Law Offices of David Lee Rice, APLC

INFORMATION GATHERING BY THE INTERNAL REVENUE SERVICE AND THE FRANCHISE TAX BOARD

BY DIANA CALLAGHAN, ESQ.
CALIFORNIA ANNUAL TAX INSITTUE 2004 SAN JOSE , CALIFORNIA

INFORMATION GATHERING BY THE IRS AND THE FTB

INTERNAL REVENUE SERVICE

There are a variety of vehicles used by the IRS to gather information from taxpayers and third party record keepers. The most common are summonses, subpoenas, and search warrants. The IRS has very broad investigative powers in both the civil and criminal arenas. Chief among them is the IRS Summons

IRS SUMMONS

A. Power to issue summons

1. The IRS summons is issued by the Secretary of the Treasury pursuant to 26 U.S.C. 7602(a)(1). That section provides the IRS with the power to summons for the purpose of:

(a) ascertaining the correctness of a return;

(b) making a return where none has been made;

(c) determining the liability of any person for any internal revenue tax or the liability in law or in equity of any transferee or fiduciary of any person in respect of any internal revenue tax;

(d) collecting any such liability

2. The summons must be:

(a) signed by the agent or officer involved in the inquiry and

(b) his supervisor.

(c) If both signatures do not appear on the summons it will be quashed. Harpole v. United States 2001-1 USTC P 50277 (2001, DC Alaska )

3. When issuing the summons the IRS is authorized to:

(a) examine any books, papers, records, or other data which may be relevant or material to such inquiry;

(b) summons the person liable for tax or required to perform the act or any officer or employee of such person, or any person having possession, custody, care of books of account containing entries relating to the business of the person liable for the tax or required to perform the act, or any other person the Secretary may deem proper, to appear before the Secretary at a time and place named in the summons and to produce such books, papers, records, or other data, and to give testimony, under oath, as may be relevant or material to such inquiry; and

(d) 26 U.S.C. 7602(a)(1), (2), (3)

4. The purpose of the summons includes the purpose of A inquiring into any offense connected to the administration and enforcement of the internal revenue laws. @ 26 U.S.C. 7602(b)

(a) It is A not to accuse but to inquire. @ United States v. Bisceglia 420 U.S. 141 (1975)

(b) 26 U.S.C. 7602 is to be construed liberally. United States v. Pennsylvania Bank & Trust Company 355 F.Supp. 607 (1973 WD Pa. )

(d) If records sought by summons are extensive they are properly summoned if they are relevant. Moreover, it is not necessary for the IRS to provide probable cause for the issuance of a summons. The IRS may conduct an investigation on suspicion that the law is being violated or if it simply wants to assure that it is not. United States v. Richards 479 F.Supp. 828 (1979 ED VA)

5. Rasquin v. Muccini 72 F.2d 688 (1934 CA2 NY) Tax payer is not required to produce documents after tax has been assessed and entire liability has been paid. United States v. Tossie 336 F.Supp. 1051 (1971 ED Mo) There can be no issuance of a summons when the tax is not yet due. United States v. Myslajek 440 F.Supp. 5 (1977 DC Minn )

B. Service of Summons

1. Once the summons is prepared it must be served in accordance with 26 U.S.C. 7603(a) which requires that the summons:

(a) be served by the Secretary

(b) be an attested copy delivered in hand to the person to whom it is directed or

(d) the certificate of service is to be signed by the person serving the summons

2. Merely depositing the summons at the taxpayer = s residence is insufficient unless it is left with a person of suitable age and discretion. Otherwise the taxpayer has not been afforded due process. United States v. Giertz 650 F.Supp. 886 (1987 SD Fla )

3. The signed certificate of service A shall be evidence of the facts it states on the hearing of an application for the enforcement of the summons. 26 U.S.C. 7603(a). It is sufficient that any books, papers, records or other data are described with reasonable certainty. The requested items need only be sufficiently defined to allow for a reasonable opportunity to identify the material sought. United States v. First National Bank 173 F.Supp. 716 (1959 WD Ark )

4. If the summons is directed to a third party record keeper, 26 U.S.C. 7603(b) permits service by certified or registered mail to the last known address of the record keeper.

C. Summons Enforcement

1. Failure to respond to a summons requires the IRS to seek enforcement.

(a) 26 U.S.C. 7604(a) vests jurisdiction to enforce an IRS summons in the United States District court where the respondent lives or is found.

(b) The IRS use appropriate process to compel attendance

(1) Judge of the District Court or to a

(2) United States Magistrate of the district

(3) in the jurisdiction where the respondent resides or is found

(4) for an attachment against him for a contempt.

2. Once the application is made it is necessary for the court to:

(a) hear the application and

(b) if satisfactory proof is made

(d) to some proper officer

(e) for the arrest of such person and

(f) once the person is brought before him to proceed to a hearing and

(g) upon such hearing the court shall have the power to make such order

(1) as he shall deem proper,

(2) not inconsistent with the law for the punishment of contempts,

(3) to enforce obedience to the requirements of the summons and

(4) to punish such person for his default or disobedience

(h) only a district judge may actually enter a final enforcement order. United States v. Mueller 930 F.2d 10 (8 th Cir. 1991.)

3. Summons enforcement proceedings are summary and limited to the determination of the IRS = s right to obtain needed information. United States v. Derr 968 F.2d 943, 945 (9 th Cir. 1992); United States v. Pelayo 94 AFTRA (RIA) 5034 (2004)

4. The proceeding is brought only at the investigative stage. (Alphin v. United States 809 F.2d 236 (4 th Cir. 1987.)

5. A The statute must be read broadly in order to ensure that the enforcement powers of the IRS are not unduly restricted.

6. It is not the role of the court to direct the efforts of the IRS but simply to guard against abuses. ( United States v. Barrett 837 F.2d 1341 (5 th Cir. 1988.)

7. It is incumbent upon the Secretary to meet all of the requirements set forth in United States v. Powell 379 U.S. 48 (1964) :

(a) the IRS need only make a minimal initial showing that the summons is issued for a proper purpose

(1) the court cannot A oversee the Commissioner = s determination to investigate @ ( Id. at 56.)

