Source: https://law.justia.com/cases/federal/appellate-courts/F2/658/526/50813/
Timestamp: 2020-02-24 06:43:02
Document Index: 268692062

Matched Legal Cases: ['§ 7609', '§ 7602', '§ 6501', '§ 2463', 'art, 427', '§ 7602', '§ 7602']

United States of America and Special Agent Glenn J. Kulas,petitioners- Appellees, v. John W. Kis, Etc., et al., Respondents, v. George A. Meyers, Intervenor-appellant.united States of America and Special Agent Richard E.zagotta, Petitioners- Appellees, v. Nelsen Steel & Wire Company, Inc., Etc., et al.,respondents-appellants.united States of America and Special Agent Joseph A. Deleon,petitioners- Appellants, Cross-appellees, v. Jack Salkin, Etc., et al., Respondents-appellees, Cross-appellants,united States of America and Special Agent Donald Olsen,petitioners- Appellants, v. First State Bank of Chicago, Respondent-appellee,andjack Salkin, Intervenor-appellee, Cross-appellant.united States of America and Special Agent Leonard H. Lupa,petitioners- Appellees, v. Donald L. Anderson and Harriet H. Anderson, Respondents-appellants, 658 F.2d 526 (7th Cir. 1981) :: Justia
Justia › US Law › Case Law › Federal Courts › Courts of Appeals › Seventh Circuit › 1981 › United States of America and Special Agent Glenn J. Kulas,petitioners- Appellees, v. John W. Kis, Et...
United States of America and Special Agent Glenn J. Kulas,petitioners- Appellees, v. John W. Kis, Etc., et al., Respondents, v. George A. Meyers, Intervenor-appellant.united States of America and Special Agent Richard E.zagotta, Petitioners- Appellees, v. Nelsen Steel & Wire Company, Inc., Etc., et al.,respondents-appellants.united States of America and Special Agent Joseph A. Deleon,petitioners- Appellants, Cross-appellees, v. Jack Salkin, Etc., et al., Respondents-appellees, Cross-appellants,united States of America and Special Agent Donald Olsen,petitioners- Appellants, v. First State Bank of Chicago, Respondent-appellee,andjack Salkin, Intervenor-appellee, Cross-appellant.united States of America and Special Agent Leonard H. Lupa,petitioners- Appellees, v. Donald L. Anderson and Harriet H. Anderson, Respondents-appellants, 658 F.2d 526 (7th Cir. 1981)
US Court of Appeals for the Seventh Circuit - 658 F.2d 526 (7th Cir. 1981) Argued Jan. 23, 1981. Decided Sept. 4, 1981. Rehearing Denied Nov. 17, 1981
A magistrate conducted a hearing on the petition on January 11, 1980, at which the Government presented testimony that, among other things, the investigation was in its initial stages; there were no records on which to proceed without the information requested in the summons; and that no decision had yet been reached whether to prosecute Meyers criminally. The testimony also revealed that all "protest-type returns" are not prosecuted, and that a revenue agent was assisting Kulas in the investigation. Meyers was able to cross-examine all the Government witnesses at the hearing. The magistrate found that the Government had "made a sufficient showing under United States v. Powell, 379 U.S. 48, 85 S. Ct. 248, 13 L. Ed. 2d 112 (1964), and that the taxpayer (had) not met his burden under United States v. LaSalle National Bank, 437 U.S. 298, 98 S. Ct. 2357, 57 L. Ed. 2d 221 (1978)," since a valid civil purpose existed to the investigation and there was no institutional commitment by the IRS to prosecute Meyers as a "tax protester." The magistrate also quashed the interrogatories served by Meyers, since he had been able to ask many of the same questions at the hearing. The district court, on April 30, 1980, adopted the magistrate's findings of fact and conclusions of law and ordered the respondent bank officers to comply with the summonses. Meyers appeals from this order.
The Andersons refused to comply with the summonses on July 7, 1978, and the Government petitioned for enforcement in the Southern District of Illinois on February 1, 1979. After a hearing, the district court denied enforcement because, although the summonses were issued in good faith, the Government lacked the authority to compel the production of handwriting exemplars. While the Government's appeal from that order was pending, the United States Supreme Court held, in United States v. Euge, 444 U.S. 707, 100 S. Ct. 874, 63 L. Ed. 2d 141 (1980), that handwriting exemplars could be obtained under section 7602. Following a remand by this court, the district court ordered enforcement on June 2, 1980. The district court, this court, and the Supreme Court all denied stays of enforcement of the district court's order, so the Andersons appeared before Special Agent Lupa on August 21, 1980, and complied with the summonses. The Government subsequently moved to dismiss this appeal as moot. The motion was argued along with the Andersons' appeal on the merits.
