all applicable administrative procedures under the IRC during this investigation. (See Moss 12 A-000020
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here - Fuerst Ittleman David & Joseph, PL

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