United States v. Barrett

JOHN R. BROWN, Circuit Judge,

with whom POLITZ, JOHNSON, and WILLIAMS, join concurring in part and dissenting in part:

I.

Case is Very Much Alive It is Not Moot

I concur in the court’s decision that the case is not moot. To the court’s discussion *1352 in Part III, I would point out that the issue was specifically raised in the original answer of Dr. Barrett, in his motion for new trial, and in the motion for stay of execution of judgment. Likewise, the parties considered it a very hotly contested issue in their respective briefs leading to Barrett I, United States v. Barrett, 787 F.2d 958 (5th Cir.1986); and later, Barrett II, United States v. Barrett, 804 F.2d 1376 (5th Cir.1986). 1

II.

The Court’s Decision is Faulty

But I dissent vigorously to the Court’s overruling of Texas Heart and the holding of the majority that the United States District Court in the exercise of its residual, equitable discretion, may not, and has no power to, condition enforcement of the summons to prevent the disclosure of return information by the IRS in utilizing the summons (or information procured by it).

This result both rejects the Supreme Court’s emphasis in Powell 2 that in the application for enforcement of an IRS summons, “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.” 379 U.S. at 58, 85 S.Ct. at 255, 13 L.Ed.2d at 120. And, even worse, the majority opinion thwarts the congressional determination that tax return information is confidential and may not, except under strictly limited circumstances, be disclosed.

Enter the Tax Reform Act of 1976

We should not forget that the Tax Reform Act of 1976 brought about revolutionary changes, not the least of which was the positive declaration that returns and return information are confidential. 3 Likewise, the Act defines “return or return information” in the broadest way. 4 The term “disclosure” is equally broad, meaning “the making known to any person in any manner whatever a return or return information.” § 6103(b)(8).

That Congress specifically had in mind disclosures in the course of investigation of taxpayer’s liability, civil or criminal, is reflected by § 6103(k)(6):

(6) Disclosure by Internal Revenue officers and employees for investigative purposes. — An internal revenue officer or employee may, in connection with his official duties relating to any audit, collection activity, or civil or criminal tax investigation or any other offense under *1353 the internal revenue laws, disclose return information to the extent that such disclosure is necessary in obtaining information, which is not otherwise reasonably available, with respect to the correct determination of tax, liability for tax, or the amount to be collected or with respect to the enforcement of any other provision of this title. Such disclosure shall be made only in such situations and under such conditions as the Secretary may prescribe by regulation.

(Emphasis added)

This was the clear congressional intent reflected by the Senate Report 5 and in the strictly limited disclosure provisions. 6

Revealing Criminal Investigation a Disclosure of Return Information

Although Texas Heart, in calling for a remand, spoke in terms of whether the revelation in the prior patient mailings that Dr. Barrett was under criminal investigation was a disclosure of return information 7 and in our several concurring and dissenting opinions in Barrett I and Barrett II, we continued that approach, it is now clear beyond any question that this revelation was return information. 8

The Breadth of Congressional Concern

Before trying to analyze whether the IRS and Agent Hanson have met either of the requirements of § 6103 that the disclosure be (i) authorized 9 and (ii) necessary “in obtaining information which is not otherwise reasonably available” 10 it is essential to see the apprehended widespread evils with which Congress was dealing. Initially, there is the recognition by Congress that this was the first comprehensive re *1354 view of the whole subject in over 40 years. 11

Next, of importance, was the Congressional goal in reviewing the Internal Revenue Code (IRC) to give taxpayers greater and greater protection. Congress was aware of the complaints of literally millions of taxpayers concerning abuses in the administration of the IRC. 12 One of the problems to be resolved was the fact that the IRS probably has more information about more people than any other agency in the country. 13 More than that, Congress expressed the specific intention to discontinue prior practices or regulations. Only those regulations specifically interpreting § 6103 have any validity. 14

The extent to which Congress deliberately intended to constrict disclosure of these matters relating to the most intimate economic, financial and social facts concerning Americans — nearly all of whom are taxpayers — is crystalized by the Congressional restrictions imposed on others in the government who, statutorily at least, have had almost unlimited access to information through the disclosure of return information.

From the Top to the Bottom the President Being First

First, there were limitations on Presidential access to return information. Not only was the availability of such information carefully circumscribed, but the request for disclosure called for a written request, signed by the President personally. Section 6103(g). 15 The President, with all of his other manifold duties, is also required to file an annual report with the *1355 Joint Committee on the Internal Revenue, showing in detail the persons involved and the reasons the President required return information. S.Rep., p. 323, Bulletin, p. 361. Likewise, there are severe restrictions on persons to whom the information may be delivered and how it may be used.