(2) no showing of probable cause is necessary. ( Id. at 54.)

(A) See also United States v. Avco Financial Services 78-1 USTC P 9117 (1977 ED Cal)

(B) IRS may conduct investigation on suspicion that the law is being violated or because it wants assurances that it is not. Powell, supra, at 57; United States v. Richards 479 F.Supp. 828 (1979 ED Va)

(3) even for years barred by statute of limitations Government is not required to satisfy court that a reasonable basis to suspect fraud exists. United States v. Ryan 320 F.2d 500 (6 th Cir. 1963)

(4) summons will be enforced if issued in good faith.

(A) There is no showing of bad faith where IRS simply because IRS cannot demonstrate violation of a tax law. United States v. Cortese 614 F.2d 914 (3 rd Cir. 1980)

(5) Criminal v. Civil

(A) Historically, the IRS could not issue a summons solely for criminal purposes, however, the 1982 amendment ' 7602(b) clearly changed the law as set forth in United States v. LaSalle National Bank 437 U.S. 298 (1978) to allow for the issuance of a summons when the IRS is engaged in only a criminal investigation. ( United States v. Claes 747 F.2d 491 (8 th Cir. 1984);

(B) A summons may not issue where the matter has already been referred to the Justice Department for prosecution. (26 U.S.C. 7602(c); La Mura v. United States 765 F.2d 974, 980 (11 th Cir. 1982)

(C) the validity of the summons is tested as of the date of issuance and not the date of enforcement. Subsequent acts relating to request for prosecution or convening a grand jury do not invalidate the summons. United States v. Arden Hills Farms, Inc. 85-1 USTC P 9338 (1985 WD Pa)

(b) that the material sought is relevant to that purpose

(1) Records are considered relevant if they A might throw some light upon @ the liabilities of the taxpayer. United States v. Noall 587 F.2d 123 (2d Cir. 1978)

(2) A summons is not to be judged on the relevance standards used in deciding whether to admit evidence in federal court. . . The language > may be = reflects Congress = s express intention to allow the IRS to obtain items of even potential relevance to an ongoing investigation, without reference to its admissibility. @ (United States v. Arthur Young & Co. 465 U.S. 805 (1984)

(3) IRS is entitled to determine whether information is relevant and need not accept the taxpayer = s word on it. (Tiffany Fine Arts, Inc. v. United States 469 U.S. 310 (1985);

(4) IRS can summons records for time barred years so long as they are relevant to later years under investigation. United States v. Linsteadt 724 F.2d 480 (5 th Cir. 1984.)

(5) Overbreadth

(A) while not specifically a Powell, supra requirement courts have addressed the issue in the context of attacks regarding relevancy. See Oklahoma v. Press Publishing Co. v. Walling 327 U.S. 186 (1946); United States v. Norwood 2004 U.S. Dist.Lexis 11595

(B) An IRS summons need only describe the documents with sufficient specificity that a summoned party may know what he is to produce. ( United States v. Medlin 986 F.2d 463, 467 (11 th Cir.1993)

(C) While the IRS is given broad authority to enter into a fishing expedition it must nevertheless A identify with some precision the documents it wishes to inspect. Dauphin Deposit Trust Co 385 F.2d 129 (3 rd Cir 1967)

(6) Burdensome

(A) An IRS summons will not fail simply because it is overly burdensome. The mere fact that a summons may require a significant expenditure of time or requests a great many documents is not the determinative factor the primary issue is whether the documents are relevant. Spell v. United States 907 F.2d 36 (4 th Cir. 1990); United States v. Luther 481 F.2d 429 (9 th Cir. 1973.)

(1) affidavit by IRS agent that IRS does not have documents is sufficient to shift the burden of proof to the summoned party.

(2) The courts have taken a liberal view of this requirement by holding that it is sufficient for the IRS to allege that documents may be in their possession but difficult to retrieve. United States v. Linsteadt 724 F.2d 480 (5 th Cir. 1984.); United States v. Davis 636 F.2d 1028 (5 th Cir. 1981)

(3) A taxpayer may not refuse to comply with summons by IRS agent simply because revenue agent has already looked at them. United States v. Lang 792 F.2d 1235 (4 th Cir. 1986.)

(d) that the administrative steps required by the Internal Revenue Code have been followed.

(1)Administrative steps are set forth in 26 U.S.C. 7603

(A) Shall be served by the Secretary

(B) by an attested copy

(D) left at his last or usual place of abode

(E) certificate of service signed by the person serving the summons shall be evidence of the facts it states

(2) Merely showing that an administrative step has not been followed will not in and of itself void an other wise valid summons. The court will A evaluate the seriousness of the violation under all circumstances including the governments good faith and the degree of harm imposed. United States v. Payne 648 F.2d 361, 363 (5 th Cir. 1981.)

(3) So long as the taxpayer has had A every benefit of the administrative steps required by the code, a failure by the IRS to meet the technical niceties of the statute will not bar enforcement. Xelan, Inc v. United States 2004-2 USTC P 50,294

(4) Commissioner has the right to delegate authority to issue summonses. United States v. Derr 968 F.2d 943 (9 th Cir. 1992.)

(8) Procedure

(a) The Government = s showing is typically made by an affidavit of the IRS agent who issued the summons.

(b) The court then issues an OSC to the summoned party to show why the summons should not be enforced. United States v. Gilleran 992 F.2d 232 (9 th Cir. 1993.)

(1) OSC is both an effective and appropriate tool to determine if there is a legitimate basis for challenging a summons. It places upon the summoned party the burden of proof. United States v. Newman 441 F.2d 165 (5 th Cir 1971)

(c) A person challenging a summons in good faith is entitled to an adversarial hearing in District Court before being forced to comply. United States v. Gajewski ) 419 F.2d 1088 (8 th Cir 1969)

(1) the right to a hearing is not absolute. United States v. First Nat = l Bank 691 F.2d 386 (8 th Cir 1981); Hintze v. IRS 879 F.2d 121 (4 th Cir. 1989.)

