United States v. Gertner ( 1995 )

September 27, 1995
UNITED STATES COURT OF APPEALS
UNITED STATES COURT OF APPEALS
FOR THE FIRST CIRCUIT
FOR THE FIRST CIRCUIT
No. 95-1277
UNITED STATES OF AMERICA,
Petitioner, Appellant,
v.
NANCY GERTNER, ETC., ET AL.,
Respondents, Appellees.
JOHN DOE,
Intervenor, Appellee.
ERRATA SHEET
ERRATA SHEET
The opinion of this court issued on September 13, 1995, is
corrected as follows:
On page 18, note 7, line 3 change "he" to "the"
UNITED STATES COURT OF APPEALS
UNITED STATES COURT OF APPEALS
FOR THE FIRST CIRCUIT
FOR THE FIRST CIRCUIT
No. 95-1277
UNITED STATES OF AMERICA,
Petitioner, Appellant,
v.
NANCY GERTNER, ETC., ET AL.,
Respondents, Appellees.
JOHN DOE,
Intervenor, Appellee.
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MASSACHUSETTS
[Hon. Morton A. Brody,* U. S. District Judge]
Before
Selya and Boudin, Circuit Judges,
and Lisi,** District Judge.
John A. Dudeck, Jr., Attorney, Tax Division, U.S. Dep't of
Justice, with whom Loretta C. Argrett, Assistant Attorney
General, Gary R. Allen and Charles E. Brookhart, Attorneys, Tax
Division, were on brief, for appellant.
Gerald B. Lefcourt, with whom Sheryl E. Reich, Lefcourt &
Dratel, P.C., Bruce Maffeo, Bernstein & Maffeo, Thomas E. Dwyer,
Jr., Jody L. Newman, and Dwyer & Collora were on joint brief, for
appellees.
Judith H. Mizner, Andrew Good, Benjamin Fierro, III, and
Francis S. Moran, Jr. on joint brief for Massachusetts Ass'n of
Criminal Defense Lawyers, Massachusetts Bar Ass'n, and Boston Bar
Ass'n, amici curiae.
September 13, 1995
*Of the District of Maine, sitting by designation.
**Of the District of Rhode Island, sitting by designation.
SELYA, Circuit Judge. This controversy features an
SELYA, Circuit Judge.
old-fashioned tug of war. Pulling in one direction is the
Internal Revenue Service (IRS) which, for easily understandable
reasons, is intent on learning the identity of persons who pay
large legal fees in cash. Pulling in the opposite direction is a
consortium consisting of two lawyers and three bar associations
(appearing as amici curiae) which, for equally understandable
reasons (fearing inter alia that disclosure may spur
prosecution), is intent on safeguarding the identity of clients
who pay in cash. In this case, the parties' positions hardened
and a stalemate developed. The district court resolved matters
in the lawyers' favor, refusing to enforce IRS summonses designed
to obtain "client identity" information pursuant to section 6050I
of the Internal Revenue Code (I.R.C.), 26 U.S.C. 6050I (1988 &
Supp. V 1993). See United States v. Gertner, 873 F. Supp. 729(D. Mass. 1995). The government appeals. We affirm (albeit on
more circumscribed grounds than those enumerated by the lower
court).
I. BACKGROUND
I. BACKGROUND
Federal law, specifically I.R.C. 6050I and its
implementing regulations, requires a person who receives more
than $10,000 in cash during a single trade or business
transaction to file a form (IRS Form 8300) reporting the name,
address, occupation, and social security number of the payor,
along with the date and nature of the transaction and the amount
involved. See I.R.C. 6050I; 26 C.F.R. 1.6050I-1(e) (1995).
3
At various times in 1991 and 1992, respondents Nancy Gertner and
Jody Newman, then partners in a Boston law firm, filed forms
reflecting four successive payments of hefty cash fees to the
firm by a single client. Each of the forms was essentially
complete except for the name of the client. The respondents
advised the IRS that they were withholding the client's identity
on the basis of ethical obligations, attorney-client privilege,
and specified constitutional protections.
These filings sparked a lengthy course of
correspondence between the law firm and the IRS. In that
exchange, members of the firm attempted on at least three
occasions to determine whether the IRS wanted the omitted
information as part of an investigation focused on the firm or to
learn more about the unnamed client. The IRS did not deign to
answer these inquiries.
