[00:00:00] Speaker 04:
We'll call the first case.

[00:00:02] Speaker 04:
We have two cases on the oral argument calendar this morning.

[00:00:05] Speaker 04:
The first one, 23-3063, God's storehouse, Topeka Church versus United States.

[00:00:12] Speaker 04:
Counsel, please proceed.

[00:00:14] Speaker 01:
May it please the court?

[00:00:15] Speaker 01:
We're putting Chris Hauser and Megan Faulkenshire on behalf of God's storehouse, Topeka Church.

[00:00:21] Speaker 01:
If I could reserve five minutes for a rebuttal.

[00:00:23] Speaker 04:
OK, your time's your own, but we'll watch it and try to remind you when you're getting close.

[00:00:29] Speaker 01:
Very good, Your Honor.

[00:00:30] Speaker 01:
This case presents a question of whether it's proper for the US government to circumvent the Churchada Procedure Act, or I'll refer to CAPA, through a third party summons and how United States v. Powell and CAPA interface.

[00:00:43] Speaker 01:
This requires a holistic analysis of CAPA and the summons at issue here.

[00:00:48] Speaker 01:
Ultimately, the court's decision whether or not CAPA

[00:00:51] Speaker 01:
its decision will determine whether or not CAPA actually means anything or whether it's been relegated to a useless appendage through the government's interpretation and procedural gamesmanship over the years.

[00:01:03] Speaker 01:
A few things that are not in dispute in this case.

[00:01:06] Speaker 01:
There was a 7611 church tax inquiry.

[00:01:09] Speaker 01:
Two, there was a 7611 church tax examination.

[00:01:13] Speaker 01:
Three, there was a summons issued for the purposes of the 7611 inquiry and examination, as shown by Agent Kelsroy's affidavit.

[00:01:22] Speaker 01:
And four, United States v. Powell applies to this case as his.

[00:01:26] Speaker 04:
Did the affidavit say that the

[00:01:31] Speaker 04:
I get the numbers mixed up in this thing, but the 09 summons was part of a church tax inquiry or examination.

[00:01:42] Speaker 01:
In the affidavit, it goes through the background of what the basis of the summons was, and those were the exact same four factors in the examination.

[00:01:50] Speaker 01:
Did the church engage itself in political activity impermissibly?

[00:01:54] Speaker 01:
Was it actually a thrift store and not actually a church?

[00:01:57] Speaker 01:
Were the pastors actually pastors?

[00:01:59] Speaker 01:
And did they have to pay unemployment tax?

[00:02:03] Speaker 01:
And was there unrelated business income tax?

[00:02:07] Speaker 01:
And so those were all in Agent Kilroy's affidavit.

[00:02:11] Speaker 01:
And so there are also a few things I don't think the government will dispute here.

[00:02:15] Speaker 01:
Prior to one-

[00:02:17] Speaker 02:
I question whether this is it.

[00:02:24] Speaker 02:
You seem to be suggesting that the actual third party summons is a tax inquiry or a tax examination, but it seems that the statute excludes that when it talks about church records and defines church records and it specifically

[00:02:43] Speaker 02:
excludes the records obtained pursuant to a third-party summons.

[00:02:48] Speaker 02:
We also have a regulation that's very clear that specifically says that records sought pursuant to a 7609 summons simply are included under 7611, basically.

[00:03:04] Speaker 01:
So you're on our fight?

[00:03:06] Speaker 02:
So why?

[00:03:07] Speaker 02:
Excuse me.

[00:03:10] Speaker 02:
If they're specifically excluded,

[00:03:13] Speaker 02:
From 7611, I'm confused as to why you are arguing that the procedural requirements of 7611 apply to 7609.

[00:03:25] Speaker 01:
Yes, Your Honor, if we could just walk through the Church Audit Procedure Act, and I'll kind of discuss that.

[00:03:30] Speaker 01:
So in the definitions, the government relies on the definition of church tax inquiry as a church tax inquiry being an inquiry to a church, and the church being the target of that.

[00:03:41] Speaker 01:
But you have to look at CAPA as a whole.

[00:03:43] Speaker 01:
So this is a procedural statute that starts with notice, I mean, approval from sufficiently high-level treasury official.

[00:03:50] Speaker 01:
And then it proceeds.

[00:03:51] Speaker 02:
Well, counsel, counsel, I don't need it.

[00:03:54] Speaker 02:
I am cutting you off, but I'm not sure you're understanding my question.

[00:03:58] Speaker 02:
I'm not suggesting there isn't an inquiry.

[00:04:01] Speaker 02:
I'm not suggesting there isn't an examination going on.

[00:04:05] Speaker 02:
I'm suggesting that nevertheless, a 3609 summons is not subject to the same rules as the examination and the inquiry.

[00:04:18] Speaker 02:
And that seems to be pretty clear from the statute and the regs themselves.

[00:04:22] Speaker 01:
Well, Your Honor, the exclusion you're talking about exists actually in the definition of church records.

