States of America v. Johnson

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UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF OHIO
WESTERN DIVISION
UNITED STATES OF AMERICA,
Petitioner, 	Case No. 1:24-mc-13
v.
Dlott, J.
TATE JOHNSON, 	Bowman, M.J.
Defendant.
ORDER
This case is currently before the court on the United States Petition to Enforce
IRS Summonses and the parties’ responsive memoranda. (Docs. 19, 20, 21, 22, 24,
25).
I. Background and Facts
The Internal Revenue Service is investigating whether Brook-Hollow Capital LLC
and Brook-Hollow Financial LLC (collectively “Brook-Hollow”) may be liable for civil
penalties pursuant to 26 U.S.C. § 6700 for organizing or promoting abusive tax shelters.
(Second Declaration of Revenue Agent Elizabeth Walker (Doc. 24,. Ex. 1, “Second
Walker Decl.”) ¶ 2). 	Based on the investigation to date, the IRS understands that
Brook-Hollow offers deferred legal fee programs that purport to defer the receipt of a
law firm’s fees, payable out of a settlement amount negotiated by the law firm on behalf
of its client.
On August 4, 2023, the IRS first issued Information Document Requests (IDRs)
to Brook-Hollow as part of its investigation. These IDRs requested the production of
specific categories of documents on October 15, 2023, and December 29, 2023. (Id. ¶
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4). On October 16, 2023, Brook-Hollow Capital LLC produced 114 pages of documents
and 	Brook-Hollow 	Financial 	LLC 	produced 	1,173 	pages 	of 	documents, 	primarily
financial documents, sample or template forms, and generic marketing materials. (Id. ¶
5. See also Doc.12 at 11).
However, according to the IRS, none of the documents pertained to any specific
transactions involving or identifying Brook-Hollow’s clients. As such, on March 27, 2024,
the IRS issued the summonses that are the subject of this action. (Id. ¶¶ 5-6.). 	The
summonses sought documents and records relating to Brook-Hollow’s deferred fee
programs, including documents concerning particular transactions and clients. The
summonses required production on April 19, 2024. Brook-Hollow did not respond to the
summonses.
Thereafter, the United States filed this summons enforcement action on October
4, 2024. (Doc. 1.) The Court held a hearing on January 24, 2025, and directed the
parties to confer in an effort to narrow the summonses and resolve or at least focus their
disputes. (Doc. 15).
Following the hearing, counsel discussed potential limitations to the summonses.
The United States thereafter filed a “Notice of Narrowed Summonses,” setting forth the
limitations it was willing to accept. Respondent proposed additional limitations and
requested that the Court either decline to enforce the summonses altogether or, in the
alternative, 	enforce 	them 	only 	as 	further 	narrowed, 	with 	a 	reasonable 	production
schedule and certain findings regarding the interpretation of particular requests.
On February 20, 2025, Petitioner provided to Respondent a proposed Notice of
Narrowed 	Summonses 	along 	with 	a 	proposed 	stipulation 	clarifying 	the 	parties'
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agreement. (Doc. 21 at 1). Petitioner's position is that these documents constituted a
reasonable reflection of agreements reached verbally at the parties' conference on
January 24, 2025. Id. at 1-2
On March 26, 2025, Respondent proposed to Petitioner a revised Notice of
Narrowed Summonses along with a revised stipulation (including a statement of facts to
correct what Respondent believes are inconsistencies in the pleadings) and a proposed
Order for this Court to implement the parties' agreement. Id. at 2. 	Respondent's
position 	is 	that 	these 	documents 	constituted 	a 	more 	complete 	reflection 	of 	the
agreements reached verbally at the parties' conference on January 24, 2025, and a
more readily-enforceable conclusion to these proceedings. Id.
On 	April 	4, 	2025, 	Petitioner's 	counsel 	informed 	Respondent's 	counsel 	that
Petitioner 	intends 	to 	file 	a 	"modified 	summons" 	on 	April 	7, 	2025, 	arguing 	that
Respondent's proposed modifications went beyond the parties' agreement at the
summons-enforcement 	hearing 	and 	appeared 	to 	be 	an 	attempt 	to 	re-write 	the
summonses for Respondent's benefit. Id. at 2.
Thereafter, Petitioner filed a Notice of Narrowed Summonses on ECF on April 7,
2025. (Doc. 19).
II. Analysis
A. Applicable Law
The IRS is authorized to issue summonses under 26 U.S.C. § 7602 to determine
the correctness of any return, to make a return where none has been made, to
determine tax liability, or to collect such liability. Summonses are not self-enforcing; the
government must seek judicial enforcement under 26 U.S.C. §§ 7402(b) and 7604(a).
