Opinion
Civil Action No. 3:03-CV-769-D.
June 10, 2003.
REPORT AND RECOMMENDATION OF UNITED STATES MAGISTRATE JUDGE
Pursuant to the district court's Order of Reference, filed on April 16, 2003, and the provisions of 28 U.S.C. § 636(b)(1)(B) and (C) came on to be considered Petitioner Thomas E. Tilley's Petition to Quash Summons filed on April 15, 2003. Having carefully considered the instant petition, as well as applicable authorities, the United States magistrate judge, as evidenced by his signature thereto, makes the following findings, conclusions and recommendations:
I. Factual Background
On March 26, 2003, in connection with its investigation of Petitioner Thomas E. Tilley's ("Petitioner") tax liability, the Internal Revenue Service ("IRS") issued a summons to First Horizon Home Loan ("First Horizon") — a third-party record keeper located in Dallas, Texas — commanding First Horizon to produce certain of Petitioner's bank records for the period between December 31, 2000 and December 31, 2001. (See Pet. to Quash Summons ("Pet.") at Ex. A). Thereafter, on April 15, 2003, Petitioner, a domiciliary of North Carolina, petitioned this court to quash the third-party summons issued to First Horizon alleging that the same was both defective and unenforceable in light of the IRS' failure to, inter alia, follow the statutory requirements for serving Petitioner with notice of the third-party summons, pursuant to 26 U.S.C. § 7609 (a), and to properly serve the summons on First Horizon, pursuant to 26 U.S.C. § 7603 (a) and (b). (See Pet.).
Tilley also alleges that Bank Secrecy Act is facially unconstitutional because the Federal government was not expressly delegated the substantive power to enact such legislation. (Pet. at p. 3 ¶ 6). In California Bankers Association v. Shultz, 416 U.S. 21, 94 S.Ct. 1494 (1974), the Supreme Court had upheld the constitutionality of the Bank Secrecy Act, which requires banks to, inter alia, establish microfilm records at their own expense. In re Grand Jury No. 76-3 (MIA) Subpoena Duces Tecum, 555 F.2d 1306, 1309 (5th Cir. 1977). The Bank Secrecy Act was intended to prevent the use of bank accounts to, among other things, conceal tax fraud. Id. at 1309. However, the Supreme Court noted in United States v. Bisceglia, 420 U.S. 141, 160, 95 S.Ct. 915, 925 (1975) (J. Stewart, dissenting), that although its opinion in California Bankers Assn. v. Shultz considered numerous constitutional issues raised by the Bank Secrecy Act, some of those issues — e.g., whether and to what extent bank depositors have Fourth Amendment and Fifth Amendment rights to the secrecy of their domestic deposits — were left unresolved by the Court's opinion. The court does not reach this issue in light of its recommendation that the instant petition be dismissed.
II. Discussion
A third-party summons issued by the IRS is subject to the special procedures outlined in 26 U.S.C. § 7609 et seq. ("Section 7609"). Deal v. United States, 759 F.2d 442, 443 (5th Cir. 1985). For instance, when Section 7609 is applicable, the IRS is required to serve the person identified in the third-party summons — normally the taxpayer whose financial records are the object of the summons — with notice of the same. Barmes v. United States, 199 F.3d 386, 388 (citing § 7609(a)(1)). Persons entitled to such notice may then institute a proceeding in a district court to quash the summons. Id. (citing § 7609(b)(2)). However, Section 7609 includes a number of exceptions whereby the IRS is not required to provide such notice and the provisions of Section 7609 are not applicable, including where a third-party summons was issued "in aid of the collection of . . . an assessment made or judgment rendered against the person with respect to whose liability the summons is issued." Id. (citing § 7609(c)(2)(D)). When notice is not mandated, neither is a petition to quash authorized. Id. (citing § 7609(b)(2)(A)).Absent the foregoing exception, however, where a person is entitled to notice of an IRS summons served on a third-party record keeper and brings a proceeding to quash the same, Section 7609(h)(1) vests a district court in the district within which the person to be summoned resides with jurisdiction over such a proceeding. Clay v. United States, 199 F.3d 876 (6" Cir. 1999); See Deal v. United States, 759 F.2d 442, 444 (5" Cir. 1985) (citing Masat v. United States, 745 F.2d 985 (5th Cir. 1984) (the court construed various provisions of Section 7609 and held that jurisdiction lies exclusively in the district where the third-party record keeper resides)).
