In furtherance of an investigation of petitioner's tax returns,
respondent Grady, an Internal Revenue Service (IRS) Special Agent,
issued summonses to petitioner's putative former employer (Acme)
and its accountant for the production of Acme's records of
petitioner's employment and compensation during the years under
investigation. The summonses were issued under § 7602 of the
Internal Revenue Code of 1954, which authorizes IRS examinations of
records and witnesses for the purpose of determining tax liability.
Thereafter, respondents, pursuant to 26 U.S.C. §§ 7402(b) and
7604(a), filed in the District Court petitions for enforcement of
the summonses. Petitioner filed motions to intervene in the
enforcement proceeding, relying on Fed.Rule Civ.Proc. 24(a)(2),
which,
inter alia, provides for intervention in an action
"when the applicant claims an interest relating to the property or
transaction which is the subject of the action. . . ." Petitioner
alleged that the IRS agents were investigating him solely to obtain
evidence concerning criminal violations of the tax laws, and that,
consequently, the summonses were not issued for any purpose within
the scope of § 7602, and could not be enforced. The court denied
petitioner's motions and ordered that the records be produced
The Court of Appeals affirmed.
Held:
1. Petitioner has no proprietary interest in the Acme records
(his sole interest therein being that they presumably contain
details of payments to him), and since he has no other protectable
interest by way of privilege or otherwise, he has no absolute right
under Fed.Rule Civ.Proc. 24(a)(2) to intervene in the IRS summons
enforcement proceeding. Pp.
400 U. S.
527-531.
2. Under § 7602, an IRS summons may be used in connection with a
tax investigation if (as in this case) it is issued in good faith
and prior to a recommendation for prosecution. Pp.
400 U. S.
531-536.
418 F.2d 1213, affirmed.
Page 400 U. S. 518
BLACKMUN, J., delivered the opinion of the Court, in which
BURGER C.J., and BLACK, HARLAN, STEWART, WHITE, and MARSHALL, JJ.,
joined. DOUGLAS, J., filed a concurring opinion,
post, p.
400 U. S. 536.
BRENNAN, J., filed a statement concurring in the result,
post, p.
400 U. S.
536.
MR. JUSTICE BLACKMUN delivered the opinion of the Court.
We are here concerned with problems arising in connection with
the issuance and judicial enforcement of an internal revenue
summons directed to someone other than the individual taxpayer.
Kevin L. Donaldson, formerly known as Merton H. Sweet,
apparently was once employed by, or was a performer for, Acme
Circus Operating Co., Inc., dba Clyde Beatty-Cole Bros. Circus.
[
Footnote 1] Mr. Donaldson
(sometimes referred to herein as the "taxpayer") is an individual
whose income tax returns for the calendar years 1964-1967,
inclusive, are under investigation by the Internal Revenue
Service.
On September 12 and 13, 1968, Special Agent John P. Grady,
purportedly acting under the authority of § 7602 of the Internal
Revenue Code of 1954, 26 U.S.C. § 7602, [
Footnote 2]
Page 400 U. S. 519
issued and served separate summonses to Acme and to Joseph J.
Mercurio, Acme's accountant, commanding their appearance before
Grady on September 23 and 24 "to give testimony relating to the tax
liability" of Donaldson and to produce certain of Acme's records
having to do with the taxpayer. The records specified were
"applications for employment and/or any other records containing
background data including Social Security number furnished you by"
the taxpayer; all contracts between the taxpayer and Acme and
between him "and the various organizations sponsoring performances
of the circus . . . during . . . 1964 through 1967, inclusive";
Forms 1099 and W-2 issued to the taxpayer; a schedule of the
payments made to the taxpayer by the sponsoring organizations;
checks and vouchers relating to payments to the taxpayer by Acme;
expense vouchers submitted by the taxpayer; records containing
information as to the identification of each sponsoring
organization; and "correspondence or other records relating to the
foregoing or to any other financial transactions between Acme" and
the taxpayer during 1964-1967, inclusive.
Shortly prior to the issuance of these summonses, the United
States District Court for the Middle District of Florida, upon
petitions filed by the taxpayer, issued temporary
Page 400 U. S. 520
restraining orders, and then, as to Mercurio, a preliminary
injunction, restraining Mercurio and Acme from complying with
Grady's requests or with any subsequent summons directing the
production of the records "until such time as an order of a court
of competent jurisdiction has been issued requiring such
compliance." On November 25, 1968, the United States and Agent
Grady, pursuant to 26 U.S.C. §§ 7402(b) and 7604(a), [
Footnote 3] filed petitions with the same
federal court for the judicial enforcement of the summonses
directed to Mercurio and to Acme. The petitions were supported by
affidavits of Grady and of Special Agent Bruce B. Miller. [
Footnote 4] Each affidavit was to the
effect that the affiant was conducting or assisting in the conduct
of "an investigation for the purpose of ascertaining the correct
income tax liability" of the taxpayer for the years 1964-1967,
inclusive, and that it was "necessary" to examine the records and
to take the testimony requested in order to ascertain the
taxpayer's correct income tax liability for those years.
