Source: http://supreme.nolo.com/us/379/48/case.html
Timestamp: 2019-04-26 14:08:05+00:00

Document:
1. Section 7604(b) does not apply to a non-contumacious refusal like the individual respondent's to comply with a summons; but recommencement of the proceeding will not be required, since the Government sought no prehearing sanctions of arrest and attachment under that statute, which is otherwise similar to §§ 7402(b) and 7604(a). The proceeding is therefore considered under those almost identical sections, which give general power to enforce summonses "by appropriate process." Pp. 379 U. S. 51-52.
2. In order to enforce a summons for records, the Commissioner, either before or after the limitations period has expired, need not show probable cause to suspect fraud. Unless the taxpayer raises a substantial question that judicial enforcement of the summons would abuse the court's process, the Commissioner must only show that the investigation is pursuant and relevant to a legitimate purpose; that the information is not already in the Commissioner's possession; that the Secretary or his delegate has determined that the further examination is necessary, and that the other administrative steps required by the Code have been followed. Pp. 379 U. S. 52-58.
In March, 1963, the Internal Revenue Service, pursuant to powers afforded the Commissioner by § 7602(2) of the Internal Revenue Code of 1954, summoned respondent Powell to appear before Special Agent Tiberino to give testimony and produce records relating to the 1958 and 1959 returns of the William Penn Laundry (the taxpayer), of which Powell was president. Powell appeared before the agent, but refused to produce the records. Because the taxpayer's returns had been once previously examined, and because the three-year statute of limitations barred assessment of additional deficiencies for those years [Footnote 1] except in cases of fraud (the asserted basis for this summons), [Footnote 2] Powell contended that, before he could be forced to produce the records, the Service had to indicate some grounds for its belief that a fraud had been committed. The agent declined to give any such indication, and the meeting terminated.
The Court of Appeals reversed, 325 F.2d 914. It reasoned that, since the returns in question could only be reopened for fraud, reexamination of the taxpayer's records must be barred by the prohibition of § 7605(b) of the Code [Footnote 4] against "unnecessary examination" unless the Service possessed information "which might cause a reasonable man to suspect that there has been fraud in the return for the otherwise closed year," [Footnote 5] and whether this standard has been met is to be decided "on the basis of the showing made in the normal course of an adversary proceeding. . . ." [Footnote 6] The court concluded that the affidavit in itself was not sufficient to satisfy its test of probable cause. [Footnote 7] Consequently, enforcement of the summons was withheld.
obtain judicial enforcement of its orders, [Footnote 8] we granted certiorari, 377 U.S. 929.
stated that § 7604(b) "was intended only to cover persons who were summoned and wholly made default or contumaciously refused to comply." 375 U.S. at 375 U. S. 448. There was no contumacious refusal in this case. Thus, the Government's conceded error in bringing its enforcement proceeding under § 7604(b), instead of § 7402(b) or § 7604(a), [Footnote 10] each of which grants courts the general power to enforce the Commissioner's summonses "by appropriate process," raises a threshold question whether we must dismiss this case and force the Government to recommence enforcement proceedings under the appropriate sections. Since the Government did not apply for the prehearing sanctions of attachment and arrest peculiar to § 7604(b), and since these constitute the major substantive differences between the sections, we think it would be holding too strictly to the forms of pleading to require the suit to be recommenced, and therefore treat the enforcement proceeding as having been brought under §§ 7402(b) and 7604(a).
that it met this need simply and fully by requiring such agents to clear any repetitive examination with a superior. For us to import a probable cause standard to be enforced by the courts would substantially overshoot the goal which the legislators sought to attain. There is no intimation in the legislative history that Congress intended the courts to oversee the Commissioner's determinations to investigate. No mention was made of the statute of limitations [Footnote 14] and the exception for fraud.
information sought is not already within the Commissioner's possession, and that the administrative steps required by the Code have been followed -- in particular, that the "Secretary or his delegate," after investigation, has determined the further examination to be necessary and has notified the taxpayer in writing to that effect. This does not make meaningless the adversary hearing to which the taxpayer is entitled before enforcement is ordered. [Footnote 18] At the hearing, he "may challenge the summons on any appropriate ground," Reisman v. Caplin, 375 U. S. 440 at 375 U. S. 449. [Footnote 19] Nor does our reading of the statutes mean that under no circumstances may the court inquire into the underlying reasons for the examination. It is the court's process which is invoked to enforce the administrative summons, and a court may not permit its process to be abused. [Footnote 20] Such an abuse would take place if the summons had been issued for an improper purpose, such as to harass the taxpayer or to put pressure on him to settle a collateral dispute, or for any other purpose reflecting on the good faith of the particular investigation. The burden of showing an abuse of the court's process is on the taxpayer, and it is not met by a mere showing, as was made in this case, that the statute of limitations for ordinary deficiencies has run or that the records in question have already been once examined.
See page 379 U. S. 52, infra.
Compare Foster v. United States, 265 F.2d 183 (C.A.2d Cir. 1959); United States v. Ryan, 320 F.2d 500 (C.A.6th Cir. 1963), affirmed today, post, p. 379 U. S. 61, with O'Connor v. O'Connell, 253 F.2d 365 (C.A.1st Cir. 1958), followed in Lash v. Nighosian, 273 F.2d 185 (C.A.1st Cir. 1959); Globe Construction Co. v. Humphrey, 229 F.2d 148 (C.A.5th Cir. 1956); De Masters v. Arend, 313 F.2d 79 (C.A.9th Cir. 1963).
67 Cong.Rec. 3856 (Feb. 12, 1926). There is no indication in the discussion that the courts were thought to play any significant limiting role. The Senate substitute was ultimately deleted by the Conference Committee, and the original provision resubstituted. H.R.Rep. No. 356, 69th Cong., 1st Sess., 55. The section was re-enacted in 1939 and 1954 without substantial change, and without further elaboration of the congressional intent. Respondent contends that, in reenacting the provision, Congress must have been aware of, and acquiesced in, decisions of lower courts that a showing of probable cause is required. In re Andrews' Tax Liability, 18 F.Supp. 804 (1937); Zimmermann v. Wilson, 105 F.2d 583 (C.A.3d Cir. 1939); In re Brooklyn Pawnbrokers, 39 F.Supp. 304 (1941); Martin v. Chandis Securities Co., 128 F.2d 731 (C.A.9th Cir. 1942). These cases represent neither a settled judicial construction, see In re Keegan, 18 F.Supp. 746 (1937), nor one which we should be justified in presuming Congress, by its silence, impliedly approved. Compare Shapiro v. United States, 335 U. S. 1.
The case is more like United States v. Morton Salt Co., 338 U. S. 632, where, as respects the power of the Federal Trade Commission to require issuance of "special" reports, the Court reserved the right to prevent the "arbitrary" exercise of that administrative power. Id. at 338 U. S. 654.

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