Metropolitan News-Enterprise

 

Wednesday, February 27, 2019

 

Page 1

 

Ninth Circuit:

Lawyer, Wife Received Inadequate Notice From IRS

In a Case in Which Records Are Sought From State Supreme Court, Opinion Says General Advisement That Third Parties Might Be Contacted Does Not Constitute Required ‘Reasonable Notice in Advance’

 

By a MetNews Staff Writer

 

The Ninth U.S. Circuit Court of Appeals yesterday affirmed an order quashing the Internal Revenue Service’s summonses to the California Supreme Court seeking records of payments to a Sonoma County attorney for work done representing indigents in capital appeals.

A three-judge panel, in an opinion by Circuit Judge Kim Wardlaw, held that the IRS had failed to comply with the statutory requirement of providing “reasonable notice in advance” to the taxpayers of the possibility that records might be sought from third parties.

The case arises from a random audit of Joseph Gary Baxter, of the Santa Rosa law firm of O’Brien Watters & Davis LLP, and his wife, Patricia Mary Baxter. (Wardlaw refers to them by their first and last initials, although their full names appear in the record.)

Wardlaw’s opinion upholds an action by District Court Judge Yvonne Gonzalez Rogers of the Northern District of California. In a Feb. 8, 2016 order, Rogers declared:

“It is uncontested that the IRS did not provide advance notice to the Baxters of its intent to make contact specifically with the California Supreme Court. Instead, the government argues that it satisfied this requirement on July 25, 2013 by providing petitioners with general notice, i.e. IRS Publication 1, which states that the IRS will ‘sometimes talk with other persons if [they] need information that [the taxpayers] have been unable to provide.’…The Court finds that the advance notice procedure cannot be satisfied by the transmission of a publication about the audit process generally.”

Wardlaw’s Opinion

Wardlaw said in yesterday’s opinion:

 “We conclude that ‘reasonable notice in advance’ means notice reasonably calculated, under all the relevant circumstances, to apprise interested parties of the possibility that the IRS may contact third parties, and that affords interested parties a meaningful opportunity to resolve issues and volunteer information before third-party contacts are made.”

She elaborated:

“A reasonable notice must provide the taxpayer with a meaningful opportunity to volunteer records on his own, so that third-party contacts may be avoided if the taxpayer complies with the IRS’s demand.”

The IRS first requested documents from the Baxters in September of 2013, pursuant to a National Research Program audit. Its summonses to the California Supreme Court were issued two years later.

Speediness Not Required

Wardlaw said there was no duty on the part of the IRS to move more swiftly in connection with such an audit, explaining:

“The research program is designed to help the IRS improve its tax collection system, but unlike an audit in the normal course where the subjects are selected because of red flags in their tax returns, the subjects of a research program audit are randomly selected, without any reason to believe that they are deficient on their taxes. The IRS had no reason to believe that J.B. and P.B. might evade its review, hide assets, or abscond. Nor was the California Supreme Court going anywhere soon.”

The IRS declined the Baxters’s request that they be excused from being audited based on their advanced years. He’s 73; she’s 72.

The case is J.B. v. United States, 16-15999.

 

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