Steeves v. United States Government

• Court: District Court, S.D. California
• Decided: September 30, 2024
• Docket: 3:24-cv-01300
• Status: Unknown

Opinion

1 2 3 4 5 6 7 8 UNITED STATES DISTRICT COURT 9 SOUTHERN DISTRICT OF CALIFORNIA 10 11 Case No.: 24-cv-1300-DMS-AHG DEAN ALLEN STEEVES,

12 Plaintiff, ORDER DENYING PLAINTIFF’S 13 v. MOTION TO QUASH, DENYING PLAINTIFF’S MOTION TO 14 UNITED STATES OF AMERICA, COMPEL; AND GRANTING 15 Defendant. DEFENDANT’S MOTION TO SUMMARILY DENY PLAINTIFF’S 16 MOTION TO QUASH AND 17 ENFORCE IRS SUMMONS

19 20 Pending before the Court are Plaintiff’s Motion to Quash Summons (Plaintiff’s 21 Motion, ECF No. 1), Plaintiff’s Motion to Compel (ECF No. 8), and Defendant’s Motion 22 to Summarily Deny Plaintiff’s Motion to Quash and Enforce IRS Summons (Defendant’s 23 Motion, ECF No. 11). Defendant filed a response in opposition to Plaintiff’s Motion to 24 Compel. (ECF No. 9). Plaintiff filed a response in opposition to Defendant’s Motion. 25 (Plaintiff’s Opposition, ECF No. 12). The Court found this matter to be suitable for 26 resolution without oral argument pursuant to Civil Local Rule 7.1(d)(1). (ECF No. 13). 27 For the following reasons, the Court denies Plaintiff’s Motion to Quash Summons and 28 Motion to Compel and grants Defendant’s Motion to Summarily Deny Plaintiff’s Motion 1 to Quash and Enforce IRS Summons. 2 I. BACKGROUND 3 This matter arises out of alleged unpaid tax liabilities of Camp Noble Inc (“CNI”). 4 (Plaintiff’s Motion, at 24). CNI, allegedly an “integrated auxiliary” of a church, is also “a 5 manufacturer and distributor of cables, antennas, and metal mounts,” selling primarily to 6 “Prime Contractors” of the U.S. military and at times directly to the U.S. Department of 7 Defense. (Id. at 19–20). From CNI’s “commercial activity,” the Internal Revenue Service 8 (“IRS”) assessed approximately $5.3 million in unpaid taxes against CNI for tax years 9 2008, 2011–12, and 2014–18. (Id. at 20, 24). With statutory additions for the unpaid taxes, 10 the total amount CNI owed approached $6 million as of April 19, 2024. (Id. at 24). 11 On July 5, 2024, the IRS issued summons to “Dean Steeves as Officer of Camp 12 Noble Inc.” (Plaintiff’s Motion, at 16). The purpose of the summons was for Plaintiff “to 13 give testimony and to bring for examination [documents and records] related to the 14 collection of the tax liability of” CNI. (Id.). Plaintiff then filed this action to quash the 15 IRS summons and later filed a motion to compel. (ECF Nos. 1, 9). The government now 16 moves to summarily deny Plaintiff’s motion to quash and enforce IRS summons. (ECF 17 No. 11). 18 II. LEGAL STANDARD 19 “‘Federal courts are courts of limited jurisdiction,’ possessing ‘only that power 20 authorized by Constitution and statute.’” Gunn v. Minton, 568 U.S. 251, 256 (2013) 21 (quoting Kokkonen v. Guardian Life Ins. Co. of Am., 511 U.S. 375, 377 (1994)). “It is to 22 be presumed that a cause lies outside [the] limited jurisdiction [of the federal courts] and 23 the burden of establishing the contrary rests upon the party asserting jurisdiction.” 24 Hunter v. Philip Morris USA, 582 F.3d 1039, 1042 (9th Cir. 2009) (quoting Abrego 25 Abrego v. Dow Chem. Co., 443 F.3d 676, 684 (9th Cir. 2006)). A challenge to subject 26 matter jurisdiction “can be either facial, confining the inquiry to allegations in the 27 complaint, or factual, permitting the court to look beyond the complaint.” Savage v. 28 Glendale Union High Sch., 343 F.3d 1036, 1039 n.2 (9th Cir. 2003). Thus, when 1 considering a motion pursuant to Rule 12(b)(1), a court “is not restricted to the face of the 2 pleadings, but may review any evidence, such as affidavits and testimony, to resolve factual 3 disputes concerning the existence of jurisdiction.” McCarthy v. U.S., 850 F.2d 558, 560 4 (9th Cir. 1988). 5 III. DISCUSSION 6 A. Standing to File Motion to Quash 7 “The IRS may issue a summons pursuant to § 7602 for the purpose of ‘ascertaining 8 the correctness of any return, making a return where none has been made, determining the 9 liability of any person for any internal revenue tax . . . or collecting any such liability.’” 