Having determined that Santoso has demonstrated not only that she does not possess the summoned documents but also that she has taken reasonable steps to obtain them if they are within her control, I find that Santoso has established the affirmative defense of non-possession and her Motion to Dismiss the Petition and Quash the Summons is granted with the exception of the Sampoerna documents. Santoso must produce any records she obtains related to her Sampoerna shares by September 27, 2019, or file a status report that explains why she is unable to produce any further documents regarding the shares, and the steps taken in an attempt to produce further documents.Please review to Les Book's discussion in the Procedurally Taxing Blog.
In United States v. Santoso, 2018 U.S. Dist. LEXIS 136889 (D. Md. 2018), here, the IRS issued one or more summonses to a taxpayer who, it seems, received large sums of money from overseas, "allegedly as 'gifts,' from members of her famously wealthy family in Indonesia." Presumably, pursuant to summonses, "she has given sworn testimony to the IRS on three occasions for more than twenty hours and provided over a thousand documents." But, the court reviewed the transcripts and concluded "that much of it is of little value because it is made up of speaking objections made by Santoso's lawyers, sparring between them and counsel for the IRS and the revenue agent, and assertions of the fifth amendment by Santoso." So, over Santoso's objection that she did not have or control documents within the description in the summons, the IRS moved to enforce the summons.
In order to enforce the summons, the Government's initial burden is to meet the Powell requirements, well known to readers of this blog. Those requirements are (i) a legitimate purpose, (ii) relevance to the IRS inquiry, (iii) information not already possessed by the IRS and (iv) compliance with the administrative steps. The Government met that burden.
But, a witness cannot produce documents she does not possess or control. So, after the Government meets the Powell requirements, the witness then must credibly show lack of ability to comply because of lack of possession or control. The Court held that a hearing must be held as to whether Santos "made more than "a pro forma" effort to obtain records that she does not actually possess, or made more than a cursory search for them."
The Court then notes the dearth of authority on precisely what Santos must do to meet her burden. The Government asserted (fn. 5) that her diligent efforts "should include (without limitation):
(1) Contacting the foreign financial institutions from which she received millions of dollars in wire transfers to determine whether she possessed a relevant legal interest in the originating or other bank accounts. See Resp.' Mot. Quash, ECF No. 19 at *5 (admitting that "the wire transfers originated from entities located in Singapore, Indonesia, or Hong Kong");The Court said, however, "it is far from clear to me that there is authority that she must do that much."
(2) Ascertaining whether she received and retained an interest in any assets of her mother's estate and, as a consequence, retains possession and control of related records. See Mot. to Quash, ECF No. 19-1 at *6 (December 6, 2017 letter from Respondent's counsel stating that Respondent's sister "was left with the responsibility of administering and managing [Respondent's mother's] estate after her death.");
(3) Taking additional steps to determine whether she owns stock in a foreign company, such as Sampoerna Tobacco, after Respondent's family conspicuously avoided answering Respondent's initial inquiry regarding such ownership. Compare Resp.' Mot. Quash, Ex. 1B, ECF No. 19-1 at *8 (December 6, 2017 letter from Respondent's counsel to counsel for Respondent's family, asking six numbered questions, including whether family was "aware of the existence of any records that show that Sharon Santoso owns foreign stock (e.g. Wismilak or Samporena)?" with id. at *10 (January 2, 2018 response from Blank Rome attorneys answering only five of Respondent's numbered questions, and failing to address or acknowledge the question concerning stock ownership); and
(4) Taking all other reasonable steps to (A) identify potential sources of summonsed records; (B) obtain information from those sources (including, if necessary, pursuing rights under local law); and (C) use newly discovered information, if any, to identify additional sources of summonsed records.
Pet.'s Resp. to Resp't's Request to Stay 2. The IRS also requested that Ms. Santoso provide an update on the steps she has taken to obtain the documents in question. Because it is uncertain what is required, I have ordered the parties to brief whether or not Ms. Santoso must update the IRS on the steps she has taken before the upcoming hearing.
The Court then said that, during the evidentiary hearing it is setting (I bold-face particular language that readers might want to consider):
Santoso will bear the burden of proving that she does not have possession or control of the documents the IRS wants, and that her search for them, and attempts to obtain them from third parties over whom she exercises the ability to exert control, was reasonable. Further, unlike what she did when she was examined under oath by the IRS, Santoso will not be able to assert her Fifth Amendment right against self-incrimination when she testifies during the hearing without jeopardizing her ability to prove her affirmative defense. See Huckaby, 776 F.2d at 567-68 (citing Rylander, 460 U.S. at 752); Rylander, 460 U.S. at 757-58 (1983) ("Since he declined to be cross-examined with respect to his assertions of nonpossession, the District Court was entirely justified in concluding, as it did, that Rylander 'failed to introduce any evidence at the contempt trial.' This was a time for testimony, and Rylander's ex parte affidavit and uncross-examined testimony were properly disregarded by the District Court.") (internal citations omitted); United States v. Ali, 874 F.3d 825, 830 (4th Cir. 2017) (holding that raising a Fifth Amendment privilege at the enforcement or contempt stage "does not alter [the] outcome"; "Allowing Ali to invoke the Fifth Amendment to satisfy her burden of production at the contempt stage—even if she previously asserted that right at the enforcement stage—would still do exactly what Rylander said not to do: 'convert the privilege from the shield against compulsory self-incrimination which it was intended to be into a sword whereby a claimant asserting the privilege would be freed from adducing proof in support of a burden which would otherwise have been his.'") (citing Rylander, 460 U.S. at 758; Huckaby, 776 F.2d at 568-69 (holding that testifying on direct but refusing to testify on cross-examination was insufficient to prove his non-possession affirmative defense).Finally, the court offers guidance:
The transcripts of Santoso's examination under oath by the IRS demonstrate entirely too much bickering between counsel, speaking objections that inevitably coached Santoso before she answered,6 and argument. None of that will be permitted during the hearing. The examination of all witnesses at the hearing will be in strict compliance with Federal Rule of Evidence 611(c), and leading questions will not be permitted [*13] except to the extent allowed by that rule. Further, no speaking objections will be tolerated. Objections will be brief, and will not contain any information that may serve to coach the witness. While I am confident that counsel are quite experienced, and know the difference between proper and improper objections, they might be wise to read Discovery Guideline 6.b of this Court's Local Rules, which I will use as the proper benchmark during the hearing.Additional documents (briefing after the Court's informal opinion):
Addendum 12/20/19
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