(2) full evidentiary hearing is not required. ( Id. )

(3) adversarial hearing sufficient to handle summary judgment question of whether there is a genuine issue of material fact and to protect the rights of the parties. ( Id. )

(4) Government affidavits are insufficient to establish reasonable grounds for suspecting fraud. There must be a hearing. United States v. Aluminum Siding Corp. 170 F.Supp. 12 (ND Ill 1958)

(d) Taxpayer is entitled to discovery in a summons enforcement proceeding because IRS = s purpose for issuing summons is now at issue. United States v. Roundtree 420 F.2d 845 (5 th Cir 1969)

(1) this right is not absolute. There must be some support for the allegation that the summons was issued for an improper purpose. Summary allegation is insufficient. United States v. Salter 432 F.2d 697 (1 st Cir 1970)

(2) this showing must be substantial. United States v. O = Henry = s Film Works, Inc. 598 F.2d 313 (2 nd Cir 1979)

(e) Third parties may intervene to protect their interests even when they are not a party. Reisman v. Caplin 375 U.S. 440 (1964)

(1) the third party must be sufficiently interested before he will be allowed to intervene. United States v. American Speedreading Acadamy, Inc. 75-2 USTC P 9757 (1975 ND Tex )

(2) Taxpayer must have standing to object to the production of documents before he will be allowed to intervene. United States v. White 326 F.Supp. 459 (1971 SD Tex )

(f) The burden then shifts to the summoned party to disprove one of the Powell requirements. The summoned party must demonstrate A substantial deficiencies in the summons proceeding. @ Mere allegations are insufficient. ( United States v. Leventhal 961 F.2d 936 (11 th Cir. 1992)

(1) A Taxpayer must articulate specific allegations of bad faith and, if necessary, produce reasonably particularized evidence in support

of those allegations. @ United states v. Gertner 65 F.3d 963 (1 st Cir. 1995.)

(9) Taxpayer defenses

(a) an unnecessary investigation

(1) No taxpayer can be subjected to examinations that are unnecessary

(A) examination is not A unnecessary @ if information in taxpayer = s records is needed which is not already in the possession of the Commissioner. United States v. Powell 379 U.S. 48 (1964)

(2) IRS is permitted only one examination of a taxpayer = s taxable year (26 U.S.C. 7605(b) unless:

(A) taxpayer requests otherwise; or

(B) the Secretary, after investigation, notifies the taxpayer in writing that an additional inspection is necessary

(1) section 7605 does not apply when initial inspection was for a third party = s liability. United States v. Krilich 470 F.2d 341 (7 th Cir 1972)

(2) section 7605 does not apply to inspection of third party records only to records in possession of taxpayer. Bouschor v. United States 316 F.2d 451 (8 th Cir 1963)

(3) second examination is permissible so long as taxpayer is given notice. Holmquist v. Blair 35 F.2d 10 (8 th Cir 1929)

(4)10 day notice is required. United States v. Insurance Consultants of Knox, Inc 187 F.3d 755 (7 th Cir 1999)

(5) notice is not required if summoned information is part of an ongoing investigation. In re Application of SJC Mfg. Corp. 479 F.Supp. 647 (1979 ED NY)

(6) Taxpayer can waive right to notice by consenting to the examination. United States v. O = Conner 237 F.2d 466 (2 nd Cir 1956)

(7) there is no second examination where taxpayer = s business records are in 2 states and examination by agent in one state is followed by examination in another state. Kilgannon v. Commissioner 1965 TC Memo 118

(8) there is no second examination when the records are reviewed for different purposes. United States v. Horton 452 F.Supp. 472 (9 th Cir 1978)

(9) Examination is not complete until examining agent advises the taxpayer that it is complete. United States v. Garrison Construction Co. 77-2 USTC P 9705 (1977 ND Ala )

(C) Taxpayer must raise objection to second examination at time inspection is made or right to object is waived. Maloney v. United States 521 F.2d 491 (6 th Cir 1975)

(D) Only the taxpayer may raise these objections and not third parties. United States v. Wood 435 F.Supp. 870 (1977 WD Ky)

(E) Taxpayer does not have the right to a hearing prior to IRS decision to seek second inspection. Zimmer v. Connett 640 F.2d 208 (9 th Cir 1989)

(3) Institutional Bad Faith

(a) A Tax payer must disprove the actual existence of a valid civil tax determination or collection purpose by the IRS . @ United States v. Jose 131 F.3d 1325, 1328 (9 th Cir. 1997)

(4) 5th Amendment B see infra

D. Third Party Summons

(1) 26 U.S.C 7602(c) allows the IRS to summons 3 rd part record keepers so long as:

(a) IRS provides reasonable notice in advance to the taxpayer

(b) IRS shall periodically provide a taxpayer a record of persons contacted

(1) any contact taxpayer has authorized

(2) if the Secretary determines for good cause shown that such notice would jeopardize collection of any tax or such notice may involve reprisal against any person or

(3) with respect to any criminal investigation

(2) 26 U.S.C. 7603 defines a third party record keeper as:

(a) banks

(b) consumer reporting agency

(d) broker

(e) attorney

(1) section is inapplicable to attorney = s who are acting as other than counsel to taxpayer. United States v. Laurins 857 F.2d 529 (9 th Cir 1988)

(f) accountant

(A) Special procedures for third party record keepers are inapplicable to accountant who is not licensed under state law. McCarter v. United States 89-1 USTC P 9292 (1989 DC SC)

(g) barter exchange

(h) regulated investment company

(i) enrolled agent

(j) owner or developer of software source code

(3) Courts have narrowly construed the definition of third party record keepers:

(a) An employer is not considered a third party record keeper re: employees. Ponsford v. United States 771 F.2d 1305 (9 th Cir. 1985)

(b) Telephone company is not a creditor simply because it bills customers in arrears. United States v. New York Telephone Company 644 F.2d 953 (2 Cir. 1981)

(c) Billing customers at a later date is not an A extension of credit. @ Hana v. United States 647 F.Supp. 590 (D. Utah 1986.)