10 Action Recycling Inc. v. U.S., 721 F.3d 1142, 1144 (9th Cir. 2013) (quoting 26 U.S.C. 11 § 7602(a)). “If the IRS issues a summons to a third party, the taxpayer is entitled to notice 12 of the summons (subject to the exceptions set forth in § 7609(c)(2)-(3)) and has a right to 13 intervene and to move to quash the summons.” Id. (citing 26 U.S.C. §§ 7603, 7609). “The 14 issue of who gets notice is highly significant because only a person who is entitled to notice 15 may bring a proceeding to quash such a summons.” Viewtech, Inc. v. U.S., 653 F.3d 1102, 16 1104 (9th Cir. 2011) (citing 26 U.S.C. § 7609(b)(2)(A)), abrogated on other grounds, 17 Polselli v. IRS, 598 U.S. 432 (2023). 18 The government argues that, under 26 U.S.C. § 7609(c)(2), Plaintiff is not entitled 19 to notice and therefore cannot bring a motion to quash IRS summons. (Defendant’s 20 Motion, at 4–5). Plaintiff does not directly address the government’s argument in his 21 opposition, noting instead that he is using his Motion to Quash to “contest[] the validity of 22 the underlying assessment . . . and consequently the validity of the Defendant’s summons 23 issued to Dean Steeves.” (Plaintiff’s Opposition, at 5). 24 The government is correct—Plaintiff does not have standing to bring a motion to 25 quash the IRS summons. Recipients of summons “served on the person with respect to 26 whose liability the summons is issued, or any officer or employee of such person,” are 27 exempted from the notice requirement. 26 U.S.C. § 7609(c)(2). The at-issue summons 28 was issued to Plaintiff in his capacity as “Officer of Camp Noble Inc.” with respect to 1 CNI’s alleged tax liability. (Plaintiff’s Motion, at 16). Plaintiff agrees that he is “CEO and 2 President” of CNI. (Id. at 1). Plaintiff’s arguments regarding the validity of the summons 3 or the underlying tax assessment are not relevant to the Court’s judgment because they do 4 not bear on Plaintiff’s standing to bring his motion to quash. Accordingly, the Court 5 DENIES Plaintiff’s Motion to Quash and GRANTS Defendant’s motion to Deny 6 Plaintiff’s Motion to Quash. 7 B. Enforcing IRS Summons 8 Both Plaintiff and the government agree that the test set forth in United States v. 9 Powell governs the enforcement of an IRS summons. (Plaintiff’s Motion, at 5, 14); 10 (Defendant’s Motion, at 17). Under Powell, the government may establish a prima facie 11 case to enforce the summons if it shows: (1) the summons was issued for a legitimate 12 purpose; (2) the summoned data may be relevant to that purpose; (3) the data is not already 13 in the IRS's possession; and (4) the IRS has followed the administrative steps for issuing 14 and serving the summons. United States v. Powell, 379 U.S. 48, 57–58 (1964). “The 15 government’s burden is a slight one, and may be satisfied by a declaration from the 16 investigating agent that the Powell requirements have been met.” Crystal v. United States, 17 172 F.3d 1141, 1144 (9th Cir. 1999) (internal quotation marks and citation omitted). “Once 18 the government has established the Powell elements, ‘those opposing enforcement of a 19 summons . . . bear the burden to disprove the actual existence of a valid civil tax 20 determination or collection purpose by the Service . . . . Without a doubt, this burden is a 21 heavy one.’” Id. (quoting United States v. Jose, 131 F.3d 1325, 1328 (9th Cir. 1997) (en 22 banc)). To make the required showing, the petitioner “must allege specific facts and 23 evidence to support his allegations of bad faith or improper purpose.” Id. (quoting Jose, 24 131 F.3d at 1328). Meeting the Powell requirements also defeats a petition to quash. See 25 id. at 1143–44. 26 The government offers the declaration of IRS Revenue Officer Joseph Unger, who 27 attests that the summons was issued for the purpose of “identify[ing] sources of assets” to 28 “aid . . . collection of CNI’s previously assessed federal tax liabilities for the subject tax 1 years,” the summoned documents and information sought may be relevant to the “IRS’s 2 collection activities with respect to CNI’s outstanding tax liabilities,” the summoned 3 documents and information sought are not currently in the possession of the IRS, and the 4 IRS followed all administrative steps required to issue and serve the summons. 