Legal Document

437 U.S. 298 98 Supreme Court Reporter 2357 57 United States Reports Lawyer’s Edition 2d Series KF101.8 U54 221 UNITED STATES et al., Petitioner,v.LaSALLE NATIONAL BANK al. Number 77-365. Argued March 29, 1978. Decided June 19, Syllabus Petitioner special agent of the Internal Revenue Service (IRS), in process investigating a taxpayer's tax liability, issued summonses to respondent bank under authority § 7602 Code 1954 (which permits use summons "[f]or purpose ascertaining correctness any return, . determining liability person for internal revenue , or collecting such liability") appear before and produce files certain land trusts, created benefit taxpayer. When official appeared response but refused files, petitioned District enforcement summonses. That court denied enforcement, finding that were not good faith because they "solely unearthing evidence criminal conduct" by The Appeals affirmed. Held : erred refusing enforce summonses, since its was taxpayer does necessarily lead conclusion good-faith pursuit congressionally authorized purposes 7602. Pp. 307-319. (a) Congress has categorized fraud investigation into civil components system which elements are inherently intertwined, limitation on an IRS must reflect this statutory premise. 308-311. (b) To 7602, primary requirement is it be recommends Department Justice initiation prosecution relating subject matter summons. This prophylactic rule designed protect standards litigation discovery role grand jury as principal tool accusation. 311-313. (c) Enforcement also conditioned upon IRS, abandon institutional responsibility determine collect taxes penalties. single intends only gather dispositive institution. Those resisting disprove actual existence valid determination collection IRS. 313-317. (d) On record here respondents have shown sufficient justification preclude question, absent recommendation showing age t already possessed all sought sense had abandoned liability. 318-319. 554 Federal Reporter, 2nd 302, reversed with directions remand. Lawrence G. Wallace, Washington, D.C., petitioner. Matt Pacific KF135 P2 Cushner, Chicago, Ill., respondents. Mr. BLACKMUN delivered opinion Court. 1 case supplement our decision Donaldson versus States, 400 517, 91 534, 27 580 (1971). It presents issue whether correctly when specifically found who them "was conducting his solely conduct." 76-1 Tax Cases (CCH) ¶ 9407, Page 84,073, 37 AFTR 76-582, 76-1240 (ND Ill.1976). 2 * In May 1975, John KF105 F3 Olivero, Intelligence Division Chicago (hereinafter Service), received assignment investigate Gattuso taxable years 1970-1972. App. 26-27, 33. Olivero testified he requested information from confidential informant unrelated investigation. Id., at 35. referred another law agency, nature assignment, testified, "[t]o possibility violations Code." pursued own, without assistance agent.1 He about Bureau Investigation result previous 36. solicited additional data Attorney Northern Illinois, Secret Service, Housing Urban Development, Collection Division, Cosmopolitan National Bank Chicago. 37-40. 3 Gattuso's returns question disclosed rental income real estate. property held Illinois trusts2 LaSalle Bank, trustee, fact revealed trust collected banks. 27, 45. order accuracy reports, proceeded two 1954, 26 KF62 7602,3 bank. Each related separate requested, among other things, trustee designated time place "files Trust 31544 [or 35396] including Agreement" period 1970 through 1972 "all deeds, options, correspondence, closing statements sellers statements, escrows, bills pertaining during" period. 9-16. Respondent Joseph W. Lang, vice president bank, but, advice counsel, materials requested. Brief Respondents 2. 4 pursuant §§ 7402(b) 7604(a) Code, 7604(a),4 then 5. November 11, 1975. petition filed determined charges justified made report superiors. 30. alleged incorporated exhibit necessary contained documents possession petitioners. 7, 17-18. entered show cause, id., answered represented Gattuso. 20-22. 5 At ensuing hearing post-hearing brief, argued Olivero's "purely criminal" nature. 82. Gregory Judge Perry, lawyer specializing federal taxation employed same firm answer, 1975 told him inve tigation strictly 52. conceded bore burden proving would abuse court's process, contended did "that there no Summons." 87. Instead, urged their "the gathering prosecution." 77. 