(d) Mortgage companies which are subsidiaries of banks are sufficiently similar to banks to constitute third party record keepers. Lobello v. United States 2001-1 USTC P 50121 (1999 DC NJ)

(e) Insurance company is not a third party record keeper. United States v. White Agency 79-1 USTC P 5019 (1979 WD Mich )

(4) 26 U.S.C. 7609 provides the manner in which notice must be provided

(a) Notice must be given to the taxpayer within 3 days of the service of the summons on the third party, but no later than 23 days before the day fixed in the summons as the day upon which such records are to be examined.

(b) Such notice shall be accompanied by a copy of the summons and shall contain an explanation of the right under 26 U.S.C. 7609(b)(2)

(1) that a summons shall be served by the Secretary, by an attested copy delivered in hand to the summoned party or left at his last and usual place of abode.

(A) taxpayer need not be served with attested copies of the third party summons. Kondik v. United States 81 F.3d 655 (6 th Cir 1996)

(B) IRS is not required to give taxpayer advance notice if third party summons. Scarafiotti v. Shea 456 F.2d 1052 (1th Cir 1972)

(2) it may be served by certified or registered mail to the last address of the record keeper.

(d) Failure to comply with specifics of notice requirements will not necessarily invalidate summons. United States v. Shelby State Bank 78-2 USTC P 9551 (1978 WD Mich )

(e) Notice of service of summons that was mailed to taxpayer at incorrect address is not defective notice. United States v. Hamilton Federal Savings & Loan Association 566 F.Supp. 755 ( 2 nd Cir 1983)

(f) Notice of Summons to taxpayer is not necessary when third party record keeper is summoned A in aid of assessment. @ Barnes v. United States 99-1 USTC P 50111 (1998 SD Ill); abrogated somewhat in Ip v. united States 205 F.3d 1168 (9 th Cir. 2000)

(5) Intervention

(a) 26 U.S.C. 7609(b)(1) - any person entitled to notice is entitled to intervene in any proceeding with respect to the enforcement of such summons under section 7604

(b) Taxpayer must formally intervene - mere presence at proceeding is insufficient. Hodges, Grant, & Kaufmann v. United States Government Department of Treasury, IRS 762 F.2d 1299 (5 th Cir 1985)

(c) Taxpayer must have standing in order to intervene. He cannot assert rights belonging to someone else. United States v. Equitable Trust Co. 611 F.2d 492 (1979 CA4 MD)

(d) Person intervening will be bound by the decision in the hearing. (26 U.S.C. 7609(b)(2)(C)

(6) Proceeding to Quash - 26 U.S.C. 7609(b)(2)

(a) Any person entitled to notice of a summons A shall have the right to begin a proceeding to quash such summons no later than the 20 th day after the day such notice is given in the manner provided in subsection (a)(2). In any such proceeding the Secretary may seek to compel compliance with summons . @

(b) person making the motion to quash must:

(1) mail by registered or certified mail

(2) a copy of the petition to the person summoned; and

(3) to such office as the Secretary may direct

(c) The action to quash must be made in the district where the summoned person resides. Hersh v. United States 86-2 USTC P 9503 (1986 ED Wis )

(d) Motion to quash must be made within 20 days after taxpayer is notified. Ponsford v. United States 771 F.2d 1305 (9 th Cir 1985)

(e) 20 day requirement is jurisdictional. Clay v. United States 199 F.3d 876(6th Cir 1999); abrogated somewhat by doctrine of equitable tolling. Irwin v. Department of Veterans = s Affairs 498 U.S. 89 (1990)

(f) Time begins to run day after IRS mails notice to taxpayer not when he receives it. Riggs v. United States 575 F.Supp. 738 (1983 ND Ill ); Bilodeau v. United States ) 577 F.Supp. 234 (1983 DC NH)

(7) Statute of limitations - 26 U.S.C. 7609(e)

(a) Statute of limitations is tolled when taxpayer files motion to quash. Clark v. Commissioner TC Memo 1994-120 (1994)

(b) Statute remains tolled until taxpayer notifies third party and IRS that he no longer objects. United States v. Greene 698 F.2d 1364 (9th Cir 1989)

(c) Statute remains tolled from beginning of motion to quash summons until 60 days after order dismissing motion to quash if no appeal has been taken. Hefti v. Commissioner 983 F.2d 868 (8 th Cir 1993)

(8) Time and Place for examination

(a) The time and place for examination shall be such time and place as may be fixed by the Secretary ans as are reasonable under the circumstances and shall not be less than 10 days from the date of the summons. (26 U.S.C. 7605(a))

(9) Defenses to summons

(a) Attorney/client privilege

(1) Where legal advice of any kind is sought;

(2) From a professional legal advisor in his capacity as such;

(3) The communications relating to that purpose;

(4) Made in confidence;

(5) By the client;

(6) Are at his insistence permanently protected;

(7) From disclosure by himself or by the legal advisor;

(8) Except the protection be waived. United States v. Rockwell International 897 F.2d 1255 (3 rd Cir 1990)

(9) Does not apply when the taxpayer hires an attorney to do that which a non attorney can do. In re Grand Jury Investigation (Schroeder) 842 F.2d 1223 (11 th Cir. 1987.)

(10) Giving an attorney damaging evidence does not place it within the realm of the privilege. Fisher v. United States 425 U.S. 391 (1976)

(11) Attorney must be performing services or giving advice in his capacity as an attorney. United States v. Horvath 731 F.2d 557 (8 th Cir 1984.)

(11) Privilege does not extend to attorneys preparing tax returns. United States v. Fredrick 182 F.3d 496 (7 th Cir. 1999)

(12) Burden of proof is on person claiming the privilege. United States v. Wilson 798 F.2d 509 (1 st Cir. 1986.)

(13) Proponent of the privilege must also demonstrate that privilege has not been waived. United States v. Jones 696 F.2d 1069 (4 th Cir. 1982.)

(14) The claim of privilege must be made on a document by document basis. United States v. Allee 888 F.2d 208 (1 st Cir. 1989.)

