Petition for Writ of Certiorari — Barrett v. United States
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NO.
IN THE
Supreme Court of the Tnited States
OCTOBER TERM, 1987
BERNARD M. BARRETT, JR., M.D., AS PRESIDENT
OF PLASTIC AND RECONSTRUCTIVE
SURGEONS, P.A.,
Petitioner
Vv.
UNITED STATES OF AMERICA and
MICHAEL O. HANSON, SPECIAL AGENT OF
THE INTERNAL REVENUE SERVICE,
Respondents
PETITION FOR WRIT OF CERTIORARI TO
THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
EDWARD D. URQUHART
URQUHART & HASSELL
1800 West Loop South
Suite 1500
Houston, Texas 77027
(713) 961-3505
Counsel of Record for Petitioner
SILVIA T. HASSELL
CHARLES J. ESCHER
URQUHART & HASSELL
Counsel for Petitioner
April 15, 1988
Alpha Law Brief Co., Inc. — 8748 Westpark — Houston, Texas 77063 — 789-2000
I
QUESTION PRESENTED
l. Do federal district courts have the jurisdictional
authority to condition enforcement of I.R.S. sum-
monses to prevent the I.R.S. from utilizing a sum-
mons or the information procured by it to make
illegal disclosures of “return information” in viola-
tion of I.R.C. (26 U.S.C.) § 6103?
1. The caption of this case contains the names of all parties to
this proceeding. Petitioner Plastic and Reconstructive Surgeons, P.A.,
has no parent companies, subsidiaries, or affiliates to list pursuant
to Rule 28.1.
II
TABLE OF CONTENTS
QUESTION PRESEN TES 6 5.<6 6s ca ndanscnstesecansuns
TABLE OF CONSENS 6650554. e0540avenn teed esaeas
TABLE. OF AUTRORELEES -50.55 sixes ceeeeeenecsusesa
ORENPONS TRRGAG © 6is die cnaiccaudensneaawavanesnan
Fifth Camcest ROO os osx Oak esac uA cawenaous
Distetct Court Tih 66005 eee ea ea
Companion CONGR nis sock ci 8 eh akni eben eae ane
JURISIOCTION ..0005 eee
CONSTITUTIONAL AND STATUTORY PROVISIONS
INVOLVES? 4 écciweidy Si wae eae eek aun ane nace
STATEMENT OF "TRIE. CARS yo. csctevinscesvenveieas
The Taespeyet’s DORMER i6 o54k sonic keene
Administrative Activity of the Internal Revenue Service
The Hospital Summonses and the Related Case of
U.S. v. Texas Heart Institute, 755 F.2d 469 (5th Cir.
TT) ere ni he
Dr. Barrett’s Civil Damage Action Resulting in the
Related Case of Barrett v. United States, 795 F.2d
446 (Sth Cir. 1900) ce ei een eee
The Instant Summons Proceeding Against Dr. Barrett
Resulting in the En Banc Decision Sought to be
RROVICWOR oi cc ccna ns 0kkance nen eee eee ees
REASONS FOR GRANTING THE WRIT ............
I. The Fifth Circuit’s Decision Rejects this Court’s
Landmark Holdings in United States v. Powell and
Reisman v. Caplin and Misapplies this Court’s
Prior Decision in United States v. Arthur Young
& CO. inven cineccawene ceoueen eee
a. The Fifth Circuit’s Rejection of Powell and
REASMOR o.vivvcnka tess ees sae
b. The Fifth Circuit’s on of Arthur
Young @ CO. <<csiscuakeeecdes eee
> + - W
11
12
12
20
III
TABLE OF CONTENTS (Continued)
lI. The Fifth Circuit’s Decision is in Direct Conflict
With Two Ninth Circuit Cases Which Uphold the
Jurisdictional Authority of Federal District Courts
to Conditionally Enforce I.R.S. Summonses
Iil. The Fifth Circuit’s Decision Thwarts the Bro:
Concern and Determination by Congress that Con-
fidential “Return Information’ Not Be Disclosed
Except Under Strictly Limited Circumstances
CONCLUSION
APPENDIX (See “Index of Appendix” at A-1
Dh
V1
IV
TABLE OF AUTHORITIES
UNITED STATES CONSTITUTION Page
Amendment IV ......-ccecccccccccsccccsccescssscrses 3
Amendment V .....ccccccccssseccvesssessessscessvces 3
STATUTES
Internal Revenue Code (26 U.S.C.)
LAOS ee Cl eae aces ee eee ee A enaee eee passim
ES GIDEA) <scccscscscesssssansecescenensesseseans
§ 6103(b)(2)(A) «2... cece cece rec ce cece eteecenees 3,7, 21
DSMRAIEREOS (os. 5 ese sd ee nceanas she anes 3,7, 8,17, 18, 21
ar. i A rrr errr esr ee eek ee 3, 14, 23, 29
BE SRERIEN EES. fis fone ends ceneneenn ae ey eareenes 23
SPMD gcc cccac was nacnecsen st aenaencnsaserae ness 3
SPMD BY ooo ede cia cen ic cnvccusevenvansaansens 15, 23, 26
Senne hd ee SO aan eee keene aes 9,15
GPG a Sa ceis teen acesee en snsennswasneer yearn 3, 14, 23, 29
DC 9GD2 ic cassndedesawessescnsencaetstessnesnes 3
RIGDE occa de cce cc ceus cn cence cb eennanscsnass 3
28 US.C. § UZS4(1) 22.22 vce ccc ccccsenescessessesess 3
Tax Reform Act of 1976 ........cscccsecccncces 12, 18, 20, 21, 28
CASES 5
Anheuser-Busch, Inc. v. F.T.C., 359 F.2d 487 (8th Cir.
ROGGY ine cau ca pads cencndnseredsagseroanaseseenxes 4 15,17, 19
Atlantic Richfield Company v. F.T.C., 546 F.2d 646 (5th
6 3, 7) i Pr rey rrr: hr ery ore ta 11, 15,17, 19
Barrett v. United States, 795 F.2d 446 (5th Cir. 1986) ... 3,8
Church of Scientology v. I.R.S., US. , 108 S. Ct.
290 CODY occ eciccannpsncxanse Rees ceed ta een eieen> 22
Donaldson v. United States, 400 U.S. 517, 91 S. Ct. 534
OSNOE So cick iis bau owkantavaeueecunanawaenterty 20, 22, 24
F.T.C. v. Gibson Products of San Antonio, Inc., 569 F.2d
900 (5th Cir. 1978) ........ cee cee cee ccc cence cceces 11
Fuentes v. Shevin, 407 U.S. 67, 92 S. Ct. 1983 (1972) ...17, 18, 23
Glidden Company v. Zdanok, 370 U.S. 530, 82 S. Ct. 1459
(FOBT) ons cave cnasasivcesnsanacdennwetanese esas 20
Greene v. McElroy, 360 U.S. 474, 79 S. Ct. 1400 (1959) .. 18
Keyishian v. Board of Regents, 385 U.S. 589, 87 S. Ct.
67S CIGGT) «onc ccc nmanenccareeeerensncesssescons 16
Murphy v. Hunt, 455 U.S. 478, 102 S. Ct. 1181 (1982) .. 11
V
TABLE OF AUTHORITIES (Continued)
CASES Page
Newman v. State of Alabama, 503 F.2d 1320 (5th Cir. 1974)
reh’e denied, 506 F.2d 1056, cert. denied, 421 U.S. 948,
OS SS. Ch. EGR EAGT vc oka eae cake tenes ee 19, 20
Reisman v. Caplin, 375 U.S. 440, 84 S. Ct. 508 (1964) passim
Shelton v. Tucker, 364 U.S. 479, 81 S. Ct. 247 (1960) 16
Smith v. Grimm, 534 F.2d 1346 (9th Cir. 1976), cert
denied, 429 U.S. 980, 97 S. Ct. 493 (1976) .......... 20
Stanley v. Illinois, 405 U.S. 645, 92 S. Ct. 1208 (1972) ... 23
Stern v. United States Gypsum, Inc., 547 F.2d 1329 (7th
Cir 1977). cert. denied, 434 U.S. 975, 98 S. Ct. 533
OU ge cache sc bi een nee tin based eer ieee nee en 20
Tierney v. Schweiker, 718 F.2d 449 (D.C. Cir. 1983) ..... 22
United States v. Arthur Young & Co., 465 U.S. 805, 104
S Ce TORS LEGBGD vs ces nd veewde cas eceseseuras 12,20, 22, 24
United States v. Author Services, Inc., 804 F.2d 1520 (9th
Cir. 1986), reh’g denied (unpublished) Nos. 85-6194,
85-6195 (9th Cir. Feb. 26, 1987), modified 811 F.2d 1264
oS a ee rrr eae rrr rr i
United States v. Barrett, 787 F.2d 958 (Sth Cir.), with-
drawn, 804 F.2d 1376 (5th Cir. 1986), reh’g en banc
granted 812 F.2d 936 (Sth Cir. 1987), 837 F.2d 1341
(i foe SOR Cet ORCS. aks esate meer edenwedasens
‘ited States v. Bisceglia, 420 U.S. 141, 95 S. Ct. 915
Of) errr ree rr errr rrr rrr er rey errr yes e
‘nited States v. Euge, 444 U.S. 707, 100 S. Ct. 874 (1980)
'nited States v. Powell, 379 U.S. 48, 85 S. Ct. 248 (1964)
‘nited States v. Robel, 389 U.S. 258, 88 S. Ct. 419 (1967)
'nited States v. Ruggeiro, 425 F.2d 1069 (9th Cir. 1970),
cert. denied, 401 U.S. 922, 91 S. Ct. 863 (1971) ......
'nited States v. Storer Broadcasting Company, 351 USS.
SOF. Fe. 4. JGS CEPR? crews eee or caw en eee
Inited States v. Texas Heart Institute,
ie a gaan a tel aa oe eae ae mee
'nited States v. Vetco, In 691 F.2d 1281 (9th Cir.),
cert. denied. 454 U.S. 1098, 102 S. Ct. 671 (1981) ....
'nited States v. Zolin, 809 F.2d 1411 (9th Cir.), reh’g
en banc granted, 832 F.2d 127 (9th Cir. 1987), order
cranting reh’g en banc vacated, Nos. 85-6065, 85-6105,
slip op. at 3647 (9th Cir. March 28, 1988)
oo o~ ~ co
o~
~
passim
passim
20, 22
a0) 4
2U, £264
pas ni
18
25
70)
pas s7m
25
27,28
i
IN THE
Supreme Court of the Mnited States
OCTOBER TERM, 1987
BERNARD M. BARRETT, JR., M.D., AS PRESIDENT
OF PLASTIC AND RECONSTRUCTIVE
SURGEONS, P.A..,
Petitioner
v.
UNITED STATES OF AMERICA and
MICHAEL O. HANSON, SPECIAL AGENT GF
THE INTERNAL REVENUE SERVICE,
Respondents
PETITION FOR WRIT OF CERTIORARI TO
THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
Petitioner respectfully prays that a writ of certiorari
issue to review the split decision of the United States
Court of Appeals for the Fifth Circuit sitting en banc
in this matter (Fifth Circuit No. 85-2054) and entered
on February 24, 1988, which, as more fully discussed
herein, is in direct conflict with prior decisions of the
United States Supreme Court and two recent cases from
the United States Court of Appeals for the Ninth Circuit.
