United States District Court, D. South Carolina, Columbia Division
ORDER DENYING PETITION TO QUASH AND GRANTING MOTION
CAMERON MCGOWAN CURRIE Senior United States District Judge.
Bible Study Time, Inc. (“BST”), initiated this
action pursuant to 26 U.S.C. § 7609(b)(2)(A) seeking to
quash third-party summonses the Internal Revenue Service
(“IRS”) served on eight banks: Carolina Alliance
Bank, Capital Bank, N.A., First Citizens Bank & Trust
Co., SunTrust Bank, First South Bank, NBSC (a division of
Synovus Bank), and Regions Bank (collectively “the
Banks”). ECF No. 1 (Petition to Quash Third-Party
Summonses (“Petition”)). The challenged summonses
seek BST's banking records for the twelve month period
ending December 31, 2013 (“2013 Tax Year”).
Petition asserts the summonses are invalid for four reasons.
ECF No. 1 at 1, 2. First, the purpose is improper because the
summonses were issued in support of a church tax inquiry and
examination that were not properly authorized under 26 U.S.C.
§ 7611 (“Section 7611'”) and the
summonses are intended to coerce the taxpayer into responding
to the improperly authorized inquiry and examination.
Id. at 1. Second, the IRS already has the
information it seeks. Id. Third, the IRS failed to
provide BST the statutorily required notice before issuing
the summonses. Id. Fourth, the summonses violate a
statutory prohibition on repetitive church inquiries or
examinations within a five-year period. Id. at 2.
United States (“Government”) filed a motion to
dismiss the petition. It argues the summonses are proper,
regardless of whether the church inquiry and examination were
properly initiated, because third-party summonses are
governed by 26 U.S.C. § 7609 (“Section
7609”), not Section 7611, and the summonses satisfy the
standards applicable to third-party summonses.
its opposition, BST challenges the Government's legal
arguments and contention the summonses were issued for a
legitimate purpose. BST does not expressly abandon any of the
arguments advanced in its petition, though it fails to
advance some of them.
matter has now been fully briefed. For reasons explained
below, the Government's motion to dismiss is granted and
BST's petition to quash is denied. The challenged
summonses are, therefore, enforceable as written.
and Right to Challenge.
7609 addresses third-party summonses issued by the IRS,
requiring, inter alia, notice of issuance to any person named
in the summons (other than the third party to whom the
summons is directed) and authorizing the noticed person to
petition to quash the summons. 26 U.S.C. §§
7609(a), (b). It is undisputed BST falls within the class of
persons entitled to notice of a third-party summons under
Section 7609(a)(1) and authorized to file a petition to quash
under Section 7609(b)(2). BST argues the Government failed to
give proper advance notice that third-party summonses
might be issued (an argument based on the
“General notice” provisions of 26 U.S.C. §
7602(c)(1). It does not challenge the Government's
compliance with Section 7609(a)'s notice provisions,
which are specific to third-party summonses. See 26
U.S.C. § 7609(a)(1) (requiring person identified in the
summons, other than the person summoned, be given notice of
the summons “within 3 days of the day on which . . .
service is made, but no later than the 23rd day before the
day fixed” for responding to the summons).
over a petition to quash exists in the district in which the
persons or entities summoned reside or are found. 26 U.S.C.
§ 7609(h)(1). BST alleges and the Government does not
contest that each of the Banks summoned may be found in this
district.Thus, this court has jurisdiction over
BST's petition to quash.
timely petition to quash is filed, no examination of the
records sought by the challenged summons may be made
“except in accordance with an order of the court having
jurisdiction of such proceeding or with the consent of the
[petitioner].” 26 U.S.C. § 7609(d). It is
undisputed that no responses to the summonses have been
to enforce or quash an IRS summons are adversarial, but
generally summary in nature. United States v.