Likewise, stringent restrictions were placed on the disclosure of tax return information to the Department of Justice. See § 6103(h)(2). 16 With respect to non-tax civil or criminal cases, the Department of Justice must seek a court order. 26 U.S.C. § 6103 (i)(l). 17

All to be Reported to Congress

More than that, to assure public review of all discretionary disclosures, there is a stringent requirement, not only on the President, but on the IRS itself to report to Congress all applications for disclosure and actions taken. 26 U.S.C. § 6103 (g). 18

Congress Increases Criminal and Civil Sanctions

And to all of these stringent requirements the Congress concluded that the current penalties ($1,000 fine, not exceeding one year in confinement) were too lenient. See S.Rep., p. 347, Bulletin, p. 385. “The committee decided that the present provisions designed to enforce the rules against the improper use or disclosure of returns and return information are inadequate. The committee decided that the criminal penalties for an [unauthorized 19 disclosure should be increased and that the situations to which they apply should be broadened to cover all situations in which returns and return information are treated as eonfiden- *1356 tial.” S.Rep., p. 347, U.S.Code Cong. & Admin.News 1976, p. 3777, Bulletin, p. 385.

The committee also decided to establish a civil remedy for any taxpayer damaged by an unlawful disclosure of returns or return information. The cause of action would extend to any disclosure of return or return information which is made in violation of section 6103. “[A person who willfully or negligently discloses] would be liable ... for actual damages.... Punitive damages would also be authorized ... [where disclosure is willful or a result of gross negligence]. ... The amendment provides that these damages would, in no event, be less than liquidated damages of $1,000 for each disclosure.” S.Rep., p. 348, U.S. Code Cong. & Admin.News 1976, p. 3778, Bulletin, p. 386.

Disclosure of Criminal Investigation Not Necessary

With this stringent code of confidentiality, excused only by similarly stringent exemptions, we come then finally to whether the disclosure of criminal investigation was “necessary in obtaining information,” which would “not otherwise [be] available.” See section 6103(k)(6).

I would add to the cumulative literature of Barrett I, II, and III, only that to this day there has been no statement, either from on high in the Solicitor’s office or the Department of Justice, or on the lower rungs of the IRS field agents, concerning why it was reasonably necessary to inform the patient interviewees that Dr. Barrett was under criminal investigation. All that the IRS could conceivably want from the inquiry was (i) the amount which the doctor charged the patient for the reconstructive plastic surgery, (iia) the amount that the patient paid, (iib) whether paid in cash or check, and (iii) the amount, if any, paid by an insurer. The fact that Dr. Barrett was facing criminal prosecution and punishment would have nothing to do with those inquiries. In any event, as the revelation was not necessary to obtain information, there is no need to question whether the information was “not otherwise available.” The requirements of § 6103(k)(6) were not met. The disclosure not being exempt, there was an explicit violation of § 6103’s demand for confidentiality.

The Powell Streamlined Procedure Not Imperiled

The Court seems to fear that if judicial recognition is given to demand of the Tax Reform Act for confidentiality and the stringent congressional prohibitions on unauthorized disclosure, the Internal Revenue Service will be thwarted in the effective enforcement of the IRS structure calling for billions and billions of voluntary, albeit with a little urging, taxpayer payments.

I cannot make too clear that I am not adding to the task of the district judge as he faces a § 7604(b) application for enforcement of an IRS summons. The District Court must still follow the standards of Powell and the numerous decisions that have followed it. The majority embraces these precedents, as do I.

With all of the writing that has gone on in this protracted case, I cannot improve on what I said in dissent in disposing of the then majority’s holding in Barrett I that there was “no indication ... that Congress intended Sections 6103 and 7431 to burden purportedly ‘summary’ enforcement proceedings with the time-consuming litigation that Section 6103(k)(6) determinations would entail.” 787 F.2d at 961 .

One wonders, however, where the burden really lies and just how heavy or time-consuming it truly is.