5 (Defendant’s Motion, 26–29). Unger’s declaration addresses all four Powell requirements 6 and the government has therefore established a prima facie case to enforce the summons. 7 Plaintiff only contests the “legitimate purpose” requirement, first arguing that CNI’s 8 status as an “integrated auxiliary of [Brothers Keeper Ministries]” grants it a “Mandatory 9 Exception from having to file 1120’s with” the government. (Plaintiff’s Motion, at 5–6). 10 For authority, Plaintiff points to 26 U.S.C. § 6033(a)(3)(A)(i). (Id. at 6). Plaintiff has made 11 similar arguments before, to little effect. See Steeves v. IRS, No. 20-cv-978-LAB, 2020 12 WL 5943543, at *1-2 (S.D. Cal. Oct. 6, 2020) (“Nothing in [26 U.S.C. § 6033] suggests 13 that a bank’s financial records concerning the financial activity of a religious organization 14 are exempt from investigation. In short, Steeves’ arguments have no basis in the law, and 15 are frivolous.”). 26 U.S.C. § 6033(a)(3)(A)(i) does not except the financial activity of a 16 religious organization from IRS investigation. The statute “merely exempt[s] churches and 17 certain other religious bodies from . . . requirements that they file tax returns.” Id. at *1. 18 Thus, Plaintiff’s argument does not show that the summons was issued for an improper 19 purpose. 20 Plaintiff next attacks the validity of the IRS’s tax assessment against CNI, arguing 21 that CNI has no federal excise-tax liability because it is not engaged in any commercial 22 activity that is taxable under Congress’s Sixteenth Amendment authority to issue excise 23 taxes. (Id. at 7–14). The government argues that Plaintiff “cannot use an IRS summons 24 proceeding as a forum in which to context the validity of the tax assessments for the subject 25 tax years.” (Defendant’s Motion, at 13). For authority, the government cites various out- 26 of-circuit cases and one case from this district. See, e.g., Defendant’s Motion, at 11, 13; 27 United States v. Mueller, 930 F.2d 10, 12 (8th Cir. 1991); United States v. Harper, 662 28 F.2d 335, 336 (5th Cir. 1981) (per curiam); Gilliam v. United States, No. MC 00-27 MV, 1 2001 WL 37125000, at *2 (D.N.M. July 2, 2001); United States v. Benoit, No. 06CV657- 2 IEG NLS, 2006 WL 2726869, at *3 (S.D. Cal. Aug. 14, 2006). Plaintiff concedes that 3 Defendant’s cited authority “concluded that an IRS summons enforcement 4 proceeding . . . could not be used as a form to contest the validity of an underlying 5 assessment.” (Plaintiff’s Opposition, at 6). Plaintiff argues, however, that none of the 6 cases “state[], even by implication, [that] their conclusion of law applied to a Motion to 7 Quash.” (Id.). 8 While this Court has not found any Ninth Circuit authority directly on point, this 9 Court agrees with the courts cited by the government that challenges to the validity of an 10 underlying tax assessment cannot be made at an IRS summons enforcement proceeding. 11 Because the IRS has filed a motion to enforce IRS summons, (Defendant’s Motion), the 12 present case is an IRS summons enforcement proceeding. Therefore, Plaintiff cannot 13 challenge the validity of the IRS’s tax assessments against CNI at this time. Accordingly, 14 the Court declines to address Plaintiff’s validity arguments. 15 Next, Plaintiff argues that the present IRS summons is moot since the government 16 has already executed a levy of $62,024.85 against CNI’s Wells Fargo Bank account for the 17 at-issue tax years. (Plaintiff’s Motion, at 3–5). However, the sum total underlying tax 18 assessment and statutory additions is around $6 million. (Id. at 24). Thus, the remaining 19 unpaid tax liabilities still serve as a “legitimate purpose” for the IRS to issue its summons. 