Opinion
No. 1:03CV319.
November 1, 2004
RECOMMENDATION OF UNITED STATES MAGISTRATE JUDGE
This matter is before the court on the motion of the United States to dismiss (docket no. 5). Petitioners have responded in opposition to the motion (docket no. 8). The matter is ripe for disposition. For the reasons which follow, it will be recommended that the motion be granted.
BACKGROUND
Petitioners challenge two, third-party administrative summonses issued on March 20, 2003, by Agent Marvin Hedgepeth of the Internal Revenue Service. Pursuant to 26 U.S.C. § 7602(a), Agent Hedgepeth issued the third-party summonses to Bank of America in Durham, North Carolina, seeking financial information pertaining to Petitioners. In accordance with 26 U.S.C. § 7609(a)(1) and (2), Agent Hedgepeth served notice of the summonses by certified mail to Petitioners at their home address on March 21, 2003. Petitioners filed their petition to quash the third-party administrative summonses on April 11, 2003, and mailed copies of the petition by certified mail to Bank of America and Agent Hedgepeth. Petitioners served the United States by serving the United States Attorney for the Middle District of North Carolina on August 7, 2003, and the United States Attorney General on August 8, 2003. Respondent has moved to dismiss the petition, asserting that the petition was untimely filed and that Petitioners failed to effectuate proper service on the United States. ANALYSIS
Section 7602(a) provides, in part:
For the purpose of ascertaining the correctness of any return, making a return where none has been made, determining the liability of any person for any internal revenue tax[,] . . . or collecting any such liability, the Secretary is authorized . . . [t]o summon . . . any person having possession, custody, or care of books of account containing entries relating to the business of the person liable for tax . . . 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 such testimony, under oath, as may be relevant or material to such inquiry.
Section 7609(a)(1) provides,
If any [third-party] summons . . . requires . . . the production of any portion of records made or kept on or relating to . . . any person (other than the person summoned) who is identified in the summons, then notice of the summons shall be given to any person so identified within 3 days of the day on which such service is made. . . . Such notice shall be accompanied by a copy of the summons which has been served and shall contain an explanation of the right under subsection (b)(2) to bring a proceeding to quash the summons.
Section 7609(a)(2) provides that "[s]uch notice shall be sufficient if, on or before such third day, such notice . . . is mailed by certified or registered mail to the last known address of such person."
Respondent also argues that Petitioners' claim regarding the constitutionality of the Bank Secrecy Act is frivolous. Because the petition must be dismissed for lack of jurisdiction, the merits of Petitioners' arguments need not be reached.
Under 26 U.S.C. § 7609(b)(2)(A), "any person who is entitled to notice of a summons under subsection (a) shall have the right to begin a proceeding to quash such summons not later than the 20th day after the day such notice is given in the manner provided in subsection (a)(2)." Notice pursuant to 26 U.S.C. § 7609(a) is given on the date it is mailed. See Berman v. United States, 264 F.3d 16, 19 (1st Cir. 2001); Clay v. United States, 199 F.3d 876, 879 (6th Cir. 1999); Stringer v. United States, 776 F.2d 274, 276 (11th Cir. 1985). Agent Hedgepeth mailed the notice of summons to Petitioners on March 21, 2003, and thus the date of notice is March 21, 2003. Petitioners filed their petition to quash the third-party summonses on April 11, 2003, which is twenty-one days after notice was given. Although missing the deadline by one day may seem insignificant, there are important reasons why the twenty-day time limit must be strictly construed. "The United States, as sovereign, is immune from suit save as it consents to be sued, and the terms of its consent to be sued in any court define that court's jurisdiction to entertain the suit." United States v. Sherwood, 312 U.S. 584, 586 (1941) (internal citations omitted). With 26 U.S.C. § 7609, the United States has consented to be sued; accordingly, "the twenty-day limit must be strictly construed because it is a condition precedent to the waiver of sovereign immunity." Ponsford v. United States, 771 F.2d 1305, 1309 (9th Cir. 1985). Petitioners are not entitled to the additional three days for mailing available to parties under Federal Rule of Civil Procedure 6(e), as Petitioners are not a "party" (parties) for purposes of Rule 6(e). See Clay, 199 F.3d at 880 ("A notice of a summons under 26 U.S.C. § 7609 is not a 'party' during the twenty-day filing period unless and until a suit is commenced."). Moreover, Petitioners do not argue any grounds that would permit equitable tolling of the twenty-day period. Because Petitioners have not complied with the terms under which the United States has waived its sovereign immunity, this court does not have jurisdiction to hear the petition and it must be dismissed.
