437 U.S. 298 (1978), 77-365, United States v. LaSalle National Bank

Docket Nº:No. 77-365
Citation:437 U.S. 298, 98 S.Ct. 2357, 57 L.Ed.2d 221
Party Name:United States v. LaSalle National Bank
Case Date:June 19, 1978
Court:United States Supreme Court

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437 U.S. 298 (1978)

98 S.Ct. 2357, 57 L.Ed.2d 221

United States


LaSalle National Bank

No. 77-365

United States Supreme Court

June 19, 1978

Argued March 29, 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 [98 S.Ct. 2359] 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.

BLACKMUN, J., lead opinion

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 USTC ¶ 9407, p. 84,073, 37 AFTR2d ¶ 76-582, 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. 227, 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 3. 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 370.

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

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Illinois land trusts2 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 [98 S.Ct. 2360] 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],

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including the Trust Agreement" for the period 1970 through 1972, and also

all deeds, options, correspondence, closing statements and sellers statements, escrows, and tax bills pertaining to all property held in the trust at any time during

that period. App. 9-16. Respondent Joseph W. Lang, a vice-president of the bank, appeared in response to the summonses but, on advice of counsel, refused to produce any of the materials requested. Brief for Respondents 2.

The United States and Olivero, pursuant to §§ 7402(b) and 7604(a) of the Code, 26 U.S.C. §§ 7402(b) and 7604(a),4 then petitioned the United States District Court for the Northern District of Illinois for enforcement of the summonses. App. 5. This was on November 11, 1975. Olivero testified that, when the petition was filed he had not determined whether criminal charges were justified, and had not made any report or recommendation about the case to his superiors. Id. at 30. It was alleged in the petition and in an incorporated exhibit that the requested materials were necessary for the determination of the tax liability of Gattuso for the years in question, and that the information contained in the documents was not in the possession of the petitioners. Id. at 7, 17-18. The District Court entered an order to show cause, id. at 19, and respondents answered through counsel, who also represented Gattuso. Id. at 20-22.

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At the ensuing hearing and in a post-hearing brief, respondents argued that Olivero's investigation was "purely criminal" in nature. Id. at 82. Gregory J. Perry, a lawyer specializing in federal taxation and employed by the same law firm that filed the answer, testified that, in June, 1975, Olivero told him that the Gattuso investigation "was strictly related to criminal violations of the Internal Revenue Code." Id. at 52. Respondents conceded that they bore the burden of proving that enforcement of the summonses would abuse the court's process, but they contended that they did not have to show "that there is no civil purpose to the Summons." Id. at 87. Instead, they urged that their burden was to show that the summonses were not issued in good faith because "the investigation is solely for the purpose of gathering evidence for use in a criminal prosecution." Id. at 77.

The [98 S.Ct. 2361] District Court agreed with respondents' contentions. Although at the hearing the court seemed to recognize "that, in any criminal investigation, there's always a probability of civil tax liability," id. at 61, it focused its attention on the purpose of Special Agent Olivero:

I'll say now that I heard nothing in Agent Olivero's testimony to suggest that the thought of a civil investigation ever crossed his mind.

* * * *

Now, unless I find something in the in camera inspection [of the IRS case file] that gives more support to the Government position than the Agent's testimony did, it would be my conclusion that he was at all times involved in a criminal investigation, at least in his own mind.5

Id. at 62.

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In its written memorandum, the District Court noted that Donaldson permitted the use of an IRS summons issued in good faith and prior to a recommendation for criminal prosecution. Relying on dictum in Reisman v. Caplin, 375 U.S. 440, 449 (1964), however, the court said that it was an improper use of the summons "to serve it solely for the purpose of obtaining evidence for use in a criminal prosecution." 76-1 USTC at 84,072, 37 AFTR2d at 76-1240. If, at the time of its issuance, the summons served this proscribed purpose, the court concluded, the absence of a formal criminal recommendation was irrelevant, the summons was not issued in good faith, and enforcement was precluded. The court then held:

It is apparent from the evidence that Special Agent John F. Olivero, in his investigative activities, had focused upon...

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