Every court of appeals that has considered this question, however, has held that compliance with an IRS summons moots an appeal of the enforceability of the summons.10 We agree with this line of decisions. While there may be an ongoing dispute between the IRS and the Andersons about their income tax liabilities, the particular controversy that is the subject matter of this appeal the enforceability of the summonses for handwriting exemplars no longer exists. The case or controversy to support the exercise of federal jurisdiction cannot be just any dispute between the parties but must concern the subject matter of the action. "Federal courts are without power to decide questions that cannot affect the rights of litigants in the case before them." North Carolina v. Rice, 404 U.S. 244, 246, 92 S. Ct. 402, 404, 30 L. Ed. 2d 413 (1971) (emphasis added).
When, as in this case, the court could not grant any relief that would affect the legal rights of either party, no case or controversy exists. See DeFunis v. Odegaard, 416 U.S. 312, 317, 94 S. Ct. 1704, 1706, 40 L. Ed. 2d 164 (1974). The Andersons contend that this court could grant them relief by declaring the summons to be invalid and by suppressing the handwriting exemplars and any evidence obtained as a result of their submission. Such a ruling, however, would ignore the well-established rule that questions of suppression should not be considered until the time when the Government seeks to use that evidence.11 It would be highly speculative so to rule at this stage, for there is no guarantee that the Government will ever seek to use that evidence. It may never even bring any subsequent actions against the Andersons. As the First Circuit noted in a similar case,
It is simply not correct, as the Andersons assert, that parties may not be compelled to choose between compliance with a court order and risking a contempt citation.14 That is a choice that litigants are forced to make every day. Incurring a contempt citation may in many circumstances be the only means of gaining review when a question would otherwise become moot. The Supreme Court explicitly so recognized in United States v. Ryan, 402 U.S. 530, 533, 91 S. Ct. 1580, 1582, 29 L. Ed. 2d 85 (1971), in which it held that interlocutory review of the propriety of a grand jury subpoena would be unavailable when the respondent could "refuse compliance and ... obtain full review of his claims" as a defense to a contempt citation. The Court noted, "We have consistently held that the necessity for expedition in the administration of criminal law justifies putting one who seeks to resist the production of desired information to a choice between compliance with a trial court's order to produce prior to any review of that order, and resistance to that order with the concomitant possibility of an adjudication of contempt if his claims are rejected on appeal." Id.15 These principles are not limited to the criminal field. Interlocutory review of subpoenas issued for discovery under Fed. R. Civ. P. 45 may also be obtained only as a defense to a contempt citation.16
Nothing in In re Special April 1977 Grand Jury, 581 F.2d 589 (7th Cir.), cert. denied, 439 U.S. 1046, 99 S. Ct. 721, 58 L. Ed. 2d 705 (1979), requires a holding to the contrary. That decision permitted a post-compliance appeal of an order enforcing grand jury subpoenas, but it is distinguishable in one significant respect.17 In that case, the subpoenas were directed at members of the staff of appellant former Illinois Attorney General William Scott, not to Scott himself. It would have been unreasonable to require those staff members, who had no personal interest in resisting the subpoenas, to expose themselves to contempt by refusing to comply. That same logic compelled the Supreme Court in Perlman v. United States, 247 U.S. 7, 12-13, 38 S. Ct. 417, 419-20, 62 L. Ed. 950 (1918), to allow immediate review of an order directing a third party to produce exhibits, "for the custodian could hardly have been expected to risk a citation for contempt in order to secure (appellant) an opportunity for judicial review." In the present case, the Andersons certainly had a strong personal interest in the summons. It was their decision to comply rather than risk a contempt citation, and they cannot complain of the consequences now.18
The taxpayers in these actions raise many same issues on appeal. They all challenge the sufficiency of the prima facie case presented by the Government and contend that the Government did not meet the standards established by the Supreme Court in United States v. Powell, 379 U.S. 48, 85 S. Ct. 248, 13 L. Ed. 2d 112 (1964). They further argue that even if the Government did meet its burden, they have presented enough evidence, for example, of an institutional purpose to prosecute them criminally to rebut effectively the prima facie case under the tests enunciated in United States v. LaSalle National Bank, 437 U.S. 298, 98 S. Ct. 2357, 57 L. Ed. 2d 221 (1978). The taxpayers also challenge the varying limitations on discovery imposed by the district courts in each of the actions. Some of the cases present issues that appeared in their cases alone; for example, appellants in the Nelsen Steel case challenge the decision to reopen the previously audited tax years. We shall treat all of these issues in the order in which they will occur in an ordinary IRS summons enforcement case: first, the Government's responsibility to prove a prima facie case, and then the taxpayer's burden to rebut the Government's showing of good faith.
