U.S. v. Ritchie

• Decision Date: 04 April 1994
• Docket Number: No. 92-6393,92-6393
• Citation: 15 F.3d 592
• Parties: -994, 62 USLW 2502, 94-1 USTC P 50,076 UNITED STATES of America, Petitioner-Appellee, v. Robert W. RITCHIE, personally and in his capacity as a partner/officer of Ritchie, Fels & Dillard, P.C., Respondent-Appellant.
• Court: U.S. Court of Appeals — Sixth Circuit

Page 592

15 F.3d 592

73 A.F.T.R.2d 94-994, 62 USLW 2502, 94-1

USTC P 50,076

UNITED STATES of America, Petitioner-Appellee, v. Robert W. RITCHIE, personally and in his capacity as a partner/officer of Ritchie, Fels & Dillard, P.C. Respondent-Appellant.

No. 92-6393.

United States Court of Appeals Sixth Circuit.

Argued Nov. 19, 1993.

Decided Feb. 3, 1994.

Rehearing and Suggestion for Rehearing En Banc Denied April 4, 1994.

Gary R. Allen, Acting Chief (briefed), Charles E. Brookhart, John A. Dudeck (argued), U.S. Dept. of Justice, Appellate Section Tax Div., Washington, DC, David G. Dake, Asst. U.S. Atty., Knoxville, TN, Jose Francisco De Leon, U.S. Dept. of Justice, Tax Div., Washington, DC, for petitioner-appellee.

W. Thomas Dillard (argued and briefed), Ritchie, Fels & Dillard, Knoxville, TN, Gerald H. Goldstein (argued and briefed), San Antonio, TX, for respondent-appellant.

Before: NELSON and BATCHELDER, Circuit Judges, and MATIA, District Judge. ^*

ALICE M. BATCHELDER, Circuit Judge.

In this case we are asked to decide whether an IRS summons issued to a lawyer and instructing that the lawyer disclose the identity of and fee arrangement with certain cash-paying clients can survive a challenge by the lawyer that such information is protected from disclosure by the Fifth and Sixth Amendments. We reluctantly answer in the affirmative.

I

A. Facts

Respondent-appellant Robert W. Ritchie practices law with Ritchie, Fels & Dillard, P.C., a Knoxville, Tennessee law firm. His practice consists primarily of criminal defense work. In the course of his practice, he occasionally receives cash payment for services rendered. In 1989 Ritchie received three cash payments over $10,000; pursuant to I.R.C. Sec. 6050I, Ritchie submitted IRS Form 8300, notifying the Internal Revenue Service of the cash payments. Ritchie, however, refused to disclose (as also required by Sec. 6050I and Form 8300) the nature of the services rendered or the name, address, and taxpayer identification number for each of the three clients. Ritchie instead informed the IRS that such information was privileged and that he was legally and ethically bound by the attorney-client privilege, the Fifth Amendment, the Sixth Amendment, and the Tennessee Code of Professional Responsibility not to disclose it.

Revenue Agent Rhonda Winter on behalf of the IRS issued a summons requiring that Ritchie produce documentary or testimonial evidence that would provide the information missing from the Forms 8300. Ritchie again refused to comply, Ritchie's three unnamed clients filed petitions as John Doe 1, John Doe 2, and John Doe 3 to quash the summons, and Ritchie's firm intervened on the side of its clients. ¹

The case was assigned to District Judge Jarvis, and the IRS responded to the motion to quash by filing a motion to dismiss for lack of jurisdiction, arguing that neither the Does nor the law firm could oppose the summons at that stage of the summons process. It contended that the Does and the law firm must first refuse to obey the summons, and then after the IRS brought an action to enforce the summons, they could challenge the summons's validity in the enforcement proceeding. Judge Jarvis agreed and held that the general rule prohibits the summoned witness or the taxpayer from acting preemptively to enjoin a summons before the IRS has sought to enforce it and that this matter did not fall within any exception. Judge Jarvis also rejected the firm's contention that because the IRS's real interest was investigating the unnamed clients and not the law firm itself, the summons was invalid for failure to comply with I.R.C. Sec. 7609(f), the John Doe summons provisions; the court held that because the IRS had at least some legitimate interest in the firm's tax liability, its other motivations were irrelevant.

The IRS then petitioned the court for an order enforcing the summons, and the case was assigned to District Judge Hull. After the court issued an order directing Ritchie to show cause why the summons should not be enforced, Ritchie responded that he could not comply because his cooperation would violate the attorney-client privilege, his clients' Fifth Amendment rights, his clients' Sixth Amendment rights, and the Tennessee Code of Professional Responsibility. He also argued that he had provided all the information that the IRS needed to investigate his or his firm's tax liability and that the only reason the IRS was seeking to enforce the summons was to get information about the John Doe clients. Because the IRS had not complied with the "John Doe summons" provisions, Ritchie argued, the IRS should not be permitted to enforce the summons. John Does 1, 2, and 3 intervened and raised similar arguments. The government responded that two federal circuits had rejected Ritchie's position and that the district court should do the same. It also argued that Ritchie could not relitigate Judge Jarvis's finding that the IRS had a legitimate reason for issuing the summons, namely, the investigation of Ritchie's law firm.