OPINIONS BELOW
Fifth Circuit Opinions
The February 24, 1988, en banc opinion of the Fifth
Circuit is reported at 837 F.2d 1341 (Sth Cir. 1988)
(“Barrett III’) and appears in the appendix hereto at A-3.
2
It includes the majority per curiam decision, a concurring
in part and dissenting in part opinion by Judges John R.
Brown, Henry A. Politz, Sam D. Johnson, and Jerre S.
Williams, and a separate dissenting opinion by Judges
Alvin B. Rubin and E. Grady Jolly. The Fifth Circuit
order granting a rehearing en banc is reported at 812
F.2d 936 (Sth Cir. 1987) and appears in the appendix
hereto at A-42. The prior Fifth Circuit panel decision of
December 3, 1986, withdrawn by reason of the en banc
rehearing, is reported at 804 F.2d 1376 (Sth Cir. 1986)
(“Barrett I’) and appears in the appendix hereto at A-44.
It includes a per curiam opinion, a concurring opinion by
the late Judge Robert M. Hill and Judge Thomas M.
Reavley, and a separate concurring opinion by Judge
John R. Brown. Another prior Fifth Circuit panel decision
in this case, entered on April 16, 1986, withdrawn by
reason of granting Dr. Barrett's petition for rehearing, is
reported at 787 F.2d 958 (Sth Cir. 1986) (“Barrett I’)
and appears in the appendix hereto at A-57. It includes
a majority opinion and a separate concurring in part and
dissenting in part opinion by Judge John R. Brown.
District Court Rulings
Tke Findings of Fact and Conclusions of Law and
Final Judgment entered by the United States District
Court for the Southern District of Texas on December
10, 1984, are not reported and appear in the appendix
hereto at A-73. The district court’s Memorandum and
Order of December 19, 1984, denying a motion for stay
of execution of judgment appears in the appendix hereto
at A-79. The district court’s Memorandum and Order
of January 4, 1985, denying a motion to reconsider its
order denying stay appears in the appendix hereto at
A-81. The district court’s Memorandum and Order of
3
January 10, 1985, denying a motion for new trial appears
in the appendix hereto at A-84.
Companion Cases
The companion case of United States v. Texas Heart
Institute, reported at 755 F.2d 469 (Sth Cir. 1985),
appears in the appendix hereto at A-86. The unreported
district court decision in Texas Heart on remand appears
in the appendix hereto at A-114.
The companion case of Barrett v. United States, re-
ported at 795 F.2d 446 (Sth Cir. 1986), appears in the
appendix hereto at A-118.
JURISDICTION
The en banc judgment of the Fifth Circuit sought to be
reviewed was entered on February 24, 1988, and tne
mandate of that judgment has been stayed until April
17, 1988, pending the filing of this petition. Jurisdiction
to review the judgment in question by writ of certiorari
is conferred on this Court by 28 U.S.C. § 1254(1).
CONSTITUTIONAL AND STATUTORY
PROVISIONS INVOLVED
U.S. Constitution, Amendment IV (Appendix A-131)
U.S. Constitution, Amendment V (Appendix A-131)
Internal Revenue Code Sections:
26 U.S.C. § 6103(a)
26 U.S.C. § 6103(b)(2)(A)
26 U.S.C. § 6103(k) (6)
(Appendix A-132)
(Appendix A-133)
(Appendix A-i38)
26 U.S.C. § 7213 (Appendix A-138)
26 U.S.C. § 7402 (Appendix A-142)
26 U.S.C. § 7431 (Appendix A-143)
26 U.S.C. § 7602 (Appendix A-146)
26 U.S.C. § 7604 (Appendix A-149)
4
STATEMENT OF THE CASE
The Taxpayer’s Business
Bernard M. Barrett, Jr., M.D., petitioner herein, is a
plastic and reconstructive surgeon who has practiced in
the Texas Medical Center in Houston, Texas since com-
pleting his education and training in 1975. He incor-
porated his medical practice in 1978 into a professional
association named Plastic and Reconstructive Surgeons,
P.A. (3-R. 55). The nature of the plastic and reconstruc-
tive surgery and treatment performed by Dr. Barrett
causes most of his patients to demand absolute con-
fidentiality with regard to their treatment or surgery and
Dr. Barrett promises such confidentiality to his patients
(3-R. 42-43).
Administrative Activity of the
Internal Revenue Service
The I.R.S. civil audit examination which began in
July of 1979 covered Dr. Barrett’s personal tax returns
for 1976, 1977 and 1978 and his corporate tax return
for the fiscal year ended March 31, 1979. Dr. Barrett
cooperated fully in the civil audit examination and pro-
vided the examining revenue agents with complete access
to all of his business records (3-R. 11-12, 15, 33-34, 43,
47; 4-R. 75). After certain factual events which are dis-
puted but not necessary for this petition, Revenue Agent
Helen Curtis-Brown referred the case to the Criminal
Investigation Division of the Internal Revenue Service on
February 17, 1981 (4-R. 8).
After the referral to the Criminal Investigation Divi-
sion, Dr. Barrett’s case was first assigned to Special Agent
George Robson and then reassigned to Special Agent
5
Michael O. Hanson in December of 1981 (2-R. 27-28,
64). Beginning in June of 1982, Special Agent Hanson
began a massive summoning of records and interviewing
of third-parties. Special Agent Hanson served summonses
on every financial institution from Florida to California
with which Dr. Barrett, his wife or children had done
business or had accounts, including some _ institutions
with which Dr. Barrett and his family had never done
business (3-R. 48-49). Special Agent Hanson also con-
tacted individuals with whom Dr. Barrett had never done
business (3-R. 48-49). Dr. Barrett never once attempted
to stop such summoned or contacted third-parties from
providing information to the Internal Revenue Service
(3-R. 48).
The Hospital Summonses and the Related Case of
U.S. v. Texas Heart Institute, 755 F.2d 469
(5th Cir. 1985)
However, also in June and July of 1982, Special Agent
Hanson summoned sixteen (16) hospitals for the names
and addresses of patients Dr. Barrett had admitted to
such hospitals for the five year period of 1976 through
1980. Dr. Barrett learned from administrators and legal
counsel for such hospitals that Special Agent Hanson was
attempting to obtain the names and addresses of his
patients from their medical records divisions (4-R. 58).
Special Agent Hanson had also issued the summons in-
volved in the instant case to Dr. Barrett on June 17, 1982,
requesting that he produce records that had previously
been examined and to add thereto all of his records for
the subsequent years of 1979 and 1980 (1-R. 130-138).
Because of concern for the confidentiality rights of the
patients, Dr. Barrett’s attorneys and attorneys for four
(4) hospitals where Dr. Barrett primarily practices de-
6
cided not to comply with the summonses in order to
contest the validity of Special Agent Hanson’s summonses
and proposed actions in summons enforcement proceed-
ings in federal district court (4-R. 58-59).
Prior to seeking enforcement of the four (4) hospital
summonses or the summons for Dr. Barrett’s records in
this case, Special Agent Hanson, on March 11, 1983,
mailed approximately three-hundred fifty (350) identical
letters to patients whose names and addresses he obtained
from the other hospitals that did comply with their sum-
monses (2-R. 42, 43, 59). The letters disciosed that Dr.
Barrett was under criminal investigation by the Internal
Revenue Service and requested various forms of evidence
of payments to Dr. Barrett (1-R. 8, Exhibit 1(D) (copy
of letter); 2-R. 42). Special Agent Hanson’s mailing
of the approximate three hundred fifty (350) letters
was the first step in his plan to mail such letters to one-
hundred percent (100%) of Dr. Barrett’s patients for
the five year period of 1976 through 1980, the entire
first five years of Dr. Barrett’s private practice (2-R. 39-
40).
The government first chose to seek enforcement of only
the summonses to the four (4) hospitals that had decided
not to comply with their summonses rather than con-
solidate Dr. Barrett’s summons matter with the hospital
summons proceedings. The petitions to enforce the four
(4) hospital summonses were not filed until June 21,
1983, almost one year after they were issued, and Dr.
Barrett was allowed to intervene. These proceedings re-
sulted in the Fifth Circuit decision in United States v.
Texas Heart Institute, 755 F.2d 469 (Sth Cir. 1985);
Appendix, A-86, infra.
7
At the original district court hearing in Texas Heart
on December 2, 1983, before U.S. District Judge Norman
W. Black, Special Agent Hanson testified that prior to
the mailings he knew the letters would possibly cause
Dr. Barrett’s patients “embarrassment, humiliation, or
distress” or to be “upset” (2-R. 50, 69). Special Agent
Hanson also testified that he could understand the patients
being “upset” but he was not aware of how that would
harm Dr. Barrett’s medical practice and that he would
mail further letters to patients admitted to the respondent
hosptials “irrespective of the harm it would do to Dr.
Barrett’s medical practice” (2-R. 69). Revenue Agent
Curtis-Brown later testified in the instant case that Dr.
Barrett’s records reflected all of his income “in one form
or another,” even if some was not reported on the tax
returns (4-R. 82, 104).
The district court in Texas Heart denied enforcement
of the hospital summonses. The Fifth Circuit reversed
on March 21, 1985, but remanded the case to the district
court to determine if Special Agent Hanson’s desire to
continue the mass mailings disclosing that Dr. Barrett
was under “criminal investigation” would (1) be a dis-
closure of information within the definition of “return
information” in section 6103(b)(2)(A), and (2), if so,
whether the I.R.S. is authorized to disclose such informa-
tion under section 6103(k)(6).’ Texas Heart, 755 F.2d
at 482; Appendix, A-112, infra. Most pertinent to this
petition for certiorari, the Fifth Circuit further stated that
“(t]his Court reiterates that even if the past disclosure
[Agent Hanson’s prior mailing] was improper, the district
court has discretion to condition enforcement of the sum-
1. All references herein are to sections of the Internal Revenue
Code, 26 U.S.C.
aie |
8
mons by requiring that the I.R.S. agree to desist from
further unlawful disclosures.” Id. (emphasis added).
On remand in Texas Heart Judge Black held that
Special Agent Hanson’s prior letters were “irresponsible,”
and that they did disclose “return information” by dis-
closing Dr. Barrett was under criminal investigation.
See unreported decision of Texas Heart on remand.
Appendix A-114, 115-117, infra.
Dr. Barrett’s Civil Damage Action Resulting in the
Related Case of Barrett v. United States,
795 F.2d 446 (5th Cir. 1986)
In November of 1983, Dr. Barrett filed a civil damage
action against the government under section 7431 pri-
marily as a result of Special Agent Hanson’s 350 letters
to his patients unnecessarily disclosing the “return infor-
mation” that he was under criminal investigation. This
action resulted in the Fifth Circuit decision of Barrett
v. United States, 795 F.2d 446 (Sth Cir. 1986); Ap-
pendix, A-118, infra, which reversed a summary judgment
for the government and remanded the case for trial.