The parties remained deadlocked and the IRS issued
summonses purporting to direct the respondents to furnish certain
records and testimony anent the client's identity. The
respondents declined to comply. The government then brought an
enforcement action pursuant to I.R.C. 7402(a) & 7604(a),
claiming that it wanted the information in connection with an
investigation of the law firm's tax liability. On April 20,
1994, after perusing the complaint and the declaration of Revenue
Agent Sophia Ameno, the district court issued an order directing
the respondents to show cause why they should not be compelled to
honor the summonses.
4
The court permitted the client to intervene
pseudonymously. Thereafter, the respondents and the intervenor
mounted two lines of defense. First, they asseverated that the
IRS's alleged investigation of the lawyers was merely a pretext
disguising its real objective learning more about the client
and that the government therefore should be required to follow
the statutory procedure for issuing summonses affecting
unidentified third parties.1 See I.R.C. 7609(f). Second, in
concert with the amici they insisted that various privileges and
protections allow lawyers to shield their client's identity from
the reach of such summonses. The IRS joined issue, asserting
that it had employed the appropriate procedure; that the
respondents had failed to show either that the supposed
investigation of the law firm was a sham or that an improper
motive tainted the summonses; and, finally, that no special
protection of any kind attached to the desired information.
When the day of decision dawned, the respondents asked
the district court to take live testimony. The government
opposed the request. The court eschewed the evidentiary hearing
that the respondents sought but nevertheless refused to enforce
1Such a summons is known colloquially as a "John Doe"
summons. The IRS cannot issue a John Doe summons defined by
statute as a summons "which does not identify the person with
respect to whose liability the summons is issued" without first
securing court approval. I.R.C. 7609(f). The reason for
requiring such approval is obvious: in the John Doe context, the
court in effect "takes the place of the affected taxpayer" who,
being unnamed, cannot herself be expected to know about let
alone to oppose the summons even if it is irregular. Tiffany
Fine Arts, Inc. v. United States, 469 U.S. 310, 321 (1985). We
discuss the mechanics of the preapproval process infra.
5
the summonses. It found as a fact that the IRS's purported probe
of the law firm's tax-related affairs was a hoax, and that the
IRS should have complied with I.R.C. 7609(f) prior to serving
the summonses. See Gertner, 873 F. Supp. at 734. Nor did the
court stop there; it proceeded to hold that, under the
circumstances here obtaining, the attorney-client privilege
thwarted the IRS's demand for information concerning client
identity. See id. at 734-37. This appeal ensued.
II. ANALYSIS
II. ANALYSIS
We split our analysis into three segments. First, we
limn the framework for determining whether the federal
judiciary's imprimatur should be impressed upon an IRS summons.
Next, we mull the district court's finding on the pretext issue
under the deferential standard of review that pertains in this
context. Lastly, we explain why the IRS's failure to comply with
I.R.C. 7609(f) effectively ended the case.
A. The Framework.
A. The Framework.
The IRS has broad authority to issue summonses under
I.R.C. 7602 & 7604. Enforcement proceedings are designed to
be summary, see Donaldson v. United States, 400 U.S. 517, 529
(1971); United States v. Freedom Church, 613 F.2d 316, 321 (1st
Cir. 1979), and the court's role is simply to ensure that the IRS
is using its broad authority in good faith and in compliance with
the law. See Donaldson, 400 U.S. at 536; United States v. Kis,
658 F.2d 526, 535 (7th Cir. 1981), cert. denied, 455 U.S. 1018(1982). Thus, when a challenge to a summons is lodged, the IRS
6
must only satisfy the court that (1) its investigation is being
conducted pursuant to a proper purpose, (2) the information
sought in the summons is (or may be) relevant to that purpose,
(3) the information is not already within the IRS's possession,
and (4) all legally required administrative steps have been
followed. See United States v. Powell, 379 U.S. 48, 57-58
(1964); Copp v. United States, 968 F.2d 1435, 1437 (1st Cir.
1992), cert. denied, 113 S. Ct. 1257 (1993).
In determining whether to enforce IRS summonses under
these substantive standards, we do not write on a pristine page.