6 agreed respondents' contentions. Although seemed recognize there's always probability liability," 61, focused attention Special Agent Olivero: 7 "I'll say now & N Dec. Immigration Nationality Decisions heard nothing testimony suggest thought ever crossed mind. 8 9 "Now, unless find something camera inspection [of file] gives more support Government position than Agent's did, my times involved investigation, least own mind."5 62. 10 written memorandum, noted permitted prior prosecution. Relying dictum Reisman Caplin, 375 440, 449, 84 508, 11 459 (1964), however, said improper "to serve obtaining USTC, 84,072, 2d, 76-1240. If, issuance, served proscribed purpose, concluded, absence formal irrelevant, faith, precluded. held: "It apparent investigative activities possible Gattuso, conduct Gattuso." 12 Seventh Circuit 302 (1977). concluded included within inquiry: 13 "[T]he administrative quintessential example bad faith. 14 15 "We note district formulated factual expression 'sole purpose' rather label 'bad faith.' We basis reversible error verbal formulation. grasped vital core rendered consistently therewith." 309. 16 further decided Contract urt reached factual, legal, been 305. Appellate review, accordingly, limited application clearly-erroneous standard. 306. establishes believe him." appellate could reverse trial judgment, said, "not left definite conviction mistake [had] made." 17 Because importance laws, conflict Courts concerning scope 7602,6 we granted certiorari. 434 996, 632, 54 489 II 18 (1971), putative former employer accountant production employer's records employment compensation. forthcoming, intervened eventually appealed order. addressed contention unenforceable aid resulted charge against His argument there, see 532, S.Ct., 543, based following U.S., 513: 19 witness may challenge appropriate ground. include, circuits held, defenses material prosecution, Boren Tucker, 239 767, 772-773 ." 20 light citation Boren,7 applicable situation pending or, most, purposes." 533, 544. 21 Discerning meaning brief dictum, resolve posed Donaldson. validity depended ultimately those Congress.8 Having reviewed scheme, 523-525, 538-540, potentially conduct. history, particularly 1939,9 supported conclusion, consistent practice decisions effective comparable statutes.10 saw reason force choose either forgo option recommending prosecutions Justice.11 As long purposes, enforceable. 536, 545. III 22 present requires us examine limits preceding discussion demonstrates, control facts us. There, mere potentiality should precluded 543. Here, hand, becomes leads Atlantic 23 Secretary Treasury Commissioner charged administering enforcing Code. 7801 7802. Congress, 7601(a), required canvass districts "inquire after persons therein liable pay tax." With regard suspected fraud, these duties encompass both statutes. willful submission false fraudulent return penalties 7206 7207 well, penalty, 6653(b), 50% underpayment. And 6659(a) provides penalty shall considered part Hence, examination calculation penalty. Donaldson, 535, 544, clearly drew distinction between aspects; "contains restriction"; corresponding regulations "positive"; significance, "for compared point agent's appearance." upheld even though carried potential repea ed emphasis Couch 409 322, 326, 93 611, 614, 34 548 (1973): 24 undisputed authorized, consequences." 25 inevitable intertwined. examines misconduct, inquires appropriateness assessing penalty.12 legislative history supports intended design interrelated elements. Section derives assertedly change meaning,13 similar provisions 3614, 3615, 3654 1939 By 3614(a) making where none 3615(b)(3) issuance "[w]henever deliver monthly objects delivers which, collector, erroneous, false, fraudulent, contains undervaluation understatement." 3654(a) stated powers collector: "Every collector laws faithfully executed complied with, prevention, detection, punishment frauds relation thereto. For power persons, books, papers, accounts, premises summon books papers compel compliance manner provided section 3615." 28 Under 3616 fine imprisonment. therefore, contemplated involving well behavior disciplined penalty.14 29 short, investigations components. Any B 30 suggests why occurs Justice. Only do aspects begin diverge. See Hodge Zweig, 1347, 1351 (CA9 1977); Billingsley, 469 1208, 1210 (CA10 1972). recognize, course, Department, completely. sacrifice interest unpaid just begins. Logically, then, uncover regardless status case. But forbidding safeguard policy interests. 