Lapas attēli
[blocks in formation]

Discerning the meaning of the brief Reisman dictum, however, did not resolve for the Court the question posed by Donaldson. The validity of the summonses depended ultimately on whether they were among those authorized by Congress. Having reviewed the statutory scheme, 400 U. S., at 523-525, the Court concluded that Congress had authorized the use of summonses in investigating potentially criminal conduct. The statutory history, particularly the use of summonses under the Internal Revenue Code of 1939, supported this conclusion, as did consistent IRS practice and decisions concerning effective enforcement of other comparable federal statutes.10 The Court saw no reason to force the Service to choose either to forgo the use of congressionally authorized summonses or to abandon the option of recommending criminal prosecutions to the Department of Justice.11 As long as the summonses were issued in good-faith pursuit of the congressionally authorized purposes, and prior to any recommendation to the Department for prosecution, they were enforceable. Id., at 536.

III The present case requires us to examine the limits of the good-faith use of an Internal Revenue summons issued under § 7602. As the preceding discussion demonstrates, Donaldson does not control the facts now before us. There, the taxpayer had argued that the mere potentiality of criminal prosecution should have precluded enforcement of the summons. 400 U. S., at 532. Here, on the other hand, the District Court

8 The Court had concluded earlier that the summoning of the employer's and the accountant's records for an investigation of the taxpayer did not violate the constitutional rights of any of them. 400 U. S., at 522.

See 88 3614, 3615, 3616, and 3654 of the 1939 Code, 53 Stat. 438–440, 446.

10 See United States v. Kordel, 397 U. S. 1, 11 (1970) (Federal Food, Drug, and Cosmetic Act enforcement), citing Standard Sanitary Mfg. Co. v. United States, 226 U. S. 20, 51-52 (1912) (Sherman Act enforcement).

11 See Part III-B and n. 15, infra.

[blocks in formation]

found that Special Agent Olivero was investigating Gattuso "solely for the purpose of unearthing evidence of criminal conduct." 76–1 USTC, at 84,073, 37 AFTR 2d, at 76–1240. The question then becomes whether this finding necessarily leads to the conclusion that the summonses were not issued in good-faith pursuit of the congressionally authorized purposes of 7602.

A The Secretary of the Treasury and the Commissioner of Internal Revenue are charged with the responsibility of administering and enforcing the Internal Revenue Code. 26 U.S. C. $$ 7801 and 7802. Congress, by $ 7601 (a), has required the Secretary to canvass revenue districts to "inquire after and concerning all persons therein who may be liable to pay any internal revenue tax.” With regard to suspected fraud, these duties encompass enforcement of both civil and criminal statutes. The willful submission of a false or fraudulent tax return may subject a taxpayer not only to criminal penalties under $$ 7206 and 7207 of the Code, but, as well, to a civil penalty, under § 6653 (b), of 50% of the underpayment. And § 6659 (a) provides that the civil penalty shall be considered as part of the tax liability of the taxpayer. Hence, when § 7602 permits the 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,” it necessarily permits the use of the summons for examination of suspected tax fraud and for the calculation of the 50% civil penalty. In Donaldson, 400 U. S., at 535, we clearly noted that § 7602 drew no distinction between the civil and the criminal aspects; that it "contains no restriction"; that the corresponding regulations were “positive”; and that there was no significance, "for civil as compared with criminal purposes, at the point of a special agent's appearance.” The Court then upheld the use of the summonses even though fraudulent conduct carried the poten

[blocks in formation]

tial of criminal liability. The Court repeated this emphasis in Couch v. United States, 409 U. S. 322, 326 (1973):

"It is now undisputed that a special agent is authorized, pursuant to 26 U. S. C. $ 7602, to issue an Internal Revenue summons in aid of a tax investigation with civil

and possible criminal consequences.” This result is inevitable because Congress has created a law enforcement system in which criminal and civil elements are inherently intertwined. When an investigation examines the possibility of criminal misconduct, it also necessarily inquires about the appropriateness of assessing the 50% civil tax penalty.12

13 The interrelated nature of the civil and criminal investigative functions is further demonstrated by the organization and functioning of the IRS. Pursuant to 26 CFR § 601.107 (1977), each revenue district has an Intelligence Division, "whose mission is to encourage and achieve the highest possible degree of voluntary compliance with the internal revenue laws." This purpose is implemented by "the investigation of possible criminal violations of such laws and the recommendation (when warranted) of prosecution and/or assertion of the 50 percent ad valorem addition to the tax." Ibid. See generally Internal Revenue Service Organization and Functions $8 1113.563, 1114.8, and 1118.6, 39 Fed. Reg. 11572, 11581, 11601, and 11607 (1974).