This court has constructed a three-tiered framework for
expediting such determinations. See Freedom Church, 613 F.2d at
321; United States v. Salter, 432 F.2d 697, 700 (1st Cir. 1970);
accord United States v. Church of Scientology, 520 F.2d 818, 824
(9th Cir. 1975); United States v. McCarthy, 514 F.2d 368, 372-73
(3d Cir. 1975). To mount the first tier, the IRS must make a
prima facie showing that it is acting in good faith and for a
lawful purpose. This burden is not taxing, so to speak. Courts
repeatedly have confirmed that an affidavit of the investigating
agent attesting to satisfaction of the four Powell elements is
itself adequate to make the requisite prima facie showing. See,
e.g., Sylvestre v. United States, 978 F.2d 25, 26 (1st Cir. 1992)
(per curiam), cert. denied, 113 S. Ct. 1606 (1993); United States
v. Lawn Builders of New Eng., Inc., 856 F.2d 388, 392 (1st Cir.
1988); Liberty Fin. Servs. v. United States, 778 F.2d 1390, 1392
(9th Cir. 1985); Kis, 658 F.2d at 536.
7
Once this minimal showing surfaces, the burden shifts
to the taxpayer to rebut the good-faith presumption that arises
in consequence of the government's prima facie case.2 The
taxpayer is not at this stage required to disprove the
government's profession of good faith. See United States v.
Samuels, Kramer & Co., 712 F.2d 1342, 1348 (9th Cir. 1983); Kis,
658 F.2d at 540. She must, however, shoulder a significant
burden of production: in order to advance past the first tier,
the taxpayer must articulate specific allegations of bad faith
and, if necessary, produce reasonably particularized evidence in
support of those allegations.3 See Kis, 658 F.2d at 540; United
States v. Garden State Nat'l Bank, 607 F.2d 61, 71 (3d Cir.
1979); Salter, 432 F.2d at 700. This showing does not demand
that the taxpayer conclusively give the lie to the prima facie
case, but only that she create a "substantial question in the
court's mind regarding the validity of the government's purpose."
Salter, 432 F.2d at 700; accord Church of Scientology, 520 F.2d
2The summons enforcement framework is reminiscent of the
"proof structure" for proving intentional discrimination under
Title VII. See Texas Dep't of Community Affairs v. Burdine, 450
U.S. 248, 252-55 (1981); McDonnell Douglas Corp. v. Green, 411
U.S. 792, 802-05 (1973).
3Although some cases refer to the taxpayer's "burden of
proof" at this stage, see, e.g., United States v. Balanced Fin.
Mgmt., Inc., 769 F.2d 1440, 1444 (10th Cir. 1985); Salter, 432
F.2d at 700, those cases are not necessarily at odds with our
description of the framework's second tier. The term "burden of
proof" may refer to either a burden or production or a burden of
persuasion. See Kenneth S. Broun et al., McCormick on Evidence
336 (4th ed. 1992). Only the burden of production is at issue
when the taxpayer attempts to rebut the IRS's prima facie showing
and thereby justify further inquiry.
8
at 824; McCarthy, 514 F.2d at 376. To reach this goal, it is not
absolutely essential that the taxpayer adduce additional or
independent evidence; she may hoist her burden either by citing
new facts or by bringing to light mortal weaknesses in the
government's proffer.
If the taxpayer satisfies this burden of production,
the third tier beckons. At this stage, the district court weighs
the facts, draws inferences, and decides the issue. To do so,
the court frequently will proceed to an evidentiary hearing,
taking testimony and exhibits from both sides. See Samuels,
Kramer, 712 F.2d at 1347-48; Salter, 432 F.2d at 700. But there
is no hard-and-fast rule compelling an evidentiary hearing. A
district court may, in appropriate circumstances, forgo such a
hearing and decide the issues on the existing record. See Copp,
968 F.2d at 1438 n.1; McCarthy, 514 F.2d at 373.
A question lingers at the third tier as to the
continuing viability of the original presumption in favor of the
IRS. The case law seems to suggest that the presumption endures
and serves at this stage to saddle the taxpayer with the burden
of persuading the judge, qua factfinder, that at least one of the
Powell elements is missing. See, e.g., Kis, 658 F.2d at 540
(stating that a taxpayer "can succeed only by showing by a
preponderance of the evidence some improper use of the summons by
the IRS"); Freedom Church, 613 F.2d at 319 ("The burden of
proving an abuse of the court's process or the absence of one of
the Powell elements of good faith is on the summonee."); see also
9
United States v. Balanced Fin. Mgmt., Inc., 769 F.2d 1440, 1445
(10th Cir. 1985). We are somewhat skeptical of this approach,
especially given the Supreme Court's recent lesson on
presumptions and burdens of proof in an analogous setting. See
St. Mary's Honor Ctr. v. Hicks, 113 S. Ct. 2742, 2747 (1993)
(holding that a Title VII plaintiff always bears the burden of
persuasion despite the presumption in her favor created by her
prima facie case). The Court's treatment of presumptions in
Hicks is consistent with the basic principle, codified in the
Federal Rules of Evidence:
In all civil actions and proceedings not
otherwise provided for by Act of Congress or
by these rules, a presumption imposes on the
party against whom it is directed the burden
of going forward with evidence to rebut or
meet the presumption, but does not shift to
such party the burden of proof in the sense
of the risk of nonpersuasion, which remains
throughout the trial upon the party on whom
it was originally cast.