[00:04:29] Speaker 01:
So you have to have church records as being the basis to pull in that third party summons exclusion.

[00:04:38] Speaker 02:
Church records are records kept by a church.

[00:04:43] Speaker 02:
That statute specifically excludes records acquired pursuant to a summons, which 7609 applies to.

[00:05:00] Speaker 01:
Your Honor, if I could, the definition of church examination really is the hook here, because it doesn't have to be directed to a church, like a church inquiry, but it includes church records or be the religious activities of the church, which does not include the work church records at all.

[00:05:18] Speaker 01:
So there can be two bases for an examination.

[00:05:20] Speaker 01:
One being church records.

[00:05:22] Speaker 01:
And yes, there is this conflict between what is excluded.

[00:05:26] Speaker 01:
But the actual examination issue in this case has to do with the religious activities of the church.

[00:05:32] Speaker 01:
Is it actually a thrift store or is it a church?

[00:05:34] Speaker 01:
So we're operating under the church examination definition under 3B, the religious activities of the church, not necessarily the examination into church records.

[00:05:45] Speaker 01:
So the issue here

[00:05:46] Speaker 01:
is that this is a broad examination, and this summons is being used to circumvent the Church Audit Procedure Act.

[00:05:53] Speaker 01:
Bible study time created this kind of third party loophole by misapplying that exclusion, which resides in the definition of church records.

[00:06:03] Speaker 04:
So when would the 7609 subpoena ever be used once there's an inquiry or church tax examination going on?

[00:06:12] Speaker 01:
Absolutely.

[00:06:14] Speaker 01:
What should happen is the government goes to the church, and I think this is our client's frustration in this case, the government has not interfaced with the church directly, hardly at all.

[00:06:24] Speaker 01:
Instead, they just go issue third-party summonses, and this was what the

[00:06:28] Speaker 01:
The exact same thing that the Bible study time five years ago, the church and Bible study time said, this will happen.

[00:06:35] Speaker 01:
The government will circumvent CAPA by just issuing third party summons if you let this unrestrained exemption govern.

[00:06:41] Speaker 04:
OK, let me, I think you're misunderstanding me.

[00:06:44] Speaker 04:
So once there's a church tax inquiry and examination going on, is there any application for 7609 in your view?

[00:06:55] Speaker 01:
Absolutely.

[00:06:56] Speaker 01:
Yes, yeah, the government can go use 7609 and 7611 doesn't apply.

[00:07:01] Speaker 01:
In fact, the Treasury, the Revenue Procedure Manual talks about, and I'll give you the section here.

[00:07:09] Speaker 04:
Well, just tell me, before you do that, where would 7609 apply then?

[00:07:14] Speaker 04:
Give me an example of something, because obviously we've got a third-party bank that has some records that relate to your client.

[00:07:23] Speaker 04:
and it's your position that you can't go use that, use 7609 to get records from them.

[00:07:28] Speaker 04:
Who could you get records from?

[00:07:29] Speaker 01:
The church.

[00:07:30] Speaker 01:
And that's how CAPA is designed.

[00:07:32] Speaker 04:
But you would never issue a 7609 subpoena to the church?

[00:07:36] Speaker 01:
No, you'd issue a summons to the church under 7611.

[00:07:39] Speaker 01:
You would go through the procedure of interfacing with the church, getting documents from the church, and then you can go to

[00:07:45] Speaker 01:
banks, you can issue third parties summons all you want to verify the information from the church.

[00:07:51] Speaker 01:
The problem here is the church isn't involved.

[00:07:53] Speaker 01:
Instead of interfacing with the church and getting any documentation, we provided, our client provided, a substantial amount of documentation.

[00:08:02] Speaker 01:
And then when they asserted the Church Audit Procedure Act as an issue and the approval authority being inadequate,

[00:08:10] Speaker 01:
The government just sidestepped and stopped interfacing with the church and went directly to third parties.

[00:08:15] Speaker 02:
Can I interrupt you there?

[00:08:17] Speaker 02:
You indicated several times there was no interfacing between the church and the IRS.

[00:08:23] Speaker 02:
But that doesn't seem to be what I see in the record, as I recall.

[00:08:29] Speaker 02:
There was a notice of examination.

[00:08:32] Speaker ?:
There was a, I remember what's called a pre.

[00:08:37] Speaker 02:
examination conference where they tried to resolve their issues.

[00:08:40] Speaker 02:
There was no resolution.

[00:08:42] Speaker 02:
After that, the IRS sent document requests.

[00:08:46] Speaker 02:
The church sent some documents, not all.

[00:08:49] Speaker 02:
The IRS asked for bank records.

[00:08:51] Speaker 02:
The church said no.

[00:08:52] Speaker 02:
And it was at that point, after all of that interfacing, that the IRS issued the summons to the bank under 3609.

[00:09:00] Speaker 02:
So I'm not understanding where you suggest that

[00:09:05] Speaker 02:
This just kind of came out of the blue, as though there were no interfacing.

