US v. COM. FEDERAL S. & L.
| Decision Date | 05 January 1982 |
| Docket Number | 79-545.,Civ. A. No. 79-540 |
| Citation | 529 F. Supp. 1246 |
| Parties | UNITED STATES of America and Margaret M. Box, Special Agent, Internal Revenue Service, Plaintiffs, v. COMMONWEALTH FEDERAL SAVINGS AND LOAN, et al., Defendants, Thomas McNulty, Intervenor. |
| Court | U.S. District Court — Eastern District of Pennsylvania |
COPYRIGHT MATERIAL OMITTED
Thomas M. Lawler, Jr., Tax Division, U. S. Dept. of Justice, Washington, D. C., for plaintiffs.
Thomas Colas Carroll, Carroll & Carroll, Philadelphia, Pa., for intervenor.
ADJUDICATION
In these consolidated proceedings brought pursuant to 26 U.S.C. §§ 7402(b) and 7604(a), the Internal Revenue Service (IRS) seeks enforcement of six summonses to produce certain records which are currently in the possession of the defendants. The records are sought pursuant to an ongoing civil and criminal investigation of the tax liability of the intervenor, Thomas McNulty. After careful consideration of the pleadings, the evidentiary record, and the submissions of the parties, I conclude that the defendants must be ordered to comply with the summonses. This conclusion is based upon the following
1. The plaintiff, Margaret M. Box, is a special agent with the Criminal Investigation Division of the IRS and is authorized to issue Internal Revenue summonses under the authority of 26 U.S.C. § 7602. (Complaints ¶¶ II; Tr. 11).
2. Pursuant to this authority, she issued six summonses which form the basis of these proceedings and which were served upon the defendants as follows:
a. Commonwealth
Federal Savings
and Loan
("Commonwealth") June 22, 1978
b. Frankford Trust
("Frankford") June 23, 1978
c. Girard Bank
("Girard") June 27, 1978
d. Fidelity Bank
("Fidelity") July 13, 1978
e. Administrator
Plumbers Union
Local 690
Apprenticeship
Training Fund
("Apprenticeship
Fund") August 22, 1978
f. Plumbers Union
Local 690 ("Local
690") August 22, 1978
3. At the time each summons was issued, Special Agent Box and Revenue Agent Thomas Hunsberger were conducting a joint criminal and civil investigation of the federal income tax liabilities, if any, of Thomas McNulty for the years 1974 through 1977. (Tr. 11-12). Special Agent Box was in charge of the investigation and Revenue Agent Hunsberger was the cooperating agent whose duties included assisting the special agent as required. (Tr. 12, 15-16).
4. Pursuant to 26 U.S.C. § 7609(b)(2), McNulty notified each of the banks not to comply thus staying enforcement of the summonses issued to Commonwealth, Frankford, Girard, and Fidelity.
5. By order dated September 22, 1978, the Honorable Charles R. Weiner, of this Court, granted McNulty's motion for a temporary restraining order and, later, preliminarily enjoined compliance with the union summonses until an order of compliance in enforcement proceedings was entered by a court of competent jurisdiction.
6. In 1976, a grand jury investigation began in the Eastern District of Pennsylvania. The targets of the grand jury investigation were James O'Neill, Thomas McNulty, and the Apprenticeship Fund. (Tr. 31).
7. The Department of Justice requested the assistance of IRS personnel in conducting the grand jury investigation. (Sweeney Dep. 4). Pursuant to this request, in late 1976, Revenue Agent Hunsberger and Special Agent James Kamienicki were assigned to assist in the grand jury investigation. (Hunsberger Dep. 5-6; Kamienicki Dep. 6). In 1977, Special Agent Augustine Matson was also assigned. (Matson Dep. 4).
8. Only O'Neill was the subject of a tax investigation by the IRS in 1976 and 1977 and an open file was maintained as to only his tax liabilities. (Hunsberger Dep. 6-7; Sweeney Dep. 7-8; Kamienicki Dep. 7).
9. On May 11, 1977, pursuant to the government's motion, the Honorable John P. Fullam entered the following order under Rule 6(e) of the Federal Rules of Criminal Procedure:
Now, this 11th day of May, 1977, upon consideration of the government's ex parte motion pursuant to Rule 6(e) for authorization to disclose matters appearing before the grand jury, it is hereby ordered that the United States Attorney and Special Attorneys of the United States Department of Justice are authorized to utilize the assistance of special agents and employees of the Internal Revenue Service in this Grand Jury investigation, and may give access to books, records, documents and transcripts of testimony of witnesses subpoenaed before the Grand Jury in this investigation to the said employees of the Internal Revenue Service; the said employees of the Internal Revenue Service shall not be prohibited from utilizing such material in the course of their official duties for criminal and/or civil purposes, provided that the subpoenaed material shall remain at all times under the aegis of the attorneys for the Government.