Fed. R. Evid. 301.
We are hard-pressed to fathom why IRS enforcement
proceedings should diverge from this principle. It is the IRS,
not the taxpayer, that seeks to invoke the processes of the
court; and, in a related vein, the court is instructed to grant
the requested relief only when "sufficient proof is made."
I.R.C. 7604(b). Though it certainly can be argued that "strong
reasons of public policy" justify a burden-shifting scheme,
Salter, 432 F.2d at 700, it would seem that the IRS's legitimate
interest in obtaining summary enforcement is satisfactorily
addressed by the particularized burden of production imposed on
10
the taxpayer, without going the whole hog.4 See, e.g., United
States v. Euge, 444 U.S. 707, 719 (1980) (stating that in
addition to the taxpayer's right to challenge a summons, the IRS
"must also establish [its] compliance with the [four recognized]
good faith requirements"); McCarthy, 514 F.2d at 373 (suggesting
that "the Secretary should be prepared to prove the allegations
of the complaint that the summons complies with the Powell
requirements").
While this point is intellectually interesting, we
defer a definitive decision on it to a different day. After all,
4The cases suggesting that the taxpayer has the ultimate
burden of persuasion rely principally on isolated statements
extracted from Powell and United States v. LaSalle Nat'l Bank,
437 U.S. 298 (1978). Foremost among these statements is the
Powell Court's comment that "[t]he burden of showing an abuse of
the court's process is on the taxpayer." 379 U.S. at 58. We are
not confident that this slender reed can bear the strain that
subsequent opinions have placed on it. Powell itself imposed the
burden on the IRS to "show that the investigation will be
conducted pursuant 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."
Id. at 57-58. The Court's subsequent reference to proving an
abuse of process, read in context, seems to be confined to
affirmative defenses, e.g., allegations of harassment in the
conduct of an investigation. See id. at 58.
By like token, the LaSalle Court's statement that
"those opposing enforcement of a summons do bear the burden to
disprove the actual existence of a valid civil tax determination
or collection purpose by the Service," 437 U.S. at 316, does
little to prop up the government's burden-of-proof argument. The
LaSalle Court held that, even if the IRS had a criminal
prosecution in mind, this fact would not constitute a per se
improper purpose for a civil summons, because civil and criminal
tax investigations are typically too intertwined to untangle
easily. See id. at 314-16. Hence, the quoted statement applies
only in situations where the taxpayer is seeking to avail herself
of the "sole criminal purpose" defense to a summons. See, e.g.,
Copp, 968 F.2d at 1437.
11
the respondents concede that the district court tacitly required
them to prove improper purpose by a preponderance of the
evidence, and they accepted the burden of proof without any
objection. Consequently, we proceed on the assumption that the
lower court's resolution of the issue will prevail only if the
record suffices for a finding that the respondents carried the
devoir of persuasion.
B. The Finding of Improper Purpose.
B. The Finding of Improper Purpose.
With this structure in mind, we turn to the district
court's determination that the IRS's stated purpose for issuing
the summonses its avowed desire to investigate the respondents'
law firm was merely a pretext to enable it to learn more about
the intervenor.
At the outset, we are constrained to note that the
remarkably thin prima facie case established by Agent Ameno's
declaration provides a shallow foundation for a presumption in
favor of the government. While the declaration touches the
requisite bases it contains the bareboned allegations needed
for the government's prima facie showing it is utterly devoid
of specifics. Though a conclusory affidavit is enough to satisfy
the government's burden at the first tier of the framework, see,
e.g., Sylvestre, 978 F.2d at 26; Lawn Builders, 856 F.2d at 392,
it can come back to haunt the proponent if it is not later
supplemented by more hearty fare once the challenger succeeds in
scaling the second tier.