[00:09:10] Speaker 02:
They followed all the requirements of 3611.

[00:09:16] Speaker 02:
I'm just not following.

[00:09:19] Speaker 01:
Yes.

[00:09:20] Speaker 01:
Yes.

[00:09:21] Speaker 01:
There was some interface.

[00:09:22] Speaker 01:
That's true.

[00:09:23] Speaker 01:
But in Hobbs, which is a case we discussed out of the Ninth Circuit, that talks about whether or not a third party summons is subject to

[00:09:30] Speaker 01:
7611.

[00:09:30] Speaker 01:
In that case, they both went after the church and moved to enforce the summons against the church, allowing the church to assert 7611 protections.

[00:09:39] Speaker 01:
At the same time, it went to third-party record keepers.

[00:09:42] Speaker 01:
We don't think that's circumventing the churchotic procedure act because they're involving the church.

[00:09:48] Speaker 01:
In Bible study time, they did all their third-party summonses and then went to the church

[00:09:54] Speaker 01:
The government's argument on 7611E shows this to be the case.

[00:10:00] Speaker 01:
They have all the cards on the table.

[00:10:02] Speaker 01:
They go issue a third-party summons.

[00:10:04] Speaker 01:
They say 7611E doesn't allow us to even challenge it unless they move to enforce the summons against the church.

[00:10:12] Speaker 01:
But they don't have to do that ever.

[00:10:14] Speaker 02:
Well, that is the language of the statute, isn't it, counsel?

[00:10:16] Speaker 02:
I mean, it's not just the IRS coming up with this.

[00:10:19] Speaker 02:
The language of 7611E provides an exclusive remedy

[00:10:24] Speaker 02:
Under 7611, and that's a motion for a stay, to try to stay an enforcement proceeding.

[00:10:29] Speaker 02:
That's it.

[00:10:30] Speaker 02:
And it's very clear.

[00:10:32] Speaker 02:
The text is clear.

[00:10:35] Speaker 02:
So I guess I'm also struggling with how you even have any option to try to quash the summons outside of 7609.

[00:10:50] Speaker 02:
It's simply not a remedy.

[00:10:53] Speaker 01:
under 76-11.

[00:11:01] Speaker 01:
They have under 7609, which is a motion to quash, they have the ability to also move to enforce the summons.

[00:11:09] Speaker 01:
The government hasn't done that here because they don't want to incur 7611E because then it would become a proceeding to compel compliance.

[00:11:18] Speaker 01:
But effectively, that's what this is.

[00:11:21] Speaker 01:
This court's determination will determine whether or not Cod Valley Bank produces or doesn't produce documents.

[00:11:27] Speaker 01:
And we asked in our petition for all equitable...

[00:11:30] Speaker 02:
Counsel, that may be true, but even after assuming this goes forward and the documents are produced by Call Valley, even assuming that, that's not the end of it.

[00:11:45] Speaker 02:
The IRS then still has to proceed under 7611 with the examination.

[00:11:51] Speaker 02:
in order to assess any taxes or take any further proceedings, that's when the procedures of 7611 kick in.

[00:12:00] Speaker 02:
And that's when the IRS would have to seek enforcement.

[00:12:04] Speaker 02:
And that's when you would have the opportunity pursuant to Section E to file your motion for stay.

[00:12:11] Speaker 02:
All of that happens after the third party summons.

[00:12:18] Speaker 01:
And I do want to reserve a little time for rebuttal.

[00:12:20] Speaker 01:
I respectfully submit that the congressional record capable was created to avoid that, to avoid a church going through a long, extensive

[00:12:29] Speaker 01:
procedure like you describe it allows these upfront checks and balances the major one being the appropriate high-level official which the text of the statute identifies two officials in current law that can approve church audits and church examinations and the government just wants to play how low can you go they started with the director of tax exempt examinations and then they went to the director of tax exempt organizations

[00:12:57] Speaker 01:
And now, then in Bible study time, they went one level up from that, and now they are at the commissioner.

[00:13:04] Speaker 01:
And so why is it the government doesn't start with the people that we know by law and by reg can approve these, and instead they want to go to the lowest?

[00:13:14] Speaker 01:
And churches have to keep litigating their protections to say, that's not a high-level official.

[00:13:20] Speaker 01:
But I want to stop there.

[00:13:21] Speaker 01:
I just, to answer your question, it's to avoid the long drawn out and the reputational damage to churches.

[00:13:27] Speaker 01:
I mean, our client is experiencing that now in this case.

[00:13:30] Speaker 01:
And I think that is one of the reasons CAPA exists.

[00:13:33] Speaker 01:
So let me reserve a minute, 30 seconds here.

[00:13:37] Speaker 01:
Thank you.

[00:13:38] Speaker 00:
Thank you.

[00:13:41] Speaker 00:
Good morning, may it please the court, Pooja Boyesher on behalf of the United States.

[00:13:45] Speaker 00:
I'd like to address each of the arguments that taxpayer just raised.