Clarke, __ U.S. __, 134 S.Ct. 2361, 2367-68 (2014). As
the Fourth Circuit Court of Appeals explained in Conner
v. United States, 434 F.3d 676 (4th Cir. 2006):
When an interested party challenges enforcement of an IRS
summons, under United States v. Powell, 379 U.S. 48
(1964), the initial burden rests with the government to
establish a prima facie showing of good faith in
issuing the summons, requiring proof that the IRS has
satisfied the following four elements: (1) the investigation
is being conducted for 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) the
administrative steps required by the Internal Revenue Code
have been followed.
Id. at 680.
second prong of this test requires only a showing of
“potential relevance.” United States v.
Arthur Young & Co., 465 U.S. 805, 814-16 (1984).
This standard is met if the documents sought “may be
relevant or material” and does not require relevance in
the “technical, evidentiary sense.” Id.
(also declining to find any exceptions beyond traditional
privileges and limitations absent unambiguous direction from
Government's initial burden in opposing a petition to
quash or seeking to compel compliance is only
“‘slight or minimal'” and may be
satisfied by presenting “‘an affidavit of an
agent involved in the investigation averring the
Powell good faith elements'” have been
satisfied. Conner, 434 F.3d at 680 (quoting
Mazurek v. United States, 271 F.3d 226, 230 (5th
Cir. 2001); Alphin v. United States, 809 F.2d 236,
238 (4th Cir. 1987)). If the Government meets this burden, it
is entitled to enforcement of the summonses unless the
taxpayer proves the elements are not satisfied or otherwise
shows “the IRS is attempting to abuse the court's
process.” Conner, 434 F.3d at 680 (noting
abuse would include issuing the summons “for an
improper purpose such as to harass the taxpayer or to put
pressure on him to settle a collateral dispute.”);
id. at 681 (stating “[b]ecause the government
has already produced [the IRS agent's] affidavit
disavowing possession of the documents sought . . ., Conner
bore the burden of proving otherwise”).
Formation and Operations.
incorporated as a nonprofit entity in the State of Georgia in
1972 and maintains its headquarters in Spartanburg, South
Carolina. See Georgia Corporations Division Business
Search Record, ECF No. 13-1; ECF No. 13 at 1-2
(Petitioner's “Statement of Pertinent
Facts”). BST was originally formed by Dr. Freda Crews
and her husband, Dr. William Crews. ECF No. 13 at 1-2
(relying on BST's website in providing historical
information). In its early years, BST's primary function
was to produce and broadcast a weekly radio program hosted by
Dr. William Crews. Id. From 1991 through 1997, Dr.
Freda Crews (“Dr. Crews”), also hosted a weekly
radio program. Id. At some point, Dr. Crews began
hosting a weekly television program, “Time for Hope,
” which is a “faith-based mental health talk and
interview show” that includes “related biblical
teaching.” Id. at 2.
Crews, an ordained minister, has been a member of BST's
Board of Directors since BST's inception and has served
at its president and chief executive officer since 2009. Dr.
Freda Crews Declaration ¶¶ 3, 5 (“Dr. Crews
Decl.”), ECF No. 13-2. Her son, William Crews, Jr.
(“William Crews”), has served as BST's
treasurer since 2009 and its secretary/treasurer since 2011.
William Crews Declaration (“W. Crews Decl.”), ECF
No. 13-3. William Crews' duties for BST include
“negotiating reduced media rates for the various
religious, faith-based organizations served by [BST].”
Id. ¶ 4 (indicating he has performed this duty
since April 2009).
Crews avers that, beginning in 2008, she began periodically
holding worship services as “Pastor of the Hope for
Living Media Church.” ECF No. 13-2 ¶ 6. She states
the services (1) are held on Monday mornings, (2) “are
open to the public and attended by all employees at Bible
Study Time, Inc., ” (3) have been held on a
“regular, consistent, weekly basis since 2010, ”
and (4) include “worship with spiritual songs and
hymns, biblical teaching, prayer, and specific prayers for
the viewers of the Hope for Living Media Church pursuant to
their written prayer requests.” Id. There is
no indication the worship services are broadcast. Neither is
there any indication the name “Hope for Living Media
Church” is used to identify BST as a whole, Dr.
