United States v. Weingarden

• Citation: 473 F.2d 454
• Decision Date: 06 February 1973
• Docket Number: No. 72-1233.,72-1233.
• Parties: UNITED STATES of America and Bruce B. Mack, Revenue Agent, Internal Revenue Service, Petitioners-Appellants, v. Stanley M. WEINGARDEN, Respondent-Appellee.
• Court: United States Courts of Appeals. United States Court of Appeals (6th Circuit)

473 F.2d 454 (1973)

UNITED STATES of America and Bruce B. Mack, Revenue Agent, Internal Revenue Service, Petitioners-Appellants, v. Stanley M. WEINGARDEN, Respondent-Appellee.

No. 72-1233.

United States Court of Appeals, Sixth Circuit.

Argued December 1, 1972.

Decided February 6, 1973.

Carleton D. Powell, Washington, D. C., for petitioners-appellants, Scott P. Crampton, Asst. Atty. Gen., Meyer Rothwacks, John P. Burke, Tax Div., Dept. of Justice, Washington, D. C., on brief; Ralph B. Guy, Jr., U. S. Atty., Detroit, Mich., of counsel.

Stanley M. Weingarden, pro se; Smith, Miro, Hirsch & Brody, Detroit, Mich., of counsel.

Before WEICK, PECK and KENT, Circuit Judges.

WEICK, Circuit Judge.

This appeal is from an order of the District Court denying a petition for the enforcement of summons and to quash the summons which had been issued by Internal Revenue Agent Mack under authority of Section 7602 of the Internal Revenue Code of 1954, 26 U.S.C. § 7602. The District Court, after several hearings, handed down an opinion in which it held that the summons was issued for an impermissible purpose, namely, for the sole purpose of gathering data for a criminal prosecution.¹

The facts are not controverted. Only one witness, namely Agent Bruce Mack of the Auditing Division of the Internal Revenue Service in Detroit, testified as to the facts.² Mack had been assigned to work in the Fraud Section of the District Director's office in Detroit. On or about December 3, 1968, he was directed to audit the tax returns of "Buddy's Rendezvous", a partnership consisting of James Bonacorsi and Katherine Valente, and also the individual returns of the partners and their spouses, for the years 1967 and 1968. The audit was precipitated by information received to the effect that James Valente (husband of Katherine Valente) had reported a theft of $100,000 of his United States Savings Bonds.

In July, 1969, Mack contacted one of the partners and was referred to their accountant, Pitlosh, who permitted Mack to examine his records concerning the taxpayers. Mack determined from such examination that taxpayers' overall financial condition was better than that indicated in their 1967 and 1968 tax returns.

Mack arranged for a second interview with the accountant, at which time he requested copies of the taxpayers' income tax returns for the years 1953 through 1968. The accountant admitted to Mack that he had in his possession pencil copies of some of these returns, but refused to indicate what returns he possessed, stating that he desired to consult an attorney.³

On August 13, 1969, Mack issued a summons for the accountant, which required him to produce his copies of income tax returns of taxpayers for the years 1953 through 1968. Thereafter Mack received a telephone call from appellee, Stanley Weingarden, an Attorney at Law, who informed Mack that he had been retained as counsel for the taxpayers; that he now had in his possession the pencil copies of taxpayers' income tax returns which the accountant had retained, but he declined to turn these records over to Mack; and stated that he had received the returns prior to the issuance of the summons that was served on the accountant. Mack then issued a summons for Weingarden requiring the production of the accountant's copies of the income tax returns. On January 8, 1970 another such summons was issued to Weingarden; neither of these summons was complied with.

On March 16, 1970, approximately two months after the second summons was issued for Weingarden, Mack referred the case to the Intelligence Division of the Internal Revenue Service for criminal investigation; however, Mack continued his own investigation, working on net worth calculations for the years 1961 through 1968, which were the years for which he had procured from the Internal Revenue Service the returns of the taxpayers.

On December 15, 1970 Mack filed a petition in the District Court for enforcement of the summons. On January 25, 1971 a hearing was held in the District Court on the petition to enforce the summons. The summons was introduced into evidence and the Court heard testimony (both on direct and cross-examination) from Agent Mack, who had conducted the investigation.

Mack testified that he had received the case as a civil tax assignment, and to check out information as to the stolen United States Savings Bonds; that he never recommended criminal prosecution, and to his knowledge no such recommendation had been made at the time of the hearing on February 8, 1971; that he needed the earlier returns in order to complete his audit; that the original returns for the years 1953 through 1960 had been destroyed; and that he did not commence to prepare his net worth statement until the accountant denied him access to the copies of the income tax returns.