(15) Blanket assertions of the privilege are unacceptable. Colton v. United States 306 F.2d 633 (2 nd Cir. 1962.)

(16) Disclosure of client identity and fee arrangements generally do not fall within the privilege except when such disclosure in and of itself would implicate the taxpayer in the A very criminal activity for which legal advice was sought. @ United States v. Sindel 53 F.3d 874 (1995)

(17) The exception is limited to instances where A in substance a disclosure of the confidential communication in the professional relationship between the client and the attorney. @ In re Grand Jury Subpoena (Horn) 976 F.2d 1314, 1317 (9 th Cir 1992.)

(18) Attorneys must report cash payments in excess of $10,000. 26 U.S.C. 6050I; United States v. Goldberger & Dubin, PC 935 F.2d 501 (2d Cir. 1991.)

(19) Crime/Fraud - the government must make A a prima facie showing that the legal advice > gives direction for the commission of future fraud or crime =@ Haines v. Liggett Group, Inc 975 F.2d 81, 90 (3 rd Cir. 1992)

(b) Attorney work product

(1) Limited to protecting A materials prepared by an attorney > acting for his client in anticipation of litigation. =@ United States v. Nobles 422 U.S. 225, 238 (1975.)

(2) Privilege protects both the attorney and his agent. United States v. Nobles 422 U.S. 225, 238 (1975.)

(3) Materials prepared in the ordinary course of business are not protected. United States v. El Paso Co. 682 F.2d 530, 542 (5 th Cir. 1982.)

(4) Papers generated by an attorney or his agent who prepares a tax return are not within the privilege. United States v. Davis 636 F.2d 1028 (5 th Cir. 1981.)

(1) Extends the attorney client privilege to federally authorized tax practitioner that is a non lawyer who is authorized to practice before the IRS

(2) May only be asserted in non criminal matters before IRS or in federal court. (26 U.S.C. 7525(a)(2)

(3) Extends only to those types of communications protected by the attorney/client privilege.

(d) Fifth Amendment - Privilege against self incrimination

(1) A No person shall be compelled in any criminal case to be a witness against himself. @

(2) The privilege is one of testimony and not the production of documents.

(3) Requirement that a taxpayer produce his private papers does not violate the privilege. United States v. Dick 694 F.2d 1117 (8 th Cir 1982)

(4) Applies only in situation where one is faced with A substantial hazards of incrimination. @ California v. Byers 402 U.S. 424, 429 (1979) or

(5) Where the claimant can demonstrate A real dangers of incrimination. @ Zicarelli v. New Jersey State Commission of Investigations 406 U.S. 472, 478 (1972); United States v. Matthews 327 F.Supp.2d 527 (ED Pa 2004)

(6) Applies not only to situations where answers themselves would support a criminal conviction but also to answers that would complete the chain ov evidence needed for conviction. Hoffman v. United States 341 U.S. 479 (1951)

(7) It is not for the witness to determine whether his answer is incriminatory but for the court. The court will require the witness to answer if A it clearly appears to the court that he is mistaken. Hoffman v. United States 341 U.S. 479 (1951) The court will hold an in camera review of the documents to determine if the privilege applies. United States v. Pate 105 Fed.Appx. 597 (5 th Cir. 2004)

(8) The witness may not assert speculative or generalized allegations. United States v. Reis 765 F.2d 1094, 1096 (11 th Cir 1985)

(9) The mere fact that evidence might be used against the taxpayer in a later criminal prosecution does not support a blanket claim of self incrimination. United States v. Reis 765 F.2d 1094, 1096 (11 th Cir 1985)

(10) The privilege must be asserted question by question. United States v. Bell 448 F.2d 40.)

(11) The Fifth Amendment does not excuse a failure to file a tax return. Sullivan v. United States 274 U.S. 259 (1927)

(12) The privilege is not available to corporations. Braswell v. United States 487 U.S. 99, 108-109 (1988)

(13) A corporate custodian may not resist the production of documents based on the Fifth Amendment even if to do so would be personally incriminating. Curcio v. United States 354 U.S. 118, 123-124 (1957); Braswell v. United States 487 U.S. 99, 108-109 (1988)

(14) The Government may not introduce that the summons was served on the taxpayer and that he was the person who delivered the documents. Baltimore City Department of Social Services v. Bouknight 493 U.S. 549, 561(1990)

(15) Testimony for the purpose authenticating documents is not privileged. Curcio v. United States 354 U.S. 118, 125 (1957)

(16) There may be instances where the mere production of documents is sufficiently testimonial in nature that the fifth amendment applies. Fisher v. United States 425 U.S. 391 (1976)

(17) If the existence, possession and authenticity of the documents are a A foregone conclusion @ the privilege does not apply. Fisher v. United States 425 U.S. 391 (1976)

(18) If a witness refuses to produce documents or testify the Government may compel him to do so if:

(A) Taxpayer has been summoned;

(B) has appeared; and

(19) The special agent will

(A) continue the return date until authorization for a compulsion order is granted

(B) advise the witness that the initial procedure has been adjourned and the witness = reappearance will be scheduled

(D) if the witness still does not comply a summons enforcement action will be initiated

(20) District court will determine the validity of the claim of privilege

(A) if witness still refuses to comply the court can initiate contempt proceedings

(21) A subsequent criminal prosecution must be pursued independent of compelled testimony

(e) Summons was vague, ambiguous, confusing or otherwise deficient in identifying the materials sought.

(f) Materials are not relevant.

(g) Time period for compliance is unreasonable.

