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G2A.COM SP. Z O.O. (Ltd.) v. United States

United States District Court, D. Delaware

September 5, 2018

G2A.COM SP. Z O.O. (LTD.), Petitioner,
v.
UNITED STATES OF AMERICA, Respondent.

          MEMORANDUM ORDER

          HON. LEONARD P. STARK, UNITED STATES DISTRICT JUDGE

         At Wilmington this 5th day of September, 2018, having reviewed Petitioner G2A.COM Sp. z o.o. (Ltd.)'s ("Petitioner" or "G2A") petition to quash a third-party summons issued by the Internal Revenue Service ("IRS") to The Corporation Trust Company ("CTC") (D.I. 18) and Respondent United States of America's ("Respondent") cross-motion seeking denial of Petitioner's petition to quash (D.I. 20), IT IS HEREBY ORDERED that the petition to quash (D.I. 18) is GRANTED IN PART AND DENIED IN PART. Specifically, that the petition is GRANTED as to Request Numbers 1 and 8 and DENIED as to Request Numbers 2-7 and 9-16. Consistent with that decision, Respondent's cross-motion (D.I. 20) is GRANTED IN PART AND DENIED IN PART, for the reasons explained below.

         1. Petitioner, a Polish limited liability company, has been under investigation by the Polish tax authority since 2013. (See D.I. 18 ¶¶ 1, 8) As part of its investigation, the Polish tax authority requested, pursuant to the Convention Between the Government of the Unites States of America and the Government of the Polish People's Republic for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income, Oct. 8, 1974, 28 U.S.T. 891 ("United States-Poland Tax Treaty"), that the IRS provide Poland with information related to G2A's business dealings with Gate Arena LLC ("Gate Arena"), a Delaware limited liability company that Poland believes has relevant connections to its investigation of G2A. (See D.I. 18 ¶¶ 10, 14; D.I. 20 at 1) On June 28, 2017, IRS agent Glenn Nobriga issued an IRS third-party summons to CTC seeking the information Poland requested about Gate Arena. (D.I. 18 ¶6;D.I. 20 at 1)

         2. On July 19, 2017, G2A filed a timely motion to quash. (D.I. 1) On October 30, 2017, Respondent's counsel informed G2A that the summons attached to G2A's petition was incomplete (see D.I. 15 ¶ 3), prompting G2A to file an amended petition to quash on November 24, 2017 (D.I. 18). On December 15, 2017, Respondent moved for summary denial of G2A's amended petition to quash. (D.I. 20)

         3. Prior to G2A filing its amended petition, CTC responded to the summons, informing the IRS that it had no documents or information related to Gate Arena, which led the IRS to withdraw the summons. (D.I. 21 at 1) In light of the IRS's withdrawal of the summons, the Court directed the parties to address whether the pending motions are moot. (D.I. 29) The parties finished letter briefing on July 27, 2018. (D.I. 32, 33, 34, 35)

         4. In general, a petition to quash an IRS summons is rendered moot when the summons is withdrawn. See, e.g., Schaeffler v. United States, 2016 WL 3369538, at *2 (S.D.N.Y. June 17, 2016), aff'd, 696 Fed.Appx. 542 (2d Cir. 2017) ("Case law has routinely recognized that the withdrawal of an IRS summons moots a petition to quash that summons."); see also Id. (collecting cases holding same); Badman v. I.R.S., 2007 WL 121862, at *1 n.l (M.D. Pa. Jan. 11, 2007) ("[W]e dismissed his motion [to quash the IRS summons] as moot because [the IRS agent] had withdrawn the summons.").

         5. Here, however, neither party argues that the petition is moot. G2A contends its petition is not moot because the Court may still grant G2A at least part of the relief it seeks: preventing the IRS from informing the Polish tax authority that CTC does not have any responsive information related to Gate Arena. (D.I. 32 at 1-2) Respondent does not explicitly disagree with G2A but focuses its argument on avoiding the "procedural limbo" the government will be placed in if the Court "determines the motions are moot without also ruling on whether the [IRS] may inform Poland of the results of the summons." (D.I. 33 at 2) The Court agrees that there is a live controversy before it.