[00:13:49] Speaker 00:
Regarding this interfacing argument that the IRS has not interfaced with the church, as Judge Moritz just brought up, that is simply not true.

[00:13:57] Speaker 00:
The facts show the IRS sent everything it was required to send under 7611.

[00:14:02] Speaker 00:
It first sent a notice of church tax examination, it then sent a notice of church tax inquiry, and then

[00:14:07] Speaker 00:
it allowed for a conference with taxpayer and subsequently sent a document request.

[00:14:12] Speaker 00:
When the church did not respond to that document request as it required, which was the bank documents it is now seeking from Coll Valley Bank, at that point, the IRS used its authority under 7609, which 7611 specifically carves out, to summons third party documents from the bank.

[00:14:33] Speaker 04:
Let me ask you a question that maybe not accurately reflect the record.

[00:14:38] Speaker 04:
So if you have a church tax examination and inquiry, can you issue a 7609 subpoena before you even ask the church for the documents?

[00:14:51] Speaker 00:
Your Honor, yes, I'm glad you asked this timing question.

[00:14:54] Speaker 00:
There is nothing in 7611 that precludes the IRS from simultaneously seeking third party documents or seeking those third party documents ahead.

[00:15:04] Speaker 00:
What 7611 says is when you are interfacing with the church,

[00:15:08] Speaker 00:
Because of those First Amendment concerns, entanglement concerns, we want to make sure the government is following specific and heightened procedures.

[00:15:17] Speaker 00:
But the government can interface with third parties for whom those entanglement concerns do not exist like they would on any other summons

[00:15:26] Speaker 00:
And when we're dealing with parties who aren't churches, those entanglement concerns do not exist.

[00:15:37] Speaker 00:
So no, there is no specific timing requirement, but under taxpayers' argument,

[00:15:42] Speaker 00:
the IRS would only be able to seek third-party documents when the church says it can.

[00:15:47] Speaker 00:
Taxpayer just said that only after the church has provided documents, then may the IRS go seek third-party documents.

[00:15:53] Speaker 00:
There is nothing in 7611 that says that.

[00:15:56] Speaker 00:
There is nothing in 7609 that says that.

[00:15:58] Speaker 04:
So do you agree that bank records in the possession of the taxpayer are church records?

[00:16:05] Speaker 00:
Bank records in the possession of a taxpayer?

[00:16:07] Speaker 04:
Well, of the church.

[00:16:09] Speaker 04:
are church records.

[00:16:10] Speaker 00:
So the definition of church records, and this is in 7611H, is any documents that are in the possession of a church

[00:16:24] Speaker 00:
Right?

[00:16:24] Speaker 00:
Is that right?

[00:16:24] Speaker 00:
Yes.

[00:16:25] Speaker 00:
The term church records means all corporate and financial records regularly kept by a church, including corporate minute books.

[00:16:31] Speaker 00:
So yes, they would have to be in the possession of the church to be church records.

[00:16:35] Speaker 00:
Okay.

[00:16:36] Speaker 04:
So I guess your position is that you can have the same document in the possession of two people and you don't have to comply with 7611 as long as the church record is in the possession of a third party.

[00:16:54] Speaker 00:
And we know that because there's a specific carve out right under that definition of church record for documents to which 76097s would apply.

[00:17:05] Speaker 00:
And because this is a third party document, yes.

[00:17:08] Speaker 04:
So what about this?

[00:17:09] Speaker 04:
What about the church, say the church has financial statements and they provide those financial statements to their CPA.

[00:17:19] Speaker 04:
Can you use 7609 to go after the financial statements from the CPA without first asking the church to provide it?

[00:17:28] Speaker 00:
Under 7611H, we may, yes.

[00:17:30] Speaker 00:
Okay.

[00:17:31] Speaker 04:
So it does seem, doesn't it, that in some ways your position makes 7611 seem a little bit illusory.

[00:17:40] Speaker 00:
No, Your Honor, for the very specific reason that Judge Moritz already brought up, 7611 specifically gives churches a protection even when the IRS seeks documents from third parties.

[00:17:51] Speaker 00:
7611D specifically says that a Treasury official

[00:17:56] Speaker 00:
must determine substantial compliance with 7611 before the IRS can revoke church status.

[00:18:02] Speaker 00:
Similarly, the regulations say the IRS cannot rely only on third-party documents in revoking church status.

[00:18:10] Speaker 04:
Yeah, but there are two protections in the act.

[00:18:14] Speaker 04:
One of them is the protection of having a high-level official sign off.

[00:18:19] Speaker 04:
The other one is not running them through

[00:18:25] Speaker 04:
certain procedures and meetings and document requests and things like that, before they have an opportunity to move for a stay or something like that, right?

[00:18:37] Speaker 00:
Yes, Your Honor, but the issue in this case is a document request to a bank for which the church is not required to go sift through multiple volumes.

[00:18:45] Speaker 04:
No, I understand that, but I think what you're not acknowledging is that there is an indication of an end run here.