Therein, the Fifth Circuit held there were genuine issues
of fact of (1) whether the information sought by Special
Agent Hanson’s letters was “otherwise reasonably avail-
able” within the meaning of section 6103(k)(6) (ie.,
from bank records and Dr. Barrett’s records) and, (2) if
the letters had to be sent at all, whether the “disclosure
of return information that the taxpayer was under in-
vestigation, particularly criminal investigation, was ‘neces-
sary,” as required by section 6103(k)(6). Barrett v.
United States, 795 F.2d at 450-451; Appendix, A-127-
128, infra. The damage action is pending trial on remand
in the district court at the date of this petition.
9
The Instant Summons Proceeding Against Dr. Barrett
Resulting in the En Banc Decision
Sought to be Reviewed
After Judge Black originally denied enforcement of the
four (4) hospital summonses in Texas Heart, and a year
and one-half after the summons to Dr. Barrett was issued,
the government filed the petition to enforce the summons
to him under section 7402(b). At the ensuing enforce-
ment proceedings before U.S. District Judge James
DeAnda on March 12, 1984, Special Agent Hanson testi-
fied that he could perform his job without continuing the
mass mailings to Dr. Barrett’s patients, i.e., that his
contact with Dr. Barrett’s patients could be “on a more
selective basis” because he could use Dr. Barrett’s records
and bank records (microfilm copies of deposited patient
checks referred to as “transit items”) to “cross-reference”
patient names and payments to determine if it was neces-
sary to contact any particular patients (4-R. 28-29).
However, at the continued proceeding on March 19, 1984,
Special Agent Hanson evidenced his intent to continue
the mass mailings by inconsistently, and incorrectly (1-R.
8,. Exhibit 1(C)), testifying that banks destroy such
“transit items” after two years (5-R. 11). It is also
pertinent to note here that subsequently, at the July 26,
1985, hearing on remand in Texas Heart, Special Agent
Hanson further evidenced his intent to continue the mass
mailings (Texas Heart on remand, Appendix A-117, infra).
At the March 12, 1984, hearing in the instant summons
case, Judge DeAnda commented preliminarily that he
“would certainly put some very stringent limitations on
any future patient contact” by the I.R.S. (4-R. 117).
However, in his December 10, 1984, Findings of Fact
and Conclusions of Law and Final Judgment, Judge
3
10
DeAnda enforced the summons entirely without putting
any limitations on future patient contact (1-R. 67-72;
Appendix A-73-78, infra). Judge DeAnda’s findings and
conclusions were based on the incorrect perception that
the factual issue was whether the I.R.S. was going to
disclose Dr. Barrett’s business records to his patients,
as opposed to the issue of the mass disclosure to the
patients that Dr. Barrett was under “criminal investiga-
tion” (1-R. 6-7, 70; Appendix A-75, 82-83, infra).
On appeal, the Fifth Circuit issued the conflicting panel
decisions of April 16, 1986, at 787 F.2d 958 (“Barrett
I’); Appendix, A-57, infra, and December 3, 1986, at
804 F.2d 1376 (“Barrett IT’); Appendix A-44, infra.
Barrett I affirmed the unconditional enforcement of the
summons and Barrett I] remanded the case to the district
court under the law of Texas Heart for consideration of
“whether enforcement of the I.R.S. summons should be
conditioned in order to protect Barrett against unneces-
sary disclosure of the [return information] that he is
under criminal investigation.” Barrett II, 804 F.2d at
1379; Appendix A-49, infra. (Also on this issue, see the
separate concurring opinion of Fifth Circuit Judge John
R. Brown, Barrett II, 804 F.2d at 1380-81, Appendix
A-53-56, infra, and his prior panel dissenting opinion,
Barrett I, 787 F.2d at 962-965; Appendix A-64-72, infra.)
In the February 24, 1988, en banc decision, the Fifth
Circuit considered the issue presented in this petition and,
sua sponte, whether the appeal was moot.’ Regarding the
2. Barrett III, 837 F.2d at 1345-48; Appendix A-10-18, infra.
Judges Brown, Politz, Johnson and Williams expressly concurred with
the majority that the case was not moot. Barrett II], 837 F.2d at
1351-52; Appendix A-26, infra. Dr. Barrett cited the following
authority in his supplemental brief, requested by the court, contend-
ing the case was not moot, which required the Fifth Circuit’s ruling
moe ee
11
issue presented in this petition, the Fifth Circuit majority
opinion specifically held that federal district courts do not
have the power to conditionally enforce I.R.S. summonses
to protect confidentiality rights of taxpayers under section
6103 and expressly overruled its prior Texas Heart hold-
ing to the contrary. Barrett III, 837 F.2d at 1350-51;
Appendix A-21-26, infra. It is the latter holding from
which Fifth Circuit Judge John R. Brown “vigorously”
dissented and was joined by Fifth Circuit Judges Henry
A. Politz, Sam D. Johnson, and Jerre S. Williams. Barrett
III, 837 F.2d at 1351-1358; Appendix A-26-40, infra.
REASONS FOR GRANTING THE WRIT
There are three reasons why this case warrants the
plenary consideration of the United States Supreme Court.
First with regard to conflicts with prior decisions of this
Court, the Fifth Circuit’s majority opinion improvidently
rejects this Court’s direction in United States v. Powell,
379 U.S. 48, 85 S. Ct. 248 (1964), that federal district
courts have the power and obligation to prevent an abuse
of their process with respect to an I.R.S. summons. It
further denies the judicial remedy of “complete protec-
tion” afforded summoned taxpayers by this Court’s land-
mark holding in Reisman v. Caplin, 375 U.S. 440, 84
S. Ct. 508 (1964). The Fifth Circuit’s majority opinion
that the case was not moot: Murphy v. Hunt, 455 U.S. 478, 481,
102 S. Ct. 1181, 1183 (1982) (and cases cited therein); F.7.C. v.
Gibson Products of San Antonio, Inc., 569 F.2d 900, 903 (Sth Cir.
1978) (Brown, C.J.); Atlantic Richfield Company v. F.T.C., 546
F.2d 646, 648-50 (Sth Cir. 1977) (“Due process remedy” of Reisman
v. Caplin, 375 U.S. 440 (1964) applied to prevent mootness after
compliance with subpoena because order could be entered to prevent
future disclosures); accord, Anheuser-Busch, Inc. v. F.T.C., 359 F.2d
487 (8th Cir. 1966) (provisions of I.R.C. construed in Reisman held
in pari materia with Federal Trade Commission Act) (Blackmun, J.).
12
also misapplies this Court’s prior decision in United States
v. Arthur Young & Co., 465 U.S. 805, 104 S. Ct. 1495
(1984) (and the other prior decisions of this Court dis-
cussed therein) by its holding that the confidentiality
statutes of the Tax Reform Act of 1976 do not constitute
the “sort of unambiguous directions from Congress”
which authorize a district court to place restrictions on a
summons. Second, the Fifth Circuit’s majority opinion is
in direct conflict with two Ninth Circuit cases which
uphold, under the authority of Powell, the jurisdictional
authority of federal district courts to conditionally enforce
I.R.S. summonses to protect section 6103 confidentiality
rights of taxpayers. Uniform application of the federal
statutes governing the summons power of the Internal
Revenue Service in relation to the confidentiality rights
of taxpayers, combined with the uniform exercise of fed-
eral court jurisdiction over such matters, are appropriately
substantial results this Court would obtain by resolving
the direct conflict between the two circuit courts of appeal.
Third, the Fifth Circuit’s majority opinion thwarts the
broad concern and determination of Congress that con-
fidential “return information” not be disclosed except
under strictly limited circumstances.
I.
The Fifth Circuit’s Decision Rejects this Court’s
Landmark Holdings in United States v. Powell and
Reisman v. Caplin and Misapplies this Court’s Prior
Decision in United States v. Arthur Young © Co.
a. The Fifth Circuit’s Rejection of Powell and
Reisman.
In United States v. Powell this Court very clearly held
that even after the government shows it meets the often
13
quoted four-pronged criteria of Powell for enforcement
of an I.R.S. summons, such showing:
does not make meaningless the adversary hearing
to which the taxpayer is entitled before enforcement
is ordered. At the hearing he “may challenge the
summons on any appropriate ground,” Reisman vy.
Caplin, 375 U.S. 440, at 449, 84 S. Ct. at 513.
Nor does our reading of the statutes mean that under
no circumstances may the court inquire into the
underlying reasons for the examination. /t is the
court’s process which is invoked to enforce the ad-
ministrative summons and a court may not permit
its process to be abused.
Powell, 379 U.S. at 58, 85 S. Ct. at 255 (footnotes
omitted) (emphasis added). With regard to the holding
of the Fifth Circuit majority:
that the United States District Court in the exer-
cise of its residual, equitable discretion, may not,
and has no power to, condition enforcement of the
summons to prevent the disclosure of return infor-
mation by the I.R.S. in utilizing the summons (or
information procured by it),
Barrett III, 837 F.2d at 1352; Appendix A-26-27, infra,
Judge Brown correctly demonstrates that such holding:
rejects the Supreme Court’s emphasis in Powell that
in the application for enforcement of an I.R.S. sum-
mons, ‘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.’
Id.
The Fifth Circuit’s decision erroneously constrains dis-
trict courts from preventing an abuse of their process be-
cause it adopts the government’s position that district
courts are powerless to do anything but miake an all or
14
nothing ruling when presented with a petition to enforce
an I.R.S. summons, i.e., “[t]he district court does not
have the power to conditionally enforce the summons .
[t]here is no middle ground . . . the only issue that a
district court can decide is whether to enforce the sum-
mons.” Barrett Ill, 837 F.2d at 1350, 1351, Appendix
A-22, 25, infra. In the context of this case, Judge Brown
below and Dr. Barrett here contend the Fifth Circuit’s
decision improperly allows the process of the district
court to be abused because “the result of the court’s
opinion . . . is that the district court is required not only
to enforce a summons without any statutory necessity
but to stand idly by while the I.R.S. subjects a taxpayer
to the ridicule and humiliation of being labeled as a
criminal tax evader in the eyes of his fellows . . . with
no criminal charge yet filed much less tried.” Barrett III,
837 F.2d at 1357; Appendix A-38, infra. Furthermore,
the expressly admitted result of the Fifth Circuit’s holding
is that a district court cannot prevent the I.R.S. from
using an illegal means to conduct its investigation.
Specifically, the existence of a subsequent civil damage
action under section 7431 and a criminal prosecution of
government agents under section 7213 for illegal dis-
closures are given as reasons for the holding that district
courts do not have the power to prevent illegal disclosures.
Barrett II], 837 F.2d at 1350; Appendix A-21, infra.