20 Plaintiff then argues that the information sought by the IRS no longer exists since 21 “CNI keeps records for 3-4 years, if at all, and when it does it is for CNI’s purpose only.” 22 (Plaintiff’s Motion, at 4). However, Plaintiff does not provide any evidence that CNI has 23 actually expunged all of the requested records. Furthermore, as the government points out, 24 the documents and records sought would normally fall under CNI’s recordkeeping policy 25 since the IRS requested information from July 1, 2023 through compliance with the 26 summons. (Plaintiff’s Motion, at 16); (Defendant’s Motion, at 14). Accordingly, the Court 27 does not find that Plaintiff’s argument disproves the IRS’s legitimate purpose for its 28 summons. 1 Finally, Plaintiff argues that CNI “has no assets.” (Plaintiff’s Opposition, at 3). This 2 assertion is plainly contradicted by Plaintiff’s own evidence that the IRS has issued a 3 $62,024.85 levy against CNI’s Wells Fargo Bank account for the at-issue tax years. 4 (Plaintiff’s Motion, at 3–4). Plaintiff does not provide any evidence that supports his 5 blanket statement. Accordingly, the Court does not find that this argument disproves the 6 IRS’s legitimate purpose for its summons. 7 The government has met its burden to establish a prima facie case of enforcement of 8 summons whereas Plaintiff has not met his burden to disprove it. Accordingly, the Court 9 GRANTS the government’s motion to enforce summons. Because meeting the Powell 10 elements also defeats a petition to quash, the Court would also deny Plaintiff’s Motion to 11 Quash and grant Defendant’s Motion to Summarily Deny Plaintiff’s Motion to Quash on 12 this alternative ground. 13 C. Plaintiff’s Motion to Compel 14 “Under the Federal Rules of Civil Procedure, the parties may obtain discovery 15 regarding any matter that is (1) ‘not privileged’ and (2) ‘relevant to the subject matter 16 involved in the pending action.’” Soto v. City of Concord, 162 F.R.D. 603, 610 (N.D. Cal. 17 1995) (quoting Fed. R. Civ. P. 26(b)(1)). “[A] party may move for an order compelling 18 disclosure or discovery.” Fed. R. Civ. P. 37(a). “[T]he party seeking to compel discovery 19 bears the burden of showing that his request satisfies the relevance requirement of Rule 20 26.” Soto, 162 F.R.D. at 610. Additionally, “[t]he motion must include a certification that 21 the movant has in good faith conferred or attempted to confer with the person or party 22 failing to make disclosure or discovery in an effort to obtain it without court action.” Fed. 23 R. Civ. P. 37(a)(1); see also Civ. L. R. 26.1(b) (“At the time of filing any motion with 24 respect to Rules 26 through 37, Fed. R. Civ. P., counsel for the moving party must serve 25 and file a certificate of compliance with this rule.”). “In general, pro se representation does 26 not excuse a party from complying with a court’s orders and with the Federal Rules of Civil 27 Procedure.” SolarCity Corp. v. Doria, No. 16-cv-3085-JAH (RBB), 2018 WL 467898, at 28 *2 (S.D. Cal. Jan. 18, 2018) (quoting Hupp v. San Diego Cnty., No. 12-cv-492 GPC, 2014 1 || WL 1404510, at *2 (S.D. Cal. Apr. 10, 2014)). Parties who choose to represent themselves 2 || are “expected to abide by the rules of the court in which [they] litigate[].” Carter v. □□□□□ 3 || 784 F.2d 1006, 1008 (9th Cir. 1986). 4 Plaintiff has not attempted to fulfill his Rule 37 obligation to in good faith confer or 5 || attempt to confer with Defendant over the requested discovery. Nor does Plaintiff make 6 || any such representations. Accordingly, the Court DENIES Plaintiff's Motion to Compel.' 7 IV. CONCLUSION 8 Based on the foregoing, the Court DENIES Plaintiff's Motion to Quash and 9 || Motion to Compel and GRANTS Defendant’s Motion to Summarily Deny Plaintiff's 10 || Motion to Quash and Enforce IRS Summons. 11 12 13 || Dated: September 30, 2024 2» 14 fon yn. 15 Hon. Dana M. Sabraw, Chief Judge United States District Court 16 17 18 19 20 21 22 23 24 25 26 || 27 ||! Because the Court denies Plaintiff's motion to compel on this ground, the Court declines to address 28 Defendant’s arguments that Plaintiffs motion is premature or that Plaintiff is not entitled to discovery in an IRS summons case. (ECF No. 9). °