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Kalra v. United States

United States District Court, Seventh Circuit

January 21, 2014

BIKRAMJIT SINGH KALRA, Plaintiff,
v.
UNITED STATES OF AMERICA, Defendant.

MEMORANDUM OPINION AND ORDER

JOHN W. DARRAH, District Judge.

Petitioner Bikramjit Singh Kalra has filed a Petition to quash, pursuant to 26 U.S.C. § 7609(b), two Internal Revenue Service summonses that seek his financial information from two third-party banks. For the reasons stated below, Kalra's Petition [33] is denied.

BACKGROUND

Kalra is the subject of an investigation by the Competent Authority for India (the "ICA") concerning his tax liability in that country. (Gov't's Resp. to Pet. to Quash Summonses ("Gov't's Resp.") Ex. 1, ¶ 3.) Pursuant to a treaty between the United States and India, the ICA has requested that the Internal Revenue Service (the "IRS") obtain information about Kalra's bank accounts held by Bank of America ("BOA") and HSBC Bank, USA NA ("HSBC") for the period April 1, 2000 through December 31, 2011. (Pet. ¶ 5; see also Gov't's Resp., Exs. A, B.)[1]

On April 27, 2012, Kalra filed his original Petition to Quash Summons in this case. On April 23, 2013, this Court denied the Government's Motion to Dismiss the Petition based on inadequate notice but retained jurisdiction over the matter. (Pet. ¶¶ 3-4.) On June 25, 2013, the IRS reissued the summonses to BOA and HSBC for the information requested by the ICA and served Kalra and his attorney with copies by registered mail.

Kalra has now filed the instant Petition, pursuant to 26 U.S.C. § 7609(b), arguing that the IRS summonses were not issued pursuant to a legitimate purpose and do not seek relevant information. In his reply brief, however, Kalra concedes the validity of the two summonses to the extent they seek information and documents for 2010 and 2011 but continues to resist production of bank records for 2000 through 2009. (Pet'r's Reply 2.)

LEGAL STANDARD

To establish a prima facie case that an IRS summons is valid, the government must satisfy the four factors set forth by the Supreme Court in United States v. Powell, 379 U.S. 48 (1964): (1) the summons was issued for a legitimate purpose; (2) the summoned data may be relevant to that purpose; (3) the data is not already in the IRS's hands; and (4) the IRS has followed the administrative steps for issuing and serving the summons. Id. at 57-58; see also Khan v. United States, 548 F.3d 549, 554 (7th Cir. 2008). Additionally, the government must not violate the Internal Revenue Code provision that "the summons is issued in good faith." Khan, 548 F.3d at 554. These requirements "impose only a minimal burden" on the government. Miller v. United States, 150 F.3d 770, 772 (7th Cir. 1998). The government typically demonstrates its prima facie case through affidavits of the agents involved in the investigation. Id .; see also 2121 Arlington Heights Corp. v. IRS, 109 F.3d 1221, 1224 (7th Cir. 1991) (" Arlington Hts. "); Sugarloaf Funding, LLC v. U.S. Dep't of the Treasury, 584 F.3d 340, 345 (1st Cir. 2009) ("An affidavit of the investigating agent that the Powell requirements are satisfied is sufficient to make the prima facie case.").[2] The Powell factors are applicable even where, as here, the IRS has issued the summons pursuant to a treaty with a foreign country. See United States v. Stuart, 489 U.S. 353, 356 (1989).

Once the government makes a prima facie showing of a valid summons, the burden shifts to the petitioner to either "disprove one of the Powell factors, or to show that the IRS issued the summons in bad faith." Miller, 150 F.3d at 772. The petitioner "faces a heavy burden'" in refuting the government's prima facie case. Id. He "must do more than just produce evidence that would call into question the Government's prima facie case"; rather, he carries the burdens of production and proof. United States v. Kis, 658 F.2d 526, 538-39 (7th Cir. 1981).

ANALYSIS

The Government's Prima Facie Case that the IRS Summonses Are Valid

In response to Kalra's Petition, the Government has submitted declarations from Douglas W. O'Donnell, the Assistant Deputy Commissioner, International, Large Business and International Division (the "LB&I Division") of the IRS; and Timothy H. Burke, Tax Law Specialist for the LB&I Division of the IRS. (Gov't.'s Resp., Exs. 1 & 2.) Through these declarations, the Government has met its "slight" burden and demonstrated its prima facie case that the IRS summonses at issue are valid. See 2121 Arlington Hts., 109 F.3d at 1224.

Specifically, with respect to the first Powell factor, O'Donnell attests that he determined that the ICA's requests were proper and appropriate under the treaty with India. (Gov't's Resp. Ex. 1, ¶¶ 3-4.) Indeed, "[a]ssisting the investigation of a foreign tax authority has been held to be a legitimate purpose by itself." Mazurek v. United States, 271 F.3d 226, 230 (5th Cir. 2001) (finding that "the IRS meets Powell's first ("legitimate purpose") requirement because it is attempting to fulfill the United States' obligations under the Treaty efficiently"). O'Donnell further attests that his office recently confirmed with the ICA that it continues to need this information from Kalra and that there are no statute of limitations issues under India law. (Gov't's Resp. Ex. 1, ¶ 3.) The first factor is thereby satisfied.

With respect to the second Powell factor, O'Donnell states that, based on the information provided by the ICA, he has determined that there is a reasonable basis to believe that the summonses will produce information relevant to the ICA's determination of Kalra's tax liabilities. (Id. Ex. 1, ¶ 10, & Ex. 2, ¶ 6.) "The Government must show only that the summons seeks information with potential relevance.'" United States v. Sidley Austin Brown & Wood, LLP, No. 03 C 9355, 2004 WL 905930, at *4 (N.D. Ill. Apr. 28, 2004) ...


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