The Fifth Circuit’s rejection of the important require-
ment of Powell that a district court “may not permit its
process to be abused” is also clear in light of this Court’s
prior decision in Reisman. Therein, this Court held that
taxpayers may not initiate an action in federal district
court to contest an administrative summons, but their
“adequate remedy at law,” according to the comprehensive
procedures of the Internal Revenue Code, is to await
VSS
15
an action initiated by the government to enforce its
summons under section 7402(b). Reisman, 375 U.S. at
443, 445-46, 84 S. Ct. at 510, 512. In demonstrating
that such a remedy is “adequate,” this Court further
observed that both the “parties summoned” and those
affected by production of the summoned information may
“challenge the summons by asserting their constitutional
or other claims.” 375 U.S. at 445, 84 S. Ct. at 511. This
Court further observed therein that “[a]ny enforcement
action under [section 7402(b)] would be an adversary
proceeding affording a judicial determination of the chal-
lenges to the summons and giving complete protection
to the [parties summoned].” 375 U.S. at 446, 84
S. Ct. at 512 (emphasis added). Therefore, the ref-
erence in Powell to the culminating language in Reisman
that a taxpayer “may challenge the summons on any
appropriate ground” with the emphasis in Powell that
a district court “may not permit its process to be
abused” determines that federal district courts have the
jurisdictional power and are required to provide “complete
protection” of a respondent taxpayer’s substantive rights,
including section 6103 rights. Anheuser-Busch, Inc. v.
F.T.C., 359 F.2d 487, 489-90 (8th Cir. 1966) (Black-
mun, J.); Atlantic Richfield Co. v. F.T.C., 546 F.2d 646,
648-650 (5th Cir. 1977). The Fifth Circvit’s majority
opinion in this case diminishes the power of federal dis-
trict courts to provide the “complete protection” of sub-
stantive rights intended by Powell and Reisman and
diminishes the power of federal district courts intended
by Congress in section 7402(a) as recognized by the
Ninth Circuit in United States v. Author Services, Inc.,
804 F.2d 1520, 1525 (9th Cir. 1986).
As Judge Brown’s dissent argues, allowing district
courts the power of conditional enforcement does not
imperil the streamlined procedure of Powell because of
16
the nature of determinations the district court still must
make under the four-pronged criteria of Powell. Barrett
II, 837 F.2d at 1356-57; Appendix A-37-38, infra. In
his original dissent in Barrett 1, Judge Brown explained
that “[t]he determination of whether there exists a legiti-
mate 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 at 964; Appendix A-70,
infra. In this regard, this Court has often held that “even
though the governmental purpose be legitimate and sub-
stantial, that purpose cannot be pursued by means that
broadly stifle fundamental personal liberties when the end
can be more narrowly achieved.” Shelton v. Tucker, 364
U.S. 479, 488, 81 S. Ct. 247, 252 (1960); Keyishian v.
Board of Regents, 385 U.S. 589, 602, 87 S. Ct. 675, 683
(1967). The Fifth Circuit’s decision is inconsistent with
such long established principle which can and is required
to be observed within the streamlined procedure of Powell
as demonstrated by Judge Brown below. Additionally,
with regard to the task of the district court in making
the required determinations under Powell, the Fifth Cir-
cuit’s majority opinion simply holds that “if good faith
and a legitimate purpose are found to exist, the summons
should be enforced. If they are not present, enforcement
should be denied . . . there is no middle ground .. .”
Barrett III, 837 F.2d at 1350; Appendix A-22, infra.
Such holding, however, fails to acknowledge the second,
third and fourth criteria of Powell the district court must
determine, which are: “that the inquiry may be rele-
vant to the purpose, that the information sought is
not already within the I.R.S.’s possession, and that
the administrative steps required by the Code have been
OO
17
followed.” Powell, 379 U.S. at 57-58, 85 S. Ct. at 255.
The required determination under the third criteria “that
information sought is not already in the government’s pos-
session” is similar in nature to the restrictive requirement
under section 6103(k)(6) that the disclosure of return
information is only permissible to the extent “necessary”
to obtain information “not otherwise reasonably avail-
able.” Furthermore, section 6103 is within Subtitle F of
the Internal Revenue Code, entitled “Procedure and Ad-
ministration,” which contains the “administrative steps
required by the Code” referred to in the fourth criteria
of Powell. Certainly the streamlined procedure under all
four criteria of Powell would not be imperiled by a deter-
mination that it is illegal under section 6103 to disclose
to all of a taxpayer’s customers that he or she is under
criminal investigation.
The “adequate” judicial remedy of “complete protec-
tion” required to be afforded taxpayers in a government
initiated summons enforcement proceeding via the exer-
cise of a district court’s jurisdictional authority called for
and mandated by Powell and Reisman (and the “compre-
hensive procedures of the Internal Revenue Code” dis-
cussed therein) is the kind of “prior hearing” this Court
has held many times to be constitutionally required prior
to the deprivation of significant rights, i.e., a predepriva-
tion due process of law remedy. E.g., Fuentes v. Shevin,
407 U.S. 67, 92 S. Ct. 1983 (1972) (and cases cited
therein). Also, see application of Reisman in Anheuser-
Busch, Inc. v. F.T.C., 359 F.2d at 489-90 and in Atlantic
Richfield Co. v. F.T.C., 546 F.2d at 648-50. The Fifth
Circuit’s decision improperly denies taxpayers whose rec-
ords are summoned adequate due process of law protec-
tion with regard to their section 6103 rights, which Con-
gress considered to be fundamentally important as demon-
i8
strated in the pertinent legislative history of the Tax
Reform Act of 1976 cited by Judge Brown. Barrett III,
837 F.2d at 1352-58; Appendix A-27-40, infra. Further-
more, this Court has expressly held that the right to follow
a chosen profession or engage in specific private employ-
ment free from unreasonable governmental interference
comes within the “liberty” and “property” concepts of the
due process clause of the fifth amendment. Greene v.
McElroy, 360 U.S. 474, 492, 79 S. Ct. 1400, 1411
(1959); United States v. Robel, 389 U.S. 258, 270, 88
S. Ct. 419, 427 (1967) (Brennan, J., concurring). As
Judge Brown so ably explains, the mass disclosures of the
“damning” return information to Dr. Barrett’s patients
that he is under an I.R.S. criminal investigation affccts
the goodwill of his medical practice and his capacity to
practice his chosen profession, i.e., a property interest
and a liberty interest. Barrett I, 787 F.2d at 964-65,
Appendix A-69-72, infra; Barrett III, 837 F.2d at 1357,
Appendix A-38-39, infra. The obvious legislative purpose
of the confidentiality rule of section 6103 was to prevent
the I.R.S., prior to any judicial adjudication, from dam-
aging such “property” and “liberty” interests of taxpayers
by restricting the manner in which it is allowed to conduct
an investigation, such as the requirement of section 6103
(k)(6) that an investigative disclosure of “return infor-
mation” be “necessary” in order to obtain information
that is “not otherwise reasonably available.” 837 F.2d
at 1356-57; Appendix A-36, infra. As in Fuentes v.
Shevin, the existence of a subsequent damage action in
this case (section 7431) does not provide the requisite
due process of law protection of such important section
6103 rights afforded by the exerise of a district court’s
jurisdictional power described in and required by Powell
and Reisman.
19
The Fifth Circuit’s refusal in footnote 2 of its majority
opinion, Barrett IIT, 837 F.2d at 1343-44, Appendix A-7,
infra, to consider the due process issue neglects the fact
that Dr. Barrett specifically did assert Powell and Reisman
as authority for the district court’s protection of his sub-
stantive section 6103 rights and constitutional right to
privacy in his “original answer . . . , motion for new trial
and in the motion for stay of execution of judgment,”
as recognized by Judge Brown (1-R. 110-111, 115-119,
57-59, 48-56, 10-12); Barrett III, 837 F.2d at 1352;
Appendix A-26, infra. The Fifth Circuit’s position fails
to recognize the jurisdictional nature of the judicial pro-
tection afforded and required by Powell and Reisman,
which necessarily includes the taxpayer’s right to the
“adequate” due process of law remedy and “complete
protection” this Court discussed in such cases. Therefore,
while footnote 2 of the majority opinion correctly character-
izes Dr. Barrett’s due process argument as “purely a legal
issue,” it incorrectly fails to recognize that it was and is a
jurisdictional argument derived from the very aspects of
Powell and Reisman which the Fifth Circuit rejected as au-
thority for the district court’s power to protect section 6103
rights. It is fundamental error for the Fifth Circuit to reject
Powell and Reisman as authority for conditional enforce-
ment to protect section 6103 rights, while expressly refusing
to consider the essential due process aspects of the very same
case law authority it rejects. Anheuser-Busch, Inc. v.
F.T.C., 359 F.2d at 489-90; Atlantic Richfield Co. v.
F.T.C., 546 F.2d at 648-50. As a further result, the posi-
tion taken in footnote 2 ignores the long established prin-
ciple that jurisdictional issues can always be considered,
even sua sponte, whether or not raised below. Newman v.
State of Alabama, 503 F.2d 1320, 1325 (Sth Cir. 1974),
reh’g denied, 506 F.2d 1056, cert. denied, 421 U.S. 948,
iia ie
20
95 S. Ct. 1680 (1975) (“since . . . issue is jurisdictional,
we are required to consider it, despite the failure of the
parties to introduce it at any previous stage in the litiga-
tion.” Id.): Glidden Company v. Zdanok, 370 U.S. 530,
535-37, 82 S. Ct. 1459, 1464-66 (1962); United States
v. Storer Broadcasting Company, 351 U.S. 192, 76 S. Ct.
763 (1956). Also, see Smith v. Grimm, 534 F.2d 1346,
1349 (9th Cir. 1976), cert. denied, 429 U.S. 980, 97
S. Ci. 493 (1976); Stern v. United States Gypsum, Inc.,
547 F.2d 1329, 1333-34 (7th Cir. 1977), cert. denied,
434 U.S. 975, 98 S. Ct. 533 (1977).
For the above reasons, Judge Brown is correct in his
position that the Fifth Circuit has rejected this Court’s
holding in Powell. The Fifth Circuit’s decision is also
in conflict with this Court’s holding in Reisman providing
for an “adequate” judicial remedy with “complete pro-
tection” for the taxpayer summoned.
b. The Fifth Circuit’s Misapplication of Arthur
Young & Co.
This Court has consistently held that restrictions upon
the I.R.S. summons power should be avoided “ ‘absent
unambiguous directions from Congress’”. United States
v. Arthur Young & Co., 465 U.S. 805, 816, 104 S. Ct. 1495,
1502 (1984) (quoting United States v. Bisceglia, 420
U.S. 141, 150, 95 S. Ct. 915, 921 (1975) ); United States
v. Euge, 444 U.S. 707, 715, 100 S. Ct. 874, 880 (1980).
Also, see Donaldson v. United States, 400 U.S. 517, 535,
91 S. Ct. 534, 544 (1971). Judge Brown’s stated position
in his opinions below is that Congress’ enactment of a
“stringent code of confidentiality” in the Tax Reform Act
of 1976 constitutes such “unambiguous directions from
Congress,” which expressly provide that “I.R.S. investiga-
tive powers do not include the power for unnecessary in-
i
21
vasions of privacy or injuries of a taxpayer’s reputation.”
Barrett II, 804 F.2d at 1381; Appendix A-54, infra;
Barrett Ill, 837 F.2d at 1357; Appendix A-40, infra.
