Opinion ID: 490532
Heading Depth: 2
Heading Rank: 2

Heading: Application of the Institutional Posture Test to this Case.

Text: 24 The findings of Magistrate Chrein, adopted by the district court, recommended enforcement of the IRS's summons on two grounds. First, he found that Caponegro's distaste of Mr. Millman    was a product of [his] sincerely held belief that Mr. Millman was a dishonest taxpayer. Second, he concluded that, in any event, the institutional posture of [the] IRS was not infected by any alleged hostility on the part of Mr. Caponegro. We conclude that the magistrate properly applied the institutional posture test, and that his findings of fact are not clearly erroneous; we therefore affirm the district court's order enforcing the summons. 25 First, it is obvious that Caponegro's admitted hostility toward Millman resulted from his belief that Millman counseled his clients in the illegal avoidance of taxes. It is hardly improper for an IRS agent to direct his attention to those cases he feels raise a strong possibility of illegality; indeed, that would seem to be an important part of his job. 26 Moreover, there was here valid cause for Caponegro's suspicions. His work on cases involving Millman's clients, who sought to take deductions for the value of the very same property Millman deducted on the tax return under investigation, resulted in settlements wherein the property was valued at substantially less than the amounts claimed by the taxpayers. When Millman's return was chosen for audit by the IRS computer, it was therefore appropriate for Caponegro to be suspicious and prompt further IRS action in the case. 27 Second, even if we were to assume that Caponegro's motive was improper, it is clear that his influence on the investigation, while important, has not been so pervasive as to have become the institutional posture of the IRS. To begin with, there was substantial oversight within the IRS that ensured that any possible improper intent of engineer agent Caponegro could not, of itself, have resulted in the issuance of the summons. See LaSalle National Bank, 437 U.S. at 314-15, 98 S.Ct. at 2366-67 (pointing to the IRS review process as multilayered and thorough). The audit itself, for example, was precipitated not by Caponegro but by the computer's selection of Millman's individual tax return for 1979. The fraud referral report that caused this investigation to be undertaken by the CID came not from Caponegro, but instead from revenue agent Tepper. While Tepper had received memoranda from Caponegro regarding the Millman case, Tepper conducted his own investigation of the matter, and Caponegro did not even know about Tepper's referral report until after Tepper had filed it. 28 In addition, once the fraud report had been issued to the CID, it was evaluated by group manager George Tierney and by special agent Calarco. It was Calarco who determined that the referral had potential for investigation and should be followed up. He testified that his evaluation was based primarily upon the facts contained in the referral and gave little weight to the conclusions of Mr. Caponegro contained in the attached memoranda. Finally, it was Calarco, not Caponegro, who made the decision to issue the summons challenged here. 29 Even this brief outline of the procedures followed by the IRS in this case demonstrates that the decisions made to launch the investigation, to continue it, and to issue the summons, were not made by Caponegro. While his input might have influenced some of these events, it was not the deciding factor in any of them. 30 More broadly, we reject Millman's contention that the IRS must be denied enforcement of its summons if he can show that the summons would not have been issued but for the actions of engineer agent Caponegro. True, had it not been for Caponegro the summons would never have been issued; but the same could be said for Tepper, Calarco, Tierney, and perhaps the IRS computer as well. Any one of these actors could have determined that the investigation should not proceed past the point at which he (or it) evaluated it; such is the nature of any system that, quite properly, evaluates an investigation at several levels. Simply because Caponegro for personal reasons did not, at his level, stop the instant inquiry does not mean that his reasons for failing to stop it became the reasons the IRS, sometime later, and after several other evaluations, issued the summons. 31 Adopting Millman's argument would, in effect, abandon the institutional posture test, and substitute for it the individual agent's intent standard rejected by the Supreme Court in LaSalle National Bank, since the action of any involved agent, who could halt an investigation but for his own improper reasons does not, could be considered a but for cause of the issuance of a summons at some later date. 32 The conceded hostility between Caponegro and Millman was surely sufficient reason for further inquiry into the circumstances surrounding the issuance of the summons; thus the need for an evidentiary hearing in this case. Now that that hearing has been held, we are satisfied that the institutional posture of the IRS was not infected by any improper motives of Caponegro. 33 We have considered the remaining arguments advanced by Millman, and find them to be without merit. We note, however, that while we reject Millman's contention that the documents sought by the IRS are protected by the attorney-client privilege, we do so on the basis that Millman has not sustained his burden of showing that the communications in question were related to his status as an attorney rather than as a business adviser or accountant. See, e.g., United States v. Stern, 511 F.2d 1364, 1367 (2d Cir.), cert. denied, 423 U.S. 829, 96 S.Ct. 47, 46 L.Ed.2d 46 (1975). We therefore have not considered the per se rule suggested by the district court that [w]hen an attorney goes into business with his clients, there is no attorney/client privilege, period. 34 The judgment of the district court enforcing the IRS's summons is affirmed.