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To compel a person or entity to comply with a summons, the government must seek
enforcement in federal district court.
To obtain an order enforcing a summons, the government must make a prima
facie 	case 	showing 	that 	it 	is 	valid. 	To 	satisfy 	its 	burden, 	the 	government 	must
demonstrate that: (1) the summons was issued for a legitimate purpose, (2) the
summons seeks information that may be relevant to that purpose, (3) that the summons
seeks information not already within the IRS's possession, and (4) that all administrative
steps required by the Internal Revenue Code have been satisfied. United States v.
Powell, 379 U.S. 48, 57-58 (1964).
The 	government 	bears 	the 	initial 	burden 	of 	proving 	that 	the 	four 	Powell
requirements have been satisfied. United States v. Texas Heart Inst., 755 F.2d 469, 474
(5th Cir. 1985). Once the government makes the required Powell showing, the burden
then shifts to the party resisting the summonses. Powell, 379 U.S. at 58 (quoting
Reisman v. Caplin, 375 U.S. 440, 449 (1964)). In a summons enforcement proceeding,
the recipient may challenge the IRS's petition on any appropriate ground, including any
one of the Powell factors. U.S. v. Clarke, 573 U.S. 248, 250 (2014) (quotation omitted);
see also, United States v. Freedom Church, 613 F.2d 316, 319 (1st Cir. 1979).
The government’s burden is “slight” and may be satisfied by a sworn declaration
of the investigating agent. Once the government makes this prima facie showing, the
burden shifts to the respondent to demonstrate that enforcement would be improper—
for example, because one of the Powell factors has not been met, because the
summons is overbroad or unduly burdensome, or because it was issued in bad faith.
The respondent must do more than make conclusory allegations; he must “disprove the
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actual existence of a valid civil tax determination or collection purpose.” Powell, 379
U.S. at 58; see also United States v. Clarke, 573 U.S. 248, 254–55 (2014).
The Court’s role is limited. It does not adjudicate the taxpayer’s underlying
liability or the correctness of the IRS’s theories. Rather, the Court asks only whether the
government has met the Powell standard and, if so, whether the respondent has carried
his heavy burden to show that enforcement would be an abuse of the Court’s process.
B. The Government’s Prima Facie Showing 1
As noted above United States provides the Second Declaration of Revenue
Agent Elizabeth Walker and the two attached summonses in support of the Petition to
Enforce. (Doc. 24, Ex. 1, Walker Decl). 	Upon close inspection, the undersigned finds
that through Agent Walker’s declarations and the petition, the United States has
satisfied its initial burden under Powell.
1. 	Legitimate 	purpose. 	The 	record 	reflects 	that 	the 	IRS 	is 	conducting 	an
investigation into Brook-Hollow’s deferred legal fee programs to determine whether
Brook-Hollow is subject to penalties under § 6700. That is a civil tax-determination
purpose explicitly authorized by § 7602.
1 Respondent argues that Petitioner has not established that the Court has jurisdiction to hear this matter
as the pleadings, as a whole, do not make clear that enforcement is sought against Brook Hollow Capital
and Brook Hollow Financial—the parties to whom the summonses were addressed. See Parker v.
Graves, 479 F.2d 335, 336 (5th Cir. 1973). However, Respondent contends that Petitioner's pleadings
largely indicate that enforcement is sought against Tate Johnson personally. Petitioner notes that the
“caption of a complaint is not part of the statement of claims against any alleged defendants, but is chiefly
for a court’s administrative convenience for identifying the case.” Church v. City of Cleveland, 2010 WL
4883433, at *3 (N.D. Ohio Oct. 26, 2010), report and recommendation adopted, 2010 WL 4901739 (N.D.
Ohio Nov. 23, 2010). The “determination of whether a defendant is properly in the case depends upon the
allegations in the body of the complaint.” Eberhard v. Old Republic Nat'l Title Ins., 2013 WL 12293449, at
*5 (N.D. Ohio Sept. 13, 2013) (collecting cases). Here, the summonses themselves identify to whom the
summonses are issued and what documents are sought. The Petition, and the accompanying declaration
(and the second declaration of Revenue Agent Walker) establish that the IRS properly issued these
summonses to Johnson, as president and partnership representative of Brook-Hollow, to obtain Brook-
Hollow’s records. As such, Respondent’s contention in this regard is not well-taken.