[00:18:54] Speaker 04:
When you could get the documents from the church, but if I were you, I would look at the church and I would say, they're going to object.

[00:19:03] Speaker 04:
So I'm just going to not even do it.

[00:19:06] Speaker 04:
And I'm not saying you didn't ask them, but you said you didn't have to.

[00:19:10] Speaker 04:
So I would just skip it all together and go ask the bank.

[00:19:14] Speaker 00:
But what the fact of this case shows is that the IRS does not do that.

[00:19:18] Speaker 00:
We wanted those documents from you.

[00:19:19] Speaker 00:
No, I know.

[00:19:19] Speaker 04:
But you're not here talking about dealing, course of dealing, and things like that.

[00:19:24] Speaker 04:
You're talking about what the text of the statute says.

[00:19:27] Speaker 00:
The text of the statute says, when the IRS is dealing with a third party, it does not need to follow these heightened procedures in 7611.

[00:19:35] Speaker 00:
And as Judge Moritz pointed out, in fact, the church is precluded from raising any arguments relating to 7611

[00:19:43] Speaker 00:
in a petition to quash proceeding, which was the proceeding below.

[00:19:47] Speaker 00:
The only remedy that 7611E allows is an objection in the government's proceeding to enforce the summons against the church.

[00:19:57] Speaker 00:
The district court in Southern faith ministries went through this in a really good way, we think, because it outlined the options that a church has when a third party is being summoned instead of it.

[00:20:09] Speaker 00:
The church has to wait until its documents are being summons, has to wait for the IRS to then try to enforce that summons.

[00:20:16] Speaker 00:
It may then raise that objection.

[00:20:18] Speaker 00:
But that does not leave the church without any further remedies.

[00:20:21] Speaker 00:
The church still has the option to file a declaratory judgment action under IRC 7428.

[00:20:29] Speaker 00:
I understand that the church wants this court to believe that it does not have that remedy on page 20 to 21.

[00:20:35] Speaker 00:
It makes it seem as if its hands are tied.

[00:20:38] Speaker 00:
But no, section 7428 of the code specifically allows it to challenge any sort of revocation of its church status.

[00:20:46] Speaker 00:
The only thing it cannot do in that proceeding is raise these administrative procedures in 7611.

[00:20:51] Speaker 00:
Procedures, again, which were designed because this is the government interfacing with the church entanglement concerns.

[00:20:59] Speaker 00:
That same concern does not exist with a third party bank.

[00:21:02] Speaker 03:
Carl Bank could have objected, couldn't they?

[00:21:06] Speaker 00:
Yes, they may have, yes.

[00:21:07] Speaker 03:
And in that case, you would have to invoke 7609.

[00:21:10] Speaker 03:
That's right, Your Honor.

[00:21:12] Speaker 03:
And they did not do so.

[00:21:14] Speaker 00:
They did not.

[00:21:15] Speaker 03:
And as we understand... Let me just give you a hypothetical.

[00:21:20] Speaker 03:
What if the bank that was summoned puts their documents in two stacks?

[00:21:29] Speaker 03:
These are the bank documents that we produced, and this other stack, B,

[00:21:35] Speaker 03:
are the documents that we receive from the church upon which we base some of our bank documents, including documents from their CPA.

[00:21:49] Speaker 03:
And they say, OK, we object not on stack A, but on stack B, because those are church documents.

[00:21:57] Speaker 03:
What happens?

[00:21:58] Speaker 00:
We would seek to enforce summons as to both stacks, Your Honor, because under the definition

[00:22:03] Speaker 00:
of church records in 7611, church records are documents that are regularly kept by the church in the possession of the church.

[00:22:14] Speaker 03:
Right, but the summons is for bank documents.

[00:22:17] Speaker 00:
And these are bank documents, presumably.

[00:22:20] Speaker 03:
So stack B, even though generated by the CPA of the church, if they are possessed

[00:22:29] Speaker 03:
by the bank, you say they are bank documents, not church documents.

[00:22:34] Speaker 00:
Yes, because at that point, the bank would have those documents for a reason.

[00:22:37] Speaker 00:
The bank is not just the church's keeper, if you will, Your Honor.

[00:22:41] Speaker 00:
They are the keeper of these documents because they're doing some sort of analysis, some sort of analytical work for the bank.

[00:22:47] Speaker 00:
It's not that the bank would just have documents unrelated to its financial purposes that it serves the church.

[00:22:55] Speaker 00:
There was one other concern that taxpayer brought up that I'd like to address.

[00:23:01] Speaker 00:
We did talk about the limitation of remedies here, 7611.

[00:23:05] Speaker 00:
7611's structure is to provide specific remedies and specific safeguards for the church.

[00:23:14] Speaker 00:
But anything related to 7609 is outside of that realm.

[00:23:18] Speaker 00:
Every court that has looked at this issue has said it as much.

[00:23:21] Speaker 00:
Hobbs, Bible study, and the other court in this case in Colorado.