Page 400 U. S. 521
In response to the ensuing orders to show cause, the taxpayer,
purportedly pursuant to Fed.Rule Civ.Proc. 24(a)(2), filed motions
to intervene in the enforcement proceedings. He accompanied each
motion with a proposed answer. In the answer, he alleged that
Special Agents Grady and Miller were guilty of bad faith in
asserting that they were conducting an investigation to ascertain
the taxpayer's correct income tax liability for the years in
question; that the two agents were assigned to Intelligence
Divisions of the Service; that they were investigating the
taxpayer
"for the express and sole purpose of obtaining evidence
concerning any violations of the criminal statutes applicable to
the tax laws of the United States;"
and that, as a consequence, the summonses were not issued for
any purpose within the scope of § 7602. It was also asserted,
although apparently it is not now urged here, that the requests in
the summonses were overly broad and "without a showing of
particularized relevancy," and that the taxpayer, under the
Constitution, "is entitled to be secure in his personal papers and
personal effects from unreasonable searches and seizures."
Mercurio and Acme, on their part, also filed responses to the
orders to show cause. Each alleged that, "were it not for" the
preliminary injunction or temporary restraining order theretofore
entered, "the Respondent would have complied with the summons."
[
Footnote 5]
The orders to show cause were returnable before Judge Lieb.
After the submission of memoranda and argument, but without the
introduction of testimony, the court denied the motions to
intervene and ordered Mercurio and Acme to appear before Grady and
to produce
Page 400 U. S. 522
the records requested. The court then consolidated the two cases
for purposes of appeal and granted stays pending appeal. The Fifth
Circuit affirmed.
United States v. Mercurio, 418 F.2d 1213
(CA5 1969).
Certiorari was granted, 397 U.S. 933 (1970), because the case
appeared to raise important questions relating to the
administration and enforcement of the revenue laws, and because the
courts of appeals have differed in their reading of
Reisman v.
Caplin, 375 U. S. 440
(1964). [
Footnote 6]
I
Despite the contrary intimations in the motions to intervene,
there is now no constitutional issue in the case. The taxpayer, on
oral argument, so conceded. [
Footnote 7] In any event, that question appears to have
been settled long ago when the Court upheld, against Fourth
Amendment challenge, an internal revenue summons issued under the
Revenue Act of 1921 and directed to a third-party bank.
First
Nat. Bank v. United States, 267 U.S. 576 (1925),
aff'g 295 F. 142, 143 (SD Ala.1924).
See also United
States v. First Nat. Bank, 274 F.
Supp. 283, 284 (ED Ky.1967),
aff'd sub nom. Justice v.
United States, 390 U. S. 199
(1968), and
United States v. Shlom, 420 F.2d 263, 266 (CA2
1969),
cert. denied, 397 U.S. 1074 (1970).
II
We emphasize initially, as did Judge Tuttle in his opinion for
the Court of Appeals, 418 F.2d at 1214, that what is sought here by
the Internal Revenue Service
Page 400 U. S. 523
from Mercurio and from Acme is the production of Acme's records,
and not the records of the taxpayer. Further, as Judge Tuttle also
emphasized, this is not a case where a summons has been issued to
the taxpayer himself seeking access to his books and information
from his mouth. Neither is it a case where the summons is directed
at the taxpayer's records in the hands of his attorney or his
accountant, with the attendant questions of privilege, or even in
the hands of anyone with whom the taxpayer has a confidential
relationship of any kind. Each of the summonses here, we repeat,
was directed to a third person with respect to whom no established
legal privilege, such as that of attorney and client, exists, and
had to do with records in which the taxpayer has no proprietary
interest of any kind, which are owned by the third person, which
are in his hands, and which relate to the third person's business
transactions with the taxpayer.
III
Mr. Justice Clark, in Part II of his opinion for a unanimous
Court in
Reisman, 375 U.S. at
375 U. S.
445-446, reviewed the statutory structure that Congress
has provided for the issuance and enforcement of an internal
revenue summons. It will perhaps be rewarding for us to outline
that structure once again.
Section 7601 of the 1954 Code, 26 U.S.C. § 7601, directs the
Secretary or his delegate, "to the extent he deems it practicable,"
to cause Treasury Department officers or employees "to proceed . .
. and inquire after and concerning" all persons "who may be liable
to pay any internal revenue tax." The section thus flatly imposes
upon the Secretary the duty to canvass and to inquire. This is an
old statute. It has roots in the first of the modern general income
tax acts, namely, the Tariff Act of October 3, 1913, § II, � I, 38
Stat. 178, and prior to
Page 400 U. S. 524
that, in § 3172, as amended, of the Revised Statutes of
1874.
Section 7602 authorizes the Secretary or his delegate for
"the purpose of ascertaining the correctness of any return . . .
determining the liability of any person for any internal revenue
tax . . . or collecting any such liability . . . [t]o summon the
person liable for tax . . . or any person having possession,
custody, or care of books of account containing entries relating to
the business of the person liable for tax . . . or any other person
the Secretary or his delegate may deem proper, to appear . . . and
to produce such books, papers, records, or other data, and to give
such testimony, under oath, as may be relevant or material to such
inquiry. . . ."
Section 7603 provides for service of the summons. There is no
provision for personal enforcement of the summons by the Secretary
or his delegate. If enforcement is desired, he must proceed under §
7402(b), or its sister and essentially identical statute, §
7604(a),
see n 3,
supra, each of which grants the district courts of the
United States jurisdiction "by appropriate process to compel such
attendance, testimony, or production."