31 A referral proceed. cannot try prosecutions. Such reserved and, particularly, Attorneys. 547(1). Nothing broaden Department's right infringe Accord, Morgan Guaranty Co., 572 36 (CA2 1978); Weingarden, 473 454, 458-459 (CA6 1973); O'Connor, 118 F.Supp. 248, 250-251 (Mass.1953); 545; cf. Abel 362 217, 226, 80 683, 690, 668 (1960). likelihood broadened infringed substantial if post-referral u e permitted. example, referral, loses ability compromise 7122(a). After settle rests Interagency cooperation expected probably encourages efficient settlement dispute. cooperation, combined intertwined case, unrealistic attempt build partial barrier branches executive. Effective inevitably discovery. restraint effectively safeguards interests while encouraging maximum interagency cooperation.15 32 Prior Justice, Powell, 379 48, 57-58, 85 254-255, 112 (1964). announced several exercise: 33 "[The Service] will conducted legitimate inquiry relevant Commissioner's possession, steps followed [A] permit abused. take harass put pressure collateral dispute, reflecting particular investigation." Ibid. (footnote omitted). number Appeals, F.2d, 309, pursue summons, investigation.16 courts conclusions explanation dictum. language read recognition o criminal/civil inquiry. require extraordinary departure normally inseparable goals examining exists assessment 35 submit indeed occur interested disagree. calculate fraudulently reported unreported overturned attempts review over above multilayered thorough. Apart immediate supervisor, final chief Regulations 601.107(b) (1977); Manual, ch. 9600, 9621.1, 9622.1, 9623 (CCH Office Regional Counsel reviews forwarded Department. 601.107(c) Organization Functions 1116(3), 39 Fed.Reg. 11602 (1974); 9624, 9631.2, 9631.4 1977). If Assistant disagree disposition complete national level centered Criminal General Counsel. 1113(11) 22, 11599 9651(1) officials layers concurred place. various stages, can decide instead assert goals. While important actor motivation hardly dispositive. provide protection hasty overzealous judgment agent. obtain conference request whenever determines best Government. 601.107(b)(2) 9300, 9356.1 recommended, notifies 9355 draw line permissible impermissible entrance 545, personal intent. so unnecessarily frustrate restricting according Furthermore, objectives delay proceedings parties clash over, judges grapple processes each investigator.17 1978). obviously undesirable unrewarding. result, posture Contrary assertion respondents, means opposing bear Service. all, agency honestly pursuing issuing 38 Without doubt, heavy one. liabilities coterminous, rarely acted former. aspect altogether.18 countenance submitting commitment make merely like tantamount expand rights. Similarly, standard become information-gathering departments, cases.19 Defendant summary, requirements emerge summons.20 First, reasonably relate undertaken. Second, second prerequisite meet Powell sense, explained Parts III-A III-C above, collection. IV 40 us, demonstrated No made. Of criteria, one Service's showing: They possess 16-19. shows uncovered names identities knows value trusts allocation therein. bank's reveal information, computation criteria enforcement. Finally, court, failed consider liability.21 presently developed, conclude abandonment occurred. 41 therefore instructions remand opinion. 42 ordered. 43 STEWART, whom Chief REHNQUIST, STEVENS join, dissenting. 44 judicial misreadings passage Court's % 580. courts, others, mean sum- mons purposes.1 Yet statute itself limitation, summons: "issued adhere view. 45 concedes task establishing "purpose" individual "undesirable unrewarding." Ante, 316. imposes today—to discover "institutional faith" entire is, view, less desirable rewarding. elusiveness described little endless ultimate frustration fair administration fear new prove wholly unworkable. 46 Earlier year Second occasion deal Friendly's perceptive correctly: "laying down objective test, 'prior prosecution,' avoid need agents; 'good faith' holding different matters mentioned in" 112.2 "Such view rationale offered preventing otherwise third party namely trench Government's 41-42. 47 Instead standing comparatively bright-line test clarified, today muddies waters. identify source adds These suggested anything statutes themselves, nobody derive Constitution. simply imposed out nowhere, seem me unjustified, unworkable, unwise. 