Unless acquiesced in, the IRS is already required to seek enforcement of its summonses in the District Court, where it must prove that it possesses a legitimate investigative purpose for the summons. Given that a hearing is already required to determine whether such a legitimate investigative purpose exists, it does not appear unreasonable to permit, or to require, a District Court to inquire at that proceeding into the breadth of the IRS summons, or the practices flowing from its use, can be tailored so as not to collide with a Congressional intent to protect the taxpayer against unnecessary invasions of his privacy. Much of the evi *1357 dence pertinent to the existence of a legitimate investigative purpose for the summons will also be relevant to the determination of whether the disclosure of return information is necessary to obtain information that is otherwise not reasonably available. See 26 U.S.C. 6103(k)(6). The determination of whether there exists a legitimate investigative purpose for the summons is certainly not far removed from the determination of whether the practices flowing from its enforcement are an unnecessary invasion of privacy or threaten injury to a taxpayer’s reputation.

Barrett I, 787 F.2d 958, 964 . (Citations omitted).

Revelation Under Criminal Investigation is Damning

As I have stated before, the result of the Court’s opinion, however, is that the District Court is required not only to enforce a summons without any statutory determination of necessity but to stand idly by while the IRS subjects a taxpayer to the ridicule and humiliation of being labeled as a criminal tax evader in the eyes of his fellows.

“This case presents a perfect illustration of the harm which will be wrought by adhering to [the Court’s] result. Despite the instruction in the IRS Manual that ‘caution must be exercised not [to] damage the reputation of the taxpayer by making [a mass mailing] either offensive or suggestive of any wrongdoing by the taxpayer.' 5 CCH, Internal Revenue Manual, ¶ 9781 ch. 347 at 26,891,” 787 F.2d at 964 , this is exactly what Agent Hanson did.

Here the taxpayer is branded as a criminal suspect, with no criminal charge yet filed much less tried. The statement of criminal investigation was a disclosure of return information. The disclosure was not authorized. It was a violation of statutorily imposed confidentiality. The IRS having acknowledged that it would continue to include this statement in inquiries to patients, the taxpayer was entitled under the Tax Reform Act of 1976 to have this destructive and wholly unnecessary disclosure forbidden.

Possible Criminal Penalties Damage Suit Illusory

The Court holds that the only protection a taxpayer has for a violation of the Tax Reform Act of 1976, is possible criminal prosecution of the offending employee or a damage suit against the United States.

This affords no real protection to the affected taxpayer. Prospective criminal penalties lie in the almost limitless discretion of the prosecutor. Considering that the Department of Justice is the principal advocate against Texas Heart there is no realistic likelihood that criminal prosecution would be initiated against Agent Hanson. The damage suit remedy is equally fruitless. 20

Even more than litigious frustration, the damage remedy — no matter how extravagant the damage award — cannot undo the harm wrought by the illegal disclosure. Here, revealing that the Doctor is under criminal investigation is of irreparable damage to his personal and professional reputation. Congress, in furtherance of its goal of strengthening the rights of taxpayers, intended that taxpayers should not be exposed to such damning, untried, unproved accusations.

In the words of Arthur Young, the Tax Reform Act of 1976 and Section 6103(k)(6) are the “sort of unambiguous directions from Congress” that support the mild conditions of Texas Heart.

Agent Hanson Above the Law

The President must comply with Section 6103. The Congress and its committees must comply with Section 6103. The Department of Justice and all other executive departments or agencies must comply with Section 6103. 21

*1358 But Agent Hanson need not.

Worse. A Court has no power to forbid his violation.

Texas Heart would prevent this. But alas, Texas Heart is no more, so I must dissent.

. As does the court, see its n. 9, I find it unnecessary to determine whether a violation of § 6103 is an independent ground to deny enforcement of summons. I therefore neither agree nor disagree with what is stated or intimated in n. 9.

. United States v. Powell, 379 U.S. 48 , 85 S.Ct. 248 , 13 L.Ed.2d 112 (1964).

. As a general rule:

Returns and return information shall be confidential, and except as authorized by this title — (1) no officer or employee of the United States ... shall disclose any return or return information obtained by him in any manner or in connection with his service as such an officer or employee....

26 U.S.C. § 6103 (a).

. (b) Definitions. For the purpose of this section—

(1) Return. — The term "return” means any tax or information return, declaration of estimated tax ...

(2) Return Information. — The term “return information” means—

(A) a taxpayer’s identity, the nature, source, or amount of his income, payments, receipts, deductions, exemptions, credits, assets, liabilities, net worth, tax liability, tax withheld, deficiencies, overassessments, or tax payments, whether the taxpayer’s return was, is being, or will be examined or subject to other investigation or processing, or any other data received by, recorded by, prepared by, furnished to, or collected by the Secretary with respect to a return or with respect to the determination of the existence, or possible existence, of liability (or the amount thereof) of any person under this title for any tax, penalty, interest, fine, forfeiture, or other imposition, or offense, and

(B) any part of any written determination or any background file document relating to such written determination (as such terms are defined in section 6110(b)) which is not open to public inspection under section 6110,

but such term does not include data in a form which cannot be associated with, or otherwise identify, directly or indirectly, a particular taxpayer.

