U.S. v. DIXON, (S.D.Cal. 2002)

MARLYN L. HUFF, Chief United States District Judge

On January 20, 2002, Petitioner United States of America filed a petition to enforce an IRS summons. Respondent Loy Thomas Dixon, III did not file an opposition. An order to show cause hearing was held on April 5, 2002. Norma Schrock, Esq. appeared telephonically on behalf of Petitioner. William Hartsock, Esq. appeared on behalf of Respondent. Respondent Loy Thomas Dixon was present for the hearing. After thoroughly reviewing the matter, the Court finds that the government has satisfied the Powell factors. Therefore, the Court GRANTS the petition to enforce the summons.

The Internal Revenue Service ("IRS") is examining the federal tax liabilities of Loy Thomas Dixon ("Dixon") for tax years 1996 through September 1999. During 1996 through September 1999, Dixon owned one-half of J. Thomas Markham, Inc., a flow-through "S" corporation. The income from an "S" corporation is reported on the taxpayer's personal income tax return. Sometime in September 1999, Dixon bought all the shares of J. Thomas Markham, Inc. and converted the company to a "C" corporation. The IRS has reason to believe that the corporation paid Dixon money in the form of loans and/or compensation. In order to investigate Dixon's individual tax liabilities, it is necessary to examine the activities of J. Thomas Markham, Inc.

On October 10, 2001, Special Agent Ryan Kaya of the Criminal Investigation Division of the IRS, issued an IRS summons to Dixon, as custodian of records for J. Thomas Markham, Inc. A copy of the summons was sent by certified mail to Dixon on October 11, 2001 and the return receipt indicates that he received it on October 12, 2001. The summons directed Dixon to appear before the IRS and to produce certain documents on October 23, 2001. Dixon indicated he would produce all the requested documents but needed additional time. Dixon was granted a thirty day extension. In a letter dated November 21, 2001, Dixon's attorney requested an additional extension. Dixon has produced some of the documents requested but there are more documents that have not yet been produced. The documents sought by the summons are not in the possession of the IRS. All administrative procedures have been followed.

The IRS has broad powers to summon information relevant to determining the liability of any taxpayer. Chen Chi Wang v. United States, 757 F.2d 1000, 1002 (9th Cir. 1984). To obtain judicial enforcement of the summons, the IRS must satisfy the factors set forth in United States v. Powell, 379 U.S. 48 (1964). The IRS must show: "(1) the investigation has a legitimate purpose, (2) the inquiry is relevant to that purpose, (3) the information sought is not already in the possession of the IRS, and (4) it followed all requisite administrative steps." United States v. Blackmun, 72 F.3d 1418, 1422 (9th Cir. 1995) (citing Powell, 379 U.S. at 57-58).

The IRS must make only a "minimal showing" on these elements. Id. The "statute must be read broadly in order to ensure that the enforcement powers of the IRS are not unduly restricted." Liberty Fin. Sers. v. United States, 778 F.2d 1390, 1392 (9th Cir. 1985); see also United States v. Tanoue, 94 F.3d 1342, 1345 (9th Cir. 1996). Assertions in a declaration by an investigating officer can satisfy the IRS's burden. Blackman, 72 F.3d at 1422; Liberty Fin., 778 F.2d at 1392. If the IRS makes such a showing, the taxpayer then has a "heavy" burden to disprove the elements or to demonstrate an abuse of process or bad faith. Blackman, 72 F.3d at 1422; Liberty Fin., 778 F.2d at 1392. The taxpayer must present "specific facts and evidence" to support any allegations. Liberty Fin., 778 F.2d at 1392.

The Court finds that the government has satisfied the Powell factors. The requested documents may be relevant to the investigation and the investigation has a legitimate purpose. Agent Kaya states that the records of J. Thomas Markham, Inc. is needed to determine the personal tax liability of Dixon based on the conversion of J. Thomas Markham, Inc. from an "S" corporation to a "C" corporation. As Kaya states, the IRS is not in possession of the documents and has followed all required administrative steps. At the hearing, Respondent stated that he does not oppose the enforcement of the summons.

Accordingly, the Court GRANTS the petition to enforce the IRS summons. Dixon shall comply with the summons by May 3, 2002. As to the accounts payable, the IRS, through Special Agent Kaya, shall send a letter to Respondent's attorney if those documents are necessary. Respondent shall respond within thirty (30) days of receipt of the IRS's letter. Failure to comply in full, in the absence of good cause, may result in a finding of contempt of court, which may lead to incarceration and/or a monetary penalty.