48 hearings Court, Frequently, Audit refer working fraud. times, work together. sensitivity joint assumes e. g., 4500, 4563.431-4565.44 1976 planned reorganization, intention redesignate Examinations respectively. News Release, Feb. 6, describe follows: "An contract vested legal equitable title beneficiary property. writing exclusive direct dealing management, operation, renting selling together earnings, avails proceeds Ill.Rev.Stat. 8.31 (1971)." 1-2, n. 1. reads: "For made, equity transferee fiduciary respect tax, delegate authorized— "(1) records, inquiry; "(2) perform act, officer employee person, having custody, care account containing entries business deem proper, named data, give testimony, oath, "(3) concerned, inquiry." states: "If summoned appear, testify, resides jurisdiction attendance, data." aware recognized motive dispositive: "The COURT: [U]nder your theory really until closed that's law, you're trouble, Cushner [counsel respondents]. "I think boils it's cases I'm plus clues file." 61-62. inspect file file. 50-51, Compare 1350-1351 Zack, 521 1366, 1368 1975); McCarthy, 514 368, 374-375 (CA3 460 Wall Corp., 154 U.S.App.D.C. 311, 475 893, 895 (1972); 1972), 36, 41-42 Troupe, 438 117, 119 (CA8 1971), regarding so-called issue. 1351; 1210, Lafko, 520 622, 625 1975), superiors (1956), Ninth distinguished 248 (Mass.1953), indictment. earlier summoning accountant's violate constitutional rights them. 522, 538. 3616, 53 Statutes-at-Large 438-440, 446. Kordel, 397 1, 90 763, 769, (1970) (Federal Food, Drug, Cosmetic Act enforcement), citing Standard Sanitary Mfg. company 226 20, 51-52, 9, 15-16, L.Ed. 107 (1912) (Sherman enforcement). Part III-B 15, infra. functions organization functioning Pursuant 601.107 (1977), "whose mission encourage achieve highest degree voluntary laws." implemented (when warranted) and/or 50 percent ad valorem addition generally 1113.563, 1114.8, 1118.6, 11572, 11581, 11601, 11607 (1974). Manual employees, instructs includes except estimated tax. 4561 1976). adds: "Intelligence features developing presenting admissible negligence delinquency (except estimations) jointly investigated completion." 4565.31(4). detailed coordination agents during E. 4563.431 (1978), 4565.22, 4565.32, 4565.41-4565.44 (1976). Statistics fiscal substantially greater involvement 8,797 full-scale year, 2,037 recommendations 6,760 recommended approximately $11 million deficiencies Annual Report 33, 152. H.R.Rep.No.1337, 83d Cong., Sess., A436 (1954); S.Rep.No.1622, 617 (1954), U.S.Code Cong. Admin.News 4025. Acts See, 1918, 1305, 1142; Tariff Oct. 3, 1913, I, 178-179; 30, 1864, 14, 226. thus early 1864. 1864 return. prescribed 100% increase valuation falsehood. established Four later, authority. July 1868, 49, 144-145; Cong.Globe, 40th 3450 (1868). enforced Commissioner. re Meador, 1789:1880 1294, 1296 (No. 9,375) Ga.1869); Stanwood Green, 1077, 1079 13,301) (SD Miss.1870) ("it being understood supervisor extends banking operations, connected States"). Third reference ("We hold prosecution," 545) office agent, 625. misread Given remains given utility decline impose deny expanding usurping possibilities policies remote takes justify imposing absolute ban point. imposition ban, balance interests, hamstring performance 1350, 1368; 625; 374-375; Theodore, 479 753; 459; U.S.App.D.C., 895. evaluate factors dissent reaches says prevent use. Its reveals fundamental misunderstanding enjoy inherent private citizens. exercise Congress. bestowed four only: "ascertaining liability." used taxes. include goal filing Consequently, exist solely. seeks limit face seek affirmative grant purely investigations. search exclusively employs pursues aiding extent questioned rejects prerecommendation fails essence statement exampl action exclusive. Future forms congressional process. argue holds erroneous. Several discussed issues lurk proceedings. 1367-1368; State 454 1249, 1252 (CA7 1972); 773, 460. Whether poses one, presented reach it. lower incorrect measure consideration Olivero. compels reversal. ante, 305-306 6. Friendly pointed out, declared abused, examples "abuse" were: " 'Such investigation.' [379 58, 254.] "Nothing indicate 'on inquiry, ejusdem generis dictate contrary." 40.

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