U.S. v. Texas Heart Institute, No. 84-2178

CourtUnited States Courts of Appeals. United States Court of Appeals (5th Circuit)
Writing for the CourtBefore GOLDBERG, JOHNSON, and DAVIS; JOHNSON
Citation755 F.2d 469
Decision Date21 March 1985
Docket NumberNo. 84-2178
Parties-1219, 85-1 USTC P 9283 UNITED STATES of America and Internal Revenue Service Special Agent Michael O. Hanson, Petitioners-Appellants, v. TEXAS HEART INSTITUTE and Greg C. Waddill, Associate Administrator and Counsel, Respondents-Appellees, Dr. Bernard M. Barrett, Jr., Intervenor-Appellee.

Page 469

755 F.2d 469
55 A.F.T.R.2d 85-1219, 85-1 USTC P 9283
UNITED STATES of America and Internal Revenue Service
Special Agent Michael O. Hanson, Petitioners-Appellants,
v.
TEXAS HEART INSTITUTE and Greg C. Waddill, Associate
Administrator and Counsel, Respondents-Appellees,
Dr. Bernard M. Barrett, Jr., Intervenor-Appellee.
No. 84-2178.
United States Court of Appeals,
Fifth Circuit.
March 21, 1985.

Page 471

Daniel K. Hedges, U.S. Atty., Houston, Tex., Charles E. Brookhart, William A. Whitledge, Glenn L. Archer, Jr., Asst. Atty. Gen., Michael L. Paup, Chief, Appellate Sec., U.S. Dept. of Justice, Washington, D.C., for petitioners-appellants.

Edward D. Urquhart, Silvia T. Hassell, Charles J. Escher, Houston, Tex., for Dr. Bernard M. Barrett, Jr.

Fulbright & Jaworski, Jasper G. Taylor, III, C.W. Wellen, Houston, Tex., for Texas Heart Institute, Tex. Children's, St. Luke's & Waddell.

Vinson & Elkins, H. Ronald Welsh, Joyce R. Scruggs, Woodward, Hall & Primm, Houston, Tex., for Methodist Hosp.

Appeal from the United States District Court for the Southern District of Texas.

Before GOLDBERG, JOHNSON, and DAVIS, Circuit Judges.

JOHNSON, Circuit Judge:

The United States Internal Revenue Service (IRS) and IRS Agent Michael O. Hanson filed petitions to enforce four IRS summonses. These summonses were directed to the Texas Heart Institute, Texas Children's Hospital, St. Luke's Episcopal Hospital, and Methodist Hospital. All four petitions to enforce were consolidated. After a hearing, the district court denied enforcement of the summonses. The IRS and

Page 472

Agent Hanson appeal, asserting that the district court improperly denied enforcement of the summonses. This Court agrees. We vacate the order of the district court denying enforcement, and remand this case to the district court to enter an order enforcing the summonses to the extent discussed in this opinion.

I. BACKGROUND

Dr. Bernard M. Barrett, Jr., the taxpayer under investigation in the instant case, is a physician specializing in plastic and reconstructive surgery. Dr. Barrett is on the staff or permitted to practice at a number of hospitals in the Houston, Texas, area. At Dr. Barrett's direction, about forty percent of Dr. Barrett's patients receive some type of treatment or testing at a hospital. Dr. Barrett believes that many of his patients would not want it known that they have undergone plastic surgery. Therefore, Dr. Barrett strictly enforces a policy of confidentiality, and seeks to insure that even his patients' names are kept confidential. 1

In 1979, the IRS began an income tax audit of Dr. Barrett. Initially, Dr. Barrett gave the IRS agents involved complete access to all his records. The agents had difficulty reconciling the income reported by Dr. Barrett on his tax returns with the amounts shown in his records. The agents indicated to Dr. Barrett's accountant that the agents thought there was a discrepancy in Dr. Barrett's income.

In 1981, the case was referred to the Criminal Investigation Division (CID) of the IRS to determine whether criminal violations of the Internal Revenue Code had occurred. Eventually, the case was assigned to Special Agent Michael O. Hanson. Hanson determined it was necessary to verify the sums each of Dr. Barrett's patients had paid Dr. Barrett in order to determine whether Dr. Barrett had reported all his income for the years at issue. In order to obtain the names and addresses of some of Dr. Barrett's patients, Agent Hanson issued summonses to all the hospitals at which Dr. Barrett practiced. The summonses requested each hospital to provide the names and addresses of Dr. Barrett's patients, as well as any information regarding amounts and method of payment for Dr. Barrett's services. The summonses also requested the names of the patients' insurance companies. The summonses asked for this information for all of Dr. Barrett's patients admitted, treated, or tested at that hospital during the period 1976 through 1980.