At any rate, the government effectuated its prima facie
12
showing with little room to spare. The burden then shifted to
the respondents to produce evidence and/or allegations of
sufficient force and exactitude to warrant further inquiry. To
meet this burden, the respondents argued that the summonses
should be shelved because the government's professed purpose
linking the summonses to an investigation into the law firm's tax
liability was pretextual.
Contrary to the government's dismissive suggestion, the
respondents did not simply level the charge. In support of it,
they submitted two affidavits. One affidavit incorporated the
extensive correspondence between the firm and the IRS. The
second affidavit chronicled the firm's meticulous attention to
income reporting requirements, and asserted that the IRS already
had the data it needed to determine whether the firm had fully
complied with its tax-related obligations. In addition, the
respondents documented several public statements which seem to
imply that the IRS's purpose in issuing summonses to attorneys
for the records of large cash-paying clients is designed less to
monitor lawyers' compliance with the tax laws, and more to
address money laundering, narcotics distribution, and kindred
criminal activity on the part of lawyers' clients. See, e.g.,
IRS Publication 1544 (rev. Aug. 1994) (stating that Form 8300 is
intended in part to help identify "smugglers and drug dealers
[who] use large cash payments to ``launder' money from illegal
activities"); IRS News Release IR-93-113 (Dec. 7, 1993) ("The
data [obtained through Form 8300] helps detect nonfiling,
13
unreported income, and money laundering often associated with
narcotic trafficking and other illegal activities by some of the
customers and clients of the businesses required to file.").
Finally, the respondents pointed out that the Ameno declaration,
which purported to describe the ongoing investigation of the law
firm, was nothing but boilerplate.5
The lower court concluded on this chiaroscuro record
that the government's supposed investigation of the law firm was
a pretext for an anticipated investigation of John Doe. See
Gertner, 873 F. Supp. at 734. On appeal, the IRS rides two
horses into the breach. First, it maintains that the district
court erred in stabling the summonses without holding an
evidentiary hearing. Second, it posits that, in all events, the
court's ultimate finding of pretext, based on the record before
it, is unsupportable. Both steeds are lame.
1. The Need for an Evidentiary Hearing. The
1. The Need for an Evidentiary Hearing.
government's first question is easily answered. The decision
whether to hold an evidentiary hearing in a given case generally
rests within the sound discretion of the trial court. See, e.g.,
Weinberger v. Great N. Nekoosa Corp., 925 F.2d 518, 527 (1st Cir.
1991); United States v. Panitz, 907 F.2d 1267, 1273 (1st Cir.
1990); United States v. DeCologero, 821 F.2d 39, 44 (1st Cir.
5The declaration matched, almost word for word, the
declaration at issue in United States v. Ritchie, 15 F.3d 592(6th Cir.), cert. denied, 115 S. Ct. 188 (1994), and, as the
government conceded at oral argument, was "the standard
affidavit" that the IRS routinely uses in summons enforcement
proceedings spurred by Form 8300 filings.
14
1987). This discretion remains fully intact when the business of
the day is the enforcement of an IRS summons. See Fortney v.
United States, 59 F.3d 117, 121 (9th Cir. 1995) ("We defer to the
district court's discretion to decide if an evidentiary hearing
on the question of enforcement of a summons is warranted.");
Hintze v. IRS, 879 F.2d 121, 126 (4th Cir. 1989) (similar).
Appellate review is, therefore, deferential; we will interfere
with a district court's bottom-line decision to conduct or
withhold an evidentiary hearing in a summons enforcement
proceeding only if the appellant demonstrates an abuse of the
trial court's substantial discretion. See Copp, 968 F.2d at 1438
n.1.
We discern no abuse in this situation. At no time
during the proceedings below did the IRS request an evidentiary
hearing. Rather, it vigorously (and successfully) opposed the
respondents' request for such a hearing. In other words, the
government chose to roll the dice, apparently confident that
Agent Ameno's conclusory declaration would withstand the
respondents' allegations and evidence. Having gambled and lost,
the government is in a perilously poor position to pursue the
point. In any event, "[w]e regularly turn a deaf ear to protests
that an evidentiary hearing should have been convened but was
not, where, as here, the protestor did not seasonably request
such a hearing in the lower court." Aoude v. Mobil Oil Corp.,
892 F.2d 1115, 1120 (1st Cir. 1989); see also Sylvestre, 978 F.2d
at 28 n.3 (explaining that a taxpayer's failure to request an
15
evidentiary hearing in the district court precluded consideration
of his later claim that such a hearing should have been held);
see generally CMM Cable Rep., Inc. v. Ocean Coast Props., Inc.,
48 F.3d 618, 622 (1st Cir. 1995) ("A party who neglects to ask
the trial court for relief that it might reasonably have thought
would be available is not entitled to importune the court of
appeals to grant that relief.").
