U.S. v. Barrett

• Citation: 837 F.2d 1341
• Decision Date: 24 February 1988
• Docket Number: No. 85-2054,85-2054
• Parties: -681, 56 USLW 2493, 88-1 USTC P 9193 UNITED STATES of America and Michael O. Hanson, Special Agent of the Internal Revenue Service, Plaintiffs-Appellees, v. Bernard M. BARRETT, Jr., as President of Plastic and Reconstructive Surgeons, P.A., Houston, Texas, Defendant-Appellant.
• Court: U.S. Court of Appeals — Fifth Circuit

Page 1341

837 F.2d 1341

61 A.F.T.R.2d 88-681, 56 USLW 2493, 88-1

USTC P 9193

UNITED STATES of America and Michael O. Hanson, Special Agent of the Internal Revenue Service, Plaintiffs-Appellees, v. Bernard M. BARRETT, Jr., as President of Plastic and Reconstructive Surgeons, P.A., Houston, Texas Defendant-Appellant.

No. 85-2054.

United States Court of Appeals Fifth Circuit.

Feb. 24, 1988.

Edward D. Urquhart, Charles J. Fisher, Silvia T. Hassell, Urquhart & Hassell, Houston, Tex., for defendant-appellant.

Henry K. Oncken, U.S. Atty., James R. Gough, Asst. U.S. Atty., Houston, Tex., William A. Whitledge, Glenn L. Archer, Jr., Asst. Atty. Gen., Tax Div., Michael L. Paup, Chief, U.S. Dept. of Justice, Charles E. Brookhart, Washington, D.C., for plaintiffs-appellees.

Appeal from the United States District Court for the Southern District of Texas.

Before CLARK, Chief Judge, BROWN, GEE, RUBIN, REAVLEY, POLITZ, CAROLYN DINEEN KING, ^* JOHNSON, WILLIAMS, GARWOOD, JOLLY, HIGGINBOTHAM, DAVIS, and JONES, Circuit Judges. ^**

PER CURIAM:

The question presented in this appeal is whether a district court can conditionally enforce an Internal Revenue Service (IRS) summons to ensure that the IRS will not violate the nondisclosure of return information provisions contained in 26 U.S.C. Sec. 6103 while it conducts a tax investigation. We answer this question in the negative.

I.

The facts giving rise to the present controversy, as set forth in the panel opinion on rehearing in United States v. Barrett, 804 F.2d 1376 (5th Cir.1986) (Barrett II ), are as follows:

[Dr. Bernard M. Barrett, Jr.] is the president of an incorporated medical practice specializing in plastic and reconstructive surgery. In 1979 the IRS began an audit of Barrett's personal and corporate income tax returns for the years 1976, 1977, and 1978. When the initial investigation uncovered a $100,000 discrepancy between Barrett's books and his bank records, the IRS transferred the case from its civil to its criminal division.

Agent Michael O. Hanson, to whom the case was transferred, determined that it would be necessary to inquire of Barrett's patients the amount each had payed for Barrett's services. To this end, Agent Hanson sent two sets of summonses calling for patient's records, one to the hospitals where Barrett practiced and one to Barrett himself. All but four of the hospitals complied with the summonses providing a total of 350 patients' names. [Barrett has also complied with the summons.] Agent Hanson then sent a letter to each patient advising that Barrett was being investigated by the Criminal Investigation Division of the IRS and requesting documentation of fees paid to Barrett.

Barrett II, 804 F.2d at 1377. ¹

In United States v. Texas Heart Institute, 755 F.2d 469 (5th Cir.1985), the district court refused to enforce the summonses issued to the hospitals. A panel of this court reversed that decision and remanded the case to the district court for a determination of whether the mailing of the letters to Barrett's patients would be a violation of 26 U.S.C. Sec. 6103, and, if so, whether enforcement should be conditioned upon requiring the IRS to desist from further unlawful disclosures. 755 F.2d at 482.

In the initial panel opinion in this case, United States v. Barrett, 787 F.2d 958 (5th Cir.1986) (Barrett I ), this court upheld the district court's decision to enforce unconditionally the summons issued to Dr. Barrett. The court also limited the scope of Texas Heart, refusing to hold that a violation of section 6103 was grounds to deny enforcement of, or to conditionally enforce, the summons. Judge Brown dissented, arguing that the court had implicitly overruled Texas Heart. Dr. Barrett subsequently filed a petition for rehearing. The court responded by withdrawing its earlier opinion, affirming the enforcement of the summons, but also remanding the case to the district court for it to follow Texas Heart and inquire whether section 6103 was being violated; if so, then the court was to conditionally enforce the summons to prevent the IRS from making disclosures in violation of section 6103. The government petitioned for a rehearing of that decision. This court granted the request, agreeing to rehear the case en banc.

