U.S. v. Genser

• Citation: 595 F.2d 146
• Decision Date: 22 December 1978
• Docket Number: 76-2624,Nos. 76-2623,s. 76-2623
• Parties: 79-1 USTC P 9275 UNITED STATES of America, Appellee, v. Lester GENSER and Lawrence Forman, Appellants. . Submitted Under Third Circuit Rule 12(6)
• Court: United States Courts of Appeals. United States Court of Appeals (3rd Circuit)

Page 146

595 F.2d 146

79-1 USTC P 9275

UNITED STATES of America, Appellee, v. Lester GENSER and Lawrence Forman, Appellants.

Nos. 76-2623, 76-2624.

United States Court of Appeals Third Circuit.

Submitted Under Third Circuit Rule 12(6) Dec. 22, 1978.

Decided March 9, 1979.

Robert J. Del Tufo, U. S. Atty., Maryanne T. Desmond, Asst. U. S. Atty., Newark, N. J., for appellee.

Irving R. Segal, James D. Fornari, Susan K. Herschel, Schnader, Harrison, Segal & Lewis, Philadelphia, Pa., for appellants; Zuckerman & Aronson, Newark, N. J., of counsel.

Before SEITZ, Chief Judge, and BIGGS and HUNTER, Circuit Judges.

OPINION OF THE COURT

SEITZ, Chief Judge.

In this aspect of these appeals we must examine the substantive and procedural implications of the Supreme Court's decision in United States v. LaSalle National Bank, 437 U.S. 298, 98 S.Ct. 2357, 57 L.Ed.2d 221 (1978), which described the limits of the Internal Revenue Service's authority to issue civil summonses under 26 U.S.C. § 7602. Defendants Lester Genser and Lawrence Forman appealed from their convictions for tax evasion. In an earlier opinion we rejected various challenges to those convictions but retained jurisdiction and remanded the case to the district court for an evidentiary hearing on the defendants' contention that summonses issued during the investigation exceeded the IRS's authority. United States v. Genser, 582 F.2d 292 (3d Cir. 1978).

On remand, the district court conducted an evidentiary hearing and concluded that none of the summonses employed during the investigation were issued "solely for a criminal purpose," as defined in LaSalle. In challenging that ruling, defendants argue that the district court erred in two respects: first, in denying them adequate discovery, and second, in misconstruing the substantive requirements of LaSalle itself.

I

The IRS conducted an initial audit of defendants' books and records in 1971 but discovered no deficiencies. In 1974 the IRS reopened the investigation that eventually led to defendants' convictions. Our earlier opinion adequately set forth the factual predicate of those convictions. See 582 F.2d at 295-96. Before the recent evidentiary hearing, however, the details of the investigation itself were veiled. The testimony and documents presented at that hearing provide the necessary vehicle to explore the reaches of LaSalle.

According to uncontested testimony, Frank Parisi, a special agent of the IRS, began in August 1974 to investigate defendants' corporate dealings during the taxable years 1969 to 1974. Almost immediately upon assignment to the case, he began to summon records and witnesses under 26 U.S.C. § 7602. That provision empowers agents of the IRS to issue summonses

(f)or the purpose of ascertaining the correctness of any return, making a return where none has been made, determining the liability of any person for any internal revenue tax or the liability at law or in equity of any transferee or fiduciary of any person in respect of any internal revenue tax, or collecting any such liability . . . .

On November 12, 1974, after issuing nineteen summonses, Parisi requested permission to reopen a formal investigation in light of new evidence from a confidential source. In the memorandum accompanying his request Parisi asserted that "(t)he investigation to date has disclosed a conspiracy between Genser Forman, Inc. owners and employees and various vendors, to generate currency by the use of ficticious invoices." Parisi's request to reopen was approved sequentially by his group supervisor, the chief of the audit branch of his field office, his district director, and, on November 22, 1974, the chief of the IRS's Intelligence Division, now called the Criminal Investigation Division. See 43 Fed.Reg. 53030 (Nov. 15, 1978).

By December 6, 1974, Parisi had begun to encounter what he believed to be recalcitrance on the part of some of the summonsed witnesses. On that date he filed a "Request for Reluctant Witness Grand Jury Authorization" pursuant to a now-revoked provision in the IRS Manual. Under that provision an IRS agent could request the assistance of a permanent grand jury in securing the testimony of reluctant witnesses. Parisi had discussed resort to this procedure with David Gaston, the IRS's Regional Counsel. As required by the Manual, the chief of the Intelligence Division approved the authorization on December 9, 1974, and forwarded the request to the United States Attorney, who approved on December 18, 1974. Although Parisi had requested grand jury subpoenas for only three persons, a total of six witnesses eventually were served. Only one witness ever had to appear before the grand jury. During this process Parisi was in almost daily contact with the United States Attorney.