[00:23:27] Speaker 02:
But Council, what's the minimum that the government would have to do for the taxpayer before it could go, before it could serve the third party summons on the bank?

[00:23:48] Speaker 02:
At what point, I guess I'm saying, can it do that?

[00:23:52] Speaker 02:
I mean, you say that here it voluntarily interfaced with the diarist, voluntarily interfaced with the church, but I'm just wondering what's the minimal amount it could do if it wanted to go straight to the third party, bypass any interface opportunity with the taxpayer, in this case the church?

[00:24:18] Speaker 00:
Thank you, Your Honor.

[00:24:18] Speaker 00:
And I'm sorry if I made it sound like we voluntarily did things when we were dealing with the church.

[00:24:23] Speaker 00:
Whenever the IRS deals with the church, it must follow 7611.

[00:24:27] Speaker 00:
The IRS concedes as much.

[00:24:29] Speaker 00:
What I was saying was when we are dealing with a third party, there is no application of 7611.

[00:24:35] Speaker 00:
The only application we look at is 7609 and the Powell analysis.

[00:24:40] Speaker 03:
So you are not obligated to talk to the church before you do

[00:24:44] Speaker 03:
the summons on the bank at all.

[00:24:47] Speaker 00:
The reason 7609 summons came up here is because we obtained information from the church.

[00:24:53] Speaker 00:
We needed further information from the church.

[00:24:55] Speaker 00:
We didn't get that information.

[00:24:56] Speaker 00:
But if we were just going to do a third party summons outside of a church tax inquiry, that's right.

[00:25:01] Speaker 00:
Only 7609 would apply here.

[00:25:04] Speaker 04:
Now, I think you're changing the question.

[00:25:06] Speaker 04:
Sure.

[00:25:06] Speaker 04:
So the question was, we're in an examination and inquiry.

[00:25:10] Speaker 04:
You have not yet talked to the taxpayer or the church.

[00:25:13] Speaker 04:
Can you, without talking to them, without asking them first, ask the bank, issue a 7609 subpoena to the bank?

[00:25:21] Speaker 04:
I think your earlier answer to me was yes.

[00:25:25] Speaker 00:
As soon as we deal with the church, 7611 is triggered.

[00:25:29] Speaker 00:
the procedural safeguards in 7611A regarding notice and the sign off by the high level treasury official, which I understand my time is up, but that was really the crux of this appeal.

[00:25:39] Speaker 04:
You have three minutes.

[00:25:40] Speaker 00:
Oh, sorry, okay.

[00:25:41] Speaker 00:
I saw a yellow light and I got confused.

[00:25:44] Speaker 00:
The high level treasury official sign off, all of those 7611, those get triggered.

[00:25:48] Speaker 00:
Whether or not we decide to issue a third party summons totally outside of 7611, there's nothing in 7611 that precludes us

[00:25:57] Speaker 00:
from doing it in any sort of order, from speaking with the church first, going to third party second, none of that, because third parties are all.

[00:26:06] Speaker 04:
That's a really long answer.

[00:26:08] Speaker 04:
Tell me if I'm right.

[00:26:09] Speaker 04:
Your answer is, you don't ever have to speak a word to the church before you can issue this third party summons.

[00:26:17] Speaker 04:
You don't have to ask them for any records before you issue the third party summons.

[00:26:23] Speaker 00:
Your Honor, my understanding, based on the language of 7611, is that yes, that's the case.

[00:26:28] Speaker 00:
That is the case.

[00:26:28] Speaker 00:
But every time we send a third party summons, we have to give notice to the church.

[00:26:32] Speaker 00:
That is baked into 7609.

[00:26:35] Speaker 00:
So that is why the church did get notice of this third party summons here and why they were able to intervene in the petition to quash proceedings.

[00:26:42] Speaker 04:
But your position is they can't raise 7611 as an objection.

[00:26:47] Speaker 00:
You're right, Your Honor.

[00:26:48] Speaker 00:
Yes.

[00:26:49] Speaker 03:
But they could in a decadent action, in a declaratory judgment.

[00:26:52] Speaker 00:
No, Your Honor.

[00:26:53] Speaker 00:
They may only raise 7611 administrative issues in a proceeding to enforce the summons on it.

[00:27:06] Speaker 00:
If there are no further questions.

[00:27:08] Speaker 02:
What would be the subject of the declaratory judging action?

[00:27:11] Speaker 02:
And that would come later, is what you're saying, after the IRS has taken some action or made some kind of resolution

[00:27:19] Speaker 02:
Whatever the issues are.

[00:27:21] Speaker 00:
Yes, your honor.

[00:27:22] Speaker 02:
An assessment or whatever.

[00:27:24] Speaker 00:
Right, an assessment or the removal of its tax exempt status.

[00:27:31] Speaker 04:
So let me just ask you a question about 7609.

[00:27:35] Speaker 04:
The service can't, you can't say that Judge Murphy, let's use Judge Murphy and not me, irritated you today and go back.

[00:27:46] Speaker 04:
In issue a 7609 subpoena for his bank records, can you?