All but four hospitals complied with these summonses. The Texas Heart Institute, Texas Children's Hospital, St. Luke's Episcopal Hospital, and Methodist Hospital all refused to comply with the summonses. From the hospitals that did comply with the summonses, the IRS obtained names of 350 patients. Each patient was sent a form letter stating that Dr. Barrett was under investigation by the Criminal Investigation Division of the IRS, and requested each patient to provide the dates and amounts of payments they made to Dr. Barrett for medical services. The IRS received 81 responses. To date, no follow-up inquiries have been made to the remainder of the 350 patients.

Upon refusal by the four named hospitals to comply with the summonses, the Government filed petitions to enforce the summonses. Dr. Barrett intervened. The district court conducted a hearing where Agent Hanson and Dr. Barrett testified, along with other witnesses. At the conclusion of the hearing, the district court ruled that it would not enforce the summonses. The district court found that the IRS agents were acting on a good faith belief that tax fraud was involved. The district court, however, found that the summonses would only disclose the names and addresses

Page 473

of forty percent of Dr. Barrett's patients, while the IRS already had 100% of the names in Dr. Barrett's records. The district court based its ruling on four factors:

One is the fact that you've got all the records you need in [Dr. Barrett's] office....

The second point I am basing it on is the fact that the hospital records of names and address[es] will only reach a small percentage of all the Doctor's patients. 2

I am also basing my ruling on the fact that prior attempts to contact patients for verifications of the amounts they paid have not been very successful.... 3

And, as I say, I am concerned about the shot-gunning of these people by sending out these form letters in a [manner] where they reached people who had no reason to be contacted at all, such as spouses.

Record Vol. 5 at 5.

The district court also stated that the evidence did not show that the only way the Government could get this information would be from the hospitals. Furthermore, the district court recited that the evidence did not show that the Government had made substantial efforts to get the information from other sources, and that the evidence did not show that the information would prove what the Government asserted it would prove.

The Government appeals the district court's denial of the enforcement petitions. The Government asserts that it met its initial burden under United States v. Powell, 379 U.S. 48, 85 S.Ct. 248, 13 L.Ed.2d 112 (1964). The Government argues that the burden then shifted to the hospitals and Dr. Barrett and that the hospitals and Dr. Barrett failed to prove that the requirements of Powell were not met. Consequently, the Government urges that the summonses should have been enforced. In contrast, the hospitals argue that they met their burden under Powell. Dr. Barrett further asserts that the Government failed to provide notice to him as required by 26 U.S.C. Sec. 7609, and that the IRS agent involved disclosed return information in violation of 26 U.S.C. Sec. 7213. This Court concludes that the Government carried its burden under Powell, while the hospitals and Dr. Barrett did not. Therefore, the order of the district court is vacated and the case remanded to the district court to enter an order enforcing the summonses to the extent discussed in this opinion.

II. STANDARD OF REVIEW

As this Court stated in United States v. Sun First National Bank:

Our review requires us to accept the facts found by the district court unless clearly erroneous, under F.R.Civ.P. 52(a), and to review the court's compliance with the mandates of United States v. Powell, 379 U.S. 48, 85 S.Ct. 248, 13 L.Ed.2d 112 (1964)....

510 F.2d 1107, 1109 (5th Cir.), cert. denied, 423 U.S. 927, 96 S.Ct. 273, 46 L.Ed.2d 254 (1975). See also United States v. Davis, 636 F.2d 1028, 1035 (5th Cir.), cert. denied, 454 U.S. 862, 102 S.Ct. 320, 70 L.Ed.2d 162 (1981).

In Powell, the Supreme Court set forth four requirements for enforcement of a summons:

[The Commissioner] must show that the investigation will be conducted pursuant

Page 474

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 ...

Powell, 379 U.S. at 57-58, 85 S.Ct. at 255. The Supreme Court added a further consideration when it admonished that "[i]t is the court's process which is invoked to enforce the administrative summons and a court may not permit its process to be abused." Powell, 379 U.S. at 58, 85 S.Ct. at 255 (footnote omitted).

The Government initially bears the burden of demonstrating the first four Powell criteria. That initial burden is a minimal burden, which may be met by a simple affidavit filed with the petition to enforce the summonses by the agent who issued the summonses. United States v. Davis, 636 F.2d at 1034. See United States v. Wyatt, 637 F.2d 293, 299-301 (5th Cir.1981). This was done by Agent Hanson in the instant case. See also Powell, 379 U.S. at 57, 85 S.Ct. at 255 (the IRS has authority to investigate "merely on suspicion that the law is being violated, or even just because it wants assurance that it is not").

