809 F.2d 1411 (9th Cir. 1987), 85-6065, United States v. Zolin
|Docket Nº:||85-6065, 85-6105.|
|Citation:||809 F.2d 1411|
|Party Name:||UNITED STATES of America, Petitioner/Appellee/Cross-Appellant, v. Frank S. ZOLIN, Respondent/Appellee, and Church of Scientology of California and Mary Sue Hubbard, Intervenors/Appellants/Cross-Appellees.|
|Case Date:||February 09, 1987|
|Court:||United States Courts of Appeals, Court of Appeals for the Ninth Circuit|
Argued and Submitted Nov. 6, 1986.
[Copyrighted Material Omitted]
Eric M. Lieberman and Edward Copeland, Michael Lee Hertzberg, New York City, and Donald C. Randolph, Los Angeles, Cal., for intervenors/appellants/cross-appellees.
Frederick Bennett, Co. Counsel, Los Angeles, Cal., for defendant/appellee.
John A. Dudeck, Jr., Tax Div., Dept. of Justice, Washington, D.C., and Charles H. Magnuson, Asst. U.S. Atty., Los Angeles, Cal., for petitioner/appellee/cross-appellant.
Appeal from the United States District Court for the Central District of California.
Before BROWNING, Chief Judge, GOODWIN and FARRIS, Circuit Judges.
FARRIS, Circuit Judge:
In July 1984, the Criminal Investigation Division of the IRS (Los Angeles District) began investigating L. Ron Hubbard's tax returns for the tax years 1979 through 1983. In October, the IRS served an administrative summons on the Clerk of the Los Angeles County Superior Court and requested that he produce certain documents relating to Hubbard's potential tax liability. (The Superior Court had obtained the documents in connection with an unrelated proceeding brought by the Church against a former member of the Church.) The Clerk willingly produced a number of documents, but refused to produce thirteen documents which had been ordered sealed by the Superior Court.
In January 1985, the Government initiated this action in an effort to compel the Clerk to produce the thirteen sealed documents. Shortly thereafter, the district court granted the motions to intervene which were brought by the Church and Mary Sue Hubbard. The Intervenors contended that each of the thirteen documents was either privileged, irrelevant, or both. They also argued that the summons was unenforceable because it was not issued pursuant to a "good faith" tax investigation.
Hearings were held in March and April. On April 30, 1985, the district court ruled
that eight of the documents--exhibits 4-D, 4-E, 4-F, 4-G, 5-C, 5-G, 5-I, and 6-B--were irrelevant, privileged, or both, and did not need to be produced. It ruled that five documents--exhibits 5-K, 5-L, 5-O, 5-P, and 6-O--should be produced, but prohibited the IRS from disclosing them to another governmental agency except in connection with a criminal tax prosecution or with the court's approval. The court further ruled that the Intervenors had failed to prove that the summons was not issued in "good faith."
The Intervenors filed timely notice of appeal on July 1, 1985. The Government filed timely notice of cross-appeal on July 15, 1985. The order appealed from is a final order which disposes of all claims of all parties. We have jurisdiction under 28 U.S.C. Sec. 1291.
On January 24, 1986, during the pendency of this appeal, L. Ron Hubbard died. The Intervenors argue that because Hubbard's death has foreclosed the possibility of any further investigation of Hubbard's potential criminal tax liability, this proceeding has become moot. We reject that argument for the reason stated in United States v. Author Services, 804 F.2d 1520, 1522 n. 1 (9th Cir.1986).
B. Relevance of Exhibits 5-O, 5-P, and 6-O
The IRS' power to examine records in connection with tax investigations is broadly construed. See Liberty Financial Services v. United States, 778 F.2d 1390, 1392 (9th Cir.1985); De Masters v. Arend, 313 F.2d 79, 87 (9th Cir.1963). The relevance of such evidence depends on whether it might throw light on the correctness of a taxpayer's returns. United States v. Goldman, 637 F.2d 664, 667 (9th Cir.1980). The Government must demonstrate a "realistic expectation" of relevance, rather than an "idle hope" of relevance. Id. (quoting United States v. Harrington, 388 F.2d 520, 524 (2d Cir.1968)).
The Government bases its claim that the three exhibits are relevant on the declaration of Agent Petersell, in which Petersell stated:
I have read the Petition to Enforce Internal Revenue Service Summons. Each of the items listed ... is relevant to the investigation of L. Ron Hubbard in one or more of the following respects:
A. Determining the extent to which income from the Church of Scientology inured to the benefit of L. Ron Hubbard.
B. Determining whether L. Ron Hubbard conspired with others to impair and impede the Internal Revenue Service in the administration of the tax laws.
C. Determining whether any violations of the Internal Revenue laws were done willfully with intent to evade tax.
The Government's other evidence of relevancy consists of three terse descriptions of the documents' contents in the petition for enforcement of the summons:
The record does not indicate the Government's sources for this information.
While the Government might have made a better showing, the district court did not clearly err in concluding that Petersell's declaration, when coupled with the general descriptions of the documents in the petition to enforce the summons, was sufficient to establish the relevance of the documents. We do not ignore our statement in Goldman:
The Government's burden, while not great, is also not non-existent. The Government appears to argue that the mere assertion of relevance by [an IRS agent] satisfied that burden. Even to the extent this might be true for records concerning the tax...
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