Petitioners claim they mailed their petition on April 8, 2003, and they assert that it was received by the clerk of court "at least a day before it was processed on April 11, 2003." (Petitioners' Response in Opposition to Motion to Dismiss, p. 2). Presumably Petitioners wish for the court to treat the petition as if it were filed on April 10, 2003. Inspection of the envelope in which the petition was mailed, however, reveals that the postage was purchased on April 9, 2003. Furthermore, running the certified mail number through the United States Postal Service's online tracking service shows that the petition was delivered on the morning of April 11, 2003. Thus, Petitioners' argument regarding the date the petition was received is wholly without merit, if not deceitful.
Although the petition must be dismissed for the reasons stated above, it is worthwhile to note another issue raised by Respondent, if only to point out a conflict in district court decisions. Respondent correctly notes that in addition to complying with 26 U.S.C. § 7609(b)(2)(A), Petitioner must also comply with § 7609(b)(2)(B) in order to satisfy the conditions under which the United States has waived its sovereign immunity. Section 7609(b)(2)(B) requires that "not later than the close of the 20-day period . . . [the petitioner] shall mail by registered or certified mail a copy of the petition to the person summoned and to such office as the Secretary may direct in the notice referred to in subsection (a)(1)." This "notice" refers to IRS From 2039, which is the notice of the summons that Agent Hedgepeth mailed to Petitioners. Part D of IRS Form 2039 contains instructions as to how to petition to quash the third-party summons. Citing § 7609(b)(2)(B), Paragraph Ten of Part D states that at the same time the petition is filed with the court, a copy of the petition must be mailed "by certified or registered mail to the person summoned and to the IRS." Paragraph Nine of these instructions states that the "petition must be served upon the appropriate parties, including the United States, as required by Federal Rule of Civil Procedure 4." According to Federal Rule of Civil Procedure 4(i), Petitioners must effectuate service on the United States by serving the United States Attorney for the district in which the petition is filed and the Attorney General of the United States.
Part D further explains that the copy for the IRS must be sent to the "officer whose name and address are shown on the face of [the] summons." In this case, and presumably in most cases, that officer is the agent who issued the third-party summons.
Respondent contends that the court lacks jurisdiction because Petitioners failed to effectuate timely service on the United States. Respondent asserts that Petitioners were required to serve the United States within the twenty-day period referred to in § 7609(b)(2)(B). Presumably, Respondent considers the United States, in addition to the IRS agent, to be "such office as the Secretary shall direct in the notice," 26 U.S.C. § 7609(b)(2)(B), by virtue of Form 2039, Part D, Paragraph Nine's requirement that a petitioner serve the United States. Petitioners, however, relying on the time limit specified in Federal Rule of Civil Procedure 4(m), served the United States within 120 days. Petitioners contend that the requirement to serve the United States in accordance with Rule 4 is distinct from § 7609(b)(2)(B)'s requirement to serve "such office as the Secretary shall direct in the notice." The question, then, is whether § 7609(b)(2)(B)'s requirement that "not later than the close of the 20-day period" the petitioner shall provide a copy of the petition to "such office as the Secretary may direct in the notice," refers only to the IRS agent or to both the agent and the United States. Clearly, under both Paragraph Ten of Form 2039, Part D and Treasury Regulation § 301.7609-3, the party to whom the summons is directed and the IRS agent who issued the summons must be mailed a copy of the petition within twenty days. Less clear is whether service on the United States must be effectuated within § 7609(b)(2)(B)'s twenty-day time limit or within the 120-day time limit specified in Federal Rule of Civil Procedure 4(m). Relevant district court caselaw aids neither in clarifying this issue nor in reconciling the conflicting opinions.
Treasury Regulation § 301.7609-3(b)(2) provides that a petitioner must, "not later than the 20th day . . . [n]otify the [IRS] by sending a copy of [the] petition . . . to the [IRS] employee and office designated to receive the copy in the notice of summons . . . and [n]otify the [party summoned] by sending . . . a copy of the petition."