Once this initial Powell showing has been made, the burden shifts to the parties resisting the summonses to demonstrate that the IRS has failed to meet its Powell burden, Powell, 379 U.S. at 58, 85 S.Ct. at 255; United States v. Linsteadt, 724 F.2d 480 (5th Cir.1984); Wyatt, 637 F.2d at 301, Davis, 636 F.2d at 1034, or to assert and prove that enforcement would represent an abuse of the court's process, Powell, 379 U.S. at 58, 85 S.Ct. at 255; United States v. LaSalle National Bank, 437 U.S. 298, 98 S.Ct. 2357...

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43 practice notes
  • Muratore v. Department of Treasury, No. 03-MC-6015L.
    • United States
    • United States District Courts. 2nd Circuit. United States District Court of Western District of New York
    • 15 Abril 2004
    ...the Service's technical notice errors where the party in interest suffered no actual prejudice"); United States v. Texas Heart Inst., 755 F.2d 469, 478 (5th Cir.1985) (where the taxpayer has received every benefit of the administrative steps required by the Code and has not shown any prejud......
  • PRAGOVICH v. IRS, Case No. 08-MC-50427.
    • United States
    • United States District Courts. 6th Circuit. United States District Court (Eastern District of Michigan)
    • 30 Noviembre 2009
    ...to the taxpayer." Doc. Ent. 5 at 7-8 n. 3. In support of this statement, the IRS cites (1) United States v. Texas Heart Institute, 755 F.2d 469, 478 (5th Cir.1985) ("where the taxpayer has received every benefit of the administrative steps required by the Code, a failure by the IRS to meet ......
  • United States v. Transocean Deepwater Drilling Inc., Civil Action No. H–11–3638.
    • United States
    • United States Courts of Appeals. United States Court of Appeals (1st Circuit)
    • 30 Marzo 2013
    ...“a minimal burden” and one “which may be met by a simple affidavit filed with the petition to enforce.” United States v. Tex. Heart Inst., 755 F.2d 469, 474 (5th Cir.1985); see also Burlington N., 983 F.2d at 637 (“It is settled that the requirements for judicial enforcement of an administr......
  • U.S. v. Barrett, No. 85-2054
    • United States
    • United States Courts of Appeals. United States Court of Appeals (5th Circuit)
    • 24 Febrero 1988
    ...the IRS and requesting documentation of fees paid to Barrett. Barrett II, 804 F.2d at 1377. 1 In United States v. Texas Heart Institute, 755 F.2d 469 (5th Cir.1985), the district court refused to enforce the summonses issued to the hospitals. A panel of this court reversed that decision and......
  • Request a trial to view additional results
43 cases
  • United States v. Transocean Deepwater Drilling Inc., Civil Action No. H–11–3638.
    • United States
    • United States District Courts. 5th Circuit. United States District Courts. 5th Circuit. Southern District of Texas
    • 30 Marzo 2013
    ...“a minimal burden” and one “which may be met by a simple affidavit filed with the petition to enforce.” United States v. Tex. Heart Inst., 755 F.2d 469, 474 (5th Cir.1985); see also Burlington N., 983 F.2d at 637 (“It is settled that the requirements for judicial enforcement of an administr......
  • Muratore v. Department of Treasury, No. 03-MC-6015L.
    • United States
    • United States District Courts. 2nd Circuit. United States District Court of Western District of New York
    • 15 Abril 2004
    ...the Service's technical notice errors where the party in interest suffered no actual prejudice"); United States v. Texas Heart Inst., 755 F.2d 469, 478 (5th Cir.1985) (where the taxpayer has received every benefit of the administrative steps required by the Code and has not shown any prejud......
  • PRAGOVICH v. IRS, Case No. 08-MC-50427.
    • United States
    • United States District Courts. 6th Circuit. United States District Court (Eastern District of Michigan)
    • 30 Noviembre 2009
    ...to the taxpayer." Doc. Ent. 5 at 7-8 n. 3. In support of this statement, the IRS cites (1) United States v. Texas Heart Institute, 755 F.2d 469, 478 (5th Cir.1985) ("where the taxpayer has received every benefit of the administrative steps required by the Code, a failure by the IRS to meet ......
  • U.S. v. Barrett, No. 85-2054
    • United States
    • United States Courts of Appeals. United States Court of Appeals (5th Circuit)
    • 24 Febrero 1988
    ...the IRS and requesting documentation of fees paid to Barrett. Barrett II, 804 F.2d at 1377. 1 In United States v. Texas Heart Institute, 755 F.2d 469 (5th Cir.1985), the district court refused to enforce the summonses issued to the hospitals. A panel of this court reversed that decision and......
  • Request a trial to view additional results

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