U.S. v. First State Bank, 81-1495
| Decision Date | 10 November 1982 |
| Docket Number | No. 81-1495,81-1495 |
| Citation | 691 F.2d 332 |
| Parties | 82-2 USTC P 9627 UNITED STATES of America and Robert C. Rowe, Special Agent, Internal Revenue Service, Petitioners-Appellees, v. FIRST STATE BANK and Christ Troupis, Respondents, and E. H. Stamberger, Intervenor-Appellant. |
| Court | U.S. Court of Appeals — Seventh Circuit |
Clinton A. Krislov, Chicago, Ill., for intervenor-appellant.
Gayle P. Miller, Tax Div., Dept. of Justice, Washington, D. C., for petitioners-appellees.
Before SWYGERT, Senior Circuit Judge, ESCHBACH, Circuit Judge, and DOYLE, Senior District Judge. *
The facts pertinent to this appeal may be summarized as follows. In January 1978, the Internal Revenue Service ("IRS") commenced an investigation of E. H. Stamberger's tax liabilities for the years 1975 and 1976. The investigation involved agents of both the Examination Division (civil division) and the Criminal Investigation Division of the IRS. The investigation was assigned to Revenue Agent Terrence Catalina and Special Agent William Bruton. In November 1979 Bruton was replaced by Special Agent Robert Rowe. In March 1980 Catalina was replaced by Revenue Agent Louis Van De Voorde.
Between October 1978 and August 1979 the IRS issued twenty-one summonses to various individuals or institutions regarding Stamberger's tax returns for 1975 and 1976. Stamberger received notice for only six of these summonses. In November 1979 Rowe issued the two summonses involved in this appeal. The first summons was issued to the First State Bank of Mendota, Illinois and its president, R. N. Shaffer, and the second was issued to Christ Troupis, Stamberger's personal attorney. Pursuant to section 7609 of the Internal Revenue Code, Stamberger caused the bank and Troupis to refuse to comply with the summonses.
In May 1980 the IRS instituted proceedings to compel enforcement of the two summonses. Stamberger intervened pursuant to section 7609(b)(1) of the Code. Stamberger's answer opposing enforcement alleged that: (1) the investigation concerning his civil tax liability for 1975 and 1976 had already been completed by the IRS and the summonses had been issued pursuant to an improper criminal investigation purpose; (2) the IRS had already possessed the information from the bank; (3) the documents held by Troupis were personal papers protected by the privilege against self-incrimination (personal papers privilege) and the attorney-client privilege; and (4) the summonses were issued pursuant to a second examination in violation of section 7605(b) of the Code.
In addition to opposing enforcement of the order, Stamberger requested discovery from the IRS. Stamberger served interrogatories upon the IRS and sought production of his entire IRS file. At this point, the case was referred to a United States magistrate. The magistrate ordered the IRS to answer the interrogatories but denied Stamberger's motion to compel production of the IRS file.
In October 1980 an evidentiary hearing was held before the magistrate. Rowe and Van De Voorde testified for the IRS. In addition to testifying on his own behalf, Stamberger called Troupis and Bruton. During the hearing, Stamberger attempted to introduce evidence showing that the documents held by Troupis were protected by the attorney-client and personal papers privileges. The magistrate refused to allow this testimony. The magistrate also refused to allow Stamberger to question the IRS agents concerning the twenty-one summonses which were issued between October 1978 and August 1979.
Following the hearing, the magistrate issued his findings of fact and recommendations. The magistrate specifically found that the investigation had not been completed, that there were both civil and criminal reasons for the issuance of the summonses, and that the summonses were properly issued in all other respects. He accordingly recommended that the summonses be enforced.
Upon de novo review, the district court adopted the magistrate's recommendations. Stamberger appeals from the final order of the district court. He has raised five issues on appeal:
(1) Stamberger was erroneously denied the right to prove at the enforcement hearing that the documents held by Troupis were protected by privilege;
(2) Stamberger was erroneously denied the opportunity at the enforcement hearing to inquire into the twenty-one summonses issued between October 1978 and August 1979;
(3) Based on the evidence produced at the enforcement hearing, the district court should have refused enforcement or, alternatively, permitted additional discovery by Stamberger;
(4) The district court erred in failing to award Stamberger the costs of subpoenaing Special Agent Bruton to testify at the enforcement hearing; and
(5) The district court erred in failing to award Stamberger the costs of contesting the Government's motion to disqualify Stamberger's counsel.