[00:27:50] Speaker 00:
Say that again, Your Honor.

[00:27:51] Speaker 04:
You have to have some kind of proceeding going before you can issue a 7609 subpoena.

[00:27:57] Speaker 00:
No, Your Honor.

[00:27:59] Speaker 04:
You can just, without any cause, ask for taxpayers' records?

[00:28:04] Speaker 00:
That is the broad authority that Congress has given the IRS.

[00:28:08] Speaker 00:
This is the way we can independently verify

[00:28:10] Speaker 00:
that taxpayers, either reporting or not reporting their tax information, are doing so and are paying the taxes that they are required to pay.

[00:28:20] Speaker 00:
Yes, Congress has granted the IRS broad summons authority.

[00:28:24] Speaker 00:
The Supreme Court in Powell said that broad investigative authority is why we do not want to trample on the IRS's ability to obtain information.

[00:28:32] Speaker 03:
Are there internal regulations though that require at least some level of an audit to

[00:28:41] Speaker 03:
initiated in order to do this of 7609 summons?

[00:28:47] Speaker 00:
Not that I'm aware of, Your Honor.

[00:28:49] Speaker 00:
I could get back to you on that if you'd like, but my understanding is 7609 often triggers the IRS's audits that follow.

[00:28:56] Speaker 00:
This is our option to obtain independent verification information.

[00:29:01] Speaker 00:
I know, but there has to be something.

[00:29:03] Speaker 03:
There has to be a suspicion, something to just generate a 7609 summons.

[00:29:12] Speaker 00:
Your honor, this is what Powell specifically said in that regard.

[00:29:16] Speaker 00:
The Supreme Court in Powell made clear that when the IRS is investigating, it is not held to the same standards as when it is prosecuting.

[00:29:25] Speaker 00:
The power to summons, the court rejected a stringent interpretation of the IRS's power to summons.

[00:29:32] Speaker 00:
It would hamper the commissioner's authority to carry out investigations he thinks are warranted.

[00:29:38] Speaker 00:
And it did not require a heightened

[00:29:41] Speaker 00:
requirement of what may or may not have happened with that taxpayer, any sort of, sorry, the word is escaping me, but when we prosecute, we need to have some sort of reasonable belief that some wrongdoing is done.

[00:29:54] Speaker 00:
When we investigate, which is what 7609 allows us to do, we do not have to have that same belief.

[00:30:02] Speaker 03:
So if just out of the blue, a 7609 summons was issued to a bank

[00:30:14] Speaker 03:
no indication of why the IRS was doing it.

[00:30:19] Speaker 03:
You were saying that objection be overruled and the summons would be enforced?

[00:30:24] Speaker 00:
No, Your Honor, because 7609 has its own levels of protection, and the Supreme Court's analysis in Powell requires four factors that the IRS must meet before that summons will be enforced, including that there was a valid purpose for that investigation.

[00:30:40] Speaker 03:
That's what I was getting at earlier.

[00:30:42] Speaker 00:
Yes, sorry.

[00:30:42] Speaker 00:
It's not in the regulations.

[00:30:43] Speaker 00:
It comes out of the case law.

[00:30:45] Speaker 00:
And this court routinely, standing akimbo, it did this in standing akimbo, it goes through those four factors.

[00:30:51] Speaker 00:
Yes, the IRS must have some reasonable basis for its summits.

[00:30:55] Speaker 00:
Going about seeking information without some basis.

[00:30:58] Speaker 00:
Yes.

[00:30:58] Speaker 04:
OK.

[00:30:59] Speaker 04:
Yeah.

[00:30:59] Speaker 04:
I think you misunderstood my question earlier, because that's what I understood your answer to be, was that you can just issue one for no reason at all.

[00:31:07] Speaker 00:
No, Your Honor.

[00:31:08] Speaker 00:
I think I got thrown off by you.

[00:31:08] Speaker 04:
Even if it was just Judge Murphy irritating.

[00:31:10] Speaker 00:
Yes.

[00:31:10] Speaker 00:
That's what threw me off.

[00:31:11] Speaker 00:
Yes.

[00:31:12] Speaker 00:
No, I'm not irritated.

[00:31:13] Speaker 00:
Because he doesn't irritate people.

[00:31:15] Speaker ?:
Yeah.

[00:31:15] Speaker ?:
OK.

[00:31:16] Speaker 00:
All right.

[00:31:16] Speaker 00:
Thank you, counsel.

[00:31:17] Speaker 04:
Thank you, Your Honor.

[00:31:17] Speaker 00:
If there are no further questions, we ask that you affirm.

[00:31:20] Speaker 04:
Judge Moritz, do you have any questions?

[00:31:23] Speaker 04:
No.

[00:31:23] Speaker 04:
OK.

[00:31:24] Speaker 04:
Thank you, counsel.

[00:31:24] Speaker 04:
Thank you.

[00:31:26] Speaker 04:
OK, let's give him an extra minute and a half.