26 U.S.C. § 6103 (b). (Emphasis added).

. The Senate Report broadly defined the term return information:

to include the following data pertaining to a taxpayer: his identity, the nature, source or amount of his income, payments, receipts, deductions, exemptions, credits, assets, liabilities, net worth, tax liability, tax withheld, deficiencies, overassessments and tax payments. It also includes any particular of any data, received by, recorded by, prepared by, furnished to, or collected by the IRS with respect to a return filed by the taxpayer or with respect to the determination of the existence, or possible existence, of liability (including the amount of liability) for any tax, penalty, interest, fine, forfeiture, or other imposition, or offense provided for under the code.

Senate Report No. 94-938 Tax Reform Act of 1976 (hereinafter cited as "S.Rep."), reprinted in Internal Revenue Cumulative Bulletin, 1976-3 (hereinafter cited as "Bulletin”). S.Rep. p. 318, U.S. Code Cong. & Admin.News 1976, pp. 2897, 3748, Bulletin, p. 356. (Emphasis added).

Of special importance are the words which immediately followed the above:

Information as to whether a taxpayer’s return was, is being, or will be examined or are subject to other investigation or processing is also to be considered return information.

S.Rep. p. 319, U.S.Code Cong. & Admin.News 1976, p. 3748, Bulletin, p. 357.

. The intent to strictly limit disclosure is reflected by the Senate Report:

IRS officials and employees would be permitted, if no reasonable alternative exists, to make limited disclosures of return information in connection with an audit or investigation to the extent necessary in arriving at a correct determination of tax, liability for tax, or the amount to be collected, or otherwise in the enforcement of any provisions in the Code.

S.Rep. pp. 341-42, U.S.Code Cong. & Admin. News 1976, p. 377, Bulletin, pp. 379-80.

The report continues:

In certain instances, it may be necessary for IRS personnel, in obtaining information with respect to a taxpayer from a third party, to disclose the fact that the request for information is in connection with an audit or other tax investigation of the taxpayer. In rare and extraordinary cases, it may also be necessary for IRS personnel in obtaining information from a third party to disclose additional return information, such as the manner in which the taxpayer treated on his return a transaction with a third party. Disclosures under this provision are to be made only in situations and under conditions specified in the regulations....

S.Rep. p. 342, U.S.Code Cong. & Admin.News 1976, p. 377, Bulletin, p. 380. (Emphasis added).

. See Judge Hill’s original majority opinion, Barrett I, 787 F.2d 958 at 960 , n. 2 which states:

It is conceded by the government that the proposed mailings to Barrett’s patients contain "return information.’’

. See, e.g., my dissenting opinion Barrett I, 787 F.2d 958 at 963 ; and majority opinion Barrett II, 804 F.2d 1376 at 1378 .

. See n. 3, supra.

. See § 6103(k)(6), supra, p. 6.

. The Senate Report states:

The statutory rules governing the disclosure of tax information have not been reviewed by the Congress for 40 years. Since that time a number of rules allowing disclosure of tax information to other government agencies have been established by executive order and regulation.

S.Rep. p. 317, U.S.Code Cong. & Admin.News 1976, p. 3746, Bulletin, p. 355.

. "A fourth goal of the committee amendment is to improve the administration of the tax laws bureau to strengthen taxpayers’ rights and to make tax collection more efficient. The amendment makes long overdue changes in these areas.” (Emphasis supplied). S.Rep. p. 3, U.S. Code Cong. & Admin.News 1976, p. 3440, Bulletin, p. 59. See also S.Rep. p. 7, Bulletin, p. 63.

In the Summary of the Administrative Provisions, the report stated:

2. It provides definitive rules generally maintaining the confidentiality of tax returns. (Title IX).

S.Rep. p. 6, U.S.Code Cong. & Admin.News 1976, p. 3443, Bulletin, p. 62.

The Report further indicates:

The most significant administrative provisions are those which strengthen taxpayers’ rights.

The committee amendment provides definitive rules relating to the confidentiality of tax returns, an area where there has been much abuse in the past. It strictly limits disclosure of information from tax returns.

