Opinion ID: 369230
Heading Depth: 3
Heading Rank: 1

Heading: Standards Governing Use of Internal Revenue Service Subpoenas.

Text: 11 In United States v. Genser, 582 F.2d 292 (3d Cir. 1978) (Genser I ), relying upon statements to that effect in Donaldson v. United States, 400 U.S. 517, 531, 91 S.Ct. 534, 27 L.Ed.2d 580 (1971), and United States v. Friedman, 532 F.2d 928, 931 (3d Cir. 1976), we held that a defendant in a criminal case could assert that evidence obtained pursuant to 26 U.S.C. § 7602 solely for a criminal rather than a civil investigative purpose was illegally obtained and should be suppressed. In this case we apply the standards for determining IRS compliance with section 7602 announced by the Supreme Court in United States v. LaSalle National Bank, 437 U.S. 298 (1978), as elaborated in the context of a suppression motion by an indicted defendant in United States v. Genser, 595 F.2d 146 (3d Cir. 1979) (Genser II ). 12 LaSalle National Bank, establishes two important limitations upon the validity of an IRS civil summons. First, the summons must be issued before the IRS recommends to the Justice Department that a criminal prosecution be undertaken. Second, prior to that date, the IRS at all times must use the summons authority in good-faith pursuit of the congressionally authorized purposes of § 7602. 437 U.S. at 318, 98 S.Ct. at 2368. (B)ad faith abuse of the powers granted by section 7602 occurs when the Service . . . abandon(s) in an institutional sense . . . the pursuit of civil tax determination or collection. Id. Because the goals of determining liability for civil fraud penalties and determining the existence of a basis for criminal prosecution are normally inseparable, Id. at 314, 98 S.Ct. 2357, the party opposing the summons bears the heavy burden of disproving the existence of a valid civil tax determination or collection purpose on the part of the IRS. Id. at 316, 98 S.Ct. at 2367. The IRS rarely will be found to have acted in bad faith for pursuing solely criminal matters. Id. 13 The LaSalle Court specified two instances where bad faith might be shown. The Court refused to countenance delay in submitting a recommendation to the Justice Department when there is an institutional commitment to make the referral and the Service merely would like to gather additional evidence for the prosecution, since such a delay would be tantamount to the use of the summons authority after the recommendation . . . . Id. at 316-17, 98 S.Ct. at 2368. Bad faith is also shown when the IRS becomes an information-gathering agency for other departments, including the Department of Justice. Id. at 317, 98 S.Ct. at 2367, 2368. 14 Genser II places a further gloss on the LaSalle standards. There we held that the test of the validity of an IRS summons was not the existence of a general civil purpose for the investigation, but rather the purpose of the individual summons at issue. If any one . . . (summons) . . . were issued solely for a criminal purpose, the fruits of that summons would have to be suppressed, even in the face of an overwhelmingly civil purpose of the investigation as a whole. 595 F.2d at 150. This standard, however, does not require a district court to examine every summons issued in every investigation. Id. at 151. Since LaSalle requires institutional abandonment of a civil collection purpose, and since, under LaSalle, the intent of a single agent cannot be imputed to the institution as a whole, we reasoned that summonses issued by an investigating agent before that agent recommended prosecution would be presumptively valid. But that presumption could be overcome by a showing that the agent had issued summonses at the request of the United States Attorney or delayed his recommendation at the request of his superiors solely to further a criminal investigation. Id. 15 In Genser II, we placed the burden upon the defendant to overcome the presumption of validity attaching to prerecommendation subpoenas. At the same time, we recognized that the evidence needed to meet that burden was in the hands of the government. To give meaning to the suppression remedy, we established standards for discovery against the government: 16 At a minimum, the taxpayer should be entitled to discover the identities of the investigating agents, the date the investigation began, the dates the agent or agents filed reports recommending prosecution, the date the district chief of the Intelligence Division or Criminal Investigation Division reviewed the recommendation, the date the Office of Regional Counsel referred the matter for prosecution, and the dates of all summonses issued under 26 U.S.C. § 7602. Furthermore, the taxpayer should be entitled to discover the nature of any contacts, relating to and during the investigation, between the investigating agents and officials of the Department of Justice. 