Throughout the legislative history of section 6103 refer-
enced in Judge Brown’s dissent, it is apparent Congress
intended “return information” to be entitled to the con-
stitutional guarantee of privacy, including the right to
privacy in the fourth amendment, e.g., “. . . 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.” Barrett III, 837 F.2d at 1355, footnote 17;
Appendix A-33-34, infra (emphasis in the original). Cer-
tainly, the high degree of privacy protection Congress
intended for “return information” would cover the I.R.S.’s
use of a taxpayer's records to mass circularize disclosures
to ali of his customers that he is under an administrative
criminal investigation. Notwithstanding the express word-
ing of the confidentiality statutes of the Tax Reform Act
of 1976, including sections 6103(b)(2)(A) and 6103
(k)(6), and their extensive legislative history, the Fifth
Circuit’s majority opinion refused to acknowledge that
such statutes constitute the appropriate type of “unambigu-
ous directions from Congress” that would allow a district
court to conditionally enforce a summons to uphold such
directions. Barrett III, 837 F.2d at 1348-50; Appendix
A-19-22, infra. Instead, the majority opinion interprets
this Court’s requirement of “unambiguous directions from
Congress” as requiring, in effect, a specific procedural
statute precisely directing a district court to protect sec-
tion 6103 confidentiality rights of taxpayers in summons
proceedings. 7d. To the contrary, and as only one of many
seen iaeiiiaiiaieei |
22
examples, in United States v. Euge, Mr. Justice Rehnquist
stated on this point that summons authority:
should be upheld absent express statutory prohibi-
tion or substantial countervailing policies. The au-
thority claimed here is necessary for the effective
exercise of the Service’s enforcement and responsi-
bilities; it is entirely consistent with the statutory
language; and it is not in derogation of any constitu-
tional rights or countervailing policies enunciated by
Congress.
444 U.S. 707, 711, 100 S. Ct. 874, 878 (1980) (emphasis
added). It is clear that this Court in Euge, Arthur Young
& Company, Bisceglia, and Donaldson searched for wheth-
er the enforcement of the summonses would be incon-
sistent with any substantive constitutional rights or sub-
stantive statutory rights enunciated by Congress. This
Court’s recent decision in Church of Scientology v. I.R.S..,
A. , 108 S. Ct. 271 (1987), holding that sec-
tion 6103 takes precedence over the Freedom of Informa- q
tion Act, certainly supports Judge Brown’s position that
the I.R.S. has no power to disclose “return information”
except under strictly limited circumstances and that section
6103 is the appropriate type of “unambiguous direction
from Congress” contemplated by this Court. The District
of Columbia Circuit has also recognized Congress’ limita-
tion in section 6103 on the power of the I.R.S. by holding
that taxpayers had standing under section 6103 to obtain
a declaratory judgment preventing future violations of
section 6103. Tierney v. Schweiker, 718 F.2d 449, 452-
54 (D.C. Cir. 1983). The Fifth Circuit’s majority opin-
ion, therefore, too narrowly construes this Court’s require-
ment of “unambiguous directions from Congress” as re-
quiring a specific procedural statute precisely directing a
district court to protect rights under section 6103 in a
23
summons proceeding. Further in this regard, the Fifth
Circuit’s decision totally ignores the direction from Con-
gress in section 7402(a) that district courts do have
jurisdictional authority to issue such “judgments and
decrees as may be necessary or appropriate for the en-
forcement of the internal revenue laws,” as was recog-
nized by the Ninth Circuit in Author Services, 804 F.2d
at 1525.
The Fifth Circuit’s reasoning for its narrow construction
of this Court’s prior decisions requiring “unambiguous
directions from Congress” is that allowing conditional
enforcement would “burden the ‘summary’ nature of
summons enforcement proceedings” and that the civil
damage remedy of section 7431 and the felony provision
of section 7213 were intended to be sufficient to deter
unnecessary disclosures of confidential return information.
Barrett III, 837 F.2d at 1349-50; Appendix A-19-21,
infra. Such reasoning, however, ignores this Court’s often
stated principle of constitutional law that a subsequent
post-deprivation damage action does not provide adequate
due process of law. Fuentes v. Shevin, 407 U.S. 67, 82,
92 S. Ct. 1983, 1995 (1972) (“ ‘This Court has not...
embraced the general proposition that a wrong may be
done if it can be undone,” quoting Stanley v. Illinois,
405 U.S. 645, 647, 92 S. Ct. 1208, 1210 (1972)). The
Fifth Circuit’s reliance on the existence of the felony
provision of section 7213 as a reason for concluding the
district court is without jurisdiction in this matter is also
misplaced; such section means it is “unlawful” for I.R.S.
employees to make unauthorized disclosures of return
information, as expressly stated in section 7213(a)(1).
This unwarranted reliance by the Fifth Circuit underscores
the effect of its ruling as being that the I.R.S. may conduct
ae
24
its investigation by illegal means and a federal district court
has no power to prevent such unlawfulness even while the
parties are before the court.
This Court’s comment in Donaldson regarding the
“summary” nature of a summons enforcement proceeding
was in the context of denying a taxpayer a mandatory
right to intervene in a summons proceeding for records
in which the taxpayer could show no significant interest
or privilege. Donaldson, 400 U.S. at 529-30, 91 S. Ct.
at 541-42. Contrary to the Fifth Circuit’s reasoning
below, this Court in Donaldson held that the permissive
intervention rules of the Federal Rules of Civil Procedure
noted in Powell were “not intended to impair a summary
enforcement proceeding so long as the rights of the party
summoned are protected and an adversary hearing, if
requested, is made available.” Jd. at 529, 91 S. Ct. at 541
(emphasis added). Therefore, regardless of the summary
nature of a summons enforcement proceeding, according
to Donaldson, it is supposed to afford taxpayers whose
records are summoned due process protection of their
substantive rights with regard to the government’s use
of such records.
Because it is clear the Fifth Circuit’s decision below
has diminished the power of district courts to prevent
abuse of their process and to protect taxpayers’ rights in
summons enforcement proceedings as intended by this
Court in Powell and Reisman and because it misapplies
this Court’s decision in Arthur Young & Co., et al, this
Court should grant certiorari to review this matter even
if no direct conflict existed with the Ninth Circuit as
hereinafter described.
25
II.
The Fifth Circuit’s Decision is in Direct Conflict
With Two Ninth Circuit Cases Which Uphold the
Jurisdictional Authority of Federal District Courts to
Conditionally Enforce I.R.S. Summonses.
The Fifth Circuit decision below is in direct conflict
with United States v. Auther Services, Inc., 804 F.2d
1520 (9th Cir. 1986), reh’g denied (unpublished) Nos.
85-6194, 85-6195 (9th Cir. Feb. 26, 1987), modified
811 F.2d 1264 (9th Cir. 1987), and United States v.
Zolin, 809 F.2d 1411 (9th Cir.), reh’g en banc granted
832 F.2d 127 (9th Cir. 1987), order granting reh’g en
banc vacated, Nos. 85-6065, 85-6105, slip op. at 3647
(9th Cir. March 28, 1988). Both Ninth Circuit cases
specifically hold that district courts do have the authority
to conditionally enforce a summons to prevent I.R.S.
violations of section 6103. In Author Services, the Ninth
Circuit specifically cited this Court’s decision in Powell
that a district court has “the authority and obligation to
prevent future abuses of its process” as support for its
conditional enforcement of a summons to protect the
section 6103 rights involved therein. Author Services,
804 F.2d at 1525. Furthermore, the Ninth Circuit rea-
soned and stated that “[t]he terms of an enforcement
order rest within the discretion of the district court,
United States v. Vetco, Inc., 691 F.2d 1281, 1291 (9th
Cir.), cert. denied, 454 U.S. 1098, 102 S. Ct. 671, 70
L.Ed.2d 639 (1981), and its discretion is ‘considerable.’
United States v. Ruggeiro, 425 F.2d 1069, 1071 (9th
Cir. 1970), cert. denied, 401 U.S. 922, 91 S. Ct. 863,
27 L.Ed.2d 826 (1971).” Jd. The Ninth Circuit also
cited the statutory authority it relied upon and reasoned
that “district courts have broad authority, under 26 U.S.C.
re
26
§ 7402(a) (1982), to issue any orders or decrees as may
be necessary or appropriate for enforcement of the internal
revenue laws.” Jd. Additionally, the Ninth Circuit cited
Fifth Circuit Judge John R. Brown’s dissenting opinion
in Barrett I and agreed with Judge Brown that the Texas
Heart rule allowing conditional enforcement was “sound.”
Id. Finally, the Ninth Circuit reasoned that the district
court’s restriction on the enforcement order was “a wise
exercise of control, serving the interests of judicial
economy in a case in which continuing litigation between
the Church and the Government is inevitable.” Author
Services, 804 F.2d at 1526.
Notwithstanding the above reasoning of the Ninth Cir-
cuit, footnote 11 of the Fifth Circuit majority opinion
erroneously states that the Ninth Circuit in Author Services
simply relied on the prior decision in Texas Heart and
“(njo further reasoning was provided.” Barrett III, 837
F.2d at 1351 fn 11; Appendix A-25, infra. Contrary to such
discounting by the Fifth Circuit of the holding in Author
Services, the Ninth Circuit in Author Services clearly
weighed the conflicting arguments and made an indepen-
dent decision in favor of the existence of jurisdictional
power in district courts to conditionally enforce I.R.S.
summonses. The Fifth Circuit’s majority opinion below
totally failed to address the statutory provision relied on
by the Ninth Circuit, section 7402(a) of the Internal
Revenue Code, which is entitled “Jurisdiction of District
Courts” and grants district courts the power “to issue any
orders or decrees as may be necessary or appropriate for
3. On March 3, 1987, the Ninth Circuit modified its decision in
Author Services to replace its cite to Barrett J] with the citation to
Barrett II and again stated “We believe the Texas Heart rule to be
sound and applicable to the facts of this case.” Author Services,
811 F.2d at 1264.
27
enforcement of the internal revenue laws” (emphasis
added). The Ninth Circuit obviously recognized that the
confidentiality rights of taxpayers under section 6103 of
the Internal Revenue Code is as much a part of the
“internal revenue laws” as the Code provisions granting
affirmative administrative powers to the I.R.S. The Fifth
Circuit’s majority opinion, however, held that “[t]here is
no statutory authority, nor Supreme Court authority, to
allow the district court to make any consideration except
whether to enforce or not to enforce the summons. The
district court does not have the power to conditionally
enforce the summons.” Barrett III, 837 F.2d at 1350;
Appendix A-22, infra. The Fifth Circuit’s express holding
that there is no statutory nor Supreme Court authority
granting jurisdiction to district courts for conditional
enforcement, and its failure to even address the Ninth
Circuit’s citation in Author Services of both section 7402
(a) and Powell as constituting such authority, under-
scores the irreconcilable conflict between the two circuits,
further justifying the exercise of this Court’s discretional
jurisdiction to resolve such conflict.