E. John Doe Summons

(1) 26 U.S.C. 7609(f) - permits the IRS to issue a summons to determine the identity of a taxpayer

(a) That sections requuires

(1) an ex parte hearing prior to the issuance of the summons in which the IRS must show:

(A) the summons relates to an ascertainable group or class of taxpayers

(B) There is a reasonable basis for believing these persons may have failed to comply with the tax laws and

(b) John Doe summons may not be used to determine whether there is a reasonable basis for believing that taxpayer is failing to comply with Internal Revenue Laws. In re Oil & Gas Producers having Processing Agreements with Kerr-McGee Corp 500 F.Supp. 440 (1980 WD Okla )

(c) IRS need not comply with John Doe Summons procedures when there is a dual purpose of investigating both a known and unknown taxpayers. Tiffinay Fine Arts, Inc v. United States 469 U.S. 310 (1985)

(d) Summons to specific barter exchange is not a John Doe Summons even though it has effect of discovering information that would aid in identifying unnamed taxpayers. United States v. Barter Systems, Inc 694 F.2d 163 (8 th Cir 1982)

(e) Pursuant to United States v. Coble 82-2 USTC P 9506 (1982 SD Iowa )

Taxpayer has no right to intervention in a John Doe Summons procedure because:

(1) 26 U.S.C. does not permit intervention;

(2) Challenge would thwart legitimate investigative authority of IRS ;

(3) Congress has not provided for judicial review of determination to issue summons;

(4) allowing challenge would nullify purpose of having ex parte hearing.

F. Obtaining Foreign Based Documents

(1) The IRS may obtain Foreign Based Documents pursuant to 26 U.S.C. 982 from a domestic taxpayer

(a) There is no summons procedure. Pursuant to 26 U.S.C. 982(c)(1) the IRS must make a formal document request which sets forth:

(1) the time and place for production;

(2) a statement of the reason any previously produced documents are considered insufficient;

(3) a description of the documents sought; and

(4) the consequences to the taxpayer of a failure to produce.

(b) If a taxpayer does not A substantially comply @ he will be precluded from presenting the requested documents in his defense in a subsequent civil proceeding. (26 U.S.C. 982(a)

(c) There is an exception if the taxpayer can show that his failure to produce the documents is for good cause. (26 U.S.C. 982(b).)

(d) The fact that disclosure would cause a civil or criminal penalty is not good cause. (26 U.S.C. 982(b))

(e) Taxpayer may bring a motion to quash. (26 U.S.C 982(C)(2).)

(1) must be made within 90 days after the request was mailed

(2) must be made in the district where the taxpayer resides or is found.

(3) the Powell requirements apply. Yujuico v. United States 93-1 USTC P 50,097 (ND Cal 1993.)

(4) statute of limitations for assessment and collection is suspended as is the 90 day period for compliance. (26 U.S.C.(e), (c)(2)(C)

G.Search Warrants

(1) Federal - governed by Rule 41 of the Federal Rules of criminal procedure

(a) Government can make application for a warrant to be issued by a

(1) magistrate judge with authority in the district, or if none reasonably available then

(2) a state court judge in the district

(3) magistrate judge has authority to issue a warrant for person or property outside the district if the person or property is located within the district when the warrant is issued but might move or be moved outside the district when the warrant is executed.

(4) in an investigation of domestic or international terrorism - having authority in any district in which activities related to the terrorism may have occurred may issue a warrant for a person or property within or outside the district

(5) FRCP Rule 41(b)

(b) Pursuant to (6) FRCP Rule 41(c)) a warrant may be issued for

(1) evidence of a crime;

(2) contraband, fruits of the crime or other items illegally possessed;

(3) property designed for use, intended for use or used in committing a crime; or

(5) a person to be arrested or a person who is unlawfully restrained

(1) United States v. Schmdt 947 F.2d 362, 371-372

(A) Whether probable cause exists to seize all items of a particular type described in the warrant

(B) Whether the warrant sets out objective standards by which the executing officers can differentiate items subject to seizure from those which are not; and

(C) Whether the government was able to describe the item more particularly in light of the information available to it at the time the warrant was issued.

(D) The courts of review regarding probable cause is based on the A totality of the circumstances. @ Illinois v. Gates 462 U.S. 213 (1983)

(E) The warrant must state sufficient evidence to demonstrate a A fair probability @ that the evidence sought will be found at the place searched. Massachusetts v. Upton 466 U.S. 727, 733 (1984)

(2) If the warrant alleges the avoidance of the payment of tax officers may only seize those documents supporting this allegation. Anderson v. Maryland 472 U.S. 463, 478.)

(d) the warrant may be requested in the presence of a judge by affidavit; (FRCP Rule 41 (d)(2)(A)

(e) sworn testimony; or FRCP Rule 41 (d)(2)(B)

(f) recorded testimony or FRCP Rule 41 (d)(2)(C)

(g) by telephone FRCP Rule 41 (d)(3)

(1) magistrate judge must place the affiant under oath

(2) must make a verbatim record of the conversation

(3) the recording or court reporter = s notes must be transcribed

(4) the transcription must be certified by the magistrate judge

(5) suppression is limited to findings of bad faith

(6) the affiant must prepare a duplicate original FRCP Rule 41 (e)(3)(A)

(7) the magistrate judge must put the contents of the duplicate into the original warrant FRCP Rule 41 (e)(3)(B)

(8) magistrate judge may authorize the affiant to modify the duplicate FRCP Rule 41 (e)(3)(C)

(9) the magistrate judge must immediately sign the original, enter on its face the exact time it is issued and direct the affiant to sign the judges = name on the duplicate. FRCP Rule 41 (e)(3)(D)

(h) The warrant must be issued to an officer authorized to execute it FRCP Rule 41(e)(1)

(i) Contents of the warrant FRCP Rule 41(e)(2)

(1) must identify the person or property to be searched.

(a) The warrant is limited to the time frame within which the crime occurred and specify the location of the items to be seized. Coolidge v. New Hampshire 403 U.S. 443, 467 (1971)

(b) Must specify with particularity the items to be seized. United States v. Kow 58 F.3d 423.)

