U.S. v. Beacon Federal Sav. & Loan, s. 540
| Citation | 718 F.2d 49 |
| Decision Date | 21 September 1983 |
| Docket Number | 895,Nos. 540,s. 540 |
| Court | United States Courts of Appeals. United States Court of Appeals (2nd Circuit) |
| Parties | 83-2 USTC P 9611 UNITED STATES of America, and Barbara Palm, Petitioners-Appellees, v. BEACON FEDERAL SAVINGS & LOAN, Respondent, and Charles Centrella and Teresa Centrella, Intervenors-Appellants. UNITED STATES of America, and Barbara Palm, Petitioners-Appellees, v. NATIONAL BANK OF NORTH AMERICA, Respondent, and Charles Centrella and Teresa Centrella, Intervenors-Appellants. UNITED STATES of America, and Barbara Palm, Petitioners-Appellees, v. VANGUARD NATIONAL BANK, Respondent, and Charles Centrella and Teresa Centrella, Intervenors-Appellants. UNITED STATES of America, and Barbara Palm, Petitioners-Appellees, v. PERLOW & COMPANY and George Perlow, Respondents, and Charles Centrella and Teresa Centrella, Intervenors-Appellants. & 897, Dockets 82-6191, 82-6201, 82-6211 and 82-6221. |
Libero Marinelli, Jr., Attorney, Tax Div., Dept. of Justice, Washington, D.C. (Glenn L. Archer, Jr., Asst. Atty. Gen., Charles E. Brookhard, Michael L. Paup, Attorneys, Tax Div., Dept. of Justice, Washington, D.C., Raymond J. Dearie, U.S. Atty., E.D.N.Y., Patrick B. Northup, Asst. U.S. Atty., Brooklyn, N.Y., of counsel), for petitioners-appellees.
Jeffrey W. Waller, Melville, N.Y. (Jeffrey W. Waller, P.C., Melville, N.Y., of counsel) for intervenors-appellants.
Before KEARSE, WINTER and PRATT, Circuit Judges.
On these consolidated appeals Charles and Teresa Centrella (taxpayers) ask us to review orders of the district court enforcing four third-party summonses issued by the Internal Revenue Service under 26 U.S.C. Sec. 7602. Three of the summonses seek financial records from taxpayers' banks; the fourth, addressed to taxpayers' attorney-accountant, seeks copies of prior tax returns, work papers and supporting documents. Taxpayers claim that each summons is overbroad, that enforcement of the summons to the attorney-accountant is barred by the attorney-client privilege and the fifth amendment privilege against self-incrimination, and that enforcement of all four summonses should be denied because they are part of an investigation that was intensified as the result of an unconstitutional search and seizure by the revenue agent.
The district court ordered enforcement of all four summonses. In doing so, it expressly found that there had been no violation of any internal procedure of the IRS, it declined to receive evidence on the search and seizure issue, and it did not comment on the privilege issues. We agree with the district court's implicit holdings that the summonses were not overbroad, and that taxpayers failed to establish a basis for blanket relief under the fifth amendment and attorney-client privileges. Since the record is inadequate for us to rule on the fourth amendment violation, however, we reverse and remand for further proceedings on that issue.
As part of a routine civil audit of the Centrellas' 1978 income tax return, agent Jean Competello visited the office of George Perlow, the attorney-accountant who had prepared the return. Taxpayers apparently claim that when Perlow was absent from the room in which the examination of documents was conducted, Competello searched Perlow's papers without permission, removed a document (or documents) from his files, took it (them) from the office, and photocopied it (them). It is unclear what actually transpired during this investigation, because neither Competello nor Perlow, the only participants in the events, submitted an affidavit or testified below. All that is before the court is an affidavit by taxpayers' litigation attorney, plus unsworn statements made to the court by him and by the Assistant U.S. Attorney.
The government admits Competello took a single document from the room without giving a receipt, copied it, and returned it to Perlow. The government claims, however, that the document was included among a group of documents Perlow had provided to Competello for examination and that Competello had Perlow's permission to read it. However Competello got the document(s), it appears to be uncontested that the document(s) caused the IRS to expand its investigation from a routine civil audit of taxpayers' 1978 return, into a joint civil and criminal investigation of the 1977, 1978 and 1979 tax years, and to transfer the investigation to the supervision of special agent Barbara Palm, where it continued with a dual civil and criminal character.
