United States of America, and Lori Nicholls, Internal Revenue Agent v. C.E. Hobbs Foundation for Religious Training and Education, Inc.

The Internal Revenue Service (IRS) appeals from the district court’s denial of the IRS’ motion to enforce two summonses, one against C.E. Hobbs Foundation for Religious Training and Education, Inc. (Foundation) and the other against the Washington Trust Bank (Bank) as third party record keeper of the Foundation’s financial records. The district court refused to enforce either summons because it found that the IRS had failed to show that the requested documents were necessary to determine whether the Foundation was liable for any taxes or to determine whether the Foundation actually was a church. See 26 U.S.C. § 7611 (b)(1). We find that the district court clearly erred in determining that the IRS failed to make the required showing of necessity. In addition, the district court erred in applying section 7611(b)(1) to the Bank summons. Therefore, we reverse the order denying enforcement of both summonses.

I. Background

Criminal investigations of the Foundation and subsequent newspaper reports prompted the IRS to believe that the Foundation was not tax-exempt because it was not being operated for religious purposes and because Foundation profits were inuring to private individuals.…