For these reasons, the burden on the taxpayer to prove Government wrongdoing is significantly greater than that on the Government to show its legitimate purposes.23 The action should be concluded quickly, so that the investigation may advance toward the ultimate determination of civil or criminal liability, if any. The extreme length of the actions now on appeal none are less than two years old, and the Nelsen Steel case has dragged on nearly four years demonstrates that these purposes are not being met. Considering the extraordinarily heavy burden that the Supreme Court has placed on taxpayers resisting enforcement, there is no reason for cases like these to endure for so long. Indeed, section 7609(h) (2) requires that these actions be concluded as quickly as possible. That section provides,
26 U.S.C. § 7609(h) (2) (1976). In order to meet this statutory prescription and to end the unnecessary delays that have burdened the enforcement powers of the IRS, it is clear that we must use our supervisory powers to mandate, in addition to the establishment of specific standards to be applied, a specific timetable for the resolution of these actions.24
Powell, supra, 379 U.S., pp. 57-58, 85 S. Ct. pp. 254-55.27 The Government ordinarily proves these four elements by affidavits of the agents involved in the investigation. No more than that is necessary to make the prima facie case.28
In United States v. Kis and United States v. Salkin, the Government met its burden of proof by providing affidavits attesting that the summoned materials were relevant to its investigations and not in its possession, that the administrative requirements had been satisfied, and that the investigations had a legitimate civil purpose of ascertaining the correct tax liabilities of the taxpayers for the years in dispute. Any contentions by the taxpayers to the contrary are without merit. As Powell made clear, the Service does not need to provide any more evidence at this initial stage of the proceedings. Both taxpayers, Meyers and Salkin, as well as those in United States v. Nelsen Steel, also raise questions concerning the institutional purpose of the IRS with respect to the commencement of criminal prosecutions. These questions must be considered by the court in the rebuttal stage of the proceedings, not in these initial stages, for the burden is on the taxpayer to disprove the Government's possession of a valid civil purpose. LaSalle National Bank, supra, 437 U.S. p. 316, 98 S. Ct. p. 2367. The assertions by affidavit of a valid civil purpose are adequate to show a prima facie case that would support the issuance of a show cause order.
The taxpayers in Nelsen Steel contend that the Government did not demonstrate that the summoned material in that case was relevant to the IRS investigation. They argue that the tax records of their spouses are not relevant to their own tax liabilities, and they challenge the relevance of the corporate records of D. Nelsen & Co., whose tax liabilities are not under investigation. While district courts must take "seriously their obligation to apply ... (the relevance) standard to fit particular situations, either by refusing enforcement or narrowing the scope of the summons," United States v. Bisceglia, 420 U.S. 141, 146, 95 S. Ct. 915, 919, 43 L. Ed. 2d 88 (1975), the threshold of relevance is a low one. Section 7602, which authorizes a summons for "any books, papers, records, or other data which may be relevant ... to such inquiry" (emphasis added), gives the IRS broad summons power, similar to the inquisitorial power of a grand jury.29 The Government therefore need show only that the inspection of the desired records "might throw light" upon the correctness of the taxpayer's return and liabilities. United States v. Turner, 480 F.2d 272, 279 (7th Cir. 1973).30 The Government met that burden in Nelsen Steel through the affidavit of the special agent in charge, who attested that the requested materials were relevant.31 Moreover, as the district court correctly found, the description of the items indicated their relevance.