2. The Supportability of the Crucial Finding. The
2. The Supportability of the Crucial Finding.
remaining question is whether the district court's finding of
pretextual purpose is supportable. Determining the IRS's purpose
in conducting an investigation is, like most motive-oriented
explorations, a predominantly factbound enterprise. It follows
that, absent a mistake of law, an appellate tribunal should
disturb the district court's determination only if it is clearly
erroneous. See United States v. Ritchie, 15 F.3d 592, 599 (6th
Cir.), cert. denied, 115 S. Ct. 188 (1994); Copp, 968 F.2d at
1437; Hintze, 879 F.2d at 1426; Ponsford v. United States, 771
F.2d 1305, 1307-08 (9th Cir. 1985). This means, of course, that
if there are two or more plausible interpretations of the
evidence, the district court's choice among them must hold sway.
See Johnson v. Watts Regulator Co., F.3d , (1st Cir.
1995) [No. 95-1002, slip op. at 22].
Here, no clear error looms. The government's case for
enforcing the summonses depended entirely on Agent Ameno's self-
serving declaration (which, as we have previously indicated, is a
16
web of unsubstantiated conclusions). In contrast, the
respondents fashioned a sufficient evidentiary infrastructure to
support an inference that the IRS's sole purpose in pursuing the
summonses was to gain information about the lawyers' unnamed
client. The law firm's affidavit, if credited, indicates that
the IRS had no apparent reason to suspect it of any tax-related
impropriety. And, moreover, the IRS's use of a generic
affidavit, devoid of particularization, suggests that the IRS
never really suspected the firm of any questionable activity.
The IRS's stonewalling its unexplained refusal to answer the
firm's repeated inquiries as to whether it was in fact under
investigation points in the same direction. These facts, taken
in light of the IRS's self-proclaimed practice of using
information gleaned from attorneys' Form 8300 filings as a
vehicle for investigating clients who pay counsel fees in cash,
make the district court's conclusion that the IRS's interest lay
only in the unidentified client seem quite plausible. We
conclude, therefore, that notwithstanding any presumption which
may have accompanied the IRS's prima facie showing, the court
below reasonably could have found that a preponderance of the
evidence favored the respondents' claim of pretext.6 See
6The government argues that this finding is flatly
inconsistent with the district court's original acceptance of the
Ameno declaration as a sufficient basis for issuing a show-cause
order. We do not agree. The acceptance of the IRS's first-tier
proffer signifies nothing more than the court's acknowledgement
that the IRS has mustered a prima facie showing for enforcement.
Once the respondents met their second-tier burden of production
and raised a legitimate question about the validity of the
summonses, however, the court was free to reevaluate the original
17
Ritchie, 15 F.3d at 599 ("Although there was evidence to
contradict this view and the IRS strenuously objects to [the
court's] finding, [the] findings are not clearly erroneous, and
we therefore adopt them.").
The government argues that the decision in United
States v. Tiffany Fine Arts, Inc., 718 F.2d 7 (2d Cir. 1983),
aff'd, 469 U.S. 310 (1985), should propel us toward the opposite
conclusion. There, the Second Circuit upheld a summons issued
for the dual purpose of investigating both a designated taxpayer
and a John Doe, see 718 F.2d at 13-14, and the Supreme Court
affirmed, see 469 U.S. at 324. The government tries to shoehorn
this case into the Tiffany last. The fit, however, is imperfect.
In Tiffany, unlike here, the district court ascertained
as a matter of fact that the IRS had a dual purpose, that is, an
actual interest in the investigation of both the taxpayer and the
John Doe. See 469 at 317 (recounting district court's findings
of fact). In this case, the district court ascertained, also as
a matter of fact, that the IRS did not have an actual interest in
the investigation of the taxpayer (the respondents' law firm),
but only in learning more about John Doe. Thus, the two cases
are not fair congeners except to the extent that, given Judge
Brody's supportable factual finding that the summonses at issue
here were not dual purpose summonses, the Supreme Court's opinion
in Tiffany clearly indicates that we should respect that finding.
See id. at 322. And, once the judge determined as a matter of
proffer in light of the respondents' counter-proffer.