S.Rep. p. 19, U.S.Code Cong. & Admin.News 1976, p. 3455, Bulletin, p. 75.

. The Report further stated:

It has been stated that the IRS probably has more information about more people than any other agency in this country. Consequently, almost every other agency that has a need for information about U.S. citizens, therefore, logically seeks it from the IRS. However, in many cases the Congress has not specifically considered whether the agencies which have access to tax information should have that access.

S.Rep. pp. 316-17, U.S.Code Cong. & Admin. News 1976, p. 3746, Bulletin, pp. 354-55.

. The Report further stated:

The committee amendment provides that as the general rule returns and return information are to be confidential and not subject to disclosure except as further provided in the section. Only those regulations now in effect and subsequently promulgated by the Secretary which interpret a specific provision of Section 6103 are to continue to have force and effect after the effective date of this amendment. Consequently, those regulations promulgated under Presidential authority pri- or to the effective date of the amendment which do not interpret any specific provision of this section are no longer to have any force and effect after the effective date of this amendment.

S.Rep. p. 318, U.S.Code Cong. & Admin.News 1976, p. 3749, Bulletin, p. 356.

. The Senate Report states:

Under the committee amendment upon the written request of the President, signed by him personally, disclosure of return and return information is to be made to the President and/or to certain named employees of the White House Office.

S.Rep. p. 322, U.S.Code Cong. & Admin.News 1976, p. 3752, Bulletin, p. 360.

. The Report further stated:

The committee recognizes the need of the Justice Department to continued access to tax returns and return information in carrying out its statutory responsibility in the civil and criminal tax areas. While the committee decided to maintain the present rules pertaining to the disclosure of returns and return information of the taxpayer whose civil and criminal tax liability is at issue, restrictions were imposed in certain instances at the pre-trial and trial levels with respect to the use of third party returns where, after comparing the minimal benefits derived from the standpoint of tax administration to the potential abuse of privacy, the committee concluded that the particular disclosure involved was unwarranted.

S.Rep., pp. 324-25, U.S.Code Cong. & Admin. News 1976, p. 3754, Bulletin, pp. 362-3. (Emphasis added).

. The Senate Report states:

The committee decided that the information that the American citizen is compelled by our tax laws to disclose to the Internal Revenue Service was entitled to essentially the same degree of privacy as those private papers maintained in his home. Present law and practice does not afford him that protection — the Justice Department and other Federal agencies, as a practical matter, being able to obtain that information for non tax purposes almost at their sole discretion.

The committee decided, therefore, that the Justice Department ... should be required to obtain court approval for the inspection of a taxpayer’s return or return information.

S.Rep., p. 328, U.S.Code Cong. & Admin.News 1976, pp. 3757, 3758, Bulletin, p. 366.

The committee decided that, although it is necessary to permit the disclosure of Federal returns and return information to other Federal and State agencies in certain situations for purposes other than the administration of the Federal tax laws, no such disclosure should be made unless the recipient agency complies with the comprehensive system of administrative, technical, and physical safeguards designed to protect the confidentiality of the returns and return information and to make certain that they are not used for purposes other than the purposes for which they were disclosed.

S.Rep., p. 344, U.S.Code Cong. & Admin.News 1976, p. 3774, Bulletin, p. 382.

. The Report further stated:

Because the use of returns and return information for purposes other than tax administration has resulted in serious abuses of the rights of taxpayers in the past, and because the potential for abuse necessarily exists in any situation in which returns and return information are disclosed by the IRS to other Federal agencies and the States for purposes other than the administration of the Federal tax laws, the committee believes that it is necessary for Congress to review very closely the use of returns and return information and the extent to which taxpayer privacy is being protected. In order to permit that review, the committee decided to require that the IRS make certain comprehensive annual reports to the Joint Committee as to the use of returns and return information.

S.Rep., pp. 345-46, U.S.Code Cong. & Admin. News 1976, p. 3775, Bulletin, pp. 383-84.

. From the context of the total quotation it is evident that ««authorized disclosure was meant.

. Dr. Barrett’s efforts met with opposition from the government requiring an appeal (and subsequent reversal) of the summary judgment in favor of the government. Barrett II, 804 F.2d at 1381 .

. Section 6103 takes precedence over even the Freedom of Information Act. See, Church of *1358 Scientology v. Internal Revenue Service, — U.S. -, 108 S.Ct. 271 , 98 L.Ed.2d 228 (1987).