U.S. v. Kersting
| Decision Date | 13 December 1989 |
| Docket Number | Nos. 88-1738,88-15549 and 88-15565,s. 88-1738 |
| Citation | 891 F.2d 1407 |
| Parties | -424, 90-1 USTC P 50,039 In the Matter of the Tax Liabilities of John Does, Participants in Investment Plans Promoted by Henry Kersting During the Calendar Years 1984, 1985, and 1986. UNITED STATES of America, Petitioner-Appellee, v. Henry KERSTING, Respondent-Appellant. UNITED STATES of America, Petitioner-Appellee, v. Henry KERSTING, Respondent-Appellant, Richard Hongsermeier; Fidela Hongsermeier; Hoyt W. Young; Barbara D. Young; Robert L. Dufresne; Carolyn S. Dufresne; Jerry A. Dixon; Patricia Dixon; Ralph J. Rina; Terry D. Owens; Gloria K. Owens, Applicants in intervention-Appellants. |
| Court | U.S. Court of Appeals — Ninth Circuit |
L.T. Bradt, Houston, Tex., for respondent-appellant.
Joe Alfred Izen, Jr., Bellaire, Tex., for applicants-in-intervention-appellants.
William A. Whitledge, Dept. of Justice, Washington, D.C., for petitioner-appellee.
Appeal from the United States District Court for the District of Hawaii.
Before SNEED, KOZINSKI and THOMPSON, Circuit Judges.
The IRS issued a John Doe summons 1 requiring Henry Kersting to produce documents concerning certain investment plans promoted by him. On January 14, 1988, the district court ordered enforcement of the summons over Kersting's objections. On February 14, 1988, Kersting filed a notice of appeal with this court. On August 31, 1988, the district court denied four subsequently filed motions relating to the summons, three filed by Kersting and one filed by eleven prospective intervenors. The court ruled that it did not have jurisdiction over the matters while Kersting's appeal of the summons enforcement was pending. Kersting and prospective intervenors appeal. We affirm both orders, based on the record before the trial court. We remand for further development of the record and to allow the district court, at its discretion, to consider those motions that have not been rendered moot by Kersting's compliance should he be found to have complied only in part with the summons.
This appeal is the consolidation of three cases, two by Kersting and one by the intervenors, relating to the enforcement of a John Doe summons.
On May 15, 1987, the IRS petitioned the district court for leave to serve a John Doe summons on Henry Kersting. In its petition, the IRS alleged that Kersting promoted tax shelters of questionable validity and On January 14, 1988, the district court denied Kersting's objections and ordered his compliance with the summons. The court based its decision on: (1) the existence of at least one case in which a Tax Court found some of Kersting's programs to be abusive of the tax code; (2) the fact that "although it is theoretically possible for the Government to obtain some of the names of persons who participated in Kersting's programs" based on its existing cases involving persons who had participated in the programs, "a review of cases before the Tax Court will not reveal the names of all such persons" (emphasis added); (3) the Government's assertion that records for the years 1981 through 1983 were necessary to investigate properly transactions for 1984 through 1986; (4) the absence of evidence that some of the persons who would be the subject matter of the summons had not been referred to the Department of Justice for criminal prosecution. Clerk's Record at 13. The district court ruled, however, that if Kersting could show "that there is a Justice Department referral for criminal proceedings against any persons as to whom the summons seeks information, the information as to such person may be withheld." Id. On February 14, 1988, Kersting filed an appeal of the district court's January 14 order enforcing the summons. 6 That appeal is the subject of Case No. 88-1738.
that it sought the summoned documents in order to identify taxpayers participating in his investment plans. 2 Clerk's Record at 1. On July 1, 1987, the district court authorized service of the summons pursuant to Section 7609(f) of the Internal Revenue Code. 3 Kersting filed objections to the summons on August 10, 1987, claiming that the summons was issued as "part of an on-going campaign of administrative bad faith" against him on the part of the IRS. He asserted that: (1) the IRS had no basis for stating that it believed that the persons about whom information was sought had not complied with a tax law; (2) the IRS was already in possession of "much of the information" that it sought by the summons, by virtue of its execution of a 1981 search warrant; 4 (3) the IRS was seeking production of documents from 1981 through 1986, even though it purportedly sought to investigate tax years 1984, 1985, and 1986; and (4) the summons was an attempt to circumvent the tax code. 5 Clerk's Record at 7
At a May 31, 1988 hearing, the judge orally held Kersting in contempt, and ordered him to produce the documents specified in the summons. 7 On August 5, 1988, Kersting filed a motion in district court for discharge from prior orders of that court, asserting full compliance. The Government filed opposition papers on September 26, 1988, claiming that Kersting had not fully complied, and listing those documents that Kersting allegedly had not provided. On October 4, 1988, the district court denied Kersting's motion, refusing to address its merits for lack of jurisdiction while an appeal was pending before this court.