Then, as Mr. Justice Clark pointed out, 375 U.S. at
375 U. S.
446:
"Any enforcement action under this section [§ 7402(b)] would be
an adversary proceeding affording a judicial determination of the
challenges to the summons and giving complete protection to the
witness. In such a proceeding, only a refusal to comply with an
order of the district judge subjects the witness to contempt
proceedings."
Finally, § 7605(a) provides that the time and place of the
examination "shall be such . . . as may be fixed by the Secretary
or his delegate and as are reasonable under the circumstances,"
and, with respect to a § 7602
Page 400 U. S. 525
summons, that "the date fixed for appearance . . . shall not be
less than 10 days from the date of the summons."
Thus, the summons is administratively issued, but its
enforcement is only by federal court authority in "an adversary
proceeding" affording the opportunity for challenge and "complete
protection to the witness."
IV
Reisman was an action, instituted by attorneys for a
husband and wife, for declaratory and injunctive relief against the
Commissioner of Internal Revenue and an accounting firm which had
been working on the taxpayer-couple's financial records at their
request. The Commissioner had issued summonses to the accounting
firm for the production of work papers and correspondence. It was
contended that the enforced production of the papers was an
unlawful appropriation of the attorneys' work product and trial
preparation. The Court concluded that the petitioner attorneys
possessed an adequate remedy at law, and that the complaint,
therefore, was subject to dismissal. In reaching this conclusion,
the Court emphasized the employment of the accounting firm by the
attorneys "to assist them in connection with certain civil and
criminal tax proceedings arising from the alleged tax liability of
the" taxpayers; that the products of the joint work of the
accountants and the attorneys "were kept separate in the accounting
firm's files and labeled as the property of" the attorneys; that,
at the time of the service of the summonses, "there were four civil
tax cases pending in the Tax Court contesting alleged deficiencies"
and, in addition, "a criminal investigation of Mr. Bromley on the
tax matters was in progress."
The Court noted that the petitioners made no claim that § 7602
"suffers any constitutional infirmity on its face," and that the
Government conceded that "a witness
Page 400 U. S. 526
or any interested party may attack the summons before the
hearing officer." The Court agreed. It went on to observe that, "in
tax enforcement proceedings, the hearing officer has no power of
enforcement or right to levy any sanctions," and that,
"in any of these procedures before either the district judge or
United States Commissioner, the witness may challenge the summons
on any appropriate ground."
Among such grounds, the Court included "the defenses that the
material is sought for the improper purpose of obtaining evidence
for use in a criminal prosecution" or the defense that it is
protected by the attorney-client privilege. It went on to say,
"In addition, third parties might intervene to protect their
interests, or, in the event the taxpayer is not a party to the
summons before the hearing officer, he, too, may intervene,"
and that this "would be true whether the contempt be of a civil
or criminal nature." Finally, it said that there would be no
difference should the witness indicate "that he would voluntarily
turn the papers over."
Ten months later the Court decided
United States v.
Powell, 379 U. S. 48
(1964), and its companion case,
Ryan v. United States,
379 U. S. 61
(1964). These concerned, respectively, internal revenue summonses
issued to the president of a corporate taxpayer and to an
individual taxpayer with respect to reexaminations and tax years
for which assessments would be barred except for fraud. The Court
was primarily concerned with the standards the Internal Revenue
Service must meet in order to obtain judicial enforcement of its
orders. It held that probable cause to suspect fraud was not
required under the statutes and that the Commissioner need show
only
"that the investigation will be conducted pursuant to a
legitimate purpose, that the inquiry may be relevant to the
purpose, that the information sought is not already within the
Commissioner's possession,
Page 400 U. S. 527
and that the administrative steps required by the Code have been
followed. . . ."
Again it was emphasized that, at the adversary hearing to which
the taxpayer is entitled before enforcement is ordered, he may
challenge the summons on any appropriate ground. It was also stated
that the burden of showing an abuse of the court's process is on
the taxpayer.
V
With all this as background, our central inquiry here is as to
Donaldson's right to intervene in the summons proceedings.
Donaldson had obtained preliminary relief (in the form of a
temporary restraining order and, as to Mercurio, in the form of the
succeeding preliminary injunction as well) in his self-instituted
actions to restrain Mercurio's and Acme's voluntary compliance with
Grady's request. But when the enforcement proceedings were
instituted by the United States and Grady, the taxpayer was not
successful either as to intervention or as to relief by way of
restraint.