Judge Hull held an evidentiary hearing and issued an order enforcing the summons. He found that Ritchie's constitutional arguments had been persuasively rejected by the case law and saw no reason to hold otherwise. On the "John Doe summons" issue, the court found that even though the IRS had not used the John Doe summons procedure, the summons could be treated as a John Doe summons. Judge Hull then issued an order enforcing the summons, finding that it met the standards for the enforcement of a John Doe summons. This appeal followed.

B. Statutory Background

The Internal Revenue Code provides that "[a]ny person (1) who is engaged in a trade or business, and (2) who, in the course of such trade or business, receives more than $10,000 in cash in 1 transaction (or 2 or more related transactions), shall make the return described in subsection (b)." I.R.C. Sec. 6050I(a). Subsection (b) identifies the required return as one that (1) "contains (A) the name, address, and TIN [taxpayer identification number] of the person from whom the cash was received, (B) the amount of cash received, (C) the date and nature of the transaction, and (D) such other information as the Secretary may prescribe," and (2) complies with the Secretary's regulations. I.R.C. Sec. 6050I(b); see Treas.Reg. Sec. 1.6050I-1(e)(2) (specifying Form 8300 as the required reporting form).

Congress has charged the IRS with investigating taxpayers' compliance with revenue laws, see I.R.C. Sec. 7601, ² and the IRS has been given powerful means to do so:

For the purpose of ascertaining the correctness of any return ... or determining the liability of any person ..., the Secretary is authorized (1) To examine any books, papers, records, or other data which may be relevant or material to such inquiry; (2) To summon the person liable for tax or required to perform the act [e.g., filing a Form 8300] ... to produce such books, papers, records, or other data, and to give such testimony, under oath, as may be relevant or material to such inquiry; ....

I.R.C. Sec. 7602(a). Courts have consistently held that Sec. 7602 endows the IRS with expansive information-gathering authority. See, e.g., La Mura v. United States, 765 F.2d 974 (11th Cir.1985). Probable cause in the traditional sense is not required for the IRS to investigate. See United States v. Bisceglia, 420 U.S. 141, 146, 95 S.Ct. 915, 919, 43 L.Ed.2d 88 (1975).

There are specific statutory requirements for issuing summonses to "third-party recordkeepers." See I.R.C. Sec. 7609. ³ If the taxpayer whose tax liability is being investigated is a known, named individual, the IRS must give notice to that person that a summons has been issued to the third-party recordkeeper. I.R.C. Sec. 7609(a). On the other hand, if the identity of the party under investigation is unknown, notice need not be given (for obvious reasons), see I.R.C. Sec. 7609(a)(4)(C), but other requirements apply to these "John Doe" summonses:

(f) Additional requirement in the case of a John Doe summons.--Any summons described in subsection (c) which does not identify the person with respect to whose liability the summons is issued may be served only after a court proceeding in which the Secretary establishes that--

(1) the summons relates to the investigation of a particular person or ascertainable group or class of persons,

(2) there is a reasonable basis for believing that such person or group or class of persons may fail or may have failed to comply with any provision of any internal revenue law, and

(3) the information sought to be obtained from the examination of the records (and the identity of the person or persons with respect to whose liability the summons is issued) is not readily available from other sources.

I.R.C. Sec. 7609(f).

The mechanism for a taxpayer's challenge to a summons differs according to the statutory provision under which the summons is issued. If the summons is issued to the taxpayer whose potential tax liability is being investigated, that taxpayer may challenge the summons before the IRS hearing officer and may, if the IRS seeks enforcement of the summons in the district court, challenge the summons in district court. If the summons is issued to a third-party recordkeeper concerning a named taxpayer, the named taxpayer has the right to begin a proceeding to quash the summons (before an enforcement action is brought by the IRS), see I.R.C. Sec. 7609(b)(2)(A), and to intervene in any action brought to enforce the summons, see I.R.C. Sec. 7609(b)(1). In the case of a John Doe summons, the Doe has no right to intervene in the hearing on the summons's issuance required by I.R.C. Sec. 7609(f), see I.R.C. Sec. 7609(h)(2) ("The determinations required to be made under subsection[ ] (f) ... shall be made ex parte and shall be made solely on the petition and supporting affidavits."), and the Doe has no right to file a motion to quash the summons once...