Short v. Murphy

• Decision Date: 05 March 1975
• Docket Number: No. 73-2097,73-2097
• Citation: 512 F.2d 374
• Parties: 75-1 USTC P 9290 Lorenza SHORT and Mamie O. Short, Plaintiff-Appellants, v. James G. MURPHY, Special Agent, Internal Revenue Service, et al., Defendants-Appellees.
• Court: U.S. Court of Appeals — Sixth Circuit

Page 374

512 F.2d 374

75-1 USTC P 9290

Lorenza SHORT and Mamie O. Short, Plaintiff-Appellants, v. James G. MURPHY, Special Agent, Internal Revenue Service, et al., Defendants-Appellees.

No. 73-2097.

United States Court of Appeals Sixth Circuit.

March 5, 1975.

Henry J. Rosenbaum, Polasky, Meisel & Rosenbaum, Saginaw, Mich., for plaintiffs-appellants.

Ralph B. Guy, U. S. Atty., Detroit, Mich., James W. Russell, Asst. U. S. Atty., Detroit, William Friedlander, Scott Crampton, Asst. Atty. Gen., Meyer Rothwacks, Chief, Appellate Sec. Tax Div., Dept. of Justice, Washington, D. C., Michael L. Paup, Michael J. Roach, Tax. Div., Dept. of Justice, Washington, D. C., for defendants-appellees.

Before PHILLIPS, Chief Judge, and LIVELY and ENGEL, Circuit Judges.

PHILLIPS, Chief Judge.

The appellant taxpayers were under investigation for income tax evasion at the time they filed this action. The special IRS agent had invited counsel for the taxpayers to a formal conference and disclosed that the IRS had information indicating that taxpayers had attempted willfully to evade and defeat payment of their income taxes for the taxable years 1967 through 1970. The agent further had revealed at the conference that the IRS had reconstructed the taxpayers' income by means of the net worth and expenditures method and that the understatements of income disclosed by the reconstruction amounted to approximately $215,000 for the four year period.

The taxpayers thereupon filed this action against the Special Agent and two of his superiors seeking a writ of mandamus and other relief requiring the IRS to disclose the details of the items included in the proposed net worth computation. The District Court dismissed the action for lack of jurisdiction and the taxpayers appeal. We affirm.

The principal legal issue is whether by its procedural rules, 26 C.F.R. § 601.107(b)(2), hereinafter quoted, the IRS has imposed upon itself the mandatory obligation to disclose the information requested.

The taxpayers contend that the information disclosed by the Special Agent does not permit them to make an adequate response and that they are also entitled to know:

(1) The dollar amount of the opening net worth statement for each year involved and the identity of the specific items comprising such total;

(2) The dollar amount of the closing net worth statement for each year involved and the identity of the specific items comprising such total;

(3) A reasonably specific breakdown identifying the nature and amount of claimed expenditures for each year.

Throughout the course of the negotiations the taxpayers did not attempt to rebut or explain the alleged understatement of income. They subsequently were indicted in April 1974.

I.

At oral argument counsel for the Government suggested for the first time that this case should be dismissed as moot. An indictment was returned against the taxpayers on April 2, 1974, less than two weeks before the statute of limitations would have barred the charge involving the 1967 tax year. After indictment, the taxpayers filed motions before the District Court in the district where the indictment is pending, seeking to quash the indictment and moving for discovery and for a bill of particulars. The Government asserts that all of the relief requested in the present case is now the subject of pending motions before the District Court. Further, the investigation is now out of the hands of the IRS, having been referred to the Department of Justice for prosecution.

Although these considerations may raise a substantial issue as to mootness, each litigant has a continuing interest in this appeal because this court could grant at least part of the relief sought. The request for specific disclosures under § 601.107(b)(2) is a live, active and real controversy between the parties. Regardless of whether the requested information ultimately may be disclosed in the criminal proceedings, this court could order disclosure as a civil matter. For these reasons this is not a case, as in DeFunis v. Odegaard, 416 U.S. 312, 317, 94 S.Ct. 1704, 1706, 40 L.Ed.2d 164 (1974), where: "The controversy between the parties has thus clearly ceased to be 'definite and concrete' and no longer 'touch(es) the legal relations of parties having adverse legal interests.' Aetna Life Ins. Co. v. Haworth, 300 U.S. 227, 240-41, 57 S.Ct. 461, 464, 81 L.Ed. 617 (1937)."

This case also presents a problem that doubtless will occur again and therefore "(b)ecause avoidance of repetitious litigation serves the public interest, that inevitability counsels against mootness determinations, as here, not compelled by the record." DeFunis v. Odegaard, supra, 416 U.S. at 350, 94 S.Ct. at 1722 (Brennan, J., dissenting). See Roe v. Wade, 410 U.S. 113, 125, 93 S.Ct. 705, 35 L.Ed.2d 147 (1973); United States v. W. T. Grant Co., 345 U.S. 629, 632-33, 73 S.Ct. 894, 97 L.Ed. 1303 (1953).

II.

26 C.F.R. § 601.107(b)(2), establishes the following procedure for pre-indictment conferences:

Every person who may be the subject of a recommendation for prosecution shall be given an opportunity to explain his participation in the alleged criminal violation prior to the submission of the case to Regional Counsel, unless compelling reasons exist to the contrary. At this interview the principal will be informed, by a general oral statement, of the alleged fraudulent features of the case, to an extent consistent with protecting the Government's interests, and, at the same time, making available to the taxpayer sufficient facts and figures to acquaint him with the nature, basis and other essential elements of the proposed criminal charge against him. ¹

One of the purposes of this rule is to give the taxpayer an opportunity to present rebutting facts and enable the IRS to sort out those cases which are not worthy of prosecution, thus avoiding unnecessary litigation for both the taxpayer and the Government. See Cleveland Trust Co. v. United States, 421 F.2d 475 (6th Cir.), cert. denied, 400 U.S. 819, 91 S.Ct. 35, 27 L.Ed.2d 46 (1970); Luhring v. Glotzbach, 304 F.2d 560, 564-65 (4th Cir. 1962); United States v. Goldstein, 342 F.Supp....