U.S. v. Barrett

• Citation: 804 F.2d 1376
• Decision Date: 03 December 1986
• Docket Number: No. 85-2054,85-2054
• Parties: -6286, 86-2 USTC P 9822 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 1376

804 F.2d 1376

58 A.F.T.R.2d 86-6286, 86-2 USTC P 9822

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.

Dec. 3, 1986.

Edward D. Urquhart, Urquhart & Hassell, Charles J. Escher, Houston, Tex., for defendant-appellant.

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

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

Before BROWN, REAVLEY and HILL, Circuit Judges.

ON PETITION FOR REHEARING AND SUGGESTION FOR REHEARING EN BANC

(Opinion April 16, 1986, 5 Cir.1986, 787 F.2d 958)

PER CURIAM:

After receiving the application for rehearing we have decided that we misgauged the scope of our prior holding in United States v. Texas Heart Institute, 755 F.2d 469 (5th Cir.1985). Accordingly we withdraw our opinion and substitute the following in its stead.

In this appeal, Dr. Bernard M. Barrett, Jr. challenges the district court's order enforcing an Internal Revenue Service (IRS) summons directing him to produce all the financial records of his incorporated medical practice. We affirm the district court's order enforcing the summons but remand for resolution of Barrett's claim that, to prevent an abuse of the court's process, the order should be modified so as to prohibit the IRS from violating the terms of 26 U.S.C. Sec. 6103(a).

I.

Barrett 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. 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. The IRS's right to enforce the summonses issued to the four noncomplying hospitals was litigated in this court in United States v. Texas Heart Institute, 755 F.2d 469 (5th Cir.1985). The instant appeal involves the validity of the district court's decision to enforce the IRS summons issued to Barrett.

Barrett maintains that the summons was not issued to him for a legitimate purpose. Alternatively Barrett urges this court to follow the example of Texas Heart and to remand for further proceedings to determine whether the district court's enforcement order should be modified so as to prohibit the IRS from informing his patients that he is under criminal investigation.

II.

Barrett has fully complied with the district court's order requiring him to release the names of his patients. His claim that the district court based its decision to enforce the summons upon an erroneous finding that the IRS possesses a legitimate investigatory purpose ¹ is therefore moot. Grathwohl v. United States, 401 F.2d 166 (5th Cir.1968); Lawhon v. United States, 390 F.2d 663 (5th Cir.1968).

Barrett's claim that he is entitled to remand under Texas Heart is less easily disposed of. At the time of this appeal, the IRS has not yet conducted mailings to Barrett's office patients. If Barrett was entitled, in the first instance, to obtain an order from the district court prohibiting certain uses of the summoned information, we see no reason why he should not be entitled to have those restrictions imposed upon remand. The question we must answer, then, is whether in an enforcement proceeding the district court could have appropriately restricted the IRS in the manner that it conducted mailings to Barrett's patients.

III.

Section 6103(a) of the Internal Revenue Code ² sets forth the general rule that tax return information is confidential and may not be disclosed by officers and employees of the United States. ³ This general right of privacy is limited by section 6103(k)(6) which provides:

An internal revenue officer or employee may, in connection with his official duties relating to any audit, collection activity, or civil or criminal tax investigation or any other offense under the internal revenue laws, disclose return information to the extent that such disclosure is necessary in obtaining information, which is not otherwise reasonably available....

The Code provides both criminal penalties against individuals who violate the non-disclosure provisions of section 6103 and a civil right of action for damages against the United States for those whose return information is impermissibly disclosed. Section 7213 makes it unlawful to disclose any return or return information, except as authorized by the Code, and punishes a willful violation of that section by five years' imprisonment or a $5,000 fine, or both. Section 7431 provides to the individual whose return information is unlawfully disclosed a right of action for damages against the United States and sets the minimum amount of the damages at $1,000 for each unauthorized disclosure. Barrett maintains that in addition to these statutory remedies for violations of section 6103(a), Texas Heart permits him to challenge the IRS summons as an abuse of process at the enforcement proceedings. The IRS contends the proper forum for defining the interplay between sections 6103(a) and 6103(k)(6) is not an enforcement hearing but a civil or criminal trial as explicitly provided for by sections 7213 and 7431 of the Code.

We find that Texas Heart supplies the law of the case and that Barrett is entitled to a determination by the district court whether unconditional enforcement of the IRS summons would constitute an abuse of its process.

In Texas Heart we found that the disclosure by the IRS to Barrett's patients that he was under criminal investigation might be an unauthorized disclosure of return information prohibited by section 6103. On remand we directed the district judge to make three determinations:

(i) whether the statement in the prior patient mailings that Dr. Barrett was under criminal investigation was a disclosure of "return information" under section 6103; and, if so,

(ii) whether the disclosure of that information was authorized under section 6103(k)(6); and

(iii) whether enforcement of the summons should be conditioned upon requiring the IRS to desist from further unlawful disclosures.

755 F.2d at 482.

While we do not explicitly state in Texas Heart that the district court is empowered to make section 6103 determinations in an enforcement hearing, our treatment of the cause on remand can be reconciled with no other view of the case. Accordingly, we find that our mandate in Texas Heart requires the district court to consider whether enforcement of the IRS summons should be conditioned in order to protect Barrett against unnecessary disclosure of the fact that he is under criminal investigation. We affirm the order of the district court enforcing the IRS summons; we remand for the district court to determine whether the summons should be conditionally enforced.

AFFIRMED and REMANDED.

ROBERT MADDEN HILL, Circuit Judge, with whom Circuit Judge REAVLEY joins, concurring:

While I am compelled by our holding in United States v. Texas Heart Institute, 755 F.2d 469 (5th Cir.1985), to join in the panel's opinion, I believe that the result reached today is out of step with the Supreme Court's expansive reading of 26 U.S.C. Sec. 7602 which grants the IRS the authority to "examine any books, papers, records or other data which may be relevant ... [and to summon] any person having possession of books of account ... relevant or material to such inquiry."

The statutory right to privacy asserted by Barrett imposes significant limitations on the IRS's power under section 7602 to collect information which is relevant to its investigation. Had Texas Heart examined the authorities which address the scope of the IRS's powers under section 7602 I believe it would have discerned a common theme; they all decline to circumscribe purposeful and productive exercise of these powers "absent unambiguous directions from Congress." United States v. Arthur Young & Co., 465 U.S. 805, 816, 104 S.Ct. 1495, 1502, 79 L.Ed.2d 826 (1984) (quoting United States v. Bisceglia, 420 U.S. 141, 150, 95 S.Ct. 915, 920, 43 L.Ed.2d 88 (1975)); United States v. Euge, 444 U.S. 707, 715, 100 S.Ct. 874, 880, 63 L.Ed.2d 141 (1980). The following summary of the relevant authority supports this conclusion.

In United States v. Powell, 379 U.S. 48, 85 S.Ct. 248, 13 L.Ed.2d 112 (1964), for example, the Supreme Court refused to read into section 706(b), prohibiting "unnecessary examination[s]," a requirement that enforcements of summonses be founded on probable cause. The Court reasoned that "[a]lthough a more stringent interpretation is possible ... we reject such an interpretation because it might seriously hamper the Commissioner in carrying out investigations he thinks warranted...." 379 U.S. at 53-54, 85 S.Ct. at 252-53, quoted in United States v. Euge, 444 U.S. at 715, 100 S.Ct. at 880....