United States v. Bisceglia 8212 1245
| Decision Date | 19 February 1975 |
| Docket Number | No. 73,73 |
| Citation | 95 S.Ct. 915,43 L.Ed.2d 88,420 U.S. 141 |
| Parties | UNITED STATES et al., Petitioners, v. Richard V. BISCEGLIA. —1245 |
| Court | U.S. Supreme Court |
The Internal Revenue Service (IRS) held to have authority under §§ 7601 and 7602 of the Internal Revenue Code of 1954 to issue a 'John Doe' summons to a bank or other depository to discover the identity of a person who has had bank transactions suggesting the possibility of liability for unpaid taxes, in this instance a summons to respondent bank officer during an investigation to identify the person or persons who deposited 400 deteriorated $100 bills with the bank within the space of a few weeks. Pp. 148-151.
(a) That the summons was styled in a fictitious name is not a sufficient ground for denying enforcement. Pp. 148-149.
(b) The language of § 7601 permitting the IRS to investigate and inquire after 'all persons . . . who may be liable to pay any internal revenue tax . . .' and of § 7602 authorizing the summoning of 'any . . . person' for the taking of testimony and examination of books and witnesses that may be relevant for 'ascertaining the correctness of any return, . . . determining the liability of any person . . . or collecting any such liability . . .,' is inconsistent with an interpretation that would limit the issuance of summonses to investigations which have already focused upon a particular return, a particular named person, or a particular potential tax liability, and moreover such a reading of the summons power of the IRS ignores the agency's legitimate interest in large or unusual financial transactions, especially those involving cash. Pp. 149-150.
6 Cir., 486 F.2d 706, reversed and remanded.
Stuart A. Smith, Washington, D.C., for petitioners.
William A. Watson, for respondent.
We granted certiorari to resolve the question whether the Internal Revenue Service has statutory authority to issue a 'John Doe' summons to a bank or other depository to discover the identity of a person who has had bank transactions suggesting the possibility of liability for unpaid taxes.
On November 6 and 16, 1970, the Commercial Bank of Middlesboro, Ky., made two separate deposits with the Cincinnati Branch of the Federal Reserve Bank of Cleveland, each of which included $20,000 in $100 bills. The evidence is undisputed that the $100 bills were 'paper thin' and showed signs of severe disintegration which could have been caused by a long period of storage under abnormal conditions. As a result the bills were no longer suitable for circulation and they were destroyed by the Federal Reserve in accord with established procedures. Also in accord with regular Federal Reserve procedures, the Cincinnati Branch reported these facts to the Internal Revenue Service.
It is not disputed that a deposit of such a large amount of high denomination currency was out of the ordinary for the Commercial Bank of Middlesboro; for example, in the 11 months preceding the two $20,000 deposits in $100 bills, the Federal Reserve had received only 218 $100 bills from that bank. This fact, together with the uniformly unusual state of deterioration of the $40,000 in $100 bills, caused the Internal Revenue Service to suspect that the transactions relating to those deposits may not have been reported for tax purposes. An agent was therefore assigned to investigate the matter.
After interviewing some of the bank's employees, none of whom could provide him with information regarding the two $20,000 deposits, the agent issued a 'John Doe' summons directed to respondent, an executive vice president of the Commercial Bank of Middlesboro. The summons called for production of '(t)hose books and records which will provide information as to the person(s) or firm(s) which deposited, redeemed or otherwise gave to the Commercial Bank $100 bills which the Commercial Bank sent in two shipments of (200) two hundred each $100 bills U.S. Currency to the Cincinnati Branch of the Federal Reserve Bank on or about November 6, 1970 and November 16, 1970.' This, of course, was simply the initial step in an investigation which might lead to nothing or might reveal that there had been a failure to report money on which federal estate, gift, or income taxes were due.1 Respondent, however, refused to comply with the summons even though he has not seriously argued that compliance would be unduly burdensome.
In due course, proceedings were commenced in the United States District Court for the Eastern District of Kentucky to enforce the summons. That court narrowed its scope to require production only of deposit slips showing cash deposits in the amount of $20,000 and deposit slips showing cash deposits of $5,000 or more which involved $100 bills, and restricted it to the period between October 16, 1970, and November 16, 1970. Respondent was ordered to comply with the summons as modified.