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2. Relevance. The summonses seek documents and records concerning Brook-
Hollow’s deferred fee structures, the law firms that have participated in those structures,
and the related financial arrangements. On their face, these categories are reasonably
calculated to shed light on how Brook-Hollow’s programs operate, how they are
marketed, and how income is treated for tax purposes. The relevance standard in the
summons context is broad: information is relevant if it “might throw light upon the
correctness” of the return or liability under investigation. Powell, 379 U.S. at 57. The
requested information easily meets that standard.
3. Not already in the IRS’s possession. Agent Walker avers that the IRS does not
possess the requested transactional and client-specific documents, and that the earlier
IDR production did not include such materials. 	Respondent, however, argues that the
IRS already possesses some or many of the materials sought, particularly through third-
party summons responses from Brook Hollow clients. 	As such, Respondent contends
that Petitioner does not satisfy Powell’s requirement that the summons seek information
not already in the Government’s possession.
Namely, Respondent is unaware of the full set of documents possessed by
Petitioner, however, Respondent contends that the IRS at least has some documents
possibly responsive to requests 4, 7, 9, 14, 15, and 16 in the narrowed summonses.
Respondent also asserts it produced 1,287 pages of documents in response to pre-
summons IDR, and as such Petitioner is in possession of responsive documents.
However, the IRS issued the summonses only after it believed that Brook-Hollow did not
fully comply with the IDRs.
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Furthermore, 	Petitioner 	asserts 	that 	the 	IRS 	is 	not 	in 	possession 	of 	the
documents it seeks, as explained in the second declaration of Revenue Agent Walker.
In light of the foregoing, the undesigned finds that this element of the Powell test is
satisfied.
4. Administrative steps. Agent Walker further attests that the IRS complied with
all 	administrative 	steps 	required 	by 	the 	Code, 	including 	proper 	service 	of 	the
summonses and provision of any required notices. (Doc. 24, Ex. 1, Second Walker
Decl. ¶¶ 1, 6, 9).
Accordingly, the undersigned finds that the United States has made its prima
facie showing under Powell.
C. Respondent’s Objections
Because 	the 	government 	has 	met 	its 	initial 	burden, 	the 	burden 	shifts 	to
Respondent to demonstrate that enforcement of the summonses would be improper.
Respondent asserts, inter alia, that the Notice of Narrowed Summons is deficient in the
following respects:
a. It proposes no timeline for responding to the summonses.
b. It does not reflect the parties' agreement that Respondent may satisfy certain
requests by preparing lists.
c. It does not fully reflect the parties' agreement that Respondent may satisfy
requests for books and records exclusively by producing Quick Books files.
d. The language of several requests remains sufficiently unclear that, even if the
summonses were enforced based on the Notice of Narrowed Summons, the parties will
likely require court intervention to clarify the meaning of the summonses.
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e. For certain requests, no responsive documents exist; therefore, enforcement
of such requests remains impossible. (See Doc. 21 at 3).
Notably, even as narrowed, Respondent further contends that certain requests
sweep too broadly, seek information that is not relevant to the § 6700 investigation, or
effectively require Brook-Hollow to reconstruct the IRS’s case for it. Upon careful
consideration, the undersigned finds the Narrowed Summons is enforceable as outlined
below.
1. Requests 1, 2, 3, 12
Respondent asserts that the Court should not enforce Requests 1, 2, 3 and 12
because they require Respondent "identify" certain parties. Respondent argues that
requiring it to create documents not in existence at the time the summonses were
issued, i.e., (an action to create a document that did not exist before), exceeds the IRS's
authority to "examine any books, papers, records, or other data" pursuant to 26 U.S.C.
§ 7602. United States v. Toyota Motor Corp., 569 F. Supp. 1158, 1161 (C.D. Cal. 1983)
("Court cannot compel the production of nonexistent documents") (citing United States
v. Asay, 614 F.2d 655 (9th Cir.1980)); see also Internal Revenue Manual 5.17.6.1.1 ("A
summons cannot require a witness to prepare or create documents…that do not
currently exist").
Petitioner, however, contends that the narrowed summons does not require
Respondent 	to 	create 	documents 	in 	order 	to 	identify 	certain 	parties. 	Rather, 	the
summonses ask Respondent to produce documents that identify certain individuals or
entities. 	Interestingly, Respondent noted that it offered to prepare lists for the IRS in
lieu of negative responses to these requests as part of its good faith effort to reach
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mutually agreeable solutions and avoid further court intervention. Petitioner purportedly
rejected the offer and instead unilaterally filed its Notice of Narrowed Summonses.