In Zolin, the Ninth Circuit again independently ad-
dressed the district court’s restriction on the I.R.S.’s dis-
closure of the documents summoned and held that it was
“an appropriate exercise of the district court’s discretion:
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. Powell, 379 U.S. at 58, 85 S. Ct.
at 255.” Zolin, 809 F.2d at 1416-1417. The Ninth Circuit
then specifically held, contrary to the Fifth Circuit below,
that “[a] district court may, when appropriate, condition
enforcement of a summons on the I.R.S.’s agreeing to
abide by disclosure restrictions,” citing Author Services
and Texas Heart. Id. at 1417. On March 28, 1988,
28
the Ninth Circuit ruled that its prior order granting
en banc review should be vacated as improvidently
granted. Zolin, slip op. at 3647 (9th Cir. March 28,
1988). As a result, the Ninth Circuit has let stand its
rulings in Zolin and Author Services that disti-ct courts
do have the power to conditionally enforce I.R.S. sum-
monses to protect section 6103 rights.
To allow the above-described conflict between the Fifth
and Ninth Circuits to go unresolved will allow federal tax-
payers in the Ninth Circuit to be entitled to a predisclosure
(i.e., predeprivation) remedy regarding their confidenti-
ality rights over information procured by a summons,
while federal taxpayers in the Fifth Circuit are relegated
to an action for damages after the fact. Such a degree
of inconsistency in the application of the particular in-
ternal revenue laws involved and the inconsistency in the
exercise of federal court jurisdiction over such application
presents a substantially important need for this Court’s
resolution of the conflict.
Hi.
The Fifth Circuit’s Decision Thwarts the Broad
Concern and Determination By Congress That Con-
fidential “Return Information” Not Be Disclosed Ex-
cept Under Strictly Limited Circumstances.
The pertinent provisions of the Tax Reform Act of
1976 and the underlying legislative history demonstrating
the breadth of congressional concern to prevent abuse
of privacy rights of taxpayers are fully presented by Fifth
Circuit Judge John R. Brown in his dissent below. 837
F.2d at 1351-1358; Appendix A-26-40, infra. It does not
appear necessary, therefore, to repeat in this petition the
detail of what Judge Brown has so eloquently presented.
Judge Brown is correct that the Fifth Circuit’s decision
Ee ee ee ee
—
owe ce
=
29
thwarts the concern and direction of Congress that “return
information” not be disclosed except under the strictly
limited circumstances listed in section 6103.
It is emphasized that the Fifth Circuit’s decision, in effect,
takes the position that even if the I.R.S.’s proposed disclos-
ures would constitute felony criminal acts under section
7213 and would subject the public treasury to any degree of
damages under section 7431, federal district courts still
have no power to prevent such crimes nor protect the
government’s treasury from being depleted. The amount
of minimum liquidated damages under secton 7431 of
$1,000 per disclosure alone can result in substantial
damages. For example, Agent Hanson mailed at least
three-hundred fifty (350) separate letters to Dr. Barrett's
patients thereby exposing the public treasury to a mini-
mum of $350,000.00 in damages and he proposes to mail
more letters. The public importance of this case is, there-
fore, further demonstrated by the unwise willingness of the
Fifth Circuit’s majority opinion to allow the public trea-
sury to be unnecessarily depleted when federal district
courts could protect the treasury by merely preventing
“an abuse of their process” and protecting the taxpayer’s
substantive rights under section 6103. Furthermore, as
Judge Brown urged in Barrett IT, 804 F.2d at 1381; Appen-
dix A-55, infra, and as the Ninth Circuit noted in Author
Services, 804 F.2d at 1526, the interests of judicial re-
sources and economy are better served by allowing the
district court to make a conditional enforcement order
rather than generating entirely separate lawsuits for
damages after the fact. Congress did not intend the public
treasury and the resources of district courts to be un-
necessarily depleted when it could be prevented by a dis-
trict court entering an order appropriately enforcing the
internal revenue laws, including section 6103.
30
CONCLUSION
For the reasons stated above, petitioner respectfully
prays that this petition be granted and that the Fifth
Circuit’s decision be reversed.
Respectfully submitted,
EDWARD D. URQUHART
URQUHART & HASSELL
1800 West Loop South |
Suite 1500 j
Houston, Texas 77027
(713) 961-3505
Counsel of Record for Petitioner f
SILVIA T. HASSELL
CHARLES J. ESCHER
URQUHART & HASSELL |
Counsel for Petitioner
April 15, 1988
APPENDIX
A-|
INDEX OF APPENDIX
Page
I. OPINiONS BELOW
FIFTH CircuIT DECISIONS BELOW
United States v. Barrett, 837 F.2d 1341 (5th Cir.
1988) (en bane decision, “Barrett III’) A-3
United States v. Barrett, 812 F.2d 936 (Sth Cir.
1987) (order granting rehearing en banc) A-42
United States v. Barrett, 804 F.2d 1376 (5th Cir.
1986) (Barrett IT) A-44
United States v. Barrett, 787 F.2d 958 (Sth Cir.
1986) (Barrett I) A-57
DisTRICT COURT RULINGS BELOW
United States v. Barrett, Civil Action No. 84-
1170 (S.D. Tex. December 10, 1984) (un-
reported ):
Findings of Fact and Conclusions of Law A-73
Final Judgment A-78
Memorandum and Order Denying Stay of
Execution of Judgment A-79
Memorandum and Order Denying Motion
to Reconsider Order Denying Stay A-81
Memorandum and Order Denying Motion
for New Trial A-84
COMPANION CASES
United States v. Texas Heart Institute, 755 F.2d
469 (Sth Cir. 1985) A-86
United States v. Texas Heart Institute, Civil Ac-
tion No. H-83-205 (S.D. Tex. July 26, 1985)
(unreported, on remand from Fifth Circuit) A-114
Barrett v. United States, 795 F.2d 446 (Sth Cir.
1986) A-118
A-2
INDEX OF APPENDIX (Continued)
Il. CONSTITUTIONAL AND STATUTORY
PROVISIONS INVOLVED
United States Constitution
Fourth Amendment
Fifth Amendment
Internal Revenue Code (26 U.S.C.):
Section 6103(a)
Section 6103(b) (2) (A)
Section |
Ȏ
>
> > PP PP PP PP iP
A-3
APPENDIX
UNITED STATES of America and Michael O. Hanson,
Special Agent of the Internal Revenue Service,
Plaintiffs-Appellees,
V.
Bernard M. BARRETT, Jr., as President of Plastic and
Reconstructive Surgeons, P.A., Houston, Texas,
Defendant-Appellant.
No. 85-2054.
United States Court of Appeals,
Fifth Circuit.
Feb. 24, 1988.
United States brought action to enforce Internal Reve-
nue Service summons. The United States District Court
for the Southern District of Texas, James DeAnda, J.,
entered enforcement order, and taxpayer appealed. The
Court of Appeals, 804 F.2d 1376, affirmed and remanded.
On rehearing, the Court of Appeals held that: (1) issue
of whether district court could conditionally enforce IRS
summons order so as to prevent violations cf disclosure
section of code was not moot, and (2) district court
could not conditionally enforce order.
Summons order affirmed.
John R. Brown, Circuit Judge, filed opinion concurring
in part and dissenting in part in which Politz, Johnson
and Jerre S. Williams, Circuit Judges, joined.
Alvin B. Rubin, Circuit Judge, filed a dissenting opinion
in which E. Grady Jolly, Circuit Judge, joined.
A-4
Edward D. Urquhart, Charles J. [Escher], Silvia T. Has-
sel, Urquhart & Hassell, Houston, Tex., for defendant-
appellant.
Henry K. Oncken, U.S. Atty., James R. Gough, Asst.
U.S. Atty., Houston, Tex., William A. Whitledge, Glenn
L. Archer, Jr., Asst. Atty. Gen., Tax Div., Michael L.
Paup, Chief, U.S. Dept. of Justice, Charles E. Brookhart,
Washington, D.C., for plaintiffs-appellees.
Appeal from the United States District Court for the
Southern District of Texas.
Before CLARK, Chief Judge, BROWN, GEE, RUB-
IN. REAVLEY, POLITZ, CAROLYN DINEEN KING,*
JOHNSON, WILLIAMS, GARWOOD, JOLLY, HIG-
GINBOTHAM., DAVIS, and JONES, Circuit Judges.**
PER CURIAM:
The question presented in this appeal is whether a
district court can conditionally enforce an Internal Reve-
nue Service (IRS) summons to ensure that the IRS will
not violate the nondisclosure of return information pro-
visions contained in 26 U.S.C. § 6103 while it conducts
a tax investigation. We answer this question in the nega-
tive.
i
The facts giving rise to the present controversy, as set
forth in the panel opinion on rehearing in United States
* Formerly Carolyn Dineen Randall.
** Due to his deah on October 19, 1987, Judge Hill did not
participate in this decision.
Judge Jerry E. Smith was not a member of the court when this
case was submitted to the court en banc and did not participate in
this decision.
™ =
A-5
v. Barrett, 804 F.2d 1376 (Sth Cir. 1986) (Barrett II),
are as follows:
[Dr. Bernard M. Barrett, Jr.] is the president of
an incorporated medical practice specializing in
plastic and reconstructive surgery. In 1979 the IRS
began an audit of Barrett’s personal and corporate
income tax returns for the years 1976, 1977, and
1978. When the initial investigation uncovered a
$100,000 discrepancy between Barrett’s books and
his bank records, the IRS transferred the case from
its civil to its criminal division.
Agent Michael O. Hanson, to whom the case was
transferred, determined that it would be necessary
to inquire of Barrett’s patients the amount each had
payed for Barrett’s services. To this end, Agent
Hanson sent two sets of summonses calling for
patient’s records, one to the hospitals where Barrett
practiced and one to Barrett himself. All but four
of the hospitals complied with the summonses pro-
viding a total of 350 patients’ names. [Barrett has
also complied with the summons.] Agent Hanson
then sent a letter to each patient advising that Bar-
rett was being investigated by the Criminal Investi-
gation Division of the IRS and requesting documenta-
tion of fees paid to Barrett.
Barrett II, 804 F.2d at 1377.2
In United States v. Texas Heart Institute, 755 F.2d
469 (Sth Cir. 1985), the district court refused to enforce
the summonses issued to the hospitals. A panel of this
court reversed that decision and remanded the case to
1. The panel opinions in this case [United States v. Barrett, 787
F.2d 958 (5th Cir. 1986) and United States v. Barrett, 804 F.2d
1376 (Sth Cir. 1986)] were vacated by the court’s action granting
rehearing en banc without express provision, 812 F.2d 936. See
Internal Operating Procedures following Local Rule 35.
————
A-6
the district court for a determination of whether the
mailing of the letters to Barrett’s patients would be a
violation of 26 U.S.C. § 6103, and, if so, whether en-
forcement should be conditioned upon requiring the IRS
to desist from further unlawful disclosures. 755 F.2d at
482.
In the initial panel opinion in this case, United States
v. Barrett, 787 F.2d 958 (Sth Cir. 1986) (Barrett 1),
this court upheld the district court’s decision to enforce
unconditionally the summons issued to Dr. Barrett. The
court also limited the scope of Texas Heart, refusing to
hold that a violation of section 6103 was grounds to deny
enforcement of, or to conditionally enforce, the summons.
