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Case 3:10-mc-00024-GEB Case: 11-1612 Document: -DEA Document 003110561288 25 Filed Page: 01/07/11 68 Date Page Filed: 15 06/13/2011 of 17 PageID: 479 (February 2, February 3) that they were under investigation for their tax liability for tax years 2000–2004. (See Compl. Exs. C, D.) The Government also cites Thompson v. United States, 2008 WL 4279474 (S.D. Tex. Sept. 11, 2008) for the proposition that a taxpayer’s controlled 3 business entities need not receive advance notice, but this case does not appear to address the notice required by IRC §7602(c) for a taxpayer’s wholly-owned corporations, where those corporations were also “taxpayers” under investigation. See id. at *6–7 (addressing taxpayer’s argument that he had not received sufficient advance notice of third-party contact, and noting that the IRS complied with the notice requirements of IRC § 7609). The Court is not persuaded that contemporaneous notice of Ferrous Miner and BABP under IRC § 7609 suffices, because Ferrous Miner and BABP are currently “taxpayers” under investigation, and the summonses sought documents from third-parties that would be relevant to an assessment of their tax liabilities. One of the motivating purposes for IRC § 7602(c) was Congress’s concern that IRS contacts with third-parties “may have a chilling effect on the taxpayer’s business and could damage the taxpayer’s reputation in the community. Accordingly, . . . taxpayers should have the opportunity to resolve issues and volunteer information before the IRS contacts third parties.” S. Rep. No. 105-174, at 77 (1998); see also United States v. Jillson, No. 99-Civ-14223, 1999 WL 1249414, at *3 (S.D. Fla. Oct. 28, 1999). To permit advance notice of one taxpayer to satisfy the advance-notice requirements with regard to other taxpayers under investigation, even where those taxpayers are entities wholly-owned by the taxpayer under 3 The Government also cites Phillips v. United States, 178 F.3d 1295 (6th Cir. 1999) (per curiam, unpublished decision), for this proposition, but this case did not consider the effect of the recently-passed advance-notice requirement, see Pub.L. No. 105-206, § 3417, 112 Stat. 685, 757 (1998), now codified at IRC § 7602(c). 15 A-000023
Case 3:10-mc-00024-GEB Case: 11-1612 Document: -DEA Document 003110561288 25 Filed Page: 01/07/11 69 Date Page Filed: 16 06/13/2011 of 17 PageID: 480 investigation, would undercut the public policy advanced by IRC § 7602(c). The failure to provide the advance notice required by IRC § 7602(c) defeats the fourth prong of the Powell test, and precludes enforcement of the summonses in a manner that would reveal information regarding against Ferrous Miner and BABP. See Jillson, 1999 WL 1249414, at *3 (quashing IRS summons where corporation did not receive advance notice under IRC § 7602(c) before IRS issued summonses upon the corporations officers). However, the IRS’s failure to provide advance notice to these legal entities does not evince bad faith so as to render the summonses void in their entirety. As noted above, the IRS gave advance notice of third-party contact to Mr. Gangi. The Court will grant Petitioners’ motion to quash in part and excise the portion of the summonses seeking information concerning 4 Ferrous Miner and BABP. The Court notes that the Government has already received the documents requested by the CitiBank summons and placed them under seal, pending the Court’s consideration of this petition. (See Doc. 19.) The Court will order the Government to separate documents relating to Ferrous Miner and BABP’s accounts and business transactions, in the presence of Petitioners’ representative, for either destruction or return to CitiBank; in the alternative, the Government may dispose of the documents and issue a new summons upon CitiBank seeking documents concerning Mr. Gangi’s personal accounts and transactions. With regard to the Sovereign Bank summons, the Court will enforce the summons only to the extent that it seeks documents concerning Mr. Gangi’s personal accounts with that institution. 4 The Court notes that the parties’ supplemental submissions did not address the notice, if any, provided to Petitioner Global Naps, Inc. Because the summonses sought information concerning this Petitioner as well, the summonses shall be quashed as to this entity, too, if it was not provided with advance notice under IRC § 7602(c). 16 A-000024
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