In this appeal the government contends that the holding in Texas Heart that a district court has the authority to enter conditional summons enforcement orders to prevent a violation of section 6103 should be overruled. The government also contends that the district court's order unconditionally enforcing the summons in this case is correct and should be affirmed. Barrett responds that district courts hearing an IRS summons enforcement proceeding have long been held to have the power to modify a summons to prevent a violation of law by IRS officials or to protect the rights of a taxpayer. Thus, it is argued that district courts should be allowed to consider section 6103 in deciding whether to conditionally enforce the summons. ² Therefore, we must examine the validity of the rule established in Texas Heart that in a summons enforcement proceeding a district court can consider whether a section 6103 violation may occur, and, if it does so find, determine whether to conditionally enforce the summons. The first issue we must address is whether the case before us is moot. Before we examine that issue, however, we briefly discuss the relevant background necessary to decide the mootness issue.

II.

This case involves the construction of a number of Internal Revenue Code (the Code) provisions. First, section 6103(a) ³ establishes a general rule that tax returns and tax return information are confidential and may not be disclosed by officers and employees of the United States. ⁴ If a government official violates the nondisclosure provisions of section 6103(a), he is subject to criminal prosecution under section 7213(a)(1). This section makes it unlawful to disclose any return or return information except as authorized by the Code. A willful violation is punishable by a fine of up to $5,000, or imprisonment of up to a period of 5 years, or both. 26 U.S.C. Sec. 7213(a)(1). Moreover, if return information is impermissibly disclosed, section 7431 provides the aggrieved person with a civil remedy. The person can bring a cause of action against the United States, and can recover damages of a minimum amount of $1,000 for each unauthorized disclosure. Id. Sec. 7431(c).

The other relevant provisions of the Code are those relating to the IRS's power to seek information relevant to a tax investigation. The IRS is authorized by section 7602(a) to issue a summons to compel any person having possession of books of account, papers, or other data to produce such materials when needed by the IRS to determine the correctness of a tax return or otherwise to determine the tax liability of an individual. If the person does not comply with the summons, the IRS can file a petition for enforcement with the district court. 26 U.S.C. Sec. 7604.

In United States v. Powell, 379 U.S. 48, 85 S.Ct. 248, 13 L.Ed.2d 112 (1964), the Supreme Court set forth four criteria that the IRS must establish in order to have a summons enforced:

(1) The IRS agent must show that the investigation will be conducted pursuant to a legitimate purpose;

(2) that the inquiry may be relevant to the purpose;

(3) that the information sought is not already within the IRS's possession; and

(4) that the administrative steps required by the Code have been followed.

Powell, 379 U.S. at 57-58, 85 S.Ct. at 255. The Court also instructed that a court could inquire into the underlying reasons for the examination and that it should not permit its process to be abused. Id. at 58, 85 S.Ct. at 255. "Such an abuse would take place if the summons had been issued for an improper purpose, such as to harass the taxpayer or to put pressure on him to settle a collateral dispute, or for any other purpose reflecting on the good faith of the particular investigation." Id.

The government bears the initial burden of proving that the four Powell requirements have been satisfied. Texas Heart, 755 F.2d at 474. Once the government makes the required Powell showing, the burden then shifts to the party resisting the summons to challenge the summons on any appropriate ground. Powell, 379 U.S. at 58, 85 S.Ct. at 255 (quoting Reisman v. Caplin, 375 U.S. 440, 449, 84 S.Ct. 508, 513, 11 L.Ed.2d 459 (1964)). These grounds include that the IRS has failed to meet one of the four Powell requirements, or that the enforcement of the summons would abuse the court's process.

III.

Before we reach the merits in this appeal, we must address the preliminary issue of whether the case before us is moot. Although neither party has raised the mootness issue, this court is required to do so sua sponte, because this issue implicates the article III requirement that there be a live case or controversy. ⁵ Donovan v. Air Transport District Lodge No. 146, 754 F.2d 621, 624 (5th Cir.1985). The mootness concern is based upon the fact that Dr. Barrett ultimately complied with the summons after he was unable to obtain a stay of the district court's summons enforcement order. This court has often held that an appeal from an order enforcing a summons becomes moot once the taxpayer complies with the summons. See United States v. Sherlock, 756 F.2d 1145, 1146 (5th Cir.1985); United States v. Sweet, 655 F.2d 54, 55 (5th Cir.1981); United States v. First American Bank, 649 F.2d 288, 289 (5th Cir.1981); United States v. First State Bank of Clute, 626 F.2d 1227, 1227 (5th Cir.1980), cert. denied, 452 U.S. 908, 101 S.Ct. 3037, 69 L.Ed.2d 410 (1981); United States v. Carpenter, 425 F.2d 264, 264-65 (5th Cir.1970); Baldridge v. United States, 406 F.2d 526, 527 (5th Cir.1969); Grathwohl v. United States, 401 F.2d 166, 167 (5th Cir.1968); Lawhon v. United States, 390 F.2d 663, 663 (5th Cir.1968).

Thus, in Sherlock we held that since Sherlock...