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Rowe v. United States

United States District Court, E.D. Louisiana

May 16, 2018


         SECTION "F"



         Before the Court is the government's motion to dismiss the plaintiffs' petition to quash summonses. For the following reasons, the motion is GRANTED.


         This litigation arises out of summonses issued by the IRS to three banks to obtain a Louisiana church's financial records in connection to an investigation of the tax liability of the church's pastors.

         Herbert and Carol Rowe are a married couple employed as pastors at the Upperroom Bible Church in New Orleans, Louisiana. Upperroom is a Louisiana nonprofit church corporation and is federally tax-exempt. In April 2017, IRS Agent Donald Thomas was assigned to conduct an investigation of the Rowe's tax liability for the 2011 tax year. The Rowes had not filed a federal income tax return for 2011, or any year since 1996, but filed a 2011 return after Agent Thomas contacted them about his investigation. The Rowes also submitted bank records from two accounts at Regions Bank, pursuant to an information document request from the IRS. The Rowes represented that the Regions accounts were their only personal bank accounts. After reviewing the bank records and their tax return, the IRS identified inconsistencies. On December 11, 2017, Thomas issued IRS administrative summonses to J.P. Morgan Chase Bank, Liberty Bank and Trust, and Regions Bank. The bank accounts at J.P. Morgan Chase Bank and Liberty Bank and Trust were opened and are owned, held, and operated solely by the Church, but the Rowes have signatory authority over the accounts. The bank account with Regions Bank is owned by the Rowes. The IRS directed the banks to appear at the New Orleans IRS office on January 8, 2018 to give testimony and produce the requested records for examination.

         The summonses were broad in their request, asking the banks to provide: (1) savings account records, including dates and amounts of deposits, withdrawals, interest, debit memos, and deposit and withdrawal slips; (2) checking account records, including deposit slips, checks deposited, and records of all debit and credit memos; (3) loan records, including applications, financial statements, loan collateral, background investigations, settlement sheets, and internal bank memoranda; (4) safe deposit box records, including contracts, access records, and records of rental fees; and (5) certificates of deposit, money market certificates, and retirement accounts, including applications, actual instruments, and records of purchases and redemptions; (6) U.S. Treasury notes and bills, including all records of the purchase of U.S. Treasury bills and notes and any subsequent sale of such bills and notes, checks used for the purchases and sales, and records of any interest paid; (7) stocks and bonds, including all agreements, contracts, mutual fund accounts, and commodity accounts; (8) credit card records, including background investigations conducts and monthly billing statements; and (9) other records, including wire transfers, letters of credit, bonds and securities purchased through the bank, savings bond transactions, and investment accounts, among others. On January 2, 2018, the Rowes filed a petition to quash summonses. The government moved to dismiss the petition to quash summonses on March 2, 2018.


         “Congress has endowed the IRS with broad authority to conduct tax investigations, ” under 26 U.S.C. § 7602. United States v. El Paso Co., 682 F.2d 530, 544 (5th Cir. 1982); 26 U.S.C. § 7602. For a summons to be enforceable, the IRS must show that (1) the summons was issued for a “legitimate purpose;” (2) the sought-after information “may be relevant” to that purpose; (3) the IRS is not already in possession of the information; and (4) the IRS has followed the administrative steps required by the Internal Revenue Code. United States v. Powell, 379 U.S. 48, 57-58 (1964). The government's burden to produce a prima facie case by satisfying the Powell test is said to be “slight or minimal” and “can be fulfilled by a ‘simple affidavit' by the IRS agent issuing the summonses.” Mazurek v. United States, 271 F.3d 226, 230 (5th Cir. 2001). Reviewing “courts may ask only whether the IRS issued a summons in good faith, and must eschew any broader role of ‘overseeing the IRS's determinations to investigate.'” United States v. Clarke, 124 S.Ct. 2361, 2367 (quoting Powell, 379 U.S. at 56). In fact, “[t]he Supreme Court has ‘consistently [held] that if the summons authority claimed is necessary for the effective performance of congressionally imposed responsibilities to enforce the tax code, that authority should be upheld absent express statutory prohibition or substantial countervailing policies.'” El Paso, 682 F.2d at 544 (quoting United States v. Euge, 444 U.S. 707, 711 (1980)).