Judge Brown dissented, arguing that the court had im-
plicitly overruled Texas Heart. Dr. Barrett subsequently
filed a petition for rehearing. The court responded by
withdrawing its earlier opinion, affirming the enforcement
of the summons, but also remanding the case to the dis-
trict court for it to follow Texas Heart and inquire
whether section 6103 was being violated; if so, then the
court was to conditionally enforce the summons to prevent
the IRS from making disclosures in violation of section
6103. The government petitioned for a rehearing of that
decision. This court granted the request, agreeing to
rehear the case en banc.
In this appeal the government contends that the hold-
ing in Texas Heart that a district court has the authority
to enter conditional summons enforcement orders to pre-
vent a violation of section 6103 should be overruled.
The government also contends that the district court’s
order unconditionally enforcing the summons in this case
is correct and should be affirmed. Barrett responds that
district courts hearing an IRS summons enforcement pro-
A-7
ceeding have long been held to have the power to modify
a summons to prevent a violation of law by IRS officials
or to protect the rights of a taxpayer. Thus, it is argued
that district courts should be allowed to consider section
6103 in deciding whether to conditionally enforce the
summons.” Therefore, we must examine the validity of
the rule established in Texas Heart that in a summons
enforcement proceeding a district court can consider
whether a section 6103 violation may occur, and, if it
does so find, determine whether to conditionally enforce
the summons. The first issue we must address is whether
the case before us is moot. Before we examine that issue,
however, we briefly discuss the relevant background
necessary to decide the mootness issue.
II.
This case involves the construction of a number of
Internal Revenue Code (the Code) pyovisions. First, sec-
tion 6103(a)* establishes a general rule that tax returns
2. Barrett also argues that the fifth amendment Due Process
Clause requires that a predisclosure remedy needs to be provided
in this case. This issue, however, is being raised for the first time
on appeal, and this court will only consider an issue raised for the
first time on appeal if the issue is purely a legal issue and if con-
sideration is necessary to avoid a miscarriage of justice. /n re Goff,
812 F.2d 931, 933 (Sth Cir. 1987). “We will not allow a party to
raise an issue for the first time on appeal merely because the party
thinks that he or she might prevail if given the opportunity to try
the case again on a different theory.” Jd. While this may be purely
a legal issue, we do not believe a miscarriage of justice will result
in this case from our declining to address it. Although there is some
evidence that the government may contact Barrett’s patients, and
that if it does, that it may do so in a way that will violate section
6103; it may also be the case that the government will not contact
them. Moreover, even if there is a violation, Barrett has an adequate
remedy at law under 26 U.S.C. § 7213 where he can sue for damages.
3. All references in the text are to sections of the Code under
46 USL.
)
A-8
and tax return information are confidential and may not
be disclosed by officers and employees of the United
States.* If a government official violates the nondisclosure
provisions of section 6103(a), he is subject to criminal
prosecution under section 7213(a)(1). This section
makes it unlawful to disclose any return or return in-
formation except as authorized by the Code. A willful
violation is punishable by a fine up to $5,000, or im-
prisonment of up to a period of 5 years, or both. 26
U.S.C. § 7213(a)(1). Moreover, if return information
is impermissibly disclosed, section 7431 provides the
aggrieved person with a civil remedy. The person can
bring a cause of action against the United States, and
can recover damages of a minimum amount of $1,000
for each unauthorized disclosure. Id. § 7431(c).
The other relevant provisions of the Code are those
relating to the IRS’s power to seek information relevant
to a tax investigation. The IRS is authorized by section
7602(a) to issue a summons to compel any person
having possession of books of account, papers, or other
data to produce such materials when needed by the IRS
to determine the correctness of a tax return or otherwise
to determine the tax liability of an individual. If the
4. The government concedes that the proposed mailings to Bar-
rett’s patients contain “return information” as defined in 26 U.S.C.
§ 6103(b)(2). There are various exceptions, however, to this general
rule of nondisclosure of return information. See 26 U.S.C. § 6103
(c)-(0). One such exception, for example, allows an IRS officer or
employee to “disclose return information to the extent that such
disclosure is necessary in obtaining information, which is not other-
wise reasonably available.” 26 U.S.C. § 6103(k)(6). Whether the
return information in this case comes within the section 6103(k) (6)
exception is not at issue here. Rather, that inquiry is one that the
district court would be required to make under Texas Heart in deter-
mining whether to conditionally enforce the summons. See Texas
Heart, 755 F.2d at 482.
A-9
person does not comply with the summons, the IRS can
file a petition for enforcement with the district court.
26 U.S.C. § 7604.
[1] In United States v. Powell, 379 U.S. 48, 85 S. Ct.
248, 13 L.Ed.2d 112 (1964), the Supreme Court set
forth four criteria that the IRS must establish in order
to have a summons enforced:
(1) The IRS agent must show that the investigation
will be conducted pursuant to a legitimate pur-
pose;
(2) that the inquiry may be relevant to the purpose;
(3) that the information sought is not already with-
in the IRS’s possession; and
(4) that the administrative steps required by the
Code have been followed.
Powell, 379 U.S. at 57-58, 85 S. Ct. at 255. The Court
also instructed that a court could inquire into the under-
lying reasons for the examination and that it should not
permit its process to be abused. Id. at 58, 85 S. Ct. at
255. “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, or for any other purpose reflecting
on the good faith of the particular investigation.” Id.
The government bears the intial burden of proving
that the four Powell requirements have been satisfied.
Texas Heart, 755 F.2d at 474. Once the government makes
the required Powell showing, the burden then shifts to
the party resisting the summons to challenge the summons
on any appropriate ground. Powell, 379 U.S. at 58, 85
S. Ct. at 255 (quoting Reisman v. Caplin, 375 U.S. 440,
A-10
449, 84 S. Ct. 508, 513, 11 L.Ed.2d 459 (1964)).
These grounds include that the IRS has failed to meet
one of the four Powell requirements, or that the enforce-
ment of the summons would abuse the court’s process.
III.
Before we reach the merits in this appeal, we must
address the preliminary issue of whether the case before
us is moot. Although neither party has raised the moot-
ness issue, this court is required to do so sua sponte,
because this issue implicates the article III requirement
that there be a live case or controversy.° Donovan v. Air
Transport District Lodge No. 146, 754 F.2d 621, 624
(Sth Cir. 1985). The mootness concern is based upon
the fact that Dr. Barrett ultimately complied with the
summons after he was unable to obiain a stay of the
district court’s summons enforcement order. This court
has often held that an appeal from an order enforcing
a summons becomes moot once the taxpayer complies
with the summons. See United States v. Sherlock, 756
F.2d 1145, 1146 (Sth Cir. 1985); United States v. Sweet,
655 F.2d 54, 55 (5th Cir. 1981); United States v. First
American Bank, 649 F.2d 288, 289 (Sth Cir. 1981):
United States v. First State Bank of Clute, 626 F.2d 1227,
1227 (Sth Cir. 1980), cert. denied, 452 U.S. 908, 101
S. Ct. 3037, 69 L.Ed.2d 410 (1981); United States v.
Carpenter, 425 F.2d 264, 264-65 (Sth Cir. 1970);
Baldridge v. United States, 406 F.2d 526, 527 (Sth Cir.
1969): Grathwohl v. United States, 401 F.2d 166, 167
(5th Cir. 1968); Lawhon v. United States, 390 F.2d 663.
663 (Sth Cir. 1968).
5. Having done so, we requested the parties to supplement their
briefs by addressing the mootness issue, which they have done.
A-11
Thus, in Sherlock we held that since Sherlock com-
plied with the summons, his appeal was moot. Sherlock’s
argument that the government continued to benefit from
the material did not persuade the court otherwise. 756
F.2d at 1146. In First American Bank this court also
held that compliance with a summary enforcement order
mooted an appeal from that order. The appellants argued
that the issues were not moot because, if their contentions
that the district court erred in determining that the sum-
monses had a valid civil investigative purpose and that
the IRS agent violated the automatic stay provision of
Fed. R. Civ. P. 62(a) were correct, the IRS could not
use the documents so obtained in any future civil or
criminal proceeding. The court disagreed, stating that,
“The possibility that evidence must be suppressed in a
future proceeding, however, is not enough to prevent
mootness in this case.” 649 F.2d at 289. In Carpenter
this court, without elaboration, held that the appeal of a
summons enforcement order that had been complied with
was moot. 425 F.2d at 265. Likewise, in Baldridge the
appellants had complied with the summons, so the court
held the case to be moot. The court also disagreed that
a question of substantial public interest should allow the
case to prevent its mootness, or again that the court
should hear the appeal to determine whether the records
would be admissible in a subsequent criminal or civii
trial. 406 F.2d at 527. In Grathwohl this court stated
that since the appellant had appeared and complied with
the summons, there was no relief that she could obtain
on appeal and the case was moot. 401 F.2d at 167.
Finally, in Lawhon we held that there were no issues
to decide because the records and books that were the
subject of the order to produce had been produced. Thus,
the court dismissed the appeal for mootness. 390 F.2d
A-12
at 663. On motion for reconsideration, the court stated,
in what has become an often quoted passage:
This motion, in effect, seeks to have this court give
an advisory opinion as to the admissibility in evi-
dence of the records or their product in the event
of a subsequent criminal trial. Such event may not
occur. This court passes no judgment on the ques-
tion whether, if the mooted records are used in a
subsequent prosecution of the taxpayers, if there be
one, their introduction would be forbidden as vio-
lating the constitutional rights of the defendants.
Id. at 663.
Although none of the above authority provide much
analysis, apparently the common denominator in each is
that once an individual complies with a summons en-
forcement order, that person is precluded from appealing
any issues that attack the validity of the district court’s
decision to enforce the summons. Even an attack on the
enforcement of a summons based on the fact that in-
formation obtained by the summons may be used im-
properly in a subsequent civil or criminal proceeding is
not enough to prevent the case from being moot.
Many other circuits have also held that compliance
with an IRS summons moots an appeal of the validity
of the summons enforcement order.*° The basis for these
6. First Circuit: United States v. Arthur Andersen & Co., 623
F.2d 720 (1st Cir.), cert. denied, 449 U.S. 1021, 101 S. Ct. 588,
66 L.Ed.2d 483 (1980); United States v. Lyons, 442 F.2d 1144 (lst
Cir. 1971). Second Circuit: United States v. Deak-Perera Intern.
Banking Corp., 610 F.2d 89 (2d Cir. 1979). Third Circuit: Vesco
v. SEC, 462 F.2d 1350 (3d Cir. 1972) (analogous SEC subpoena
case). Fourth Circuit: Kurshan v. Riley, 484 F.2d 952 (4th Cir.