On June 29, 1981, agent Palm served a third-party summons on Perlow, requesting his retained copies of taxpayers' 1977, 1978 and 1979 tax returns, prior years' returns, and "work papers, materials, and tax records" used in preparing those returns. Acting On November 5, 1981, agent Palm served summonses on three banks at which taxpayers held accounts, seeking records of their checking and savings accounts, safe deposit boxes, loan and credit card applications, and certificates of deposit. Taxpayers also directed the banks not to comply with the summonses.
on taxpayers' instructions, Perlow refused to comply with the summons.
Nearly six months later, on May 3, 1982, the government petitioned the district court under 26 U.S.C. Secs. 7402(b) and 7604 to enforce the summonses. Taxpayers intervened pursuant to Fed.R.Civ.P. 24(a)(1) and 26 U.S.C. Sec. 7609(b), and resisted enforcement on the grounds that (1) the IRS issued the summonses for a bad faith purpose solely in furtherance of a criminal investigation; (2) the summonses were overbroad; (3) enforcement was barred by the fourth amendment's prohibition against unreasonable searches and seizures; and (4) with respect to the summons issued to Perlow, enforcement was barred by the attorney-client privilege and by the fifth amendment privilege against self-incrimination.
When the matter first came on before the district court it was handled somewhat informally. The district court did not require the taxpayers to make a substantial showing of governmental misconduct before it agreed to schedule a hearing to determine whether the IRS had recommended criminal tax proceedings, why the IRS had delayed so long in bringing enforcement proceedings, and the circumstances surrounding removal of the document(s) from Perlow's office.
At the subsequent evidentiary hearing, the government had two witnesses available: agent Palm, who was to testify concerning the IRS's institutional posture; and agent Competello, who was to testify concerning the events surrounding the taking of the document(s). After the court asked the government to show that the IRS had acted in accordance with its internal procedures, and to prove that the summonses were issued in good faith pursuit of statutory purposes, agent Palm testified. When her cross-examination was concluded, the government did not call agent Competello to testify, but instead rested and moved for the orders of enforcement, arguing that Palm's testimony established that the summons had been "issued in good faith for a legitimate purpose for records not in our control," that there had not yet been any determination as to whether the taxpayers owed any money, and that it was conducting "a joint [civil and criminal] investigation which is appropriate."
Taxpayers' attorney argued in substance that the court should look behind the government's internal procedures to determine whether a violation of taxpayers' fourth amendment or fifth amendment rights had led to issuance of the summonses. The government's attorney responded that if
there was some activity prior to the issuance of the summons that resulted in a violation of the taxpayer's rights * * * they can bring it up at a suppression hearing in the event there is a criminal procedure. But it's not relevant to the motion before the court whether the summonses can be enforced.
At that point the court announced its decision:
Mr. Waller, the court is going to grant the Government's application and the taxpayer--I mean, the respondent is ordered to comply and the court will sign an order to that effect.
I find no violation of any internal procedure at this point.
Taxpayers' attorney requested "to produce my own witnesses as to what the government's actions were," but the court denied the request and later signed the enforcement orders. We have stayed their enforcement pending this appeal.
As a result of the manner in which these proceedings were handled, we have on this appeal an incomplete record that lacks both competent affidavits and oral testimony as to the facts underlying the claimed constitutional violation. While the district court did not articulate its reasons for enforcing the summonses, a fair reading of the papers
and proceedings below indicates that the court accepted the government's argument that it would be sufficient to address any underlying constitutional infringements in subsequent proceedings should criminal prosecutions be instituted. Thus, by foreclosing testimony about the claimed unreasonable search and seizure, and by ordering enforcement based solely on agent Palm's testimony as to the IRS's "institutional posture", the district court necessarily found any possible fourth amendment violation to be irrelevant to the question of whether the summonses should be enforced.
Except for the fourth amendment issue, we have no difficulty with the district court's action. In United States v. Powell, 379 U.S. 48, 85 S.Ct. 248, 13 L.Ed.2d 112 (1964), the Supreme Court held that to enforce an IRS summons, the government must make a preliminary showing that
the investigation will be conducted pursuant to a legitimate purpose, that the inquiry may be relevant to the purpose, that the information sought is not already within the Commissioner's possession, and that the administrative steps required by the code have been followed--in particular, that the "Secretary or his delegate," after investigation, has...
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