U.S. v. Blackman

Decision Date29 December 1995
Docket NumberNo. 94-35990,94-35990
Parties-313, 64 USLW 2449, 96-1 USTC P 50,018, 96 Cal. Daily Op. Serv. 18, 96 Daily Journal D.A.R. 20 UNITED STATES of America; Cheryl J. Butcher, IRS Revenue Agent, Petitioners-Appellees, v. Marc D. BLACKMAN, personally and in his representative capacity as a partner of Rasom, Blackman & Weil, formerly known as Ransom, Blackman & Simson, Respondent-Appellant.
CourtU.S. Court of Appeals — Ninth Circuit

David B. Markowitz and Robert D. Bulkley, Jr., Markowitz, Herbold, Glade & Mehlhaf, and Robert H. Hoevet, Hoevet & Snyder, Portland, Oregon, for respondent-appellant.

Charles E. Brookhart and Gary R. Allen, United States Department of Justice, Washington, D.C., for petitioners-appellees.

Appeal from the United States District Court for the District of Oregon.

Before: BROWNING, RYMER and T.G. NELSON, Circuit Judges.

T.G. NELSON, Circuit Judge:

Attorney Mark Blackman, personally and in his capacity as partner in the law firm of Ransom, Blackman & Weil, appeals the district court's order granting the petition of the Internal Revenue Service ("IRS") to enforce a summons served on Blackman pursuant to the Internal Revenue Code, 26 U.S.C. Secs. 7402(a) and 7604(a) ("I.R.C." or "the Code"). The IRS seeks information to complete several Internal Revenue Service Forms 8300 filed by Blackman in 1987, 1988, and 1991 pursuant to I.R.C. Sec. 6050I. We have jurisdiction under 28 U.S.C. Sec. 1292, and we affirm.

FACTS AND PROCEDURAL HISTORY

I.R.C. Sec. 6050I requires a person receiving more than $10,000 in cash during a single trade or business transaction to file IRS Form 8300, providing the name, address, occupation and social security number of the payor, along with the date and nature of the transaction and the amount involved. The instant dispute concerns four such forms filed by Blackman, a partner in the Portland, Oregon, law firm of Ransom, Blackman & Weil, in 1987, 1988 and 1991. The forms were essentially complete save for information identifying the client-payors and the nature of the services rendered by Blackman or his firm in exchange for the cash. The IRS served a summons on Blackman in 1990 and again in 1992 asking for information to complete the forms. On both occasions, Blackman appeared before the IRS and refused to supply the information, claiming attorney-client privilege and his duty to maintain client confidences and secrets under Oregon law.

In February 1994, the IRS initiated an enforcement proceeding against Blackman in the federal district court. The court issued Blackman an Order to Show Cause, in response to which Blackman filed a memorandum and two affidavits, one of which was under seal. After hearing oral argument on June 23, 1994, in a proceeding consolidated with one involving Norman Sepenuk, another criminal defense attorney, the trial court granted enforcement of the IRS summons. Blackman timely appealed.

The district court incorporated portions of its opinion in United States v. Sepenuk, 864 F.Supp. 1002 (D.Or.1994), in its order of August 5, 1994, disposing of Blackman's case. We refer to the Sepenuk opinion as it applies to Blackman.

ANALYSIS
1. John Doe summons

As noted infra, I.R.C. Sec. 6050I provides that any person engaged in a trade or business must file a form 8300 for any cash transaction (or two or more related transactions) in excess of $10,000. 26 U.S.C. Sec. 6050I. Form 8300 requires disclosure of information identifying the payor, and any agent conducting the cash transaction on the part of the payor, as well as the amount and nature of the transaction. The IRS is empowered to serve a summons on any person from whom it seeks information necessary to ascertain that person's tax liability. 26 U.S.C. Sec. 7602(a). It may seek to enforce the summons through the jurisdictionally appropriate federal district court. 26 U.S.C. Secs. 7402(b), 7604(a).

If, however, the IRS seeks information regarding the potential tax liability of an unnamed taxpayer, it may not summarily issue a summons, but must follow the procedures laid out in 26 U.S.C. Sec. 7609. If the unnamed taxpayer is known to the IRS, it must provide him or her with notice and opportunity to intervene pursuant to 26 U.S.C. Sec. 7609(a) and (b). Where, however, "the IRS does not know the identity of the taxpayer under investigation, advance notice to that taxpayer is, of course, not possible." Tiffany Fine Arts, Inc. v. United States, 469 U.S. 310, 316-17, 105 S.Ct. 725, 728, 83 L.Ed.2d 678 (1985) (emphasis in original). In such cases, the IRS must obtain judicial approval pursuant to Sec. 7609(f) prior to issuing a summons. Id. at 317, 105 S.Ct. at 728; 26 U.S.C. Sec. 7609(f). A summons issued pursuant to Sec. 7609(f) is also known as a "John Doe summons." See id. at 313 n. 4, 105 S.Ct. at 726 n. 4.