18
fact that the government's actual purpose in issuing the
summonses was to further an investigation of the unnamed client,
the follow-on conclusion that the government should have complied
with the procedure for issuing John Doe summonses becomes
irresistible.7 See id.We take no pleasure in upholding a finding that
government actors constructed a pretext to avoid due compliance
with statutorily prescribed requirements. But the court below
did not reach this conclusion lightly and the record, carefully
examined, does not give rise to a firm conviction that the
court's judgment is wide of the mark. Accordingly, the finding
of pretextual purpose must stand.
C. The Remainder of the District Court's Decision.
C. The Remainder of the District Court's Decision.
Despite its double-edged determination that the IRS
ought to have complied with the strictures of I.R.C. 7609(f),
but did not do so, the district court proceeded to reach and
7At oral argument in this court, the government belatedly
contended that the summonses should be enforced simply to
effectuate compliance with the reporting requirements of section
6050I itself. This nascent contention materialized out of thin
air; prior to oral argument, the government had attempted to
justify the summons solely as a means of investigating whether
the law firm had reported all the income required to be reported.
Since the record reveals beyond hope of contradiction that the
government's newly minted contention was not made below in any
coherent fashion, we will not entertain it here. See United
States v. Zannino, 895 F.2d 1, 17 (1st Cir.) (discussing a
litigant's obligation to spell out its arguments squarely and
distinctly in the trial court), cert. denied, 494 U.S. 1082(1990); Patterson-Leitch Co. v. Massachusetts Mun. Wholesale
Elec. Co., 840 F.2d 985, 990 (1st Cir. 1988) (similar). In this
connection, we remind the government that "[p]assing allusions
are not adequate to preserve an argument in either a trial or an
appellate venue." United States v. Slade, 980 F.2d 27, 30 (1st
Cir. 1992).
19
resolve the other issues in the case. It is not entirely clear
why the court chose to grapple with these issues. It may have
intended to articulate an alternative ground for rejecting the
summonses, or it may have thought the IRS's failure to comply
with I.R.C. 7609(f) to be a specie of harmless error. We need
not resolve the ambiguity. If the court extended its journey
merely to memorialize a further basis for its decision, the
additional holdings are surplusage and can be disregarded. See
Kastigar v. United States, 406 U.S. 441, 454-55 (1972) (rejecting
language "unnecessary to the Court's decision" as binding
authority in subsequent cases). On the other hand, if the court
ventured afield because it concluded that the government's bevue
was harmless, the court miscalculated. We explain briefly.
Congress passed section 7609(f) specifically to protect
the civil rights, including the privacy rights, of taxpayers
subjected to the IRS's aggressive use of third-party summonses.
See S. Rep. No. 938, 94th Cong., 2d Sess. 368 (1976), reprinted
in 1976 U.S.C.C.A.N. 3439, 3797; H.R. Rep. No. 658, 94th Cong.,
2d Sess. 307 (1975), reprinted in 1976 U.S.C.C.A.N. 2897, 3203;
see generally Tiffany, 469 U.S. at 315-17 (discussing history of
7609). Section 7609(f) accomplishes this goal by providing
that a John Doe summons is not valid unless and until it is
authorized by a judicial officer after a hearing (normally an ex
parte hearing, given the nature of the problem). In the court
proceeding, the IRS must establish that:
(1) the summons relates to the
investigation of a particular person or
20
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. 7609(f).
This requirement of judicial preapproval is an
important component of the statutory scheme; it permits the
district court to act as a surrogate for the unnamed taxpayer and
to "exert[] a restraining influence on the IRS." Tiffany, 469
U.S. at 321. The statutory protections cannot be cavalierly cast
aside by either the executive or the judicial branch. Hence, if
the enforcement proceeding results in a determination that the
IRS does not in fact intend to investigate a named party, then
the IRS cannot obtain the data it seeks without observing the
mandate of section 7609(f). See id. at 322.
So it is here. The court below supportably found that
the IRS had no intention of investigating the tax-related
liability of the respondents' law firm. Therefore, the IRS
cannot obtain the identity of the anonymous client John Doe
by means of these summonses unless and until it runs the section
7609(f) gauntlet. To hold otherwise would be tantamount to
assuming either that section 7609(f) is nugatory or that the IRS
will always be able to fulfill the statute's demands. Such
assumptions have no basis in law or in fact. The John Doe
21
summons procedures represent a basic legislative judgment about
the importance of taxpayers' privacy and other rights and
courts must respect that judgment.
