Opinion ID: 537733
Heading Depth: 2
Heading Rank: 1

Heading: Correctness of the District Court's Relevance Determination

Text: 32 The general question of whether IRS summonses may be enforced conditionally has been debated in the courts of appeals, with divergent results. Compare United States v. Author Servs., 804 F.2d 1520 (9th Cir.1986), modified, 811 F.2d 1264 (1987) with United States v. Barrett, 837 F.2d 1341 (5th Cir.1988), (en banc) (per curiam), cert. denied, --- U.S. ----, 109 S.Ct. 3264, 106 L.Ed.2d 609 (1989). The Supreme Court recently faced the issue in United States v. Zolin, --- U.S. ----, 109 S.Ct. 2619, 105 L.Ed.2d 469 (1989), but was evenly divided over a Ninth Circuit ruling that such summonses could be enforced conditionally to protect against abuse of a court's process. See id. at 2625; Zolin, 809 F.2d 1411, 1417 (9th Cir.1987). 33 The decisions in Author Services, Barrett, and Zolin address conditional enforcement in the context of limitations placed on the government's freedom to disclose information after it has been gathered, rather than limitations on its ability to gather information in the first place. For our purposes, this is a distinction without a difference. Our concern, as stated in United States v. Powell, 379 U.S. 48, 58, 85 S.Ct. 248, 255, 13 L.Ed.2d 112 (1964), is simply that the court not permit its process to be abused. In cases where the government's action would be an abuse of process, in whatever context, the court's restrictions are not legal error; rather, they are a wise exercise of control. Author Servs., 804 F.2d at 1526. Therefore, although the decision in Zolin is not binding, we nevertheless think its end result (in affirming the Ninth Circuit's decision) is sound, and we find that IRS summonses may be enforced conditionally. However, this ruling does not preclude our finding that the district court erred in conditionally enforcing the summons sub judice. 34 When the IRS summoned Rockwell, it did so pursuant to 26 U.S.C. Sec. 7602, which provides, in relevant part, as follows: 35 (a) Authority to summon, etc.--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 is authorized-- 36 (1) To examine any books, papers, records, or other data which may be relevant or material to such inquiry; 37 (2) To summon the person liable for tax or required to perform the act, or any officer or employee of such person, or any person having possession, custody, or care of books of account containing entries relating to the business of the person liable for tax or required to perform the act, or any other person the Secretary may deem proper, to appear before the Secretary at a time and place named in the summons and to produce such books, papers, records, or other data, and to give such testimony, under oath, as may be relevant or material to such inquiry; and 38 (3) To take such testimony of the person concerned, under oath, as may be relevant or material to such inquiry. 39 The jurisdiction to entertain actions to enforce such summonses is granted to the district courts by 26 U.S.C. Sec. 7402(b). Summons enforcement proceedings are designed to be summary in nature, and their sole purpose ... is to ensure that the IRS has issued the summons for a proper purpose and in good faith. Barrett, 837 F.2d at 1349. 40 The proper focus of such proceedings was described in Powell, which sets forth a four-step prima facie showing that the government must make before a summons can be enforced. Powell requires the government to 41 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. 42 Powell, 379 U.S. at 57-58, 85 S.Ct. at 254-55. However, this showing does not automatically entitle the government to enforcement of the summons. The taxpayer retains the right to challenge the summons on any appropriate ground. Id. at 58, 85 S.Ct. at 255 (quoting Reisman v. Caplin, 375 U.S. 440, 449, 84 S.Ct. 508, 513, 11 L.Ed.2d 459 (1964)). The teaching of subsequent decisions is that an appropriate ground for challenging the summons exists when the taxpayer disproves one of the four elements of the government's Powell showing, or otherwise demonstrates that enforcement of the summons will result in an abuse of the court's process. See Barrett, 837 F.2d at 1350; United States v. El Paso Co., 682 F.2d 530, 536-37 (5th Cir.1982). 43 In the case at bar, the government satisfied its Powell burden by filing a petition to enforce the summons accompanied by the sworn affidavit of Special Agent Hackett. Rockwell defended against the summons by alleging bad faith investigation by the IRS and lack of relevancy, and by invoking the attorney-client privilege and the work product doctrine. Because Rockwell has not pursued the bad faith issue in its cross appeal, we turn to the question of relevance. 