In his motion to intervene, and here (but apparently not at oral
argument in the Court of Appeals,
see 418 F.2d at 1215),
Donaldson would take comfort from the provisions of Fed.Rule
Civ.Proc. 24(a)(2). [
Footnote
8] He asserts that, within the rule's literal language, he
possesses
"an interest relating to the property or transaction which is
the subject of the [enforcement] action and he is so situated that
the disposition of the action may as a
Page 400 U. S. 528
practical matter impair or impede his ability to protect that
interest,"
and that his interest is not adequately represented by the
parties (Mercurio and Acme) to the enforcement proceedings. He
would buttress this approach by reliance upon the reference to both
§ 7604(a) and the Civil Rules in n. 18 in
Powell, 379 U.S.
at
379 U. S. 58,
[
Footnote 9] and by reliance
upon language appearing in
Reisman, 375 U.S. at
375 U. S. 445.
[
Footnote 10]
In our view, however, the taxpayer's argument goes too far in
its reading of Rule 24(a)(2) and of the quotations from
Powell and from
Reisman. The Civil Rules, of
course, do have an application to a summons proceeding.Rule
81(a)(3) expressly so provides. [
Footnote 11] But the Civil Rules are not inflexible in
this application. Rule 81(a)(3) goes on specifically to recognize
that a district court, by local rule or by order, may limit the
Page 400 U. S. 529
application of the rules in a summons proceeding.
See 7
J. Moore, Federal Practice, �81.06[1], p. 4442 (2d ed.1970). This
feature was recognized as purposeful by the Advisory Committee when
the pertinent language was added to Rule 81(a)(3) in 1946.
Id. at 81.01[6], p. 4413 (2d ed.1970). The
post-
Powell cases, too, are clearly and consistently to
the effect that the footnote in
Powell was not intended to
impair a summary enforcement proceeding so long as the rights of
the party summoned are protected and an adversary hearing, if
requested, is made available.
United States v. Gajewski,
419 F.2d 1088, 1090-1092 (CA8 1969),
cert. denied, 397
U.S. 1040 (1970);
Venn v. United States, 400 F.2d 207, 212
n. 12 (CA5 1968);
McGarry's, Inc. v. Rose, 344 F.2d 416,
418 (CA1 1965). We agree with that conclusion.
Similarly, the
Reisman language set forth in
n 10,
supra, does not
guarantee intervention for the taxpayer. Certainly it recites that
the proposed witness "or any interested party" may attack the
summons before the hearing officer, as well as before the District
Court in any ensuing enforcement proceeding, and certainly it
recites that the party summoned and one "affected by a disclosure
may appear or intervene" before the court. But this language, as
well as subsequent comments in
Reisman, [
Footnote 12] is permissive only, and is not
mandatory.
Page 400 U. S. 530
The language recognizes that the District Court, upon the
customary showing, may allow the taxpayer to intervene. Two
instances where intervention is appropriate were specified, namely,
where "the material is sought for the improper purpose of obtaining
evidence for use in a criminal prosecution" or where "it is
protected by the attorney-client privilege." Thus, the Court
recognized that intervention by a taxpayer in an enforcement
proceeding might well be allowed when the circumstances are proper.
But the Court did not there pronounce, even when confronted with a
situation concerning an attorney's work product, that the taxpayer
possesses an absolute right to intervene in any internal revenue
summons proceeding. The usual process of balancing opposing
equities is called for.
We, thus, are not in agreement with the holdings or implications
in
United States v. Benford, 406 F.2d 1192, 1194 (CA7
1969);
United States v. Bank of Commerce, 405 F.2d 931
(CA3 1969); and
Justice v. United States, 365 F.2d 312,
314 (CA6 1966), to the effect that, under
Reisman, a
taxpayer may intervene as of right simply because it is his tax
liability that is the subject of the summons. Instead, we agree
with the opposing conclusion reached by the Fifth Circuit here, 418
F.2d at 1218, and in
In re Cole, 342 F.2d 5, 7-8 (CA2),
cert. denied, 381 U.S. 950 (1965), and
O'Donnell v.
Sullivan, 364 F.2d 43, 44 (CA1),
cert. denied, 385
U.S. 969 (1966).
VI
We turn, then, to Donaldson's particular situation. The material
sought, as has been noted, consists only of Acme's routine business
records in which the taxpayer has no proprietary interest of any
kind, which are not the work product of his attorney or accountant,
and which enjoy no established attorney-client or other privilege.
Donaldson's only interest -- and of course it looms
Page 400 U. S. 531
large in his eyes -- lies in the fact that those records
presumably contain details of Acme-to-Donaldson payments possessing
significance for federal income tax purposes.
This asserted interest, however, is nothing more than a desire
by Donaldson to counter and overcome Mercurio's and Acme's
willingness, under summons, to comply and to produce records.
The nature of the "interest" urged by the taxpayer is apparent
from the fact that the material in question (once we assume its
relevance) would not be subject to suppression if the Government
obtained it by other routine means, such as by Acme's independent
and voluntary disclosure prior to summons, or by way of
identifiable deductions in Acme's own income tax returns, or
through Mercurio's appearance as a trial witness, or by subpoena of
the records for trial. This interest cannot be the kind
contemplated by Rule 24(a)(2) when it speaks in general terms of
"an interest relating to the property or transaction which is the
subject of the action." What is obviously meant there is a
significantly protectable interest. And the taxpayer, to the extent
that he has such a protectable interest, as, for example, by way of
privilege, or to the extent he may claim abuse of process, may
always assert that interest or that claim in due course at its
proper place in any subsequent trial.
Cf. United States v.
Blue, 384 U. S. 251
(1966).
We therefore hold that the taxpayer's interest is not enough and
is not of sufficient magnitude for us to conclude that he is to be
allowed to intervene. Were we to hold otherwise, as he would have
us do, we would unwarrantedly cast doubt upon and stultify the
Service's every investigatory move.
