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POWELL, J., dissenting

pare Underwood Typewriter with Hans Rees' Sons. The more recent trend toward uniformity, however, permits identification of Iowa's formula, like the mudguard requirement in Bibb, as "out of line," if not per se irrational. Since Iowa's formula inevitably discriminates against out-of-state sellers, and since it has not been justified on any fiscal or administrative basis, I would hold it invalid under the Commerce Clause.

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UNITED STATES ET AL. v. LASALLE NATIONAL BANK ET AL.

CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR THE SEVENTH CIRCUIT

No. 77-365. Argued March 29, 1978-Decided June 19, 1978 Petitioner special agent of the Internal Revenue Service (IRS), in the process of investigating a taxpayer's tax liability, issued summonses to respondent bank under authority of § 7602 of the Internal Revenue Code of 1954 (which permits use of a summons "[f]or 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") to appear before the agent and produce files of certain land trusts, created for the benefit of the taxpayer. When respondent bank official appeared in response to the summonses but refused to produce the files, the United States and the agent petitioned the District Court for enforcement of the summonses. That court denied enforcement, finding that the summonses were not issued in good faith because they were issued "solely for the purpose of unearthing evidence of criminal conduct" by the taxpayer. The Court of Appeals affirmed. Held: The District Court erred in refusing to enforce the summonses, since its finding that the agent was investigating the taxpayer "solely for the purpose of unearthing evidence of criminal conduct" does not necessarily lead to the conclusion that the summonses were not issued in good-faith pursuit of the congressionally authorized purposes of § 7602. Pp. 307-319.

(a) Congress has not categorized tax fraud investigation into civil and criminal components but has created a tax enforcement system in which criminal and civil elements are inherently intertwined, and any limitation on the good-faith use of an IRS summons must reflect this statutory premise. Pp. 308–311.

(b) To enforce a summons under § 7602, the primary requirement is that it be issued before the IRS recommends to the Department of Justice the initiation of a criminal prosecution relating to the subject matter of the summons. This is a prophylactic rule designed to protect the standards of criminal litigation discovery and the role of the grand jury as a principal tool of criminal accusation. Pp. 311-313.

(c) Enforcement of a summons is also conditioned upon the good-faith use of the summons authority by the IRS, which must not abandon its

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institutional responsibility to determine and to collect taxes and civil fraud penalties. That a single special agent intends only to gather evidence for a criminal investigation is not dispositive of the good faith of the IRS as an institution. Those resisting enforcement of a summons must disprove the actual existence of a valid civil tax determination or collection purpose by the IRS. Pp. 313-317.

(d) On the record here respondents have not shown sufficient justification to preclude enforcement of the summonses in question, absent any recommendation to the Justice Department for criminal prosecution and absent any showing that the special agent already possessed all of the evidence sought in the summonses or that the IRS in an institutional sense had abandoned pursuit of the taxpayer's civil tax liability. Pp. 318-319.

554 F.2d 302, reversed with directions to remand.

BLACKMUN, J., delivered the opinion of the Court, in which BRENNAN, WHITE, MARSHALL, and POWELL, JJ., joined. STEWART, J., filed a dissenting opinion, in which BURGER, C. J., and REHNQUIST and STEVENS, JJ., joined, post, p. 319.

Deputy Solicitor General Wallace argued the cause for the United States et al. With him on the briefs were Solicitor General McCree, Assistant Attorney General Ferguson, Stuart A. Smith, Robert E. Lindsay, Charles E. Brookhart, and Carleton D. Powell.

Matt P. Cushner argued the cause for respondents. With him on the brief was Gregory J. Perry.

MR. JUSTICE BLACKMUN delivered the opinion of the Court. This case is a supplement to our decision in Donaldson v. United States, 400 U. S. 517 (1971). It presents the issue whether the District Court correctly refused to enforce Internal Revenue Service summonses when it specifically found that the special agent who issued them "was conducting his investigation solely for the purpose of unearthing evidence of criminal conduct." 76-1 USTC9407, p. 84,073, 37 AFTR 2d ¶ 76582, p. 76-1240 (ND Ill. 1976).

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In May 1975, John F. Olivero, a special agent with the Intelligence Division of the Chicago District of the Internal Revenue Service (hereinafter IRS or Service), received an assignment to investigate the tax liability of John Gattuso for his taxable years 1970-1972. App. 26-27, 33. Olivero testified that he had requested the assignment because of information he had received from a confidential informant and from an unrelated investigation. Id., at 35. The case was not referred to the IRS from another law enforcement agency, but the nature of the assignment, Olivero testified, was "[t]o investigate the possibility of any criminal violations of the Internal Revenue Code." Id., at 33. Olivero pursued the case on his own, without the assistance of a revenue agent.1 He received information about Gattuso from the Federal Bureau of Investigation as a result of the previous investigation. Id., at 36. He solicited and received additional data from the United States Attorney for the Northern District of Illinois, the Secret Service, the Department of Housing and Urban Development, the IRS Collection Division, and the Cosmopolitan National Bank of Chicago. Id., at 37-40.

Mr. Gattuso's tax returns for the years in question disclosed rental income from real estate. That property was held in

1 Frequently, a revenue agent of the IRS Audit Division will refer a case on which he is working to the Intelligence Division for investigation of possible fraud. After such a referral, and at other times, the special agent and the revenue agent work together. Because of the importance and sensitivity of the criminal aspects of the joint investigation, the special agent assumes control of the inquiry. See, e. g., Internal Revenue Manual, ch. 4500, §§ 4563.431-4565.44 (CCH 1976 and 1978).

As part of a planned reorganization, the IRS has announced its intention to redesignate the Audit Division and the Intelligence Division as the Examinations Division and the Criminal Enforcement Division, respectively. IRS News Release, Feb. 6, 1978.

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Opinion of the Court

Illinois land trusts by respondent LaSalle National Bank, as trustee, a fact revealed by land trust files collected by the IRS from banks. Id., at 27, 45. In order to determine the accuracy of Gattuso's income reports, Olivero proceeded to issue two summonses, under the authority of § 7602 of the Internal Revenue Code of 1954, 26 U. S. C. § 7602,3 to respondent bank. Each summons related to a separate trust and requested, among other things, that the bank as trustee appear before Olivero at a designated time and place and produce its "files relating to Trust No. 31544 [or No. 35396]

2 Respondents describe an Illinois land trust as follows:

"An Illinois land trust is a contract by which a trustee is vested with both legal and equitable title to real property and the interest of the beneficiary is considered personal property. Under this trust the beneficiary or any person designated in writing by the beneficiary has the exclusive power to direct or control the trustee in dealing with the title and the exclusive control of the management, operation, renting and selling of the trust property together with the exclusive right to the earnings, avails and proceeds of said property. Ill. Rev. Stat. ch. 29, § 8.31 (1971)." Brief for Respondents 1-2, n. 1.

3 Section 7602 reads:

"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 the liability at law or in equity of any transferee or fiduciary of any person in respect of 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 required to perform the act, or any officer or employee of such person, 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 required to perform the act, 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."

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