4 44 The district court ruled that the IRS is entitled to access to the portions of the free reserve file relating to the closing of the Chattanooga plant. App. at 206. Rockwell asserts that this ruling was correct. The IRS argues that it should be entitled to review the entire free reserve file for the tax years involved, and that the district court improperly restricted its access. In support of its position, the government argues that the district court erred by ignoring the institutional purpose of the IRS and by relying on the statements of a single IRS agent to determine that the IRS was conducting an investigation into the closing of the Chattanooga plant, not Rockwell's entire tax returns for the relevant period of time. The key to this issue is the IRS's legitimate purpose. Apparently, the district court determined that the IRS's purpose (under the Powell analysis) is an investigation of the Chattanooga plant closing only. This determination was legally incorrect. 45 The cases decided since Powell have shown that the requirement of legitimate purpose means nothing more than that the government's summons must be issued in good faith pursuant to one of the powers granted under 26 U.S.C. Sec. 7602. See, e.g., United States v. Bisceglia, 420 U.S. 141, 146-47, 95 S.Ct. 915, 919, 43 L.Ed.2d 88 (1975) (Once a summons is challenged it must be scrutinized by a court to determine whether it seeks information relevant to a legitimate investigative purpose and is not meant '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.'  (citation omitted)); United States v. Coopers & Lybrand, 550 F.2d 615, 620 (10th Cir.1977) (quoting Bisceglia); see also El Paso, 682 F.2d at 546-47 (Garwood, J., dissenting) (Accordingly, 'such inquiry' or 'such question' is properly understood as referring to the question of 'the correctness of any return' or 'the liability of any person for any internal revenue tax.'  (quoting 26 U.S.C. Sec. 7602(a))). We find no case requiring the government to delineate a specific and narrow purpose, and then holding that the summons will be enforced only insofar as it is relevant to that purpose. Indeed, the cases discuss not what the actual purpose is, but whether the summons was issued in good faith pursuant to a legitimate investigation--that is, an investigation authorized by section 7602. 46 In our view, to force the delineation of a purpose narrowly tailored to a specific suspected wrongdoing, and then to require a tight relevancy fit between the information sought and the purpose, would approach the kind of probable cause requirement expressly rejected in Powell. Consequently, we find that the district court erred by ignoring the general and overarching institutional purpose of the IRS, see United States v. LaSalle Nat'l Bank, 437 U.S. 298, 98 S.Ct. 2357, 57 L.Ed.2d 221 (1978), and by determining relevancy as against the specific suspected wrongdoing asserted by a single IRS agent. 47 In this case, the statements of Agent Hackett regarding the Vitullo memorandum and the Chattanooga plant closing are properly understood not as evidence of a specific purpose, but as evidence of the government's good faith and legitimacy in pursuing its institutional purpose--the investigation of the correctness of returns. Because the government's purpose is the investigation of the correctness of the 1983 return, we will remand to the district court with instructions to determine the relevance of material in the free reserve file to this purpose. In making this determination, the district court should be guided by the body of case law which has defined the rather liberal standard of relevance in section 7602. Under this section, the government is entitled even to information that has only potential relevance to the investigation, United States v. Arthur Young & Co., 465 U.S. 805, 814, 104 S.Ct. 1495, 1501, 79 L.Ed.2d 826 (1984) (emphasis in original), and the applicable standard is whether the information sought  'might throw light upon the correctness of the return.'  United States v. Egenberg, 443 F.2d 512, 515 (3d Cir.1971) (quoting United States v. Harrington, 388 F.2d 520, 524 (2d Cir.1968)); see also LaMura v. United States, 765 F.2d 974, 981 (11th Cir.1985); United States v. Southwestern Bank & Trust Co., 693 F.2d 994, 996 (10th Cir.1982).