The 	undersigned 	finds 	that 	Respondent 	may 	respond 	to 	this 	request 	by
producing documents that identify certain individuals or entities or by creating a listing
identifying the same. 	If a list is created, counsel must provide a declaration attesting to
the accuracy of the list. 2
2. Requests 4, 7
Respondent further asserts that the Court should further decline to enforce
Requests 4 and 7. Request 4 states that it seeks "All contracts, agreements, and
engagement letters, involving the Promoter or any other entity/person, pertaining to a
Deferred Legal Fee program." Request 7 states that it seeks "All agreements and other
documents entered into by the Promoter, client, vendor, or other person, involved with
or related to a Deferred Legal Fee Program," including (but not limited to) a list of
example document types. Respondent asserts that these requests seem to both seek
largely the same set of documents: any and all agreements entered into by Brook
Hollow Capital or Brook Hollow Financial.
However, such requests targets solicitors and promoters, the exact category §
6700 is designed to regulate. 	To the extent that the responsive documents are
duplicative, Respondent shall so indicate.
3. Requests 19, 20
Respondent also asserts that the Court should decline to enforce Requests 19
and 20 because no responsive documents exist within the possession, custody, or
2 Respondent also notes that the only documents responsive to Request 16 in the Notice of Narrowed
Summonses are QuickBooks data files.
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control of Brook Hollow Financial or Book Hollow Capital. 	In summons enforcement
proceedings, rather than moving to compel production of these documents, the Internal
Revenue Service will typically bring a contempt proceeding against the summonsed
party. In such a proceeding, pursuant to United States v. Rylander, 460 U.S. 752
(1983), the summonsed party is only permitted to raise lack of possession as a defense
if he has raised that defense at the enforcement stage. Enforcing these requests at this
stage invites such a future contempt proceeding, which would result in the unnecessary
use of judicial resources. 	Instead, Respondent contends it can provide a declaration to
support the assertion that no such responsive documents exist.
Notably, 	the 	Supreme 	Court 	has 	made 	clear, 	a 	summons 	enforcement
proceeding is not the forum to contest the existence or nonexistence of responsive
records. United States v. Rylander, 460 U.S. 752, 757–58 (1983). The IRS is entitled to
test 	Respondents’ 	assertion, 	and 	bare 	statements 	of 	nonexistence 	do 	not 	defeat
enforcement. Id.
However, to the extent that responsive documents do not exist, Respondent may
comply through sworn declarations outlining their efforts in conducting a diligent search.
4. Interpretation of Requests and Fact-Finding
Respondent contends that many of the requests, even as narrowed, are so broad
and vague as to seek an indeterminable range of documents. Respondent contends
that 	it 	sought 	interpretations 	of 	what 	each 	summons 	requested 	from 	Petitioner,
however, Petitioner has failed to provide any feedback. 	As such, Respondent asks the
Court to provide “more defined meanings” of certain requests. (See Doc. 2, Ex.1,
Appendix 1). Along those same lines, Respondent also asks the Court to make findings
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of fact to eliminate any jurisdictional questions and clarify the vast ambiguities in the
record. (See Doc. 22 at 10-12). Respondent’s requests are not well-taken.
As noted by Petitioner, the summonses specify what documents they seek. They
define the relevant terms and limit the scope to documents related to the “Deferred
Legal Fee Program,” defined as “any service you provided or were engaged to provide,
relating to transactions and arrangements that purport to defer the receipt of a law firm’s
fees, payable out of the settlement amount negotiated by the law firm on behalf of its
client, as well as any prior or similar programs or strategies.” (See Doc. 24, Ex. 1 and 2
at B. 12.)
Respondent shall respond to the requests based on its own interpretation of what
the request is seeking as specified by the summons. Findings of fact by the Court are
unwarranted.
III. Conclusion
Accordingly, the undersigned finds that the Petition to Enforce the IRS Summons
is GRANTED as follows
1. 	The 	United 	States’ 	Notice 	of 	Narrowed 	Summonses 	(See 	Doc. 	19) 	are
ENFORCED as modified by this Order;
2. 	Respondent 	shall 	produce 	all 	non-privileged 	documents 	responsive 	to 	the
narrowed summonses within 90 days of the date of this order; and
3. 	To the extent Respondent withholds documents on the basis of attorney-client
privilege, work-product protection, or other recognized privilege, Respondent
shall provide to the United States a privilege log that identifies the withheld
documents and states the basis for the asserted privilege.
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IT IS SO ORDERED.
/s Stephanie K. Bowman
Stephanie K. Bowman
United States Chief Magistrate Judge
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