To be sure, the harmless error argument derives a
superficial measure of credibility from Ritchie, a case in which
the Sixth Circuit held that, despite a finding of pretext, the
IRS did not have to go back through the protocol mandated by
I.R.C. 7609(f). See Ritchie, 15 F.3d at 600. The Ritchie
court thought that "it would exalt form over substance to make
the IRS go through the motions" required by section 7609(f), only
"to bring us back to where we are now." Id. at 600. Passing
over the court's somewhat casual view of the protections afforded
by the John Doe summons procedures,8 and without ruling out any
possibility of harmless error in this context, we think that
under section 7609(f) form is substance, and that the procedure
mandated by Congress generally must be followed.
In all events, Ritchie is plainly distinguishable.
There, unlike here, an evidentiary hearing had been held, the
statutory protections had been afforded "in spirit" if not
literally, and the record contained sufficient information to
persuade the court that the IRS had met "the substantive factors
8Ritchie suggests that the "statutory protections are not
strong in any event." 15 F.3d at 600 n.8. But strength and
weakness are relative concepts, and section 7609(f) is not
totally devoid of muscle. Among other things, the requirement
that the IRS have a "reasonable basis for believing" that the
unidentified taxpayer may have violated internal revenue laws,
I.R.C. 7609(f)(2), differs significantly from the minimal
showing the IRS must make under Powell to obtain judicial
enforcement of other kinds of summonses.
22
of 7609(f)." Ritchie, 15 F.3d at 600. We have no comparable
record before us, and no basis to assume that the IRS ultimately
will pass the statutory test. In particular, among the other
requirements for a John Doe summons, the IRS must demonstrate
that it possesses a reasonable basis for believing that the
unnamed taxpayer may have failed to comply with the tax laws.
See I.R.C. 7609(f)(2). In this case, we have only Agent
Ameno's conclusory declaration, directed on its face at the
respondents (not at John Doe). If this were sufficient to
satisfy the imperatives of section 7609(f), then judicial
preapproval would become a charade, and section 7609(f) a dead
letter.9
We need go no further. Any way we look at the
situation, the district court's views as to the applicability vel
non of the attorney-client privilege are not necessary to the
result. Consequently, we have no occasion to consider the
correctness of the court's conclusions on those issues.
III. CONCLUSION
III. CONCLUSION
The district court's finding that the summonses were
not drawn in connection with a probe of the law firm's tax-
related liability, but, instead, for the clandestine purpose of
9We note, too, that the Sixth Circuit explicitly warned the
IRS that it was issuing a "one-time only" free pass. See
Ritchie, 15 F.3d at 600 ("We are not suggesting that the IRS may
in the future avoid going through the ex parte proceeding
required by 7609(f), for now the IRS has fair notice that if it
cannot demonstrate a bona fide interest in investigating the tax
liability of the party summoned, it must comply with
7609(f)."). The government cannot legitimately expect another
free pass this time around.
23
investigating the lawyers' unnamed client, John Doe, is
supportable. This means that the government is legally bound to
follow the prescribed procedure for the service of John Doe
summonses. See I.R.C. 7609(f). It has not done so. Summons
enforcement should be denied for that reason, and that reason
alone.
We are mindful that restricting our disposition to this
narrow ground leaves larger issues unresolved, see, e.g., United
States v. Sindel, 53 F.3d 874, 877-78 (8th Cir. 1995) (discussing
ethical implications and applicability of attorney-client
privilege in 6050I summons enforcement proceeding brought after
attorney withheld client's identity); United States v. Leventhal,
961 F.2d 936, 940-41 (11th Cir. 1992) (similar); United States v.
Goldberger & Dubin, P.C., 935 F.2d 501, 503-06 (2d Cir. 1991)
(similar), and that these issues are freighted with consequence.
But courts must resist the temptation to pluck issues from the
stalk before their time. The judicial task, properly understood,
should concentrate on those questions that must be decided in
order to resolve a specific case. This is especially true when
unsettled issues of broad public concern are afoot. See Eccles
v. Peoples Bank, 333 U.S. 426, 432 (1948) (Frankfurter, J.);
Ashwander v. TVA, 297 U.S. 288, 345-48 (1936) (Brandeis, J.,
concurring). In this sense, the science of horticulture is like
the art of judging: yearning for the blossom when only the bud
is ready enhances the growth of neither the flower nor the law.
24
Affirmed.
Affirmed.
25