April 1975] IRS SUBPOENA POWER 199 volved third party like a bank stand in very different positions relative to the IRS. First, because the tax preparer incorrectly prepared an undercover agent's return, it is the preparer's activity that triggered the IRS investigation initially. Even if the tax preparer himself is not under investigation, as it appears he cannot be, 127 he is deeply involved in the investigation. Second, a commercial tax preparer may be liable for penalties under the Code for fraud if he willfully misrepresents clients' information on their returns. 128 And he may be liable in tort to the clients for any penalties assessed to clients as a result of the tax preparer's misrepresentations. Initially, therefore, there is a very close and purposeful relationship between the tax preparer and his clients. In contrast, banks and oil companies are neutral third parties, affected by the IRS investigation and subpoena only because of the actual cost to them of compliance with the subpoena. They have not purposely involved themselves with the question of their depositors' or lessors' tax liability, and they have no responsibility to the IRS or to the taxpayer for that liability. They are burdened by IRS requests not through any action or fault of their own, but only because they provide a ready repository of financial information about individual taxpayers. Thus the relationship of the third-party object of the subpoena to the taxpayer or to the IRS would affect application of a balancing test of probable liability against burden to the third party. 129 The close relationship of the tax preparer to his clients' tax liability and the voluntary nature of his undertaking make the burden on the commercial tax preparer less than the burden on a bank or other innocent third party to produce the same docu ments. In determining the burden, a court should look at the volume of documents involved. Assuming a low volume and little or no burden on the party's other customers, the order could reasonably be enforced. 130 But if the cost were significant or if the disruption of 127 See text accompanying notes 69-71 supra. 128 INT. REV. CODE OF 1954, § 7206(2). 129 At least one court has suggested that the government be held to a higher standard where there is no indication of evasion on the part of the burdened party. See United States v. Matras, 487 F.2d 1271, 1275 (8th Cir. 1973). In fact this reasoning may have played a part in the inscrutable Theodore decision. The court, though abhorring the idea that the IRS was attempting to "police the accounting profession," 479 F.2d at 754, had no difficulty in authorizing the turning over of a list of clients' names so that the IRS could effectuate the same purpose from its own records. Id. at 755. 130 The burden is on the third party to prove the subpoena too burdensome. See, e.g., United States v. Humble Oil & Ref. Co., 488 F.2d 953, 957 n.8 (5th Cir. 1974), vacated and remanded, 95 S. Ct. 1670 (1975). 200 NEW YORK UNIVERSITY LAW REVIEW [Vol. 50:177 normal activities interferes with customers other than those who might have possible liability, a court might well decide that the probability that the IRS would discover any tax liability was too small to justify the cost of ferreting out the documents. Bisceglia would be enforceable under this standard since there was sufficient likelihood of liability in that case to overcome the inconvenience to the bank. Social as well as financial costs should be considered, for a burden may fall on third parties other than the object of the subpoena. Subpoenaing names of a doctor's patients in order to examine them and their returns to assist in determining the doctor's income is an invasion of patients' privacy out of all proportion to the importance of the doctor's tax liability. 131 Third parties should not have their privacy invaded for the convenience of the IRS. Again, it is worth noting that the purpose of IRS subpoenas is to aid in determinations of liability, not to gather financial data, even if tax-related. The absence of a particular taxpayer under investigation makes it especially important that the court assure itself of a legitimate probability of liability, even if the third-party burden is light. If the IRS cannot show that the possibility of outstanding liability exceeds the interference with third parties, the existence of a valid tax investigation must be questioned. Thus tests exist, short of permitting enforcement of all such subpoenas, which may be used to limit the IRS in its subpoenas to third parties concerning unknown taxpayer liability. Either balancing the third-party burden with the probability of liability, or requiring some probability that an individual is indeed liable for unpaid taxes, provides a means to measure the concreteness of the Service's interest in a particular suspected case of tax liability and to distinguish those requests which are relatively frivolous. Since both approaches would permit enforcement in the tax-preparer cases as well as in those other instances in which outstanding tax liability is most likely to exist, they do not conflict with the important and oft-stated policy of revenue collection, while providing some protection to individuals and third-party businesses involved with the IRS as well as to the general public. 131 Although expressly denying a doctor-patient privilege in Williams, Judge Motley recognized the peculiar nature of the burden on the patients in having to disclose the times and number of their visits to a practicing psychologist. United States v. Williams, 337 F. Supp. 1114, 1116 (S.D.N.Y. 1971), appeal dismissed and judgment vacated as moot, 486 F.2d 1397 (2d Cir. 1972). April 1975] IRS SUBPOENA POWER 201 V CONCLUSION In a country with an annual federal government budget in excess of 274 billion dollars, 132 emphasis on the policy of revenue collection has taken the IRS far. This Note has examined the inade-› quacy of constitutional limitations on section 7602 John Doe subpoenas to third parties in the absence of patent burdensomeness, and the expansion of IRS authority in the Court's decision in Bisceglia. Since the Court did not provide any guidelines for lower court determinations of what constitutes a valid investigation in the absence of a known taxpayer, there will undoubtedly be a variety of standards applied. Courts will, at best, make their determinations on a case-to-case basis, enforcing subpoenas when revenue collection is most likely to be affected (such as in the tax-preparer litiga-. tion) and quashing them when it appears that the IRS is simply rummaging. The goal of revenue collection should not impinge further than this on freedom from governmental curiosity. Section 7602 should not be construed to confer upon the IRS the right to browse. 132 BUREAU OF the Census, U.S. Dep't of Commerce, StaTISTICAL ABSTRACT OF THE UNITed States: 1974, at 222. Department of Justice TESTIMONY OF SCOTT P. CRAMPTON TAX DIVISION ON SECTION 1205 of H. R. 10612 ADMINISTRATIVE SUMMONS PROVISION OF THE TAX REFORM BILL OF 1976 BEFORE THE SENATE COMMITTEE ON FINANCE July 22, 1976 My name is Scott P. Crampton and I am Assistant Attorney General in charge of the Tax Division, Department of Justice. We welcome the opportunity to present the views of the Department of Justice on Section 1205 of the Tax Reform Bill of 1976 captioned "Administrative Summons." This section would amend the Internal Revenue Code of 1954 by redesignating Section 7609 as 7611 and inserting new Sections 7609 and 7610. Proposed Section 7609 is entitled "Special Procedures for Third-Party Summonses" and proposed Section 7610 would provide for fees and costs of witnesses in these new procedures. We believe this proposal, if enacted, would seriously interfere with the enforcement of the tax laws, particularly in the organized crime and white-collar crine areas, and further overburden the federal judicial system. In principal part and with certain exceptions, Section 1205 of the bill would require notice to the person, usually the taxpayer and hereinafter referred to as such, identified in a summons issued to a third-party record keeper by the Internal Revenue Service. The taxpayer would be given 14 days within which to notify the record keeper not to comply with the summons. Once the taxpayer thus barred compliance, the Government could only obtain enforcement through a court proceeding in which the taxpayer would have a right to intervene and to litigate the matter. A summons to require testimony relating to records would be treated as a summons to produce records. The civil and criminal statutes of limitations would |