To create a prima facie case validating the summons, the IRS must show the investigation has a legitimate purpose, that the inquiry is relevant to that purpose, that the information sought is not already in the possession of the IRS, and that it followed all requisite administrative steps. United States v. Powell, 379 U.S. 48, 57-58, 85 S.Ct. 248, 254-255, 13 L.Ed.2d 112 (1964). The IRS need only make a minimal showing with regard to these elements. United States v. Abrahams, 905 F.2d 1276, 1280 (9th Cir.1990). Declarations by the investigating agent suffice as to the first and second elements. Id. After the case is made, a "heavy burden" falls upon the respondent to disprove the IRS's assertions. Id. (quotations omitted).

We review for clear error the district court's ruling that the IRS has met the requirements for enforcement of its summons. Abrahams, 905 F.2d at 1280. "Review under the clearly erroneous standard is significantly deferential, requiring a 'definite and firm conviction that a mistake has been committed.' " Concrete Pipe & Prod. v. Construction Laborers Pension Trust, 508 U.S. 602, ----, 113 S.Ct. 2264, 2280, 124 L.Ed.2d 539 (1993). "If the district court's account of the evidence is plausible in light of the record viewed in its entirety, the court of appeals may not reverse it even though convinced that had it been sitting as the trier of fact, it would have weighed the evidence differently." Service Employees Int'l Union v. Fair Political Practices, 955 F.2d 1312, 1317 n. 7 (9th Cir.), cert. denied, 505 U.S. 1230, 112 S.Ct. 3056, 120 L.Ed.2d 922 (1992).

Blackman argues that the IRS is really seeking information about his clients, and is not seriously investigating him or his law firm at all. He contends that the information sought by the IRS "can have absolutely no relevance to any legitimate investigation" of himself or the firm, and urges that the IRS be required to follow John Doe procedures. The IRS claims it is only investigating Blackman and not his clients, though it conceded in reference to Sepenuk that any information it acquires as a result of its investigation may be used to initiate investigation of unnamed clients or third parties. See Sepenuk, 864 F.Supp. at 1005. We must decide whether the IRS was required to obtain judicial approval prior to serving a summons on Blackman.

The Supreme Court held in Tiffany that even where the IRS admits it has a "dual motive"--that is, that its investigation is aimed at unnamed as well as named persons--a John Doe summons is not required, so long as the trial court determines as a matter of fact that the IRS's investigation of the named party is legitimate. 469 U.S. at 317-18, 324, 105 S.Ct. at 728-29, 731. Thus, even if the IRS were investigating Blackman's clients as well as Blackman himself, which it denies, it would not be obliged to follow John Doe procedures.

Blackman insists, however, that the IRS is solely interested in his clients, and asks the panel to consider the following out-of-circuit decisions: United States v. Ritchie, 15 F.3d 592 (6th Cir.), cert. denied, --- U.S. ----, 115 S.Ct. 188, 130 L.Ed.2d 121 (1994); and United States v. Gertner, 873 F.Supp. 729 (D.Mass.1995), aff'd in part, 65 F.3d 963 (1st Cir.1995).

The Ritchie court held that because the district court's conclusion that the a law firm's clients were the real and sole focus of an IRS summons directed at the firm was "not clearly erroneous," the IRS should have used the John Doe procedure. 1 15 F.3d at 599-600. As the district court here noted, the trial court in Ritchie reached its conclusion on the basis of evidence that the IRS had assured members of the law firm it was not investigating them or their firm. See Sepenuk, 864 F.Supp. at 1005 (citing United States v. Ritchie, Civ. 3-92-610, 1992 WL 695477 (E.D.Tenn. Sept. 15, 1992)).

In Gertner, the district court found that the IRS's interest in the law firm under investigation was "pretextual" and that the IRS was in fact only interested in the law firm's clients. 873 F.Supp. at 734. The court concluded the Government should have used the John Doe procedure, but held it was unnecessary for the IRS to thus proceed because the information it sought was protected by the attorney-client privilege, and thus inaccessible to the Government. Id.

The First Circuit affirmed on circumscribed grounds. Finding that the district court's determination of the IRS's motives was not clearly erroneous, it held that the IRS was required to comply with John Doe procedures. See Gertner, 65 F.3d at 970. It deemed irrelevant the remainder of the district court's decision, including its discussion of attorney-client privilege. See id. at 971-74 (holding that the district court's discussion of privilege was either "surplusage" or the result of "miscalculat[ion]": "Any way we look at the situation, the district court's views as to the applicability vel non of the attorney-client privilege are not necessary to the result. Consequently, we have no occasion to consider [their] correctness.").

In both Ritchie and Gertner, ...

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