(c) Failure to be specific could result in suppression for overbreadth. Central Art Galleries-Hawaii, Inc v. United States 875 F.2d 747, 750 (9 th Cir. 1995)

(2) Designate the magistrate judge to whom it must be returned

(3) Must command the officer to:

(a) Execute the warrant within 10 days. FRCP Rule 41(e)(2)(A)

(b) Execute the warrant during daytime unless night service is authorized. FRCP Rule 41(e)(2)(B)

(4) Executing the warrant FRCP Rule 41(f)

(a) The affiant must enter the exact date and time it is executed. FRCP Rule 41(f)(1)

(b) The officer must prepare and present an inventory of property seized in the presence of another officer and the person from the whom or whose property is was taken. FRCP Rule 41(f)(2)

property taken FRCP Rule 41(f)(3)

(d) The officer executing the warrant must promptly return it to the designated magistrate judge FRCP Rule 41(f)(4)

(e) The magistrate judge must attach a copy of the return to the warrant and return them to the clerk of the district where the property was seized FRCP Rule 41(i)

(5) Serving the warrant

(a) Officers must give knock and notice before entering a premises for the purpose of serving a search warrant. (18 U.S.C. 3109.)

(6) Motion to return property FRCP Rule 41(g)

(a) Must be filed in the district where the property was seized.

(b) Court must receive evidence on any factual issue necessary to

decide the motion.

(7) Motion to suppress FRCP Rule 41(h)

(a) Defendant may move to suppress evidence in the court where the trial will occur

(b) Defendant = s motion is based on violations of the 4 th Amendments prohibition against unreasonable search and seizure

(c) The search and seizure must be reasonable. Skinner v. Railway Labor Executives = Association 489 U.S. 602, 619 (1989)

(e) Defendant may move to quash the warrant. That motion is based upon the A four corners @ of the warrant and no testimony will be permitted. Close calls will be determined by the preference accorded search warrants. United States v. Ventresca 380 U.S. 102 (1965)

(f) Defendant may move to traverse a search warrant pursuant to Franks v. Delaware 438 U.S. 154 (1978). In order to obtain an evidentiary hearing for the purpose of suppressing evidence the defendant must

(1) Offer specific proof that the affiant made statements which were deliberately false or in reckless disregard for the truth; and

(2) Show that the affidavit is insufficient to justify a finding of probable cause without the allegedly false statements;

(3) Must be motivated by something more than a mere desire to cross examine the affiant.

(4) The allegations of deliberate falsehood or reckless disregard of the truth must be made with particularity

(5) And accompanied by an offer proof.

(6) Allegations of negligence or innocent mistakes are insufficient.

(7) Allegations must be made against the affiant and not some third part informer.

(8) Remedy is to correct and retest. If there is sufficient evidence absent the falsehoods then the warrant stands.

(g) Standing - defendant must have standing to object to the search

(1) Only an individual whose 4 th amendment rights are violated have standing to object. Rakas v. Illinois 439 U.S. 128 (1978)

(2) A co-defendant has no right to object to the search of his co-defendant even the evidence seized is being used against him. United States v. Padilla 508 U.S. 77 (1993)

(h) Good Faith

(1) A search will not be invalidated even if the warrant is determined to de deficient so long as the officer had a A good faith belief @ in the validity of the warrant. United States v. Leon 468 U.S. 897 (1984); Massachusetts v. Sheppard 468 U.S. 981

(2) When an officer is acting on a search warrant good faith will be presumed. United States v. Leon 468 U.S. 897, 922 (1984)

H. Grand Jury

(1) Grand Jury generally

(a) Grand juries have broad investigative powers and when empanelled its focus is on criminal violations. United States v. Calandra 414 U.S. 338 (1974)

(b) The court may become involved if a witness attempts to quash a grand jury subpoena or orders of contempt or immunity are sought. (28 U.S.C. 1826; 18 U.S.C. 6003.)

(c) The Grand jury is operated and advised by an Assistant United States Attorney who is also responsible for issuing subpoenas. FRCM 17(a)

(f) Either the defendant or the government may challenge the venire or an individual juror. (FRCP Rule 6(b)(1)

(g) If the court has not ruled on the issue a defendant may move to dismiss an indictment on the grounds of improper venire or that an individual juror is not legally qualified. (FRCP Rule 6(b)(2); 28 U.S.C. 1867(e)

(h) The court will appoint a foreperson and a deputy foreperson. FRCP Rule 6(c)

(i) Who may be present:

(1) While the grand jury is in session: government attorneys, witness being questioned, interpreters when needed, a court reporter or operator of a recording device. FRCP Rule 6(d)(1)

(2) No persons other than jurors and an interpreter needed to assist a hearing or speech impaired juror are permitted during deliberations. FRCP Rule 6(d)(2)

(j) The proceedings must be recorded by court reporter or suitable recording device. The government will retain control of the recording, reporter = s notes and any transcript. FRCP Rule 6(e)(1)

(k) Grand jury proceedings are secret unless ordered by the court or the indictment is returned. FRCP Rule 6(e)(2)

(l) An indictment cannot be returned unless 12 of 23 grand jurors vote to indict. FRCP Rule 6(f)

(m) The indictment can be ordered to remain sealed by the court until the defendant is in custody or has been released pending trial. FRCP Rule 6 (e)(4)

(2) Subpoena power - FRCP Rule 17

(a) Pursuant to (6) FRCP Rule 17(a)) a subpoena must contain:

(1) The court = s name;

(2) Title of the proceeding;

(3) Seal of the court;

(4) Command the witness to attend and testify at the time and place specified by the subpoena;

(5) Clerk must issue a blank subpoena-signed and sealed-the party requesting it and that party must fill in the blanks before the subpoena is served.

(b) Subpoena may demand the production of documents and objects. FRCP Rule 17(c)(1) states that a subpoena must command

(1) only production of things relevant to the investigation being pursued

(2) the specification of things to be produced must be made with reasonable particularity

(3) production of records covering a reasonable period of time may be required. In re Grand Jury Subpoena Duces Tecum 342 F.Supp. 709 (D.Md. 1972)

(d) Burden is on party moving to quash to rebut the presumption. In re Grand Jury Proceedings (Schofield) 486 F.2d 85 (3 rd Cir. 1973.)

(e) Upon application to the court a subpoena may be quashed or modified if compliance would be unreasonable or oppressive. FRCP Rule 17(c)(2)

(1) In re Grand Jury Proceedings Under Seal 947 F.2d 1188.