VII
This conclusion could dispose of the case, for our main concern
here is with the taxpayer's asserted right to intervene in the
particular enforcement proceedings.
Page 400 U. S. 532
Donaldson, however, strenuously urges, in addition, that an
internal revenue summons proceeding may not be utilized at all in
aid of an investigation that has the potentiality of resulting in a
recommendation that a criminal prosecution be instituted against
the taxpayer. He argues that a summons so used is invalid and
unenforceable because it is outside the scope of § 7602. The
Government naturally argues the contrary.
The argument centers in the above-mentioned dictum in
Reisman, 375 U.S. at
375 U. S.
449:
"[T]he witness may challenge the summons on any appropriate
ground. This would include, as the circuits have held, the defenses
that the material is sought for the improper purpose of obtaining
evidence for use in a criminal prosecution,
Boren v.
Tucker, 239 F.2d 767, 772-773, as well as that it is protected
by the attorney-client privilege. . . ."
We note initially that, despite the dictum, the courts of
appeals in opinions issued since
Reisman was decided,
appear uniformly to approve the use of a summons in an
investigation that is likely to lead to civil liability as well as
to criminal prosecution. [
Footnote 13] The use of a summons also has been approved,
even where it is alleged that its purpose is to uncover crime, if
no criminal prosecution
Page 400 U. S. 533
as yet has been instituted. [
Footnote 14] On the other hand, it has been said, usually
citing
Reisman, that, where the sole objective of the
investigation is to obtain evidence for use in a criminal
prosecution, the purpose is not a legitimate one and enforcement
may be denied. [
Footnote 15]
This, of course, would likely be the case where a criminal
prosecution has been instituted and is pending at the time of
issuance of the summons.
It is precisely the latter situation -- where the sole object of
the investigation is to gather data for criminal prosecution --
that is the subject of the
Reisman dictum. This is evident
from the fact that the dictum itself embraces the citation of
Boren v. Tucker, 239 F.2d 767, 772-773 (CA9 1956), an
opinion in which, at the pages cited, the Ninth Circuit very
carefully distinguished
United States v.
O'Connor, 118 F.
Supp. 248 (Mass.1953), a case where the taxpayer already was
under indictment. The
Reisman dictum is to be read in the
light of its citation of
Boren, and of
Boren's
own citation of
O'Connor; when so read, the dictum comes
into proper focus as applicable to the situation of a pending
criminal charge or, at most, of an investigation solely for
criminal purposes.
Any other holding, of course, would thwart and defeat the
appropriate investigatory powers that the Congress has placed in
"the Secretary or his delegate." When
Page 400 U. S. 534
Grady's summonses were issued to Mercurio and to Acme, Donaldson
was not under indictment, and, indeed, no recommendation had been
made for his prosecution. That he might be indicted and prosecuted
was only a possibility, no more and no less in his case than in the
case of any other taxpayer whose income tax return is undergoing
audit. Prosecution will necessarily depend on the result of that
audit and on what the examination and investigation reveal.
We bear in mind that the Internal Revenue Service is organized
to carry out the broad responsibilities of the Secretary of the
Treasury under § 7801(a) of the 1954 Code for the administration
and enforcement of the internal revenue laws. [
Footnote 16]
See Internal Revenue
Service Organization and Functions, § 1112
et seq., 35
Fed.Reg. 2417
et seq. (1970). We further bear in mind that
the Service has district offices, each with an audit division and a
criminal division; that the Audit Division's program emphasizes the
civil aspects of enforcement but embraces "participation with
special agents of the Intelligence Division in the conduct of tax
fraud investigations," 1118.4; that the Intelligence Division
enforces the criminal statutes affecting income and certain other
taxes and develops information concerning alleged criminal
violations, § 1118.6; that each assistant regional commissioner for
intelligence develops programs for the investigation of alleged tax
frauds and "certain other civil and alleged criminal violations of
tax laws" and "approves or disapproves recommendations for
prosecution," § 1114.(10); and that recommendations for prosecution
are processed through the office of regional counsel and
Page 400 U. S. 535
by that office to the Department of Justice, § 1116(3). This
demonstrates that the special agent may well conduct his
investigation jointly with an agent from the Audit Division; that
their combined efforts are directed to both civil and criminal
infractions; and that any decision to recommend prosecution comes
only after the investigation is complete or is sufficiently far
along to support appropriate conclusions. The fact that a
full-scale tax fraud investigation is being made does not
necessarily mean that prosecution ensues when tax liability becomes
apparent. [
Footnote 17]
Congress clearly has authorized the use of the summons in
investigating what may prove to be criminal conduct. The
regulations are positive. Treas.Regs. § 301.7602-1(c)(4), 26 CFR §
301.7602-1(c)(4). The underlying statutes are just as
authoritative. Section 6659(a)(2) of the Code defines the term
"tax" as used in the Code and, hence, in the authorizing § 7602, to
include any addition or penalty. Section 7602 contains no
restriction; further, it has its ascertainable roots in the 1939
Code's § 3614 and, also, § 3615(a)-(c), which, by its very language
and by its proximity to § 3616 and § 3654, appears to authorize the
use of the summons for investigation into criminal conduct. There
is no statutory suggestion for any meaningful line of distinction,
for civil as compared with criminal purposes, at the point of a
special agent's appearance.