         6. Under 26 U.S.C. § 7609(d), the IRS cannot examine any records received in response to a third-party summons while a petition to quash is pending. (D.I. 32 at 2) Nor, then, can the IRS inform Poland of the results of the summons. (D.I. 32 at 2; D.I. 33 at 2) Thus, even though the summons has been withdrawn, a favorable decision from this Court would redress G2A's alleged injury by preventing the IRS from sharing CTC's lack of information about Gate Arena - which is itself information - with Poland, the authority investigating G2A. See Gluck v. United States, 771 F.2d 750, 753-54 (3d Cir. 1985) (concluding appeal was not moot because court could "fashion a remedy - prohibition of the use of the summoned documents - to afford [the plaintiffs] effective relief," even though third-party had fully complied with summons). Accordingly, the pending motions are not moot.

         7. Turning to the merits, the IRS is mandated to investigate "persons . . . who may be liable" for taxes. 26 U.S.C. § 7601. To enforce this mandate, the IRS has been given the power to issue summonses (to a taxpayer or third party) for purposes of (1) ascertaining the correctness of any tax return, (2) making a tax return where none has been made, (3) determining the tax liability of any person, (4) collecting a tax liability, or (5) inquiring into any offense connected with the administration or enforcement of the internal revenue laws. 26 U.S.C. § 7602; see also Donaldson v. United States, 400 U.S. 517, 523-524 (1971), abrogated on other grounds by 26 U.S.C. § 7609.

         8. To make aprimafacie case for enforcement of a summons, the IRS must show: (a) the summons was issued for a legitimate purpose; (b) the summons sought information that may be relevant to that purpose; (c) the information sought was not already within the possession of the IRS; and (d) all administrative requirements were met. See United States v. Powell, 379 U.S. 48, 57-58 (1964). In addition, there must not have been any criminal referrals to the Department of Justice regarding the taxpayer. See 26 U.S.C. § 7602(d); United States v. Garden State Nat'l Bank, 607 F.2d 61, 68-69 (3d Cir. 1979). This showing is generally made by the affidavit of the issuing agent. See Garden State, 607 F.2d at 68. The same standard applies to a summons issued at the request of a foreign country pursuant to a tax treaty between the United States and that country. See United States v. Stuart, 489 U.S. 353, 366-67 (1989).

         9. Here, the government relies on the declarations of Agent Glenn Nobriga (D.I. 20 Ex. 2) ("Nobriga Decl."), Agent Alexandra Johnson (D.I. 20 Ex. 3) ("Johnson Decl."), and Program Manager Tina Masuda (D.I. 20 Ex. 4) ("Masuda Decl."). As explained below, these declarations establish all of the requisite standards are met for Request Numbers 2-7 and 9-16.

a. First, Agent Nobriga issued the summons for the legitimate purpose of determining Petitioner's 2014 tax liability. According to the Polish tax authority, in order to determine G2A's tax liabilities, "it is necessary to establish mutual links between G2A and Gate Arena as well as rules of organization, and financing of the activity" because G2A and Gate Arena were involved in a number of sales and engaged in mediation services during the relevant tax year. (D.I. 21 at 8) (internal quotation marks and alterations omitted) Agent Nobriga thus issued the summons to further the determination of G2A's tax liability.
b. Second, the summons is relevant to that purpose. Under § 7602, the IRS may "obtain items of even potential relevance to an ongoing investigation, without reference to [their] admissibility" under the Federal Rules of Evidence. United States v. Arthur Young & Co., 465 U.S. 805, 814 (1984); see also Id. at 814 n.l 1 (acknowledging "widely accepted" relevance standard employed by circuit courts, including Third Circuit: "whether the documents at issue 'might have thrown light upon the correctness of the return'"). Here, the Polish tax authority seeks documents related to Gate Arena's business transactions, personnel, and business operations, which may shed light on Poland's investigation of G2A's relationship to Gate Arena and its impact on G2A's tax liability. Program Manager Masuda declared "[b]ased on the information furnished by ... Poland, there was a reasonable basis to believe ... the summons would produce information relevant to Poland's investigation of the income tax liabilities of G2A" and that Poland would furnish the same type of information to the United States were the roles reversed. (Masuda Decl. ¶ 10) Accordingly, the summons satisfies the relevance standard of §7602.
c. Third, Agent Nobriga was "unaware of any materials in the possession of the Internal Revenue Service that were potentially responsive to the Summons" at the time he issued the summons. (Nobriga Decl. ¶ 16) Further, Program Manager Masuda declared, "[A]t the time the summons was issued, the United States Competent Authority was not aware of any documents in the possession of the IRS that could be viewed as responsive to [Poland's] Request for Information." (Masuda Decl. ¶ 9) However, the government concedes the IRS was in possession of "documents regarding Gate Arena in response to a 2013 informal request to Harvard Business Services, Inc..." responsive to ...

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