(2) May be challenged because it was issued fore an improper purpose or in bad faith. In re Special March 1974 Grand Jury Possible violations of Title 18 & 26 United States Code 541 F.2d 166 (7 th Cir. 1976)

(3) May be challenged on the grounds of prosecutorial misconduct such as issuing a subpoena for harassment. United States v. Dionisio 410 U.S. 1)

(4) may be challenged on the ground that the testimony is protected by the 5 th Amendment.

(e) If defendant shows up to the proceeding but refuses to testify the government may bring a motion or application for contempt against the witness at which time the witness may raise any applicable defenses. In re Grand Jury Proceedings (Schofield) 486 F.2d 85 (3 rd Cir. 1973.)

I. California State Subpoena Power

(1) California Government Code section 11181 provides blanket authority for heads of departments to issue subpoenas in connection with investigations and actions concerning all matters relating to the business activities and subjects under the jurisdiction of the department.

(a) This authority applies to all agencies empowered to investigate violations of the tax laws. (See eg. Franchise Tax Board v. Barnhart (1980) 105 Cal.App.3d 274.)

(2) Revenue and Taxation Code section 19504 allows for the issuance of subpoenas in FTB tax cases. That section gives the right of subpoena to the Franchise Tax Board to:

(a) Administer its duties;

(b) Ascertaining the correctness of returns;

(d) Determining or collecting the liability of any person in respect to any liability imposed by Part 10 (commencing with section 17001), Part 11 (commencing with section 23001) or this part (or the liability at law or in equity of any transferee in respect of that liability;

(e) Shall have the power to require by demand;

(f) That any entity of any kind including, but not limited to, employers, persons, or financial institution provide information or make available for examination or copying;

(g) At a specified time and place, or both, any book, papers, or other data which may be relevant to such purpose ;

(h) Subpoena must be

(1)signed by any member of the FTB and

(2) served on any person for any purpose;

(i) Obedience to the subpoena may be enforced by application to the Superior Court in accordance with Government Code section 11180.

(j) FTB has the right to examine third party records. (Franchise Tax Board v. Firestone Tire & Rubber Co, (1978) 87 Cal.App.3d 878.)

(3) California Code of Civil Procedure section 1985 governs the form and substance of the subpoena

(a) The subpoena must be served with an affidavit;

(b) Showing good cause for the matters and things described

(1) no showing of good cause where the affidavit is void of any facts to support it. The mere statement that the records are material is insufficient. (Johnson v. Superior Court (1968) 258 Cal,App.2d 829.)

(1) Affidavit must identify the desired books, papers and documents and must show that they contain competent and admissible evidence which is material to the issues being tried. ( Los Angeles Transit Lines v. Superior Court (1953) 119 Cal. App.2d 465.)

(d) Setting forth in full detail the materiality thereof to the issues involved in the case; and (Proctor & Gamble Mfg. Co. v. Superior Court (1954) 124 Cal.App.2d 157.)

(e) Stating that the witness has the desired matters or things in his or her possession or under his or her control

(f) The subpoena will be issued by the court in blank to be filled out by the party requesting it.

(g) Subpoena = s issued by administrative agencies must comply with discovery standards. There must be a showing of more than a mere desire for all information in the possession of the witness. (Shively v. Stewart (1966) 65 Cal.2d 475; Pacific Auto Insurance, Co v. Superior Court (1969) 273 Cal.App.2d 61.)

(4) Motion to Quash, Vacate or Modify

(a) Witness can move to vacate or modify the subpoena. (Cahn (Selig), Inc. v. California Wrecking, Co . (1937) 9 Cal.2d 617.)

(b) Witness must apply to the Superior Court to quash the subpoena. (Pelton Motors, Inc. v. Superior Court (1953) 120 Cal.App.2d 565.)

(c) Court has the sole discretion to quash or enforce a subpoena. (Southern Pacific, Co. v. Superior Court (1940) 15 Cal.2d 206.)

(d) Court may quash the subpoena when there has been failure to comply with the statutory requirements. (Seven Up Bottling Company v. Superior Court (1951) 107 Cal.App.2d 75.)

(e) Statute of limitations is suspended A for the period beginning on the date which is six months after the service of the subpoena and ending with the final resolution of that response. @ (California Revenue and Taxation Code section 19064(b)

5. State Board of Equalization

( a) Government Code section 15613 allows the Board of Equalization to issue subpoenas for the attendance of witnesses and the production of documents before it, its secretary, any members, or any representative designated by it.

(1) The subpoena shall be signed by a member of the board or his secretary

(2) And may be served by any person.

(b) The Boards power to issue subpoenas is not restricted to records of persons whose property is subject to assessment by it or who are required to report it under sections 15617 and 15618. It may issue subpoenas in investigations relating to inter-county equalization to those who own property subject to assessment by the State Board. (Redding Pine Mills, Inc. v. State Board of Equalization (1958) 157 Cal.App.2d 40.)

6. Financial Records

(a) Government Code section 7470 provides the pre-requisites to the issuance by the government of a subpoena to a financial institution for a customer = s financial records

(1) The financial records must be described with particularity

(2) Are consistent with the scope and requirements of the investigation giving rise to the request and:

(A) The customer consents to disclosure or

(B) Financial records are disclosed in response to an administrative subpoena or summons which meets the requirements of section 7474 which allows for disclosure if

(1) The customer has been served;

(2) Includes the name of the agency or department;

(3) The statutory purpose for which the information is to be obtained; and

(4) There is no motion to quash by the customer within 10 days of the service.

(D) Or such financial records are disclosed in response to a judicial subpoena duces tecum which meets the requirements of section 7476

(1) The subpoena is issued to the financial institution; and

(2) The customer.

(3) If the customer has not been served then the court must make a finding of due diligence prior to turning over the documents.

(4) If there is no motion to quash by the customer within 10 days after service the court will order disclosure.

(5) The court can shorten time upon a showing of good cause but the court will direct all reasonable measures to see that the customer is served.

7. Records Involving Foreign Corporations

(1) California Government Code section 19141.5 adopts the federal law