See Mathis v. United States,
391 U. S. 1,
391 U. S. 4
(1968). To draw a line where a special agent appears would require
the
Page 400 U. S. 536
Service, in a situation of suspected but undetermined fraud, to
forgo either the use of the summons or the potentiality of an
ultimate recommendation for.prosecution. We refuse to draw that
line and thus to stultify enforcement of federal law.
See
United States v. Kordel, 397 U. S. 1,
397 U. S. 11
(1970).
We hold that under § 7602 an internal revenue summons may be
issued in aid of an investigation if it is issued in good faith and
prior to a recommendation for criminal prosecution.
Affirmed.
MR. JUSTICE BRENNAN, believing that under the facts of this case
petitioner has established no right to intervene, concurs in the
result.
[
Footnote 1]
The record does not specifically support the fact of Donaldson's
employment by, or performance for, Acme. In the context of the
case, however, this is implied, and obviously the investigation is
directed to the ascertainment of the fact.
[
Footnote 2]
"§ 7602. Examination of books and witnesses"
"For the purpose of ascertaining the correctness of any return,
making a return where none has been made, determining the liability
of any person for any internal revenue tax . . . or collecting any
such liability, the Secretary or his delegate is authorized --"
"(1) To examine any books, papers, records, or other data which
may be relevant or material to such inquiry;"
"(2) To summon the person liable for tax . . . or any person
having possession, custody, or care of books of account containing
entries relating to the business of the person liable for tax . . .
or any other person the Secretary or his delegate may deem proper,
to appear before the Secretary or his delegate at a time and place
named in the summons and to produce such books, papers, records, or
other data, and to give such testimony, under oath, as may be
relevant or material to such inquiry; and"
"(3) To take such testimony of the person concerned, under oath,
as may be relevant or material to such inquiry "
[
Footnote 3]
"§ 7402. Jurisdiction of district courts"
"
* * * *"
"(b) To enforce summons. -- If any person is summoned under the
internal revenue laws to appear, to testify, or to produce books,
papers, or other data, the district court of the United States for
the district in which such person resides or may be found shall
have jurisdiction by appropriate process to compel such attendance,
testimony, or production of books, papers, or other data."
"§ 7604. Enforcement of summons"
"(a) Jurisdiction of district court. -- If any person is
summoned under the internal revenue laws to appear, to testify, or
to produce books, papers, records, or other data, the United States
district court for the district in which such person resides or is
found shall have jurisdiction by appropriate process to compel such
attendance, testimony, or production of books, papers, records, or
other data."
[
Footnote 4]
Agent Grady worked from the Tampa District Office of the
Internal Revenue Service, and Agent Miller from the New Orleans
District Office. The taxpayer had a New Orleans address; Mercurio
and Acme possessed Florida addresses.
[
Footnote 5]
Mercurio and Acme are not active parties to the present review.
They advise the Court that they are "ready to follow the orders of
the court, and are nominal parties only."
[
Footnote 6]
Compare the Fifth Circuit's holding in the present
case;
In re Cole, 342 F.2d 5 (CA2),
cert. denied,
381 U.S. 950 (1965);
and O'Donnell v. Sullivan, 364 F.2d
43, 44 (CA1 1966),
with United States v. Benford, 406 F.2d
1192 (CA7 1969);
United States v. Bank of Commerce, 405
F.2d 931 (CA3 1969);
and Justice v. United States, 365
F.2d 312 (CA6 1966).
[
Footnote 7]
Tr. of Oral Arg. 9-10.
[
Footnote 8]
Rule 24.
"INTERVENTION"
"(a) INTERVENTION OF RIGHT. Upon timely application anyone shall
be permitted to intervene in an action: . . . (2) when the
applicant claims an interest relating to the property or
transaction which is the subject of the action and he is so
situated that the disposition of the action may, as a practical
matter, impair or impede his ability to protect that interest,
unless the applicant's interest is adequately represented by
existing parties."
[
Footnote 9]
"Because § 7604(a) contains no provision specifying the
procedure to be followed in invoking the court's jurisdiction, the
Federal Rules of Civil Procedure apply. . . . The proceedings are
instituted by filing a complaint, followed by answer and hearing. .
. ."
[
Footnote 10]
"However, the Government concedes that a witness or any
interested party may attack the summons before the hearing officer.
There are cases among the circuits which hold that both parties
summoned and those affected by a disclosure may appear or intervene
before the District Court and challenge the summons by asserting
their constitutional or other claims. . . . We agree with that
view, and see no reason why the same rule would not apply before
the hearing officer."
[
Footnote 11]
"Rule 81. APPLICABILITY IN GENERAL"
"(a) TO WHAT PROCEEDINGS APPLICABLE."
"
* * * *"
"(3) . . . These rules apply . . . to proceedings to compel the
giving of testimony or production of documents in accordance with a
subpoena issued by an officer or agency of the United States under
any statute of the United States except as otherwise provided by
statute or by rules of the district court or by order of the court
in the proceedings."