(Tr. 32-33). In addition, in July of 1977, the Justice Department obtained a disclosure order under 26 U.S.C. § 6103 authorizing the IRS to turn over McNulty's tax returns to the grand jury. (Matson Dep. 13-15; Hunsberger Dep. 11-12). Pursuant to this order, McNulty's tax returns were turned over to the grand jury. (Kamienicki Dep. 12-14).
10. O'Neill was indicted at the end of August, 1977. No indictment was sought or returned against McNulty and the IRS made no recommendation that he be indicted. (Tr. 31-32; Matson Dep. 17-18).
11. However, after correlating the grand jury materials made available pursuant to Judge Fullam's Rule 6(e) order with McNulty's tax returns, Revenue Agent Hunsberger began to suspect that McNulty may have failed to report certain items of income in violation of the Internal Revenue Code. (Hunsberger Dep. 24). Accordingly, at the end of August, 1977, he referred the matter of McNulty's tax returns to the criminal investigation division of IRS. (Tr. 33; Hunsberger Dep. 22).
12. In December, 1977, the Criminal Investigation Division accepted the referral from Revenue Agent Hunsberger to investigate possible tax fraud by McNulty (Tr. 23) and the case against McNulty was "numbered", which means the IRS formally began its investigation. (Tr. 27).
13. The investigation was commenced as a joint investigation, that is an investigation pursued jointly by the criminal investigation division and the civil examination division. (Tr. 12).
14. On December 14, 1977, the matter was assigned to the plaintiff, Special Agent Box, and to Revenue Agent Hunsberger. (Tr. 11, 23, 27; Sweeney Dep. 9). The purposes of the investigation are to determine if McNulty has violated the Internal Revenue Code and to ascertain his correct tax liability for the years under investigation. (Tr. 12).
15. Special Agent Box did not know of the prior grand jury investigation of McNulty until she began this investigation in December, 1977. (Tr. 28).
16. During January and February, 1978, Special Agent Box and Revenue Agent Hunsberger had several conversations with Assistant United States Attorney Greg Magarity and FBI Agent John Tamm, the principals involved in the prior grand jury investigation, and inquired whether McNulty was still the subject of a grand jury inquiry. (Tr. 40-43; Hunsberger Dep. 28-29). On February 13, 1978, Agent Tamm advised that the F.B.I. was not investigating McNulty. (Box Dep. II, 5; Tr. 42-43).
17. During the course of these conversations, Magarity suggested that Box research the correct procedure whereby the IRS could request the Department of Justice to commence a grand jury investigation of possible title 26 violations. (Tr. 42-45; Box Dep. I 9). At this point, neither Box nor Magarity had made a decision on whether a grand jury would be utilized. (Box Dep. I 9).
18. On March 1, 1978, Special Agent Box contacted the Office of District Counsel and made a pre-referral request for legal advice as to how to proceed in the McNulty investigation. (Tr. 43; Box Dep. II 3, 4; Foster Dep. I 22; Foster Dep. II 3). The matter was assigned to a staff attorney, Edward Foster.
19. Generally, the purpose of such a prereferral conference is not to decide whether to refer a matter for criminal prosecution but, rather, to address any unusual legal problems which have arisen during the investigation and to evaluate whether the evidence which is being developed fits within the required elements of proof for a criminal offense. (Foster Affidavit ¶ A2; Foster Dep. I 5-6, 8-10; Box Dep. II 24).
20. In this case, Box's primary concern was whether or not information obtained by the grand jury and made available to the Internal Revenue Service by the Rule 6(e) order could be used in the investigation of McNulty. A secondary question was raised concerning whether or not an IRS summons could be used as an investigative tool in light of the preceding grand jury investigation. (Foster Affidavit ¶ A4; Foster Dep. II 6; Box Affidavit ¶ 2A).
21. Foster gave Special Agent Box legal advice which was later incorporated into a written pre-referral report dated April 8, 1978. (Box Dep. II 23; Foster Dep. II 7). foster advised Box that the information previously made available to the IRS pursuant to the Rule 6(e) order could probably be used in the investigation. (Foster Dep. II 7, 10-11). He did, however, caution that the prior grand jury investigation might taint an administrative summons by suggesting to a finder of fact that it had been issued for an exclusively criminal purpose. (Foster Dep. II 7, 11, 14). Accordingly, he recommended that, although the investigation could proceed by way of summons, if necessary, the surest way to investigate McNulty would be to utilize another grand jury. (Foster Dep. II 11; Box Dep. II 28, 32, 37).
22. At the time Box consulted with Foster, she had made no decision as to whether the investigation should be referred to the ...
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...after issuance of the summonses and commencement by the Government of an enforcement action. 2 Cf. United States v. Commonwealth Federal Savings and Loan, 529 F.Supp. 1246 (E.D.Pa. 1982); United States v. Morgan Guaranty Trust Co., 524 F.Supp. 24 ...