Only Stamberger's first argument has precedential value and will be discussed in this opinion. The other four issues fall squarely into previous holdings of this court and will be disposed of by unpublished order issued this date.
A summons may be challenged at an enforcement hearing on any appropriate ground, United States v. Powell, 379 U.S. 48, 58, 85 S.Ct. 248, 255, 13 L.Ed.2d 112 (1964), including a claim of privilege. Indeed, the enforcement hearing is the most appropriate opportunity to challenge a summons. Subsequent challenges can only be undertaken by refusing to comply with an enforcement order and running the risk of contempt proceedings. Allowing the introduction of evidence at the enforcement hearing is therefore in the interest of judicial economy and fairness to the taxpayer. The right to introduce evidence, however, is not unlimited. We held in United States v. Kis, 658 F.2d 526, 539 (7th Cir. 1981), that once the IRS establishes a prima facie case in favor of enforcing a summons, a taxpayer must "... answer the Government's case through responsive pleadings, supported by affidavits, that allege specific facts in rebuttal." (Emphasis in text.) Legal conclusions or memoranda of law will not suffice.
The requirement that a taxpayer allege specific facts is an important one. It not only allows the district court to determine whether a hearing is necessary, 1 but it serves to sharpen the focus of inquiry where a hearing is mandated. A precise answer containing specific facts also assists the trier of fact in making evidentiary rulings, such as relevancy, during the course of the hearing. This too is in the interest of judicial economy (summons enforcement proceedings were intended to be summary in nature and concluded without undue delay). In the instant case, Stamberger failed as a threshold matter to place the question of privilege at issue. 2
Stamberger did not allege specific facts in his answer which would establish the existence of a privilege. Stamberger simply stated that the documents sought were protected by privilege. 3 A blanket privilege claim of this type is not allowed by Kis. See also United States v. Davis, 636 F.2d 1028, 1044 n.20 (5th Cir. 1981). The "specific facts" requirement of Kis mandates that the privilege must be asserted on a document-by-document basis. A taxpayer need not reveal so many facts that the privilege becomes worthless but he must at least identify the general nature of that document, the specific privilege he is claiming for that document, and facts which establish all the elements of the privilege he is claiming. These allegations must be supported by affidavits.
Stamberger argues that the summonses and the Government's affidavits provided sufficient specific facts to have placed the issue of privilege before the court: it was unnecessary for him to have been more specific where the summonses were directed to his attorney and sought the production of business documents. Stamberger's contention is based on the erroneous assumption that all of a taxpayer's business documents in the hands of his attorney are privileged. Not all business documents, however, are "personal papers" which would be protected in the hands of the client and the simple relationship of attorney and client does not always establish a privilege. For example, the fact that an attorney is in possession of a client's business documents does not prove that the documents were given to the attorney for the purpose of securing legal services.
The IRS summonses and affidavits were no more helpful to the district court than was Stamberger's general answer; they did not allow the district court to determine whether a valid privilege could be inferred from the alleged facts. This inference is a prerequisite for an enforcement hearing and the right to introduce testimony. See Kis, supra at 540. Unless a taxpayer alleges specific facts on a document-by-document basis which establishes all the elements of the specific privilege he is claiming, the district court is hampered in its ability to make an informed decision. Stamberger failed to place the claimed privileges at issue in this case and the magistrate properly denied the introduction of evidence concerning these claims.
Because we think a person who intervenes in a 26 U.S.C. § 7608(b) enforcement proceeding under 26 U.S.C. § 7609 and is served with a show cause order should, in fairness, be aware of the requirements mandated by Kis, an appropriate notice of those requirements shall be incorporated in the order. This direction is pursuant to our supervisory powers over district court procedures. 4
The order of the district court is affirmed.
I draw from the court's opinion the understanding set forth in the following paragraph.
With respect to an IRS summons requiring the production of documents, it is always open to the taxpayer to appear before the IRS representative and to raise...
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