[
Footnote 12]
"Furthermore, we hold that, in any of these procedures before
either the district judge or United States Commissioner, the
witness may challenge the summons on any appropriate ground. This
would include, as the circuits have held, the defenses that the
material is sought for the improper purpose of obtaining evidence
for use in a criminal prosecution . . . as well as that it is
protected by the attorney-client privilege. . . . In addition,
third parties might intervene to protect their interests, or in the
event the taxpayer is not a party to the summons before the hearing
officer, he, too, may intervene."
375 U.S. at
375 U. S.
449.
[
Footnote 13]
Wild v. United States, 362 F.2d 206, 209 (CA9 1966);
McGarry v. Riley, 363 F.2d 421, 424 (CA1),
cert.
denied, 385 U.S. 969 (1966);
Venn v. United States,
400 F.2d 207, 210 (CA5 1968);
Sanford v. United States,
358 F.2d 685, 686 (CA5 1966);
United States v. Hayes, 408
F.2d 932, 936 (CA7),
cert. denied, 396 U.S. 835 (1969);
United States v. Giordano, 419 F.2d 564, 568 (CA8 1969),
cert. denied, 397 U.S. 1037 (1970);
United States v.
Chikata, 427 F.2d 385, 390 (CA9 1970);
United States v.
DeGrosa, 405 F.2d 926, 928 (CA3),
cert. denied sub nom.
Zudick v. United States, 394 U.S. 973 (1969);
see United
States v. First Nat. Bank, 274 F.
Supp. 283,
285 (ED
Ky.1967),
aff'd sub nom. Justice v. United States,
390 U. S. 199
(1968).
[
Footnote 14]
United States v. Erdner, 422 F.2d 835, 836 (CA3 1970);
United States v. Michigan Bell Tel. Co., 415 F.2d 1284,
1286 (CA6 1969);
Howfield, Inc. v. United States, 409 F.2d
694, 697 (CA9 1969);
United States v. Ruggeiro, 425 F.2d
1069, 1070 (CA9 1970),
petition for certiorari pending sub nom.
Kyriaco v. United States, No. 448, O.T. 1970.
[
Footnote 15]
Wild v. United States, 362 F.2d at 208-209;
Venn v.
United States, 400 F.2d at 210;
United States v.
Roundtree, 420 F.2d 845, 851 (CA5 1969).
See United States
v. O'Connor, 118 F.
Supp. 248 (Mas.1953).
[
Footnote 16]
"§ 7801. Authority of Department of the Treasury"
"(a) Powers and duties of Secretary. -- Except as otherwise
expressly provided by law, the administration and enforcement of
this title shall be performed by or under the supervision of the
Secretary of the Treasury."
[
Footnote 17]
In 1969, 2,080 full-scale tax fraud investigations were
undertaken by the intelligence divisions. Only 1,049, or
approximately half, of these resulted in recommendations for
prosecution. In the 1,031 cases not recommended for prosecution,
some $20,000,000 in deficiencies and penalties resulted and were
earmarked for collection civilly. 1969 Annual Report of the
Commissioner of Internal Revenue 28-31.
MR. JUSTICE DOUGLAS, concurring.
The petitioner is the subject of an investigation by the
Intelligence Division of the Internal Revenue Service which seeks
to obtain information regarding financial transactions between the
petitioner-taxpayer and the Acme Circus Operating Co. Summonses
have been served on Acme and its accountant, Mr. Mercurio, in order
to obtain testimony and to review records relating to petitioner.
The petitioner is attempting to prevent Acme and Mercurio from
complying with the summonses and to prevent the Federal District
Court from enforcing those summonses. He sought to intervene in the
enforcement proceedings, alleging that he has a vital interest in
the litigation and that the summonses are not enforceable because
they were issued improperly, to gather information for a criminal
prosecution. The Government challenged his right to intervene. The
District Court denied his motion to intervene and enforced the
summonses but stayed its mandate. The Court of Appeals affirmed but
continued the stay pending disposition
Page 400 U. S. 537
by this Court. As yet there has been no hearing before the
special agent, and this Court rules only that such a hearing may
proceed on the summonses issued.
On these facts, I concur with the Court's decision. There is
nothing in the language of § 7602 to limit the issuance of
summonses to civil investigations. Therefore, even though
petitioner is the subject of a criminal investigation, that is no
bar to the issuance of the summonses. It is true that a person who
is summoned may object that the production of records or testifying
would violate his rights under the Fourth or Fifth Amendments. And
a taxpayer would clearly have standing to raise a claim of
violation of his constitutional rights if a third party were
ordered to produce records belonging to the taxpayer.
United
States v. Kordel, 397 U. S. 1,
397 U. S. 7;
Reisman v. Caplin, 375 U. S. 440,
375 U. S. 445.
But it is difficult to see how the summoning of a third party, and
the records of a third party, can violate the rights of the
taxpayer, even if a criminal prosecution is contemplated or in
progress. There is no right to be free from incrimination by the
records or testimony of others.
The taxpayer may, however, protect his interests in any hearings
held pursuant to § 7602. The Internal Revenue Service is clearly
conducting a criminal investigation of the petitioner. That is the
function of special agents. [
Footnote
2/1] The purpose of the summonses is to gather evidence for a
criminal prosecution. At such
Page 400 U. S. 538
"investigations," the summoned party may or may not be put under
oath, at the discretion of the agent. He does have the right to be
accompanied by counsel or an accountant. But the Internal Revenue
Service has taken the position that the taxpayer who is being
investigated is not entitled to be present at such "
ex
parte investigations." [
Footnote
2/2] Moreover, he normally is not given notice of the issuance
of the summons to the third party. Our decisions, however, make
clear that the taxpayer has the right to be present at the hearing
and to confront and cross-examine witnesses and inspect evidence
against him.
