Opinion ID: 370422
Heading Depth: 2
Heading Rank: 1

Heading: Shafer and Boot Strap (Shafer)

Text: 3 In September, 1977, the Internal Revenue Service began investigating Shafer's tax liability for the years 1974, 1975, and 1976. Appellee Special Agent Robert McCorry was assigned to the case at the outset and has since been in charge of the investigation. A revenue agent was also assigned to the investigation in June 1978. 3 In July 1978, pursuant to I.R.C. §§ 7602, 7604, 4 McCorry issued four summonses which are subjects of this appeal, one to each of four respondent banks. On January 19, 1979, an additional summons was issued to United Jersey Bank. The record does not reveal the issuance date of the last summons issued to the Columbia Savings and Loan Association, however, inasmuch as these last two summonses were treated as a unit by all parties and the district court, we will assume that the Columbia summons issued no later than January 19, 1979. Each summons sought production of testimony, books, records, papers, and other data relating to Shafer. Notice was given Shafer under I.R.C. § 7609(a), and Shafer immediately caused the summonses to be stayed under I.R.C. § 7609(b)(2). 4 On October 6, 1978 the Government applied for orders directing the banks to show cause why the first four summonses which had issued in July, should not be enforced. Shafer intervened to oppose enforcement on the ground that the summonses were issued solely for purposes of a criminal investigation and were therefore unenforceable under United States v. LaSalle National Bank, 437 U.S. 298, 98 S.Ct. 2357, 57 L.Ed.2d 221 (1977). The banks, which had been subpoenaed, took no position on enforcement. An evidentiary hearing was held over the objection of the Government on January 11, 1979. The Government contended that the issue of enforcement should have been disposed of on the pleadings. 5 On January 22, 1979 the district court, by memorandum opinion and order, directed compliance with these four summonses. United States v. Garden State National Bank, 465 F.Supp. 437 (D.N.J.1979). 6 In its opinion, the district court stated that the I.R.S.'s procedures were characterized by the bad faith condemned by LaSalle. The district court based this characterization on testimony of I.R.S. witnesses. That testimony purportedly established that the Service would not agree to negotiate a compromise on the civil aspects of a case until the issue of referral (to the Department of Justice) had been resolved. In essence, the district court determined that once a special agent of the Criminal Investigation Division has been assigned, no compromise can be effected by I.R.S. even though I.R.S. has not decided to refer the investigation to the Justice Department for criminal prosecution. Accordingly, the district court declared that, measured against its newly evolved conference for compromise standard, a taxpayer can show institutional bad faith on the part of I.R.S. if a conference looking toward a possible compromise is sought, and I.R.S. refuses to engage in such compromise negotiations. In such a situation, the district court would have held that bad faith had been established in that the civil summons was being used solely as a means for deciding whether or not to refer for criminal prosecution, meanwhile (enabling the I.R.S. to gather) evidence in support, Id. at 440. Despite this dictum, the district court enforced all four bank summonses on the ground that: 5 (s)ince taxpayer has stated on the hearing record that no request for conference was made, the court finds that the problems which concern it are abstract, and concludes that taxpayer has not met the burden established by LaSalle. 6 Id. at 441. 7 Shafer appealed, and the Government consented to a stay pending determination of the appeal as to these four summonses. 7 This court ordered a stay as to the summonses appealed at No. 79-1681, See note 5 Supra.