         Determining the correctness of a return and an individual's tax liability are both legitimate reasons to issue an IRS summons. 26 U.S.C. § 7602; Maxton, 103 F.3d at *2. The second factor requires that the information be relevant, but the IRS is not “required to establish that the documents it seeks are actually relevant in any technical, evidentiary sense.” United States v. Arthur Young & Co., 465 U.S. 805, 814 (1984); Zugerese Trading LLC v. I.R.S., 336 Fed.Appx. 416, 418 (5th Cir. 2009)(“The concept of relevance under § 7602 is broader than that under the Federal Rules of Evidence.”). Instead, the IRS is permitted “to obtain items of even potential relevance to an ongoing investigation.” Arthur Young, 465 U.S. at 814. The Fifth Circuit has held that “the test of relevancy is whether the summons seeks information which ‘might throw light upon the correctness of the taxpayer's return, '” and instructs that the IRS must have a “realistic expectation rather than an idle hope that something might be discovered.” United States v. Wyatt, 637 F.2d 293, 300 (5th Cir. 1981)(quoting Foster v. United States, 265 F.2d 183, 197 (2d Cir. 1959))(additional internal citations omitted). For example, if the IRS is examining the correctness of a return, “[r]ecords that illuminate any aspect of the return” would be “highly relevant.” Id.

         The third factor does not bar the government from seeking information that may include documents it already obtained. Instead, it only prohibits summonses that “constitut[e] an unnecessary examination or inspection.” United States v. Groos Nat. Bank of San Antonio, 661 F.2d 36, 37 (5th Cir. 1981). Finally, the fourth factor requires that the government comply with the procedural requirements provided in the Internal Revenue Code. This includes the requirements for service under Section 7603 and for notice required by Section 7602(c). If the government satisfies the Powell factors, the petitioner must “fulfill his ‘heavy' burden of rebutting the [IRS's] case by either undermining [its] contentions regarding any of the Powell factors or by demonstrating that enforcement of the summons would result in an ‘abuse' of the court's process.” Mazurek, 271 F.3d at 230.



         As a preliminary matter, the Court turns to the Church Audit Procedure Act, which limits the manner in which the IRS can conduct investigations of churches, to determine if the statute controls. CAPA restricts both church tax inquiries and church tax examinations. The statute defines church tax inquiries as “any inquiry to a church (other than an examination) to serve as the basis for determining whether a church (A) is exempt from tax under section 501(a) by reason of its status as a church, or (B) is carrying on an unrelated trade or business . . . or otherwise engaged in activities which may be subject to taxation under this title.” 26 U.S.C. § 7611(h)(2). CAPA only permits church tax inquiries if an “appropriate high-level Treasury official reasonably believes” that the church may not be exempt from tax or may be carrying on an unrelated trade or business that is taxable and the inquiry notice requirements have been met. 26 U.S.C. § 7611(a)(1)-(2). The statute requires the Secretary to provide written notice to the church at the beginning of the inquiry that includes an explanation of the concerns that gave rise to the inquiry, the general subject matter of the investigation, and a general explanation of the applicable legal considerations that are relevant to the inquiry. 26 U.S.C. § 7611(a)(3). A church tax examination is defined as “any examination for the purposes of making a determination . . . of (A) church records at the request of the Internal Revenue Service, or (B) the religious activities of any church.” 26 U.S.C. § 7611(h)(3). CAPA only permits church tax examinations into church records “to the extent necessary to determine the liability for, and the amount of, any tax imposed by this title.” 26 U.S.C. § 7611(b)(1)(A). It only allows examination into religious activities “to ...

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