17 Where this information or other evidence introduced by the taxpayer reveals (1) that the IRS issued summonses after the investigating agents recommended prosecution, (2) that inordinate and unexplained delays in the investigation transpired, and (3) that the investigating agents were in contact with the Department of Justice, the district court must allow the taxpayer to investigate further. In proper cases, this investigation could include the opportunity to examine the IRS agents or officials involved, or to discover documents. Such examination/discovery, however, should be carefully tailored to meet the purpose of the inquiry. On the other hand, where this information indicates that none of these three conditions are present, the district court need inquire no further. 18 Id. at 152. 19 Applying the standards of Genser II to this case, we conclude that the trial court's ruling with respect to the Phase I subpoenas can be approved, but that it was error to rule on the Phase II subpoenas without additional discovery. 20 The 22 subpoenas issued during Phase I were issued long before a decision respecting prosecution was made by the IRS, institutionally, or even by the agent in charge of the investigation. There is no evidence in this phase of unexplained delay as a subterfuge for a continued criminal investigation. Nor is there evidence of contact between the IRS and the Strike Force until the Strike Force initiated such contact in April, 1975. There is some evidence of contact between the IRS and the DEA, but the testimony of Agent Gilbert is that no evidence was passed on to that agency. The defendants object that the trial court did not make an individual determination as to the purpose of each of the 22 subpoenas. But for summonses issued prior to the agent's recommendation of prosecution Genser II does not require an individual determination. See 595 F.2d at 151. The defendants also point out that the recommendation of prosecution was delayed until 1977, two years after the issuance of the initial subpoenas. But the concern expressed in Genser II is not with delay itself, but with the issuance of subpoenas during a delay occurring after a decision has been made to recommend prosecution. In Genser II nine subpoenas issued after the special agent had completed his investigation and was preparing a report recommending prosecution. None of the 22 subpoenas issued in Phase I presents a similar issue. Finally, the defendants contend that they were entitled to additional documentary discovery to probe the credibility of the agents' testimony regarding the absence of a decision on prosecution and the absence of contacts between the IRS agents and prosecutorial agencies. While such discovery certainly would have been permissible under Genser II, the trial court's conclusion that the information available in this record sufficed was not an abuse of discretion. The minimum discovery required by Genser II was satisfied, and if only Phase I was at issue we would not require further proceedings. 21 With respect to Phase II, however, the problem is quite different. After April 23, 1975, the IRS agents were acting under the supervision of a Strike Force attorney in an ongoing criminal investigation. It therefore appears that there was a real likelihood that the IRS was used (as) an information-gathering agency for other departments, in violation of the LaSalle standard. 437 U.S. at 317, 98 S.Ct. at 2368. With respect to the 13 subpoenas issued during this phase, individual determinations of non-criminal purpose were clearly required. The trial court did not pursue that inquiry, however, and denied further discovery as well, because he accepted Agent Watkins' representation, fortified only by the government's brief, that none of the resulting information was used by the grand jury or as a lead to any information which would be used at trial. Thus the trial court's ruling assumed that there was a Donaldson-LaSalle violation, but accepted the agent's representation of absence of taint without affording the defendants access to the wherewithall to conduct an effective cross-examination. In Genser I, 582 F.2d at 310-11, we held that the government had the burden, after a Donaldson-LaSalle violation was established, of showing a taint-free basis for the evidence it relied on in the criminal prosecution. Certainly that burden cannot be met by an agent's unsupported conclusion. Even assuming the agent's utmost good faith, he may not be permitted to substitute what amounts to his legal conclusion for a meaningful judicial determination of taint made upon a fully developed record. The absence of discovery with respect to Phase II precluded that judicial determination. The defendants were entitled to discover what information was gathered as a result of the Phase II subpoenas, how the information was handled after it was gathered, and how it relates to the information gathered during Phase I, which concededly was presented to the grand jury, and was intended for use at trial. A remand for this purpose is required. Moreover, since there may well be questions bearing on taint about the relationships between the Phase I information and the Phase II information, the trial court should reconsider the denial of discovery respecting Phase I as well.