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Bible Study Time, Inc. v. United States

United States District Court, D. South Carolina, Columbia Division

March 7, 2017



          CAMERON MCGOWAN CURRIE Senior United States District Judge.

         Petitioner, 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”).

         The 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.

         The 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.

         Through 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.

         The 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.


         Notice and Right to Challenge.

         Section 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).[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).


         Jurisdiction 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.[2]Thus, this court has jurisdiction over BST's petition to quash.

         Stay Pending Resolution.

         When a 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 provided.

         Standards and Elements.

         Proceedings 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.

         The 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 Congress).

         The 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”).


         BST Formation and Operations.

         BST was 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.

         Dr. 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).

         Dr. 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).[3]

         IRS Communications with BST in 2012-13.

         In 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, 2012).

         Agent 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.[4] The examination was rescheduled to November 13, 2012, a date Guinn confirmed by voicemail in early October. Id. ¶ 6.

         On 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. ¶ 10.

         BST was 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).

         Despite 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 modified)).

         Notice of Audit of BST 2013 Form 990.

         In 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. ΒΆ 16. The Form 4564 sought documentation as to employee compensation (most critically ...

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