Parisi substantially completed his investigation in March 1975. By that time he had issued a total of 106 summonses under section 7602. During the next six months, while writing his final report, he issued nine more summonses.

On October 31, 1975, approximately one month after Parisi filed his final report recommending prosecution, another agent assigned to the case issued the 116th and final summons. Although the record is unclear Parisi's recommendation must have been reviewed by the district chief of the Intelligence Division sometime between September and November 1975, because it reached the Office of Regional Counsel in November or December of that year. See 26 C.F.R. § 601.107(b) and (c). The Office of Regional Counsel formally referred the case to the Justice Department for prosecution on December 12, 1975. The IRS issued no summonses after that referral.

In considering this chain of events in light of LaSalle, the district court held that all the summonses were valid:

(T)he Court finds that the defendants have failed to demonstrate by a preponderance of the evidence that the Internal Revenue Service at the time any of the summonses were issued had either already referred the matter to the United States Department of Justice or had itself determined that it was interested solely in the criminal tax aspects of the matter.

I further find by a preponderance of the evidence that the United States has demonstrated that throughout the course of the investigation the Internal Revenue Service was at all times interested (in) and actively pursuing substantial amounts of tax penalties and interest owed by the defendant Genser and the defendant Forman to the Treasury of the United States.

As we requested, the district court certified its findings and the record of the proceeding to this court.

II

In our earlier opinion in this case we focused on defendants' contentions that they had standing to challenge the summonses and that evidence secured through invalid summonses must be suppressed. We did not attempt to examine LaSalle 's substantive implications, leaving that task to the district court in the first instance. We therefore turn to the Supreme Court's opinion in LaSalle before considering defendants' substantive and procedural challenges to the disposition below.

A.

In LaSalle the Supreme Court elaborated upon its earlier indications that a summons could not issue under section 7602 solely to advance a criminal investigation. See Donaldson v. United States, 400 U.S. 517, 533, 91 S.Ct. 534, 27 L.Ed.2d 580 (1971). See also Reisman v. Caplin, 375 U.S. 440, 449, 84 S.Ct. 508, 11 L.Ed.2d 459 (1964). Justice Blackmun, writing for the majority, explained that Congress, in authorizing such summonses, had intended to aid the IRS in the civil collection of delinquent taxes. Congress did not intend to usurp the traditional role of the grand jury as the primary investigator of criminal activity. "(S)ummons authority does not exist to aid criminal investigations solely." 437 U.S. at 317 n. 18, 98 S.Ct. at 2367 n. 18.

The conundrum, as both the majority and the dissent recognized, is identifying those summonses that are issued "solely" to aid the criminal aspects of the investigation; criminal liability for tax evasion automatically spawns civil liability for tax delinquencies. In LaSalle the investigating agent had stated that his inquiry was " 'strictly related to criminal violations of the Internal Revenue Code.' " 437 U.S. at 303, 98 S.Ct. at 2360. Nevertheless, the Supreme Court rejected the taxpayer's contention that the summonses necessarily lacked a civil purpose and should not be enforced. The entire Court agreed that the agent could not commit the IRS to a criminal prosecution and therefore his subjective intent was not dispositive.

The dissenting justices would have applied an objective test. If the summons issued before the IRS officially referred the case to the Department of Justice for prosecution, then it would be deemed to serve a civil purpose. If it issued after referral, it would be invalid.

The majority, while agreeing with the dissenters that all summonses issued after official referral would be invalid, held that in some cases the "institutional posture" of the IRS would preclude the issuance of a civil summons even before referral to the Department of Justice We shall not countenance delay in submitting a recommendation to the Justice Department when there is an institutional commitment to make the referral and the Service merely would like to gather additional evidence for the prosecution.

437 U.S. at 316-317, 98 S.Ct. at 2367-68. Justice Blackmun noted that use of a civil summons in such circumstances would expand impermissibly the government's right to criminal discovery. Furthermore, in some cases the IRS might become "an information-gathering agency for other departments, including the Department of Justice . . . ." Id. at 317, 98 S.Ct. at 2368.

In summarizing the Court's holding, Justice Blackmun stressed "several requirements . . . for the enforcement of an internal revenue summons." One requirement was that "the Service not abandon in an institutional sense . . . the pursuit...