Court Opinion

ID: 9466331
Source: CourtListenerOpinion
Date Created: 2023-08-05 01:12:27.049062+00
Date Added: 2024-06-11T17:39:40.393498
License: Public Domain

WINTER, Circuit Judge,
dissenting:
I agree with the majority that DiVivo has standing as an intervenor to raise the question of the good faith of the Internal Revenue Service in issuing the summons for records relating to his business dealings with DiBiasi. I disagree, however, that DiVivo has failed to allege facts sufficient to defeat enforcement of the summons. Relying on the standards enunciated by the Supreme Court in United States v. Powell, 379 U.S. 48, 85 S.Ct. 248, 13 L.Ed.2d 112 (1964), I would hold that, when the IRS undertakes investigation of a taxpayer for the primary purpose of pressuring him to give evidence against another taxpayer, the investigation is not conducted in good faith and a summons issued in the course of the investigation is therefore not enforceable. In the instant case, DiVivo has alleged that “one of [the] purposes, if not the primary purpose [of the IRS investigation of DiBiasi is] to pressure DiBiasi into cooperating with the Internal Revenue Service in its investigation of [DiVivo].” Moreover, he has proffered evidence which tends to support his allegation. I therefore believe that the district court erred in denying DiVivo the opportunity to prove his allegation. I respectfully dissent.
Powell established that a district court should not enforce a summons issued in the course of an investigation that is not undertaken in good faith. In his opinion for the Court, Justice Harlan stated:
It is the court’s process which is invoked to enforce the administrative summons and a court may not permit its process to be abused. Such an abuse would take place if the summons had been issued for an improper purpose, such as 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. The burden of showing an abuse of the court’s process is on the taxpayer .
Id. at 58, 85 S.Ct. at 255. Although the claim of harassment advanced by the taxpayer in Powell involved repetitive summonses, the broad scope of the quoted language makes clear that other forms of harassment or bad faith will also render a summons unenforceable. The broad appli*503cability of the Powell standards was reaffirmed in United States v. LaSalle National Bank, 437 U.S. 298, 98 S.Ct. 2357, 57 L.Ed.2d 221 (1978). In particular, LaSalle made clear that the Powell standards are independent of, and in addition to, the requirement that a summons must be issued before the IRS has abandoned the pursuit of civil tax determination or collection in favor of criminal prosecution. See id. at 317 n. 19, 318, 98 S.Ct. 2357.
DiVivo has alleged that the IRS undertook its investigation of DiBiasi and issued the summons in question for the purpose, if not the primary purpose, of pressuring DiBiasi into cooperating with the investigation of DiVivo by giving evidence against him. If it is proved that the primary purpose of the investigation and the summons was to force DiBiasi’s cooperation in the DiVivo investigation, then I think Powell requires that enforcement of the summons be denied. It is difficult to conceive of an example of bad faith that would better qualify as “an improper purpose, such as to harass the taxpayer or to put pressure on him to settle a collateral dispute.”
The majority seeks to justify the purpose attributed by DiVivo to the IRS by citing the authority granted to the IRS under I.R.C. § 7122(a) to compromise any civil or criminal tax case, prior to referral to the Department of Justice. In United States v. Barrett, 505 F.2d 1091, 1100-03 (7 Cir. 1974), cert. denied, 421 U.S. 964, 95 S.Ct. 1951, 44 L.Ed.2d 450 (1975), § 7122(a) was relied upon to permit the grant of civil tax immunity to the accomplice of a bribery defendant, with respect to the income tax owed by the accomplice on bribes which passed through his hands, in exchange for the accomplice’s testimony against the defendant. But the power of the IRS to compromise tax cases has no bearing on the question before us. DiVivo does not deny that if the IRS had undertaken an investigation of DiBiasi in good faith for the primary purpose of determining and collecting DiBiasi’s tax liability, then the IRS could properly issue summonses pursuant to that investigation and could ultimately compromise DiBiasi’s case in exchange for his testimony against DiVivo. Rather, DiVivo alleges that the investigation of DiBiasi was undertaken in bad faith as a pressure tactic to force DiBiasi to cooperate in the investigation of DiVivo. Nothing in § 7122(a) or Barrett authorizes the IRS to undertake or pursue an investigation for such a primary purpose.
I fully recognize the difficulty that DiVivo would have in proving his case. Powell places the burden of proving bad faith on the party opposing enforcement, 379 U.S. at 58, 85 S.Ct. .248, and this burden is a heavy one indeed. In order to prevent enforcement of the summons, DiVivo would have to prove that the primary purpose of the investigation of DiBiasi was not to determine and collect his tax liability but rather to pressure him to give evidence against DiVivo. Although such proof would be quite difficult to establish, DiVivo proffered evidence to the district court, inter alia, that DiBiasi was contacted about cooperating with the DiVivo investigation very soon after receiving notification of his own investigation; that DiBiasi was told to contact the Special Agent in charge of the DiVivo investigation, rather than the agents handling his own investigation; and that the DiBiasi investigation has been characterized by several other unexplained departures from standard IRS procedures. While such evidence may be insufficient to prove the ultimate fact sought to be established, it was sufficient to raise a genuine dispute on the question of good faith of the IRS, and the district court therefore erred in denying DiVivo “the adversary hearing to which [he] is entitled before enforcement [of the summons] is ordered,” id.
Although I share the concern expressed by the majority that consideration by district courts of objections charging IRS bad faith may unduly delay the enforcement of IRS summonses, I doubt that such objections will be frequent. The difficulty' of proving IRS bad faith, which I discuss above, will be a deterrent to many unfounded objections. Summary procedures, where appropriate, can assist in the expeditious disposition of such objections. See id. at 58 *504n. 18, 85 S.Ct. 248 (Federal Rules of Civil Procedure govern proceedings to enforce IRS summonses). In any event, both Congress and the" Supreme Court have determined that full consideration of objections to the validity of a summons is worth the delay that may result. Congress has provided for a judicial hearing prior to the enforcement of a summons and for the right of a person in DiVivo’s position to intervene in such a proceeding. See I.R.C. §§ 7604(b), 7609(b)(1). And, as the majority notes, the Supreme Court has indicated that occasional :delays caused by the consideration of unmeritorious objections to IRS summonses is the necessary price for ensuring that the process of the courts is not abused. See United States v. LaSalle National Bank, 437 U.S. at 316 n. 17, 98 S.Ct. 2357; United States v. Powell, 379 U.S. at 58, 85 S.Ct. 248.
I would reverse the judgment of the district court and remand the case for a full hearing on DiVivo’s allegations of IRS bad faith.