614 F.2d 985 (5th Cir. 1980), 79-3023, United States v. Holmes

Docket Nº:79-3023
Citation:614 F.2d 985
Party Name:UNITED STATES of America and John DeZelar, Plaintiffs-Appellees, v. David L. HOLMES, as Bishop and Director of the Miletus Church, Inc., Defendant-Appellant.
Case Date:March 31, 1980
Court:United States Courts of Appeals, Court of Appeals for the Fifth Circuit

Page 985

614 F.2d 985 (5th Cir. 1980)

UNITED STATES of America and John DeZelar, Plaintiffs-Appellees,


David L. HOLMES, as Bishop and Director of the Miletus

Church, Inc., Defendant-Appellant.

No. 79-3023


United States Court of Appeals, Fifth Circuit

March 31, 1980

Page 986

Lee Boothby, Berrien Springs, Mich., for defendant-appellant.

M. Carr Ferguson, Asst. Atty. Gen., Gilbert E. Andrews, Chief, Appellate Section, Charles E. Brookhart, Richard N. Bush, Tax Div., Dept. of Justice, Washington, D. C., for plaintiffs-appellees.

Appeal from the United States District Court for the Northern District of Texas.

Before GODBOLD, REAVLEY and ANDERSON, Circuit Judges.


David Holmes, as bishop and director of the Miletus Church ("Church"), appeals from an order of the district court, entered pursuant to 26 U.S.C. § 7604(a) (1976). 1 The order commanded him to appear before an Internal Revenue Service ("IRS") agent and to produce all books and records requested in a previous IRS summons issued under authority of 26 U.S.C. § 7602 (1976). 2 Holmes discharges three volleys: the

Page 987

government failed to establish the requisite predicate for the breadth of the summons; compelled disclosure of the most sensitive church documents, in determining the religious nature of the church, involves an impermissible intervention into internal church affairs as well as an unconstitutional entanglement of Church with State; and the order results in an inhibition of the free exercise of sectarian belief.

The summons at issue 3 was spawned by an IRS investigation of the tax liability of the Church for the years 1975 through 1977. The Regional Commissioner of the IRS notified the Church of the pending investigation into its current tax exempt status and its classification as an organization to which deductible contributions can be made under section 170(b)(1)(A)(i) of the Internal Revenue Code. The summons issued when Holmes refused to supply the requested information. After Holmes notified the IRS of his intent not to comply with the summons, the government applied to the district court for an order of enforcement. Holmes' objections to the resulting judicial directive brings it before us.

A. Breadth of the Summons.

At this point in the IRS investigation, there has been no referral to the Department of Justice for possible criminal prosecution. At a minimum, 4 therefore, we look to whether the summons was issued in good faith, as that test was formulated in United States v. Powell, 379 U.S. 48, 57-58, 85 S.Ct. 248, 254-55, 13 L.Ed.2d 112 (1964), to determine whether the summons should have been enforced. The IRS must show that: (1) the investigation will be conducted

Page 988

in pursuit of a legitimate purpose; (2) the inquiry may be relevant to the purpose; (3) the IRS is not currently in possession of the information sought; and (4) all administrative steps required by the Code have been followed. Accord United States v. LaSalle National Bank, 437 U.S. 298, 313-14, 98 S.Ct. 2357, 2366, 57 L.Ed.2d 221 (1978). Once the IRS establishes a prima facie case for enforcement, the burden shifts to the taxpayer to show that enforcement would be an abuse of the court's process. Powell, supra, 379 U.S. at 58, 85 S.Ct. at 255.

There can be no quibbling with the fact that a valid purpose was established. The IRS seeks to examine the nature of the Miletus Church to ensure that it is entitled to continued tax exempt status, that it has acquired no unrelated business income, and that it qualifies as an organization to which tax deductible contributions may be made. Nor has Holmes suggested that the government possesses the requested information. Finally, the district court specifically found that the IRS complied with all applicable statutes, rules, and regulations. That finding is not clearly erroneous.

The second prong of the Powell test was pruned back by Congress in 1969, in regard to examination of churches, when it added subsection (c) to 26 U.S.C. § 7605. 5 That provision limits the inquiry into the religious activities and books of account of churches "to the extent necessary" to ensure that the organization is a church and to determine the amount of tax owing. The "extent necessary" syntax is certainly more restrictive than the "may be relevant" language in the second tier of Powell. Parenthetically, it is noted that the trial court made no finding to the effect that these documents are necessary to make a determination as to the status of the Miletus Church or the amount of tax owing. Cf. United States v. Greenleaf, 546 F.2d 123, 128-29 (5th Cir. 1977) (such a factual determination is reviewed under the clearly erroneous test).

We hold the summons to be too far-reaching. The documents sought include all documents relating to the organizational structure of the church since its inception; all correspondence files for the period between April of 1975 and January...

To continue reading