The Nelsen Steel taxpayers further contend that the summons should not have been enforced with respect to retained copies of Forms 1099, which are filed with the IRS. These forms reflect various types of non-wage income paid to the taxpayer, such as interest income paid by a bank or investment dividends. They are filed with the IRS by the individual or institution that is the source of the payments, not by the taxpayer, and the IRS files them in the same manner. They are not cross-indexed by the taxpayer's name, so they are "as a practical matter, neither accessible to nor available to (the) IRS." United States v. First National Bank of New Jersey, 616 F.2d 668, 674 (3d Cir.), cert. denied, sub nom. Levey v. United States, 447 U.S. 905, 100 S. Ct. 2987, 64 L. Ed. 2d 854 (1980). We hold that the information contained therein is not therefore already within the Government's possession for purposes of a prima facie case under Powell.34 As the Third Circuit stated in reaching the same result in that case, "The purpose of Powell ... is a desire to prevent abuse of the administrative summons process and harassment of the taxpayer." Id.35 When information is not otherwise available, as here, there is no such abuse or harassment in requiring the taxpayer to produce his own copies of the Forms 1099, which are more easily located than the Government's copies.
The taxpayer will have thirty days to make his response after the district court has issued its show cause order. The burdens of production and of proof shift at that time to the taxpayer, and the Supreme Court established that the burden is "a heavy one." LaSalle National Bank, supra, 437 U.S. p. 316, 98 S. Ct. p. 2367. The taxpayer must "establish any defenses or ... prove that enforcement would constitute an abuse of the court's process." United States v. Genser, 582 F.2d 292, 302 (3d Cir. 1979) (Genser I) .36 He must "prove a lack of good faith, that the government has abandoned in the institutional sense its pursuit of possible civil penalties." United States v. Moll, 602 F.2d 134, 138 (7th Cir. 1979). The taxpayer must do more than just produce evidence that would call into question the Government's prima facie case. The burden of proof in these contested areas rests squarely on the taxpayer. As the Third Circuit observed, "LaSalle may not have closed the door in the taxpayer's face, but neither did it leave much more than a very slight opening." United States v. Garden State National Bank, 607 F.2d 61, 70 (3d Cir. 1979).
Id., quoting United States v. Genser, 595 F.2d 146, 152 (3d Cir. 1979) (Genser II) . Quoting Genser II further, the court goes on to say, "If the taxpayer's evidence reveals: '(1) that the IRS issued summonses after the investigating agents recommended prosecution, (2) that inordinate and unexplained delays in the investigation transpired, or (3) that the investigating agents were in contact with the Department of Justice,' the district court must then permit further investigation." Id.
The Supreme Court created this heavy burden in Donaldson v. United States, 400 U.S. 517, 91 S. Ct. 534, 27 L. Ed. 2d 580 (1971), and clarified it in LaSalle National Bank, supra. In Donaldson, the Court declared authoritatively, "Congress clearly authorized the use of the summons in investigating what may prove to be criminal conduct." Id., p. 535, 91 S. Ct. p. 544. The Court refused to make the appearance of a special agent into the investigation a point of distinction between civil and criminal purposes of the investigation.44 "To draw a line where a special agent appears would require the Service, in a situation of suspected but undetermined fraud, to forego either the use of the summons or the potentiality of an ultimate recommendation for prosecution. We refuse to draw that line and thus to stultify enforcement of federal law." Id., pp. 535-36, 91 S. Ct. p. 545. The Court repeated this determination two years later in Couch v. United States, 409 U.S. 322, 326, 93 S. Ct. 611, 614-15, 34 L. Ed. 2d 579 (1973), where it stated, "It is now undisputed that a special agent is authorized, pursuant to 26 U.S.C. § 7602, to issue an Internal Revenue summons in aid of a tax investigation with civil and possible criminal consequences." No other result is possible, for "Congress has created a law enforcement system in which criminal and civil elements are inherently intertwined." LaSalle National Bank, supra, 437 U.S. p. 309, 98 S. Ct. p. 2363.45
LaSalle further undercut the taxpayer's ability to resist summons enforcement. It held, among other things, that the personal intent of the agent issuing the summons is also irrelevant to the enforceability of the summons. An agent's responsibilities are rarely wholly civil or wholly criminal, and an inquiry into the agent's personal motives would both frustrate the enforcement policy of the Service and would unreasonably delay the enforcement proceedings. The proper inquiry, LaSalle held, is into the institutional policy of the IRS. Id., p. 316, 98 S. Ct. p. 2367. The Court created a prophylactic rule that any summons issued after the IRS has made a formal recommendation to the Justice Department to proceed with criminal prosecution shall be deemed to have been issued solely for criminal purposes, even if the Service intended to seek civil penalties as well. Id., pp. 311-12, 98 S. Ct. pp. 2364-65.46 Short of such a formal recommendation,47 however, the taxpayer would bear the heavy burden "to disprove the actual existence of a valid civil tax determination or collection purpose by the Service." Id., p. 316, 98 S. Ct. p. 2367.