Stepping up his barrage of motions, Kersting filed three additional ones in May 1988. These motions sought discovery of evidence (to learn the identity of an alleged informant), disclosure of alleged illegal electronic surveillance of Kersting by the IRS, and the recovery of costs for complying with the summons. On August 31, 1988, the district court denied the three motions, asserting that "jurisdiction over the substance of this action has transferred to the court of appeals." Clerk's Record at 63. It held that its jurisdiction was limited to the enforcement of the summons, and that because the summons had been enforced, 26 U.S.C. 7604 no longer conferred jurisdiction. Case No. 88-15549 is Kersting's appeal of those portions of the August 31 order that pertain to him.
The district court in the August 31 order disposed of one additional motion filed May 31, 1988, by eleven individuals who sought leave to intervene and who alleged that the IRS sought information about them with the summons notwithstanding that the IRS already knew their identities. They moved for intervention as a matter of right and, in the alternative, for permissive intervention. Asserting that "there is no longer any proceeding in which to participate" and that "this court no longer has any jurisdiction" to consider their motions, the district court denied the motions. Clerk's Record at 63. This effort to intervene generates the appeal of the portion of the August 31 order that constitutes Case No. 88-15565. This court has appellate jurisdiction of all three cases under 28 U.S.C. § 1291.
This court reverses a district court's decision to enforce an IRS summons only if clearly erroneous. Ponsford v. United States, 771 F.2d 1305, 1307 (9th Cir.1985). Whether the district court had jurisdiction to decide Kersting's and the prospective intervenors' motions once the notice of appeal had been filed with this court is a question of law reviewed de novo. See Dweck v. Japan CBM Corp., 877 F.2d 790, 792 (9th Cir.1989).
The record before us is not adequate to determine whether Kersting has, to date, substantially complied with the district court's January 14, 1988 order enforcing the summons. If he has so complied, his appeal of that order is moot. 8 In addition the prospective intervenors' opposition to the summons enforcement, if considered on its merits, also would be made moot by such compliance. 9 Therefore, we remand to the district court for proceedings to determine whether Kersting has substantially complied.
We hasten to point out that even if Kersting's appeal is found to be moot, he may still challenge the legality of the summons. For example, in the event that the Government institutes civil or criminal proceedings against him, he may move to suppress evidence obtained from the enforcement of the summons at trial. Donaldson v. United States, 400 U.S. 517, 531, 91 S.Ct. 534, 542, 27 L.Ed.2d 580 (1971) (); Securities and Exchange Comm'n v. Laird, 598 F.2d 1162, 1163 (9th Cir.1979) (per curiam); United States v. Kis, 658 F.2d 526, 533 (7th Cir.1981), cert. denied, 455 U.S. 1018, 102 S.Ct. 1712, 72 L.Ed.2d 135 (1982). Should Kersting's appeal be moot, the intervenors also would be free to renew their motion to intervene in any challenge to the summons Kersting thereafter might institute. We express no opinion on the likely success of any such motion.
Although we could perhaps remand without resolving the merits of the appeals presently before us, our interest in the expeditious disposition of this case requires us to address the issues on appeal on the basis of the record presently before us. We now turn to these appeals.
We commence with the proposition that there are three factual determinations that a district court must make under section 7609(f) before issuing its ex parte authorization of a John Doe summons. See supra note 3; see also United States v. Samuels, Kramer & Co., 712 F.2d 1342, 1346 (9th Cir.1983). The party upon whom the summons is served may, however, object to the enforcement of the summons and challenge the district court's finding that the IRS has established "that its use of the...
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