U.S. v. Goldman, 78-3121

Decision Date29 October 1980
Docket NumberNo. 78-3121,78-3121
Citation637 F.2d 664
Parties80-2 USTC P 9758 UNITED STATES of America and Joseph R. Rouleau, Special Agent of the Internal Revenue Service, Petitioners/Appellants, v. Gideon GOLDMAN, Certified Public Accountant, Respondent/Appellee.
CourtU.S. Court of Appeals — Ninth Circuit

R. Bruce Johnson, Washington, D. C., for petitioners/appellants.

Barry L. Guterman, Hochman, Salkin & DeRoy, Beverly Hills, Cal., for respondent/appellee.

Appeal from the United States District Court for the Central District of California.

Before PREGERSON and NELSON, Circuit Judges, and TURRENTINE, * District Judge.

NELSON, Circuit Judge:

This is an appeal from an order of the district court denying in part enforcement of an Internal Revenue summons.

Special Agent Joseph Rouleau sought certain records from accountant Gideon Goldman pertaining to Goldman's client taxpayer Haim Mizrahi. When Goldman refused to appear pursuant to an IRS summons, Rouleau filed a petition to enforce the summons. The district court issued a show cause order to Goldman and held a hearing on the matter. The court ordered that the summons be enforced with certain exceptions. Two of those exceptions form the basis of this appeal:

a. The court denied the Government's request to have Goldman give testimony and produce for examination books, records, and other documents pertaining to years prior to those years for which the Special Agent was conducting his examination of Mizrahi's tax liability. (While the investigation covered tax years 1973-76, the request included years 1970-72.)

b. The court denied the Government's request to have Goldman produce for examination his retained copies of all federal, state, and local tax returns he had prepared for Mizrahi.

The question presented is whether the district court was correct in concluding that the Government had not met its light burden in establishing that the records in question were relevant and that the Government did not possess them. After examining the district court's actions under the appropriate "clearly erroneous" standard, we affirm.

I. Standard of Review

A preliminary matter to be considered is what standard this court should apply in reviewing a district court's decision not to enforce an Internal Revenue summons. The Tenth Circuit faced this issue in United States v. Coopers & Lybrand, 550 F.2d 615 (10th Cir. 1978). "Because a proceeding to enforce a summons is an adversary proceeding controlled by the Federal Rules of Civil Procedure, (citations omitted), a district court's determination that a summons should not issue must stand unless determined to be clearly erroneous." 550 F.2d at 620. This court, in dicta, has endorsed the use of the "clearly erroneous" standard in such instances. United States v. Asay, 614 F.2d 655, 661 (9th Cir. 1980) (citing Coopers & Lybrand for the proposition that "(t)he trial court's decision will not be disturbed unless it is clearly erroneous," but using a mere error standard where the lower court misunderstood its power or jurisdiction). See also United States v. Zack, 521 F.2d 1366, 1369 (9th Cir. 1975). We now adopt the clearly erroneous standard for review of Internal Revenue summons enforcement decisions.

II. Enforcement of the Summons

The Government's original summons was issued pursuant to its authority under I.R.C. § 7602 to summon testimony and documents for the purpose of ascertaining tax liability. Enforcement jurisdiction for refusal to comply with an IRS summons is lodged with the U.S. District Courts under I.R.C. §§ 7402(b) and 7604(a).

The nature of the showing required by the IRS prior to enforcement was set forth by the Supreme Court in United States v. Powell, 379 U.S. 48, 85 S.Ct. 248, 13 L.Ed.2d 112 (1964):

Reading the statutes as we do, the Commissioner need not meet any standard of probable cause to obtain enforcement of his summons .... He must show that the investigation will be conducted pursuant to a legitimate purpose, that the inquiry may be relevant to the purpose, that the information sought is not already in the Commissioner's possession, and that the administrative steps required by the Code have been followed ....

Id. at 57-58, 85 S.Ct. at 255. See United States v. Church of Scientology, 520 F.2d 818, 821 (9th Cir. 1975).

The Powell opinion goes on to indicate that the court may inquire into the reasons for examination so as to prevent abuse from the enforcement of a summons issued for an improper purpose such as harassment. The instant appeal, however, concerns only the middle two of the four Powell criteria: whether the material is relevant and whether it is not already in the possession of the IRS.

a. Records from Prior Years

Insofar as the material from prior years is concerned, the question is solely one of relevance. As stated in Powell, the required standard that the IRS must meet is clearly less than probable cause. The standard has been defined, as the district court noted, as whether the inspection sought might have thrown light on the correctness of the taxpayer's return. Foster v. United States, 265 F.2d 183 (2d Cir. 1959), cert. denied, 360 U.S. 912, 79 S.Ct. 1297, 3 L.Ed.2d 1261 (1960); United States v. Ryan, 455 F.2d 728, 733 (9th Cir. 1972). The Second Circuit further discussed this standard in United States v. Harrington, 388 F.2d 520, 524 (2d Cir. 1969):

The question, and it is not always one that lends itself easily to solution, is whether from what the Government already knows there exists the requisite nexus between taxpayer and records of another's affairs to make the investigation reasonable- in short, whether the "might" in the articulated standard "might throw light upon the correctness of the return," is in the particular circumstances an indication of a realistic expectation rather than an idle hope that something may be discovered.

See United States v. Davey, 543 F.2d 996, 1000 (2d Cir. 1976); United States v. Matras, 487 F.2d 1271 (8th Cir. 1973).

The Government admits that the district court recognized the proper standard but argues that it was erroneously applied and that the Government sustained its "minimal" burden of establishing relevance. Our review of the record, however, discloses no error substantial enough to require reversal.

The Government's burden, while not great, is also not non-existent. The Government appears to argue that the mere assertion of relevance by Agent Rouleau satisfied that burden. Even to the extent this might be true for records concerning the tax years being examined, relevance is not so clear when records for other years are sought. The district court examined the Government's allegations of relevance of prior year's records, and heard testimony from Agent Rouleau which attempted to establish that relevance. The record reveals that the Government had every chance to make the minimal showing of specificity required. In its conclusions of law, however, the court noted that the Government's allegations "contained...

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