In addition, the Government was not barred from reopening the investigation into the previously closed tax years in its inquiry in United States v. Nelsen Steel. Under 26 U.S.C. § 6501(e), the ordinary three-year statute of limitations period can be extended to six years when there is a substantial understatement of income. In United States v. Powell, supra, 379 U.S. p. 58, 85 S. Ct. p. 255, the Supreme Court specifically held that a taxpayer's burden of showing an abuse of process in a summons enforcement proceeding is not met by a mere showing that the statute of limitations for ordinary deficiencies has run. More importantly, taxpayers ought not be allowed to raise such issues in a summons enforcement proceeding. These extraneous issues tend only to delay the advancement of the action and to distract the court's attention from the primary issue that must be considered in these proceedings: whether the IRS has a legitimate purpose in issuing the summons. If the taxpayer has a claim regarding an allegedly improper reopening of an investigation, he may raise it in a separate action.54
These same declarations of good faith were made in the petitions that commenced all of the actions under review here. See the discussion, infra, Part IIIA, of the Government's prima facie case under United States v. Powell, 379 U.S. 48, 85 S. Ct. 248, 13 L. Ed. 2d 112 (1964)
Southern Pacific Terminal Co. v. ICC, 219 U.S. 498, 31 S. Ct. 279, 55 L. Ed. 310 (1911); Sosna v. Iowa, 419 U.S. 393, 95 S. Ct. 553, 42 L. Ed. 2d 532 (1975)
See In the Matter of the Special April 1977 Grand Jury, 581 F.2d 589, 591 (7th Cir.), cert. denied, sub nom. Scott v. United States, 439 U.S. 1046, 99 S. Ct. 721, 58 L. Ed. 2d 705 (1978)
See, e. g., G. M. Leasing Corp. v. United States, 429 U.S. 338, 359, 97 S. Ct. 619, 632, 50 L. Ed. 2d 530 (1977); Donaldson v. United States, 400 U.S. 517, 531, 91 S. Ct. 534, 542, 27 L. Ed. 2d 580 (1971); United States v. Blue, 384 U.S. 251, 86 S. Ct. 1416, 16 L. Ed. 2d 510 (1966)
See Donaldson, supra, 400 U.S. p. 531, 91 S. Ct. p. 542 ("to the extent (he) may claim an abuse of process, (he) may always assert ... that claim in due course at its proper place in any subsequent trial."). See also Duke, "Prosecutions for Attempts to Evade Income Tax," 76 Yale L.J. 1, 62 (1966)
See, e. g., Sosna v. Iowa, supra (other persons will be adversely affected by one-year residence requirement in Iowa divorce statute); Gannett v. DePasquale, 443 U.S. 368, 99 S. Ct. 2898, 61 L. Ed. 2d 608 (1979) (sufficient likelihood that newspaper will again be enjoined from publishing aspects of criminal proceeding)
See, e. g., Cobbledick v. United States, 309 U.S. 323, 60 S. Ct. 540, 84 L. Ed. 783 (1940); Alexander v. United States, 201 U.S. 117, 26 S. Ct. 356, 50 L. Ed. 686 (1906)
Ryan v. Commissioner, 517 F.2d 13, 18-20 (7th Cir.), cert. denied, 423 U.S. 892, 96 S. Ct. 190, 46 L. Ed. 2d 124 (1975); Grinnell Corp. v. Hackett, 519 F.2d 595, 596-98 (1st Cir.), cert. denied sub nom. Chamber of Commerce v. United Steel Workers of America, 423 U.S. 1033, 96 S. Ct. 566, 46 L. Ed. 2d 407 (1975); Wright & Miller, Federal Practice & Procedure § 2463 (1971)
Besides the difference in the nature of the personal interests involved in Grand Jury and in this case, as discussed in the text above, Grand Jury is also distinguishable because it was based upon two decisions that involved prior restraints on speech. Nebraska Press Assoc. v. Stuart, 427 U.S. 539, 96 S. Ct. 2791, 49 L. Ed. 2d 683 (1976); First National Bank of Boston v. Bellotti, 435 U.S. 765, 98 S. Ct. 1407, 55 L. Ed. 2d 707 (1978). Courts are quite correctly more wary of forcing litigants to choose between compliance and contempt in a First Amendment context, for the chilling effect of any such dilemma is considerable
United States v. Munsingwear, Inc., 340 U.S. 36, 39-40, 71 S. Ct. 104, 106-107, 95 L. Ed. 36 (1950); County of Los Angeles v. Davis, 440 U.S. 625, 634, 99 S. Ct. 1379, 1384, 59 L. Ed. 2d 642 (1979). See also United States v. Olson, 604 F.2d 29 (8th Cir. 1979). Because of our resolution of United States v. Anderson, our subsequent discussion of the issues in summons enforcement proceedings will concern only the three other cases on appeal
United States v. LaSalle National Bank, 437 U.S. 298, 316, 98 S. Ct. 2357, 2367, 57 L. Ed. 2d 221 (1978) ("The purpose of the good faith inquiry is to determine whether the agency is honestly pursuing the goals of § 7602 by issuing the summons.")