In the Government's brief it is stated that at the hearing on September 7, 1971, —

". . . Government\'s counsel informed the Court that subsequent to the testimonies given by Mack and Patterson, Patterson completed his investigation and had recommended that criminal proceedings be instituted against taxpayers. He further stated that as of that time no recommendation for prosecution had been made by the Internal Revenue Service to the Department of Justice, although such a recommendation, in his opinion, would be made."

It is clear to us that Agent Mack's investigation and audit was to determine civil tax liability, and was not for the purpose of criminal prosecution. Mack made demand on the accountant to produce the accountant's copies of the taxpayers' income tax returns, which returns he needed to complete his investigation. The accountant thwarted Mack's efforts to complete his audit by denying him access to his copies of the taxpayers' income tax returns. The accountant then turned over his copies of the returns to the taxpayers' attorney Weingarden.

The District Court did not consider any question of privilege; neither do we. None was asserted. Nor did the District Court base its decision on any constitutional issue, and we do not believe any constitutional issue is involved.

We have decided a number of cases involving summons issued pursuant to Section 7602 of the Internal Revenue Code of 1954, or its predecessor. E. g., United States v. Artman, 435 F.2d 1375 (6th Cir. 1970); United States v. Held, 435 F.2d 1361 (6th Cir. 1970); United States v. Fruchtman, 421 F.2d 1019 (6th Cir. 1970); DiPiazza v. United States, 415 F.2d 99 (6th Cir. 1969); United States v. Michigan Bell Tel. Co., 415 F. 2d 1284 (6th Cir. 1969); Justice v. United States, 365 F.2d 312 (6th Cir. 1966); Peoples Deposit Bank & Trust Co. v. United States, 212 F.2d 86 (6th Cir. 1954). While the above cases do not consider the precise standard for quashing a summons as contended by the Government in the present case, the cited cases make clear the context in which such a contention must be analyzed.

Section 7602 of the Internal Revenue Code of 1954 provides in part:

"For the purpose of ascertaining the correctness of any return . . . determining the liability of any person for any internal revenue tax . . . 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 . . . ."

In conjunction with this summons power, the Code provides that the Secretary or his delegate may apply to the District Court wherein the person holding the documents resides, for an order of enforcement. 26 U.S.C. § 7604.

While Section 7602 contains on its face no limitation on the issuance of summons so long as the summons sought is related to the correctness or deficiency of any taxpayer's return, the Courts have imposed limitations consistent with other rules and concepts in our legal system.⁴

The predominate limitation imposed by the Courts is the abuse of process concept. In United States v. Powell, 379 U.S. 48, 58, 85 S.Ct. 248, 255, 13 L.Ed.2d 112 (1964), the Court explained:

"It is the court\'s process which is invoked to enforce the administrative summons and a court may not permit its process to be abused. Such an abuse would take place if the summons had been issued for an improper purpose, such as to harass the taxpayer or to put pressure on him to settle a collateral dispute,⁵ or for any other purpose reflecting on the good faith of the particular investigation."

The concept is predicated on the notion that the process of the Court (and its attendant power and authority) should not be used to accomplish a purpose for which it was not intended.⁶ See 1 Am.Jur.2d 250, Abuse of Process, Sec. 1.

The essential question is, then, what is the purpose for which a Section 7602 summons was intended?

First, it is clear that the Secretary of the Internal Revenue Service has a duty to investigate possible criminal violations in connection with the accuracy (or inaccuracy) of the Intelligence Division of the Service. Internal Revenue Service Organization and Function, Sec. 1118.6, 35 Fed.Reg. 2454. Accordingly, where there is a criminal investigation of a taxpayer incidental to a civil investigation into the correctness of his tax return⁷, the Courts require the documents to be produced pursuant to Section 7602. Couch v. United States, 409 U.S. 322, 93 S.Ct. 611, 34 L.Ed.2d 548 (decided Jan. 9, 1973); United States v. Artman, 435 F.2d 1375, 1377 (6th Cir. 1970).

Second, it is equally clear that it is not the function of the Internal Revenue Service, an administrative agency, to prosecute violators of the Internal Revenue Code in the Courts; that is the prescribed function of the Justice Department, the prosecutorial branch of the Federal Government.⁸ Accordingly, if a taxpayer's case were under the complete control of the Department of Justice (and if that Department were in the process of prosecuting the taxpayer), it would not be permissible for the Department to contact the Internal Revenue Service and request that the Service...