The Court of Appeals reversed, holding that § 7602 of the Internal Revenue Code of 1954, 26 U.S.C. § 7602, pursuant to which the summons had been issued, 'presupposes that the (Internal Revenue Service) has already identified the person in whom it is interested as a taxpayer before proceeding.' 486 F.2d 706, 710. We disagree, and reverse the judgment of the Court of Appeals.
The statutory framework for this case consists of §§ 7601 and 7602 of the Internal Revenue Code of 1954, which provide:
§ 7601. Canvass of districts for taxable persons and objects.
'(a) General rule.
'The Secretary or his delegate shall, to the extent he deems it practicable, cause officers or employees of the Treasury Department to proceed, from time to time, through each internal revenue district and inquire after and concerning all persons therein who may be liable to pay any internal revenue tax, and all persons owning or having the care and management of any objects with respect to which any tax is imposed.
§ 7602. Examination of books and witnesses.
'For 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 collecting any such liability, the Secretary or his delegate 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, or any officer or employee of such person, or any person having possession, custody, or care of books of account containing entries relating to the business of the person liable for tax or required to perform the act, or any other person the Secretary or his delegate may deem proper, to appear before the Secretary or his delegate at a time and place named in the summons and 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; and
'(3) To take such testimony of the person concerned, under oath, as may be relevant or material to such inquiry.'
We begin examination of these sections against the familiar background that our tax structure is based on a system of self-reporting. There is legal compulsion, to be sure, but basically the Government depends upon the good faith and integrity of each potential taxpayer to disclose honestly all information relevant to tax liability. Nonetheless, it would be naive to ignore the reality that some persons attempt to outwit the system, and tax evaders are not readily identifiable. Thus, § 7601 gives the Internal Revenue Service a broad mandate to investigate and audit 'persons who may be liable' for taxes and § 7602 provides the power to 'examine any books, papers, records, or other data which may be relevant . . . (andto summon) any person having posses- sion . . . of books of account . . . relevant or material to such inquiry.' Of necessity, the investive authority so provided is not limited to situations in which there is probable cause, in the traditional sense, to believe that a violation of the tax laws exists. United States v. Powell, 379 U.S. 48, 85 S.Ct. 248, 13 L.Ed.2d 112 (1964). The purpose of the statutes is not to accuse, but to inquire. Although such investigations unquestionably involve some invasion of privacy, they are essential to our self-reporting system, and the alternatives could well involve far less agreeable invasions of house, business, and records.
We recognize that the authority vested in tax collectors may be abused, as all power is subject to abuse. However, the solution is not to restrict that authority so as to undermine the efficacy of the federal tax system, which seeks to assure that taxpayers pay what Congress has mandated and to prevent dishonest persons from escaping taxation thus shifting heavier burdens to honest taxpayers. Substantial protection is afforded by the provision that an Internal Revenue Service summons can be enforced only by the courts. 26 U.S.C. § 7604(b); Reisman v. Caplin, 375 U.S. 440, 84 S.Ct. 508, 11 L.Ed.2d 459 (1964). Once a summons is challenged it must be scrutinized by a court to determine whether it seeks information relevant to a legitimate investigative purpose and is not meant 'to harass the taxpayer or to put pressure on him to settle a collateral dispute, or for any other purpose reflecting on the good faith of the particular investigation.' United States v. Powell, 379 U.S., at 58, 85 S.Ct., at 255, 13 L.Ed.2d 112. The cases show that the federal courts have taken seriously their obligation to apply this standard to fit particular situations, either by refusing enforcement or narrowing the scope of the summons. See, e.g., United States v. Matras, 487 F.2d 1271 (CA8 1973); United States v. Theodore, 479 F.2d 749, 755 (CA4 1973); United States v. Pritchard, 438 F.2d 969 (CA5 1971); United States v. Dauphin Deposit Trust Co., 385 F.2d 129 (CA3 1967). Indeed, the District Judge ...
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