In its Manual for employees, the IRS instructs that the jurisdiction of the Intelligence Division includes all civil penalties except those related to the estimated income tax. Internal Revenue Manual, ch. 4500, § 4561 (CCH 1976). The Manual adds:

"Intelligence features are those activities of developing and presenting admissible evidence required to prove criminal violations and the ad valorem penalties for civil fraud, negligence and delinquency (except those concerning tax estimations) for all years involved in cases jointly investigated to completion.” Id., $ 4565.31 (4). The Manual also contains detailed instructions for coordination between special agents and revenue agents during investigations of tax fraud. E. g., id., $ 4563.431 (1978), and $8 4565.22, 4565.32, 4565.41-4565.44 (1976).

Statistics for the fiscal year 1976 show that the Intelligence Division has & substantially greater involvement with civil fraud than with criminal

[blocks in formation]

The legislative history of the Code supports the conclusion that Congress intended to design a system with interrelated criminal and civil elements. Section 7602 derives, assertedly without change in meaning," from corresponding and similar provisions in $$ 3614, 3615, and 3654 of the 1939 Code. By § 3614 (a) the Commissioner received the summons authority “for the purpose of ascertaining the correctness of any return or for the purpose of making a return where none has been made.” Section 3615 (b)(3) authorized the issuance of a summons "[w]henever any person who is required to deliver a monthly or other return of objects subject to tax delivers any return which, in the opinion of the collector, is erroneous, false, or fraudulent, or contains any undervaluation or understatement.”. Section 3654 (a) stated the powers and duties of the collector:

"Every collector within his collection district shall see that all laws and regulations relating to the collection of internal revenue taxes are faithfully executed and complied with, and shall aid in the prevention, detection, and punishment of any frauds in relation thereto. For such purposes, he shall have power to examine all persons, books, papers, accounts, and premises ... and to summon any person to produce books and papers . . . and to compel compliance with such summons in the same

manner as provided in section 3615.” Under $ 3616 punishment for any fraud included both fine and imprisonment. The 1939 Code, therefore, contemplated the use of the summons in an investigation involving suspected

fraud. Of 8,797 full-scale tax fraud investigations in that year, only 2,037 resulted in recommendations for prosecution. The 6,760 cases not recommended involved approximately $11 million in deficiencies and penalties. See 1976 Annual Report of the Commissioner of Internal Revenue 33, 61, 152.

13 See H. R. Rep. No. 1337, 83d Cong., 2d Sess., A436 (1954); S. Rep. No. 1622, 83d Cong., 2d Sess., 617 (1954).

[blocks in formation]

criminal conduct as well as behavior that could have been disciplined with a civil penalty.14

In short, Congress has not categorized tax fraud investigations into civil and criminal components. Any limitation on the good-faith use of an Internal Revenue summons must reflect this statutory premise.


The preceding discussion suggests why the primary limitation on the use of a summons occurs upon the recommendation of criminal prosecution to the Department of Justice. Only at that point do the criminal and civil aspects of a tax fraud case begin to diverge. See United States v. Hodge & Zweig, 548 F. 2d 1347, 1351 (CA9 1977); United States v. Billingsley, 469 F. 2d 1208, 1210 (CA10 1972). We recognize, of course, that even upon recommendation to the Justice Department, the civil and criminal elements do not separate completely. The Government does not sacrifice its interest in unpaid taxes

14 Internal Revenue officials received similar summons authority in Revenue Acts prior to the 1939 Code. See, e. 9., Revenue Act of 1918, § 1305, 40 Stat. 1142; Tariff Act of Oct. 3, 1913, § II (1,38 Stat. 178–179; Act of June 30, 1864, § 14, 13 Stat. 226.

The interrelated nature of fraud investigations thus was apparent as early as 1864. Section 14 of the 1864 Act permitted the issuance of a summons to investigate a suspected fraudulent return. It also prescribed a 100% increase in valuation as a civil penalty for falsehood. Section 15 established the criminal penalties for such conduct. Four years later, when Congress created the position of district supervisor, that official received similar summons authority. Act of July 20, 1868, § 49, 15 Stat. 144-145; see Cong. Globe, 40th Cong., 2d Sess., 3450 (1868). The federal courts enforced these summonses when they were issued in good faith and in compliance with instructions from the Commissioner. See In re Meador, 16 F. Cas. 1294, 1296 (No. 9,375) (ND Ga. 1869); Stanwood v. Green, 22 F. Cas. 1077, 1079 (No. 13,301) (SD Miss. 1870) ("it being understood that this right upon the part of the supervisor extends only to such books and papers as relate to their banking operations, and are connected with the internal revenue of the United States”).

« iepriekšējāTurpināt »