The Supreme Court has tried to expedite these proceedings as well. LaSalle National Bank, supra, p. 316, 98 S. Ct. p. 2367. See United States v. Harris, 628 F.2d 875 (5th Cir. 1980)
United States v. Euge, 444 U.S. 707, 711, 100 S. Ct. 874, 878, 63 L. Ed. 2d 141 (1980); United States v. Kendrick, 518 F.2d 842, 849 (7th Cir.), cert. denied, 423 U.S. 1016, 96 S. Ct. 449, 46 L. Ed. 2d 387 (1975)
See also United States v. City National Bank & Trust Co., 642 F.2d 388 (10th Cir. 1981) (summoned materials are relevant if a "realistic expectation" exists that the materials will illuminate the accuracy of a tax return); United States v. Noall, 587 F.2d 123, 125 (2d Cir. 1978), cert. denied, 441 U.S. 923, 99 S. Ct. 2031, 60 L. Ed. 2d 396 (1979) ("Congress acted advisedly in using the verb 'may be' rather than 'is' since the Commissioner cannot be certain the documents are relevant or material until he sees them.")
This court has never explicitly so held, but it required the same result in United States v. Turner, supra, in which the court ordered enforcement of a summons for names of the persons for whom a particular preparer had prepared income tax returns, even though the returns were in the possession of the IRS and signed by the preparer. The court noted, id., p. 274, that the special agent involved had testified that retrieval of the returns based upon the preparer's signature would be all but impossible. See also Donaldson v. United States, supra, 400 U.S. p. 519, 91 S. Ct. p. 536, in which the Supreme Court ordered enforcement of a summons that included Forms 1099 that presumably suffered the same problems as exist here
"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." United States v. Powell, supra, 379 U.S. p. 58, 85 S. Ct. p. 255
The court cites two hypothetical examples of such conduct: (1) "that a summons was issued at the request of the Justice Department," or (2) "that formal recommendations for prosecution were being delayed until a summons could be issued and enforced, solely to further a criminal prosecution." Garden State National Bank, supra, p. 71. See also LaSalle, supra, p. 317, and United States v. Genser, 595 F.2d 146, 150 (3d Cir. 1979) (Genser II)
See also United States v. McCarthy, 514 F.2d 368, 373 (3d Cir. 1975). Powell refers to "the adversary hearing to which the taxpayer is entitled before enforcement is ordered." Id., 379 U.S. p. 58, 91 S. Ct. p. 255. See also Reisman v. Caplin, 375 U.S. 440, 449, 84 S. Ct. 508, 513, 11 L. Ed. 2d 459 (1964). This hearing is not, however, automatic. While courts may have disagreed on the appropriate standard, they have agreed that the taxpayer must make some threshold showing to be entitled to the hearing
The Court recognized that even at the point of a referral the criminal and civil aspects of a tax fraud investigation do not diverge entirely, but it reasoned that such a prophylactic rule was necessary to prevent misuse of the summons process. LaSalle National Bank, supra, p. 312, 98 S. Ct. p. 2365
The line is drawn at the time of a formal recommendation by the IRS to the Justice Department, not at the time of a recommendation for prosecution made by the special agent to his district office. The agent's recommendation could, after all, be rejected, as it was in United States v. Anderson here. LaSalle National Bank, supra, p. 313, n.15, 98 S. Ct. p. 2365 n.15
"It is not just an institutional commitment to recommend for prosecution that renders a summons issued under § 7602 invalid; rather, it is the absence of a civil purpose for that summons that triggers the LaSalle rule." United States v. Genser, 602 F.2d 69, 71 (3d Cir.), cert. denied, 444 U.S. 928, 100 S. Ct. 269, 62 L. Ed. 2d 185 (1979) (Genser III)