Source: http://www.law.cornell.edu/supremecourt/text/379/48
Timestamp: 2013-12-13 11:16:34
Document Index: 91350770

Matched Legal Cases: ['§ 7602', '§ 7605', '§ 7604', '§ 7604', '§ 7402', '§ 7604', '§ 7604', '§ 7402', '§ 7605', '§ 7605', '§ 7605', '§ 7605', '§ 7605', '§ 7602', '§ 7605', '§ 7605']

UNITED STATES et al., Petitioners, v. Max POWELL et al. | Supreme Court | LII / Legal Information Institute
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379 U.S. 48 (85 S.Ct. 248, 13 L.Ed.2d 112)
UNITED STATES et al., Petitioners, v. Max POWELL et al.
Argued: Oct. 14 and 15, 1964.
[HTML] dissent, DOUGLAS, STEWART, GOLDBERG
[HTML] Bruce J. Terris, Washington, D.C., for petitioners.
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
The Court of Appeals reversed, 325 F.2d 914. It reasoned that since the returns in question could only be reopened for fraud, re-examination of the taxpayer's records must be barred by the prohibition of § 7605(b) of the Code
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';
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 * * *.'
Because of the differing views in the circuits on the standards the Internal Revenue Service must meet to obtain judicial enforcement of its orders,
we granted certiorari, 377 U.S. 929, 84 S.Ct. 1334, 12 L.Ed.2d 294.
This enforcement proceeding was brought by the Government pursuant to s 7604(b) of the Code.
In Reisman v. Caplin, 375 U.S. 440, 84 S.Ct. 508, 11 L.Ed.2d 459, decided last Term subsequent to the rendering of the decision below, this Court 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 448, 84 S.Ct., at 513. 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),
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).
Respondent primarily relies on § 7605(b) to show that the Government must establish probable cause for suspecting fraud, and that the existence of probable cause is subject to challenge by the taxpayer at the hearing.
If, in order to determine the existence or nonexistence of fraud in the taxpayer's returns, information in the taxpayer's records is needed which is not already in the Commissioner's possession, we think the examination is not 'unnecessary' within the meaning of § 7605(b). Although a more stringent interpretation is possible, one which would require some showing of cause for suspecting fraud, we reject such an interpretation because it might seriously hamper the Commissioner in carrying out investigations he thinks warranted, forcing him to litigate and prosecute appeals on the very subject which he desires to investigate, and because the legislative history of § 7605(b) indicates that no severe restriction was intended.
'Mr. PENROSE. I knew the Senator would agree to the amendment, and it will go a long way toward relieving petty annoyances on the part of honest taxpayers.' 61 Cong.Rec. 5855 (Sept. 28, 1921).
Congress recognized a need for a curb on the investigating powers of low-echelon revenue agents, and considered 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
We are asked to read § 7605(b) together with the limitations sections in such a way as to impose a probable cause standard upon the Commissioner from the expiration date of the ordinary limitations period forward. Without some solid indication in the legislative history that such a gloss was intended, we find it unacceptable.
Our reading of the statute is said to render the first clause of § 7605(b) surplusage to a large extent, for, as interpreted, the clause adds little beyond the relevance and materiality requirements of § 7602. That clause does appear to require that the information sought is not already within the Commissioner's possession, but we think its primary purpose was no more than to emphasize the responsibility of agents to exercise prudent judgment in wielding the extensive powers granted to them by the Internal Revenue Code.
This view of the statute is reinforced by the general rejection of probable cause requirements in like circumstances involving other agencies. In Oklahoma Press Pub. Co. v. Walling, 327 U.S. 186, 216, 66 S.Ct. 494, 509, 90 L.Ed. 614, in reference to the Administrator's subpoena power under the Fair Labor Standards Act, the Court said 'his investigative function, in searching out violations with a view to securing enforcement of the Act, is essentially the same as the grand jury's, or the court's in issuing other pretrial orders for the discovery of evidence, and is governed by the same limitations,' and accordingly applied the view that inquiry must not be "limited * * * by * * * forecasts of the probable result of the investigation." In United States v. Morton Salt Co., 338 U.S. 632, 642643, 70 S.Ct. 357, 364, 94 L.Ed. 401, the Court said of the Federal Trade Commission, 'It has a power of inquisition, if one chooses to call it that, which is not derived from the judicial function. It is more analogous to the Grand Jury, which does not depend on a case or controversy for power to get evidence but can investigate merely on suspicion that the law is being violated, or even just because it wants assurance that it is not.' While the power of the Commissioner of Internal Revenue derives from a different body of statutes, we do not think the analogies to other agency situations are without force when the scope of the Commissioner's power is called in question.
Reading the statutes as we do, the Commissioner need not meet any standard of probable cause to obtain enforcement of his summons, either before or after the three-year statute of limitations on ordinary tax liabilities has expired. He must show that the investigation will be conducted pursuant to a legitimate purpose, that the inquiry may be relevant to the purpose, that the 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.
At the hearing he 'may challenge the summons on any appropriate ground,' Reisman v. Caplin, 375 U.S. 440, at 449, 84 S.Ct. at 513.
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.
Congress, by the three-year statute of limitations that bars assessments of tax deficiencies except (so far as relevant here) in case of fraud, 26 U.S.C. 6501(a) and (c), has brought into being a 'statute of repose'
Oklahoma Press Pub. Co. v. Walling, 327 U.S. 186, 66 S.Ct. 494, 90 L.Ed. 614, does not seem to me to be relevant. It dealt with the usual investigative powers of administrative agencies; and as the Court said in that case, Congress set no standards for administrative action which the judiciary first had to weigh and appraise.
Id., 215216, 66 S.Ct. 508509. Here we have a congressional 'statute of repose' embodied in the three-year statute of limitations. I would make it meaningful by protecting it from invasion by mere administrative fiat. Where the limitations period has expired, an examination is presumptively 'unnecessary' within the meaning of § 7605(b)a presumption the Service must overcome. That is to say, a re-examination of the taxpayer's records after the three-year period is 'unnecessary' within the meaning of § 7605(b), unless the District Court is shown something more than mere caprice for believing fraud was practiced on the revenue. Without that minimum safeguard the statutory status of repose becomes rather meaningless.
325 F.2d 914, 915916.
'For the purpose of ascertaining the correctness of any return, making a return where none has been made, determining the liability of any person for any internal revenue tax or the liability at law or in equity of any transferee or fiduciary of any person in respect of any internal revenue tax, or collecting any such liability, the Secretary or his delegate is authorized
See the remarks of Senators Smith, Ashurst, and Reed in 67 Cong.Rec. 38523853.