In Wahler v. United States Internal Revenue Service, No. MISC 1:02MC54, 2002 WL 32081856 (W.D.N.C. November 22, 2002) (unpublished), aff'd, 62 Fed. Appx. 526, 2003 WL 1996169 (4th Cir. May 1, 2003) (unpublished), the district court did not differentiate between the various persons and entities that the petitioner must serve and instead designated a single date by which the petitioner was required to effect service for each notice of summons he received. For each summons, this date was twenty days from the date of notice. Wahler, 2002 WL 32081856, at *5. Furthermore, the court noted that it had earlier pointed out to the petitioner that "Petitioner had confused the time periods specified in 26 U.S.C. § 7609 with those provided by Federal Rule of Civil Procedure 4." Id. at *2. In Norfleet v. United States, No. 5:02-CV-57-BR, 2002 WL 1396494 (E.D.N.C. May 22, 2002) (unpublished), aff'd, 48 Fed. Appx. 907, 2002 WL 31399389 (4th Cir. Oct. 25, 2002) (unpublished), the district court held that it lacked jurisdiction to hear the petition to quash because "[b]y failing to serve the United States, plaintiff has not complied with the service requirements of 26 U.S.C. § 7609(b)(2)(B)." Norfleet, 2002 WL 1396494, at *3. Thus the Norfleet court interpreted Part D's requirement of service on the United States as falling under § 7609(b)(2)(B)'s twenty-day time limit. The court in Vaughan v. United States, No. 5:01-CV-990-F(3), 2002 WL 1058118 (E.D.N.C. Apr. 11, 2002) (unpublished) found that Part D's instruction to serve the United States came under § 7609(b)(2)(B)'s requirement that petitioner, within twenty days, serve "such office as the Secretary may direct in the notice.'" Vaughan, 2002 WL 1058118, at *1.
On the other hand, in Hicks v. United States, No. 1:02CV00284, 2003 WL 151854 (M.D.N.C. Jan. 17, 2003) (unpublished), petitioners served the United States Attorney and the Attorney General within 120 days, which satisfied the court that the United States had been timely served. Hicks, 2003 WL 151854, at *2. In Roebuck v. United States, No. M-1-83, 1997 WL 875661 (S.D. Iowa Dec. 23, 1997) (unpublished), the court found that the 120-day time limit under Rule 4(m) had not yet expired, and that therefore it could not dismiss the petition to quash for failure to serve the United States. Roebuck, 1997 WL 875661, at *4. In Tlusty v. United States, 871 F. Supp. 299 (E.D. Mich. 1994), the court held that the petitioners' service on the United States within 120 days was proper service and not a basis for dismissal. 871 F. Supp. at 300. Furthermore, Treasury Regulation § 301.7609-3(b)(2), which spells out the elements of instituting a proceeding to quash a third-party summons, does not require service on the United States within twenty days.
The better-reasoned approach appears to allow a petitioner 120 days in which to serve the United States pursuant to Federal Rule of Civil Procedure 4(m). Under this approach, the parties whom it is essential to notify before the return date of the third-party summons, namely, the IRS agent and the party summoned, must be sent a copy of the petition within twenty days. This approach also avoids abridgment of a federal rule of civil procedure, specifically Rule 4(m), by the non-codified instructions provided in IRS Form 2039 to potential petitioners. As noted above, however, this question need not be resolved for purposes of deciding Respondent's motion to dismiss in the matter at bar.
The statute clearly delineates this 20-day service period, which courts have said is critical to the principle of waiver of sovereign immunity. The statute does not, however, clearly delineate that service on the United States Attorney and the United States Attorney General within that same 20-day period is required. There is no need to read this additional service requirement into the congressional language when the Congress did not put it there. Cf. 14 CHARLES ALAN WRIGHT, ARTHUR R. MILLER MARY KAY KANE, FEDERAL PRACTICE AND PROCEDURE § 3654, pp. 284, 296 (3d ed. 1998) (noting that only Congress can waive the United States' right to assert the defense of sovereign immunity, and it must do so explicitly, defining the terms and conditions under which it is willing to allow the United States to be sued).
CONCLUSION
For the foregoing reasons, IT IS RECOMMENDED that Respondent's Motion To Dismiss (docket no. 5) be GRANTED.