United States v. Baggot
463 U.S. 476 (1983)

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U.S. Supreme Court

United States v. Baggot, 463 U.S. 476 (1983)

United States v. Baggot

No. 81-1938

Argued March 2, 1983

Decided June 30, 1983

463 U.S. 476

CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR

THE SEVENTH CIRCUIT

Syllabus

Federal Rule of Criminal Procedure 6(e)(3)(C)(i) permits disclosure otherwise prohibited by Rule 6 of matters occurring before a grand jury "when so directed by a court preliminarily to or in connection with a judicial proceeding." Respondent was the target of a grand jury investigation of certain commodity futures transactions. He was never indicted, but, after plea negotiations, pleaded guilty to misdemeanor violations of the Commodity Exchange Act. Thereafter, the Government filed a motion under Rule 6(e)(3)(C)(i) for disclosure of grand jury transcripts and documents to the Internal Revenue Service (IRS) for use in an audit to determine respondent's civil income tax liability. While holding that disclosure was not authorized by Rule 6(e)(3)(C)(i), the District Court nevertheless allowed disclosure under its "general supervisory powers over the grand jury." The Court of Appeals reversed, agreeing that no disclosure is available under Rule 6(e)(3)(C)(i), but holding that the District Court erred in granting disclosure under "general supervisory powers."

Held: The IRS's civil tax audit is not "preliminar[y] to or in connection with a judicial proceeding" within the meaning of Rule 6(e)(3)(C)(i), and hence no disclosure is available under that Rule. The Rule contemplates only uses related fairly directly to some identifiable litigation, pending or anticipated. It is not enough to show that some litigation may emerge from the matter in which the material is to be used. The focus is on the actual use to be made of the material. It follows that disclosure is not appropriate for use here in the IRS's audit, the purpose of which is not to prepare for or conduct litigation, but to assess the amount of tax liability through administrative channels. The fact that, if the audit discloses a deficiency, respondent may seek judicial redress in a redetermination proceeding in the Tax Court or in a refund action in the Court of Claims or a district court, without more, does not mean that the Government's action is "preliminar[y] to . . . a judicial proceeding." Pp. 463 U. S. 478-483.

662 F.2d 1232, affirmed.

BRENNAN, J., delivered the opinion of the Court, in which WHITE, MARSHALL, BLACKMUN, POWELL, REHNQUIST STEVENS, and O'CONNOR, JJ., joined. BURGER, C.J., filed a dissenting opinion, post, p. 463 U. S. 483.

Page 463 U. S. 477

JUSTICE BRENNAN delivered the opinion of the Court.

In United States v. Sells Engineering, Inc., ante p. 463 U. S. 418, we decide today that, in some circumstances, the Government may obtain disclosure of grand jury materials for civil uses under Federal Rule of Criminal Procedure 6(e)(3)(C)(i) (hereinafter sometimes referred to as (C)(i)). The question in this case is whether an Internal Revenue Service investigation to determine a taxpayer's civil tax liability is "preliminar[y] to or in connection with a judicial proceeding" within the meaning of that Rule. We agree with the Court of Appeals that it is not.

In May, 1976, a special grand jury began investigating certain commodity futures transactions on the Chicago Board of Trade. Respondent James E. Baggot became a target of the investigation. He was never indicted; instead, after interviews with IRS agents and plea negotiations with the Government, he pleaded guilty to two misdemeanor counts of violating the Commodity Exchange Act. [Footnote 1] The substance of Baggot's crime was a scheme to use sham commodities transactions to create paper losses, which he deducted on his tax returns. A fraction of the "losses" was then recovered in cash kickbacks which were not reported as income.

About eight months after Baggot's plea, the Government filed a (C)(i) motion for disclosure of grand jury transcripts and documents to the IRS, for its use in an audit to determine

Page 463 U. S. 478

Baggot's civil income tax liability. At first the District Court denied the request. After two renewed motions, however, the court granted disclosure. It held that some of the materials sought are not "matters occurring before the grand jury," and therefore not subject to Rule 6(e)'s requirement of secrecy. With respect to the remainder of the materials, the court concluded that disclosure is not authorized by (C)(i) because the IRS's proposed civil tax investigation is not "preliminar[y] to or in connection with a judicial proceeding." Nevertheless, the court allowed disclosure under its "general supervisory powers over the grand jury." App. to Pet. for Cert. 47a-48a.

The Court of Appeals reversed. In re Special February, 1975 Grand Jury (Baggot), 662 F.2d 1232 (CA7 1981). It held that all the materials sought, with one possible exception, are "matters occurring before the grand jury," and therefore subject to Rule 6(e). It agreed with the District Court that no disclosure is available under (C)(i), but it held that the District Court erred in granting disclosure under "general supervisory powers." It remanded the case for further consideration concerning the material that might not be "matters occurring before the grand jury." The Government sought certiorari, limited to the question of whether the IRS's civil tax audit is "preliminar[y] to or in connection with a judicial proceeding" under (C)(i). We granted certiorari. 457 U.S. 1131 (1982).

The IRS is charged with responsibility to determine the civil tax liability of taxpayers. To this end, it conducts examinations or audits of taxpayers' returns and affairs. If, after the conclusion of the audit and any internal administrative appeals, the IRS concludes that the taxpayer owes a deficiency, it issues a formal notice of deficiency as prescribed by 26 U.S.C. § 6212 (1976 ed. and Supp. V). Upon receiving a notice of deficiency, the taxpayer has, broadly speaking, four options: (1) he can accept the IRS's ruling and pay the amount of the deficiency; (2) he can petition the Tax

Page 463 U. S. 479

Court for a redetermination of the deficiency; (3) he can pay the amount of the deficiency and, after exhausting an administrative claim, bring suit for a refund in the Claims Court or in district court; or (4) he can do nothing and await steps by the IRS or the Government to collect the tax. See generally 4 B. Bittker, Federal Taxation of Income, Estates and Gifts

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