Crews' television program (“Time for Hope”),
or the fee-negotiating services provided by William Crews
(apparently provided under the name “Select Religious
Broadcasting Service” and accounting for the vast
majority of BST's receipts, see BST 2013 Form
990 (reflecting “program service revenue” of $1,
723, 485 and total revenue of $2, 397, 529).
Communications with BST in 2012-13.
August 2012, Revenue Agent Russell Gagnon (“Agent
Gagnon”) notified BST by letter that BST had been
selected for an audit for the tax year ended December 31,
2010 (“2010 Tax Year”). Agent Gagnon First
Declaration ¶¶ 2, 4, ECF No. 8-1 (“Gagnon
First Decl.”). BST's return for the 2010 Tax Year
was made on Form 990 (“BST 2010 Form 990”).
Id. ¶ 2. Although Form 990 (titled
“Return of Organization Exempt from Income Tax”)
includes a block allowing the filer to indicate it is a
church, BST did not mark this block on its 2010 Form 990.
Id. ¶¶ 3, 7. Neither had BST claimed
church status prior to notification of this audit.
Id. ¶ 7 (noting BST's first claim of church
status was made in a letter faxed to the IRS on November 7,
Gagnon's letter requested a field examination on
September 10, 2012. Id. ¶ 4. BST responded by
designating Donald E, Guinn (“Guinn”), a
certified public accountant (“CPA”), as its
representative. Id. ¶ 5. Guinn called Agent
Gagnon on September 5, 2012, confirming the September 10,
2012 appointment. Id. However, when Agent Gagnon
arrived at BST's location to conduct the field
examination, Guinn informed him (by telephone) that Guinn
would not allow the examination to proceed at that
time. The examination was rescheduled to
November 13, 2012, a date Guinn confirmed by voicemail in
early October. Id. ¶ 6.
November 7, 2012, roughly a week before the date set for the
rescheduled examination, Guinn faxed a letter to Gagnon
asserting BST was claiming church status for purposes of its
2010 taxes. Id. ¶ 7. Following receipt of this
letter, Agent Gagnon initiated procedures to determine
whether to authorize a church tax inquiry. Id.
¶ 9. The inquiry was not, however, pursued due to the
applicable limitations period. Id. BST's 2010
Form 990 was, therefore, accepted as final. Id.
informed of the acceptance of its 2010 Form 990 by letter
dated December 2, 2013. ECF No. 1-15. The letter included the
following explanation: “After further considering the
information return for [Tax Year 2010], we have accepted the
return as filed. We did not conduct an examination for
the above period. Do not consider this an examination that
resulted in no change to your tax exempt status.”
Id. (emphasis added).
claiming church status for the 2010 Tax Year, BST did not
amend its 2010 Form 990 or mark the appropriate box to claim
church status on its Form 990 for Tax Years 2011-2013, at
least two of which were filed after Guinn claimed church
status on BST's behalf in November 2012. Gagnon First
Decl. ¶ 11. Further, while BST's description of its
exempt function in its 2013 Form 990 indicated a religious
purpose, it did not suggest BST was conducting religious
services or otherwise operating as a church. See ECF
No. 8-1 at 8, 9 (describing “primary exempt function
[as] to spread the Gospel through TV & radio programs,
counseling services[, ] religious tapes and books, speaking
engagements [and] seminars.” (capitalization
of Audit of BST 2013 Form 990.
February 2015, the IRS, through Agent Gagnon, advised BST
that its 2013 Form 990 had been selected for audit. ECF No.
13-6 (Letter dated February 25, 2015). The notice letter
sought to schedule a field audit on April 14, 2015.
Id. It attached IRS Publication 1, which included
notice that the IRS might contact third parties, and a Form
4564 (“Information Document Request”).
Id.; Gagnon First Decl. ¶ 16. The Form 4564
sought documentation as to employee compensation (most