Hintze v. I.R.S.

• Decision Date: 13 July 1989
• Docket Number: 88-1347,Nos. 88-1320,s. 88-1320
• Citation: 879 F.2d 121
• Parties: -5206, 89-2 USTC P 9451 Fritz W. HINTZE; Ledagole R. Hintze, Plaintiffs-Appellants, v. INTERNAL REVENUE SERVICE; Jeffrey Breault, Special Agent; United States of America, Defendants-Appellees (Two Cases).
• Court: U.S. Court of Appeals — Fourth Circuit

Page 121

879 F.2d 121

64 A.F.T.R.2d 89-5206, 89-2 USTC P 9451

Fritz W. HINTZE; Ledagole R. Hintze, Plaintiffs-Appellants, v. INTERNAL REVENUE SERVICE; Jeffrey Breault, Special Agent United States of America, Defendants-Appellees (Two Cases).

Nos. 88-1320, 88-1347.

United States Court of Appeals Fourth Circuit.

Argued Feb. 8, 1989.

Decided July 13, 1989.

Rehearing and Rehearing In Banc Denied Aug, 18, 1989.

William Allen Cohan (Cohan & Greene, on brief), for plaintiffs-appellants.

William Anthony Whitledge (Gary R. Allen, Charles E. Brookhart, Tax Div., Dept. of Justice, Washington, D.C., William S. Rose, Jr., Asst. Atty. Gen., Henry E. Hudson, Alexandria, Va., Breckinridge L. Willcox, U.S. Attys., Washington, D.C., on brief) for defendants-appellees.

Before PHILLIPS and WILKINSON, Circuit Judges, and BUTZNER, Senior Circuit Judge.

PHILLIPS, Circuit Judge:

In this consolidated appeal, Frederick W. and Ledagole R. Hintze challenge two district court orders summarily enforcing a number of Internal Revenue Service summonses issued to obtain certain records held by third parties and allegedly sought for the purpose of determining the appellants' tax liability for calendar years 1984 through 1986.

In No. 88-1320, we find that developments subsequent to the entry of the district court's enforcement order render the appeal moot. We therefore dismiss for want of a live case or controversy. In No. 88-1347, finding no error in the district court's determination that the appellants failed to rebut the IRS's prima facie case for summary enforcement of the challenged summonses, we affirm.

I

In November of 1978, the Hintzes filed an IRS Form 843, seeking a refund of $31,093.04 in taxes paid for calendar year 1975. They claimed that "the income tax violates the U.S. Constitution," and that "according to federal law ..., [we] have earned no lawful money and owe no taxes." ¹ The IRS denied the claim and subsequently classified the appellants as "tax protestors."

The Hintzes apparently paid their taxes until 1983. They failed to file returns, however, for tax years 1984, 1985 and 1986. On the basis of various Form 1099 and W-2 reports, officials at the IRS Philadelphia Service Center determined that the Hintzes realized income in those years and should have filed returns. The Service Center therefore transferred the case to the Baltimore regional IRS office for further action.

Revenue Officer Penelope Lawson subsequently conducted a "Taxpayer Delinquent Investigation" and verified that the Hintzes had not filed tax returns since 1983. She examined various public real and personal property registers and a number of employer wage reports--all of which suggested that the appellants owned substantial property and had realized a significant amount of unreported income--and ultimately decided to refer the Hintze file to the IRS Criminal Investigation Division (CID). CID Special Agent Jeffrey Breault then conducted a formal inquiry, for the immediate purpose of determining the appellants' "correct tax liabilities" and whether they had "violated any of the criminal provisions of the Internal Revenue Code." ²

In connection with this inquiry, Agent Breault attempted to obtain various records held by financial institutions in Maryland and Virginia. Exercising his authority under Sec. 7602(a) of the Internal Revenue Code, 26 U.S.C. Sec. 7602(a), Breault ultimately issued several administrative summonses requiring these institutions to produce any and all records of activity in the Hintzes' various deposit and loan accounts during calendar years 1983 through 1987. Pursuant to Sec. 7609(b)(2) of the Code, id. Sec. 7609(b)(2), the appellants then filed essentially identical petitions to quash the summonses in the federal district courts for the Eastern District of Virginia and the District of Maryland. ³

In support of their petitions, the Hintzes claimed that the IRS had "abusively" issued the challenged summonses "solely for purposes of a criminal investigation," and in anticipation of an ultimate referral of the case to the Department of Justice. ⁴ They also alleged, inter alia, that the CID was pursuing its investigation of the case in furtherance of a general IRS policy of "selectively prosecuting" tax protestors; and that enforcement of the summonses would "violat[e the petitioners'] rights [under the] free association, free speech and petition for redress clauses of the First Amendment." ⁵

