Opinion ID: 412097
Heading Depth: 3
Heading Rank: 3

Heading: The Tax Reform Act.

Text: 28 Certain provisions of the Tax Reform Act of 1976, 26 U.S.C. Sec. 7609 (1976), sought to cure some of the problems arising under the Internal Revenue Code with respect to subpoenas issued to third parties, i.e., persons other than the taxpayer whose tax liability is under investigation. Under the Act if a third party subpoena does not identify the person with respect to whose liability the summons is issued [called a John Doe summons], [it] may be served only after a court proceeding is held in which the IRS establishes the summons's reasonableness. 26 U.S.C. Sec. 7609(f). 29 In the instant case, the Department of Labor admits that its investigation is a joint investigation with the IRS. The cover letter attached to the subpoena sent to the bank, referred to violations of both ERISA and corresponding provisions of the Internal Revenue Code. The reference to the Internal Revenue Code most likely pertains to 26 U.S.C. Sec. 4975 (1976). That section imposes an excise tax of five percent per year until corrected on the value of any transaction between a disqualified person and an employee benefit plan--a prohibited transaction. Normally, the tax falls upon the person who does business with the bank acting as fiduciary for the plan, not upon the bank. It is not clear on the face of the subpoena that the Secretary intends to examine only those plans for which the bank itself is acting as fiduciary. Accordingly, any investigation of prohibited transactions necessarily may involve persons other than the bank, i.e., John Does. The Secretary argues that since the records were subpoenaed solely by the Department of Labor, not by the IRS, that section 4975 does not apply. It makes this argument despite its admission that any information relevant to the IRS would be provided to that agency. The argument suggests that two agencies acting together may achieve indirectly what the IRS is forbidden to achieve directly. The Secretary's reliance on ERISA Sec. 3004, 29 U.S.C. Sec. 1204 (1976), is misplaced. This provision was enacted prior to the Tax Reform Act. Until, however, the bank complies with the first part of the subpoena naming the plans and sponsors, the Department cannot determine its obligations, if any, under the Act. 30