The traditional federal method for gathering such information is
the grand jury. Before that body, there is no right to counsel and
confrontation, but other protections are present, none of which
exists here. The Court, in a five-to-four decision, relied on the
analogy to the grand jury in
In re Groban, 352 U.
S. 330,
352 U. S. 333,
ruling that a person has no right to counsel when ordered to
testify before a fire marshal. MR. JUSTICE BLACK stated, I think,
the correct view in his dissent:
"[A]ny surface support the grand jury practice may lend
disappears upon analysis of that institution. The traditional
English and American grand jury is composed of 12 to 23 members
selected from the general citizenry of the locality where the
alleged crime was committed. They bring into the grand jury room
the experience, knowledge and viewpoint of all sections of the
community. They have no axes to grind, and are not charged
personally with the administration of the law. No one of them is a
prosecuting attorney or law enforcement officer ferreting out
crime. It would be very difficult for
Page 400 U. S. 539
officers of the state seriously to abuse or deceive a witness in
the presence of the grand jury. Similarly the presence of the
jurors offers a substantial safeguard against the officers'
misrepresentation, unintentional or otherwise, of the witness'
statements and conduct before the grand jury. The witness can call
on the grand jurors if need be for their normally unbiased
testimony as to what occurred before them."
"
* * * *"
"[T]he Fire Marshal's interrogation is, and apparently was
intended to be, an important and integral part in the prosecution
of the persons for arson or a similar crime. The rights of a person
who is examined in connection with such crimes should not be
destroyed merely because the inquiry is given the euphonious label
'administrative.'"
352 U.S. at
352 U. S.
346-347, 349.
In
Anonymous v. Baker, 360 U.
S. 287, another five-to-four decision, the Court upheld
the power of a judge in New York, acting as a one-man grand jury,
to interrogate a witness without benefit of counsel, again relying
on the distinction between investigation and prosecution.
Id. at
360 U. S. 294.
MR. JUSTICE BLACK again stated the correct view in his dissent that
this procedure allowed a state official to lay the groundwork for a
future prosecution without the protection of the presence of
counsel.
In
Hannah v. Larche, 363 U. S. 420,
registrars who were accused of racial discrimination asked to be
allowed to confront and cross-examine witnesses appearing before
the Commission on Civil Rights. A majority found no such right
because the Commission did not "adjudicate" or "issue orders," but
only found facts. That criminal prosecutions might follow was
"purely conjectural." The Solicitor General relies on this case
Page 400 U. S. 540
for approval of the procedures adopted by the Internal Revenue
Service.
My view has not changed:
"There is . . . only one way the Chief Executive may move
against a person accused of a crime and deny him the right of
confrontation and cross-examination and that is by the grand
jury."
363 U.S. at
363 U. S.
497.
"[The grand jury is] the only accusatory body in the Federal
Government that is recognized by the Constitution. I would allow no
other engine of government, either executive or legislative, to
take [its] place at least when the right of confrontation and
cross-examination are denied the accused as is done in these
cases."
Id. at 499.
In
Jenkins v. McKeithen, 395 U.
S. 411, the Court dealt with another state investigative
commission. There, however, the authority of the commission was
limited to ascertaining facts regarding violations of criminal law
and reporting its findings for criminal prosecution. There was no
right to cross-examination for nonwitnesses, and the right was
limited for witnesses. The Court held that the commission exercised
an accusatory function, and was empowered to brand people as
criminals.
Id. at
395 U. S. 427-428. Therefore, due process required the
commission to afford a person being investigated the right to
confront and cross-examine the witnesses against him.
Given the identity of purpose of the investigations in
Jenkins and this case, the rule of
Jenkins
clearly applies to the taxpayer in this suit. The requirements of
procedural due process do not become more lax when federal, rather
than state, criminal investigations are involved.
The proceeding contemplated in the summonses served on Acme and
Mercurio is a criminal investigation. The
Page 400 U. S. 541
result will be a determination of whether to bring criminal
charges. The special agent will perform the function traditionally
reserved to the grand jury in our Federal Government. The teaching
of the
Jenkins case is that such a proceeding may not be
held without affording the taxpayer an opportunity to attend, to
cross-examine, and to rebut.
[
Footnote 2/1]
Though the Solicitor General argues that an investigation by a
special agent might have civil as well as criminal results, and the
final decision to prosecute is not made until after an
investigation, and approval by a regional counsel, he admits that
the special agent is only assigned to the case "as a result of some
allegation or indication of criminal conduct." Indeed, the
Intelligence Division "enforces the criminal statutes . . . by
developing information concerning alleged criminal violations
thereof. . . ." Internal Revenue Service Organization and Functions
§ 1118.6, 35 Fed.Reg. 2454.
[
Footnote 2/2]
An exception is made where the taxpayer asserts a privileged
relationship with the person summoned, such as attorney-client.