Finally, petitioners claimed that the IRS had issued the challenged summonses "in bad faith [and] in violation of the Fourth Amendment"--that is, on the basis of information obtained as "by-product[s] of 'fruits of the poisonous tree' of illegal searches and seizures." ⁶ On April 5, 1985, IRS agents conducted searches of several local offices of the National Commodities and Barter Exchange (NCBA)--a tax protestors organization to which the Hintzes belonged. The agents seized a number of documents, including the NCBA's membership lists. In ensuing litigation, however, the Court of Appeals for the Tenth Circuit affirmed a district court determination that the search warrants authorizing the IRS's NCBA "raids" failed to contain a "constitutionally adequate particularization of the items to be seized," rendering the searches themselves illegal. Voss v. Bergsgaard, 774 F.2d 402, 405 (10th Cir.1985). The Hintzes now allege that Agent Breault issued the summonses challenged here on the basis of information illegally obtained in the April 1985 searches--and not, as the IRS claims, in connection with the Philadelphia Service Center's independent identification of a possible case of tax evasion.

In support of all of these claims, the Hintzes submitted but one item of evidence: a declaration executed by their attorney, William A. Cohan, who claimed to have "personal knowledge of the unlawful activities of IRS agents and their informants." J.A. Vol. II at 4. Cohan claimed to have "reliable" evidence of "illegal searches and seizures, abusive uses of IRS summonses, grand jury subpoenas, and search warrants, perjury by IRS agents ... [and] deliberately falsified accusations by IRS personnel that NCBA members were ... plotting to murder a federal judge and/or injure IRS agents ..., stockpiling weapons ..., [and] plotting the violent overthrow of state and/or federal governments." Id.

In response to the Hintzes' petitions to quash, the IRS filed motions in both district courts for summary enforcement of the summonses. The government also submitted sworn affidavits executed by Revenue Officer Lawson, Special Agent Breault and John P. Funyak, Sr., Chief of the Criminal Investigation Division at the Philadelphia Service Center, each of which described both in general and specific terms the circumstances surrounding the IRS's initiation of the Hintze investigation and Agent Breault's issuance of the challenged summonses. On the basis of these affidavits, the district courts separately concluded that the government had established a prima facie case for summary enforcement of the summonses, and that petitioners had failed to show in response that the IRS sought enforcement for "improper purposes" or in an attempt to "abuse process." Both courts ultimately entered orders granting the government's motions for summary enforcement and denying the Hintzes' later motions for stays pending appeal.

In No. 88-1320, petitioners appeal the enforcement order issued by the district court for the Eastern District of Virginia. In No. 88-1347, they challenge the similar order issued by the district court for the District of Maryland. On September 9, 1988, we denied the Hintzes' Rule 8 motion for a stay pending appeal in No. 88-1320. Sometime thereafter, the summoned party complied with the district court's enforcement order and produced all records described in the original summons. We have not been advised whether the summoned parties in No. 88-1347 have complied with the district court's enforcement order, and we therefore must assume they have not.

II

We turn first to the government's threshold contention that the Crestar Bank's compliance with the summons challenged in No. 88-1320 renders the Hintzes' appeal in that case moot.

In Kurshan v. Riley, 484 F.2d 952 (4th Cir.1973), we held that compliance with an IRS summons mooted the appeal of a district court order denying a taxpayer's motion to enjoin the government from enforcing the summons. The present case is arguably distinguishable; but we think there is no meaningful difference between a case where, as here, the appellant challenges an affirmative enforcement order, and one in which the appeal is from a district court's denial of injunctive relief. In either setting, the dispositive principle is that "federal courts are without power to decide questions that cannot affect the rights of litigants in the case before them." North Carolina v. Rice, 404 U.S. 244, 246, 92 S.Ct. 402, 404, 30 L.Ed.2d 413 (1971). Applying the rule here, we find that the bank's compliance with the challenged enforcement order precludes our exercise of jurisdiction over the Hintzes' appeal. "[O]nce an individual complies with a summons enforcement order and produces the documents, a successful challenge to the enforcement order could afford no relief; the information has already been provided and thus this court would be powerless to provide relief that would affect the rights of the litigants." United States v. Barrett, 837 F.2d 1341, 1346 (5th Cir.1988) (en banc). ⁷ The possibility that information improperly obtained as a result of the summoned party's compliance might be used in subsequent civil or criminal trials is of no consequence, United States v. First American Bank, 649 F.2d 288, 289 (5th Cir.1981), since aggrieved parties "may adequately protect their asserted interests by seeking to suppress such information" in the normal course of later proceedings. Kurshan, 484 F.2d at 953.

We therefore hold that the summoned p...