[00:31:30] Speaker 01:
Thank you, Your Honor.

[00:31:31] Speaker 01:
I think these questions at the very end of the government's testimony are very important, because you heard the government say that 7611, they conceded that it would apply if they had summoned the church, sent a summons to the church, moved to enforce against that summons.

[00:31:48] Speaker 01:
Then we could be here to litigate what we actually want to litigate, the appropriate high-level official.

[00:31:53] Speaker 04:
What do you think about the idea that if they

[00:31:56] Speaker 04:
put a lot of pressure on you for documents, that that's irritating you, taking you away from your faith-based mission.

[00:32:06] Speaker 04:
And so therefore, it would trigger these protections.

[00:32:11] Speaker 04:
But when they're asking a third party for the documents, it really puts no burden on you.

[00:32:18] Speaker 01:
Yes, that it really doesn't.

[00:32:22] Speaker 01:
part and parcel with an examination in this case in an inquiry.

[00:32:25] Speaker 01:
They are looking at specific things, but then they aren't going to us and having, basically, this is Lucy and the football with CAPA.

[00:32:35] Speaker 01:
They aren't moving to enforce in this case.

[00:32:37] Speaker 01:
They say, we use 7609.

[00:32:39] Speaker 01:
They have protections.

[00:32:40] Speaker 01:
Okay, well, we move to Quash.

[00:32:42] Speaker 01:
But they don't move to enforce, so they say 7611E applies.

[00:32:46] Speaker 01:
So you don't have a remedy here.

[00:32:48] Speaker 01:
It's Lucy and the football,

[00:32:50] Speaker 01:
because of the way the courts have mapped out how to use 7611 so that you don't have to use any of it.

[00:32:59] Speaker 01:
Like your hypothetical, if you have a bad actor at the IRS, given the way they interpret 7609, 7611, and Powell, you could have a bad actor basically conduct an entire examination through third-party summances and never have to get any kind of approval, go to the very end, and they say, wait, the protection is we can't assess anything.

[00:33:18] Speaker 03:
Are you telling me the four conditions of Powell

[00:33:21] Speaker 03:
provide no protection whatsoever.

[00:33:24] Speaker 01:
I would say Powell is a floor, and 7611 heightens that floor.

[00:33:29] Speaker 03:
But at least there's a floor.

[00:33:30] Speaker 03:
There's some conditions.

[00:33:31] Speaker 03:
They just can't willy-nilly come out and issue a 7609 summons.

[00:33:35] Speaker 01:
And we've said under Powell that it's improper to issue a third-party summons to circumvent the Church Audit Procedure Act, which is what we believe here.

[00:33:46] Speaker 01:
And we believe that the administrative procedures necessary.

[00:33:49] Speaker 03:
Well, it's not really circumventing when

[00:33:53] Speaker 03:
In plain language, the statutes allow them to do that.

[00:34:00] Speaker 01:
You look at it holistically.

[00:34:02] Speaker 01:
I think the problem with living word creating this third party summons issue and Hobbes that really didn't analyze it, it goes to the definition of church records and the exclusion of 7609.

[00:34:15] Speaker 01:
But there's a whole other category of examinations that have to do with religious activity that no court has ever opined on.

[00:34:22] Speaker 01:
What does that mean?

[00:34:22] Speaker 01:
We believe this is an examination into religious activity.

[00:34:26] Speaker 01:
And so this exclusion for 7609 in the definition of church records has nothing to do with it.

[00:34:32] Speaker 03:
But you would agree, wouldn't you, that none of the documents in the possession of the bank probe the religious activities themselves.

[00:34:43] Speaker 03:
They just probe financial matters that the bank has.

[00:34:47] Speaker 01:
Well, I'm out of time, Your Honor, but if I can answer.

[00:34:50] Speaker 03:
Go ahead and answer.

[00:34:51] Speaker 01:
The affidavit, the reason that these are being sought all have to do with some determination.

[00:34:57] Speaker 03:
They're not going to get any religious documents.

[00:34:59] Speaker 03:
They're not going to probe whether it was proper to operate a coffee shop as the way that the church did.

[00:35:10] Speaker 03:
Yeah, not from the bank.

[00:35:12] Speaker 03:
All right.

[00:35:13] Speaker 03:
Isn't that what you should be worried about in 76-11, but not in 76-09?

[00:35:21] Speaker 03:
Because nothing about church activities beyond the financial ones are going to be disclosed.

[00:35:28] Speaker 01:
Under 76-09 because it's to a third party?

[00:35:31] Speaker 01:
I think our problem here is that 76-11

[00:35:34] Speaker 01:
You could do everything you needed to under 7611 through 7609, and that's what the Bible study time folks said, this is going to be a problem.

[00:35:44] Speaker 01:
The revenue service is going to start doing this.

[00:35:47] Speaker 01:
And five years later, we believe it's happening.

[00:35:49] Speaker 04:
Thank you, counsel.

[00:35:51] Speaker 04:
All right, the case will be submitted, and counsel are excused.