Section 7609(h)(1) states:
"The United States district court for the district within which the person to be summoned resides . . . shall have jurisdiction to hear and determine any proceeding brought under subsection (b)(2), (f), or (g)."
(emphasis added).
In the instant case, the third-party summons issued to First Horizon contained preprinted language demanding the production of records and other data "relating to the tax liability[,] or the collection of tax liability[,] or for the purpose of inquiring into any offense connected with the administration or enforcement of the internal revenue laws concerning [Thomas E. Tilley] for the periods shown." Where such language appears in a third-party summons, the summons has been held to relate, at least in part, to "aiding in the collection of an assessment." Barmes v. United States, 199 F.3d at 389. In Barmes, the Seventh Circuit Court of Appeals held that Section 7609(c)(2)(D)'s notice exception applied to every summons issued to aid collection, including those in which collection efforts were not the exclusive purpose, and that, as such, an individual taxpayer named therein was foreclosed from moving to quash the same. Id. at 389.
In Barmes, the court also noted that the IRS had proffered an affidavit from one of its agents in which the agent averred that the third-party summons had been issued to aid in the collection of payroll taxes. Id.
In light of Barmes, the court finds that the third-party summons issued to First Horizon was arguably designed to assist the IRS in the collection of the Petitioner's outstanding tax liability. As such, it is clear that the Petitioner may not be heard to complain about the IRS' failure to follow the prescriptions of Section 7609, because the same are inapplicable to the third-party summons issued in Petitioner's case. See § 7609(c)(2)(D).
"A proceeding to quash [a third-party summons brought pursuant to Section 7609(b)(2)] is, in effect, a civil suit against the United States," see Clay, 199 F.3d at 879, which requires that the United States "expressly and unequivocally waive [its] sovereign immunity." Barmes v. United States, 199 F.3d at 388 (an action to quash an IRS summons is a suit against the United States) (citation omitted). Where no such waiver has occurred, the United States may not be sued. Barmes, at 3 88. In the instant case, the United States has not waived its sovereign immunity — Section 7609(c)(2)(D)'s notice exception applies in Petitioner's case, rendering inapplicable the notice provisions of that Section.
For the foregoing reasons, the magistrate judge recommends that the district court enter its order DISMISSING the Petition to Quash Summons filed by Petitioner in the above styled and numbered cause.
Were Petitioner entitled to notice of the third-party summons issued to First Horizon and granted the right to quash the same pursuant to Section 7609, it is reasonably clear that this court would have jurisdiction over, and would be the proper venue for, such an action. See Section 7609(h)(1); See Smith v. United States, 592 F. Supp. 753 (D. Conn. 1984) (citing same) (in dismissing a petition to quash a third-party summons brought by a taxpayer residing in the state of Connecticut, the court held that although the government may issue a summons to a third-party residing out of that district, the taxpayer was prohibited from moving to quash such a summons in a district other than that in which the third-party resided).
A copy of this recommendation shall be mailed to Petitioner.
NOTICE
In the event that you wish to object to this recommendation, you are hereby notified that you must file your written objections within ten days after being served with a copy of this recommendation. Pursuant to Douglass v. United Servs. Auto Ass'n, 79 F.3d 1415 (5th Cir. 1996) (en banc), a party's failure to file written objections to these proposed findings of fact and conclusions of law within such ten-day period may bar a de novo determination by the district judge of any finding of fact or conclusion of law and shall bar such party, except upon grounds of plain error, from attacking on appeal the unobjected to proposed findings of fact and conclusions of law accepted by the district court.