1973). Sixth Circuit: United States v. Patmon, 630 F.2d 458 (6th
Cir. 1980). Seventh Circuit: United States v. Kis, 658 F.2d 526,
532-33 (7th Cir. 1981), cert. denied, 455 U.S. 1018, 102 S. Ct. 1712,
A-13
decisions, whether implicit or explicit, is the proposition
that “federal courts are without power to decide questions
that cannot affect the rights of litigants in [the] case
before them.” North Carolina vy. Rice, 404 U.S. 244,
246, 92 S. Ct. 402, 404, 30 L.Ed.2d 413 (1971). Thus,
once an individual complies with a summons enforce-
ment order and produces the documents, a successful
challenge to the enforcement order could afford no relief;
the information has already been provided and thus this
court would be powerless to provide relief that would
affect the rights of the litigants.
Based on this precedent, the government contends that
since the IRS has been supplied with all the information
it sought pursuant to the summons, the case should be
dismissed as moot. In determining whether this contro-
versy is moot, it is necessary to keep in mind the single
issue that has been presented to the court: whether a
district court can conditionally enforce a summons in
order to prevent the government from violating section
6103.
[2] To decide whether this issue can survive a moot-
ness challenge, it is helpful to first examine both the
holding in Texas Heart that forms the basis of the gov-
ernment’s contention and our opinion in Barrett JJ. In
Texas Heart this court was faced with the issue of whether
the district court correctly declined to enforce summonses
72 L.Ed.2d 135 (1982). Eighth Circuit: United States v. Orlowski,
808 F.2d 1283, 1287 (8th Cir. 1986); United States v. Olson, 604
F.2d 29, 31 (8th Cir. 1979); United States v. First National Bank
of Sturgis, S.D., 587 F.2d 909, 910 (8th Cir. 1978); Barney v.
United States, 568 F.2d 116 (8th Cir. 1978); Ninth Circuit: SEC
v. Laird, 598 F.2d 1162 (9th Cir. 1979) (analogous SEC subpoena
case). But see Gluck v. United States, 771 F.2d 750, 753-54 (3d
Cir. 1985).
a
A-14
issued to four hospitals. We reviewed the issue under
the four part test established in Powell. The portions of
Texas Heart revelant to this appeal are the court’s analy-
sis of the “legitimate purpose” prong of the Powell test
and the “abuse of process” inquiry that a court should
also make.
The court in Texas Heart found that the IRS did have
a legitimate purpose, 755 F.2d at 479, but then addressed
Dr. Barrett’s contentions that the IRS lacked a legitimate
purpose because of alleged violations of section 6103.
Id. The court pointed out that an improper disclosure
of section 6103 information was relevant only to the
extent that it would demonstrate either an abuse of
process or a lack of legitimate purpose, id., but con-
cluded that if there were any improper disclosures, they
did not demonstrate either bad faith or an improper
purpose. Jd. The court went on to note, however, that:
This Court does not hold that unlawful disclosures
of returns or return information by the IRS can
never be sufficient evidence of lack of a legitimate
purpose for the investigation such that IRS sum-
monses should not be enforced. Rather, this Court
holds that in this case, even accepting as true that
improper disclosures occurred, any alleged improper
disclosures do not rise to the level necessary to
demonstrate bad faith in the issuance of the sum-
monses or lack of a legitimate purpose tor the
investigation.
Id. at 481 (emphasis in original). Even though the im-
proper disclosures did not reflect a sufficient degree of
bad faith or lack of legitimate purpose to deny enforce-
ment of the summons in their entirety, the court held
that the district court nevertheless could require the IRS
A-15
to abide by section 6103 before it would order enforce-
ment of the summonses. /d.
Thus, this language allows a summoned individual to
raise the issue of a section 6103 violation to attempt to
defeat the enforcement of the summons. If a violation
does not rise to a sufficient level to defeat the enforce-
ment of the summons, though, it nevertheless can still
cause the enforcement of the summons to be conditioned.
This remedy forms part of the basis of the government’s
contention that Texas Heart incorrectly estabilshed that
a district court can conditionally enforce a summons.
The government’s objection to Texas Heart is also
based on the court’s discussion dealing with the abuse
of process inquiry a court must make. While the court
found no abuse of process to such a degree that it would
be necessary to deny enforcemént of the summons, the
court did note that it still could be an abuse of process
to allow enforcement of summonses when the IRS con-
ceded that it would continue to disclose information in
violation of section 6103. 7d. at 482. The court did not
point out in that discussion, however, whether a violation
of section 6103 would be sufficient to completely deny
enforcement of the summons. From the prior discussion
relating to “legitimacy of purpose,” however, it appears
that enforcement could be completely denied if an abuse
of process was established. See id. at 479, 481. Neverthe-
less, the court clearly held that if an abuse of process
were found, the district court would have the discretion
to condition enforcement of the summonses by requiring
that the IRS agree to desist from further violations of
section 6103. 7d, at 482. The court in Texas Heart then
established the inquiry the district court would be required
A-16
to make prior to conditioning the enforcement of the
summons:
(1) determine whether the described information
falls under the definition of returns or return
information in section 6103, and
(2) if so, the district court must further determine
whether the IRS is authorized to disclose the
information under section 6103(k)(6).
Id. at 482.
The court stated in Barrett I] that in Barrett I it mis-
gauged the scope of the holding in Texas Heart. See
Barrett II, 804 F.2d at 1377. The concern, however, was
not with whether the summons was properly enforced
by the district court.’ Rather, the single issue resolved
by the opinion in Barrett 1] was whether a summons could
be conditionally enforced:
[W]e find that our mandate in Texas Heart requires
the district court to consider whether enforcement
of the IRS summons should be conditioned in order
to protect Barrett against unnecessary disclosure of
the fact that he is under criminal investigation. We
affirm the order of the district court enforcing the
IRS summons: we remand for the district court to
determine whether the summons should be condi-
tionally eniorced.
Id. at 1379. In compliance with Texas Heart, the opinion
in Barrett II decided to remand the case, not for the
7. In fact, in Barrett I] we expressly held that Dr. Barrett’s
claim that the district court improperly enforced the summons based
upon an erroneous finding that the IRS possessed a legitimate in-
vestigatory purpose was moot because he complied with the summons.
Id. at 1377-78.
a
A-17
purpose of having the district court delve into the
propriety of enforcement, but instead to determine whether
the district court should condition the enforcement of
the summons to protect Dr. Barrett from a violation of
section 6103. We have consistently treated the issues of
(1) whether the enforcement order was properly ren-
dered and (2) whether an enforcement order can be
conditionally enforced as distinct issues on appeal.
With this same distinction in mind we now consider
whether the issue in this appeal is moot. Barrett I] would
have remanded the case to the district court for it to
determine whether the summons should be conditionally
enforced based on Texas Heart. See Barrett II, 804 F.2d
at 1379. Since Dr. Barrett has complied with the sum-
mons, Judge Rubin’s dissent argues that the enforcement
proceeding is over and we can consider no aspects of
that proceeding, including whether Texas Heart requires
that the summons should be conditionally enforced. How-
ever, we do not agree that such a result is mandated. We
recognize that in Texas Heart the enforcement order had
not been complied with by the four hospitals, and, in fact,
the district court had refused to enforce the summonses,
so the controversy was still alive in all respects. But, the
court reversed the district court and ordered that the
summonses be enforced. Even though the enforcement
issue had been decided, the court still held that the district
court retained the authority to determine whether section
6103 was being violated, and, if so, to condition enforce-
ment to avoid the violation. Thus, that same issue that
we held was alive and must be considered by the district
court in Texas Heart is likewise the sole justiciable issue
in the present case.
A-18
Moreover, the conditional enforcement issue does not
attack the validity of the district court’s order to enforce
the summons. Thus cases such as Sherlock do not control
here. Those cases prevent a party from appealing the
validity of an enforcement order after the party had
complied with the enforcement order by having furnished
the IRS with the sought after material. The issue here
does not address the validity of the enforcement order.
Instead, it addresses whether the district court after a
decision to enforce a summons can attach conditions on
the government’s use of the information obtained under
the summons. The district court in Barrett IJ did not
decide whether there was a violation of section 6103,
and, if so, whether to condition enforcement of the sum-
mons on the government’s compliance with that section.
If we were to hold that Texas Heart was correct and the
district court should have made such an inquiry, we could
then provide relief to Dr. Barrett by remanding the case
to the district court for such consideration. We point out
that the IRS had not yet contacted Dr. Barrett’s patients
and section 6103 information has not yet been disclosed.°
Thus, if we were to remand this cause to the district court,
it could prevent the IRS from violating this section. This
is the relief Dr. Barrett desires.
Accordingly, we conclude that the conditional enforce-
ment issue presented in this appeal is not moot, and we,
therefore, decide whether a district court can condition-
aily enforce a summons order so as to prevent violations
of section 6103.°
8. The government informed the court of this fact at oral argu-
ment.
9. We point out that the issue of whether a district court can
consider whether a violation of section 6103 is an independent ground
A-19
7.
[3, 4] We begin by noting two important considera-
tions in summons enforcement proceedings. First, we
point out that these proceedings are intended to be sum-
mary in nature. The sole purpose of the enforcement pro-
ceedings is to ensure that the IRS has issued the summons
for a proper purpose and in good faith. See Powell, 379
U.S. at 57-58, 85 S. Ct. at 255. Also, this is only an
investigative stage; no guilt or liability on the part of
the taxpayer is established. The enforcement proceeding
should be concluded expeditiously so that the actual in-
vestigation can be continued with the goal of reaching
the final determination of whether there will be any civil
or criminal liability for the taxpayer.
We also recognize that the Supreme Court has con-
sistently declined to circumscribe the breadth of the sum-
mons authority that Congress intended to grant the IRS,
“ ‘absent unambiguous directions from Congress.’ ” United
to deny enforcement of a summons is not before this court. However,
to contrast the situation that is before us in the present case, we
point out that if it were before us this issue would be moot. This
question relates to what factors a district court can consider in
mzking its initial determination of whether to enforce a summons
in its entirety. That is, for example, could the district court have
completely denied enforcement of the summons in Barrett because
the government was suggesting that it would violate section 6103?
This court cannot, however, consider any factors relating to whether
the district court’s order enforcing the summons was proper once the
taxpayer has complied with the summons. Cf. Sherlock, 756 F.2d at
1146. Since this contention is one that directly relates to the district
court’s decision of whether to enforce the summons in its entirety,
we could not decide its propriety. As noted above in footnote 7, the
opinion in Barrett II held that the issue of whether the district court
properly ordered enforcement of the summons was moot based on the
fact that Dr. Barrett complied with the summons. See Barrett I], 804
F.2d at 1377-78. Thus, we would have no jurisdiction to decide
whether the district court should consider section 6103 in deciding
whether to enforce a summons.
|
A-20
States v. Arthur Young & Co., 465 U.S. 805, 816, 104
S. Ct. 1495, 1502, 79 L.Ed.2d 826 (1984) (quoting
United States v. Bisceglia, 420 U.S. 141, 150, 95 S. Ct.
915, 921, 43 L.Ed.2d 88 (1975)); United States v. Euge,
444 U.S. 707, 715, 100 S. Ct. 874, 880, 63 L.Ed.2d 141
(1980). For example, in Powell the Supreme Court re-
fused to read into section 7605(b), which prohibits
“unnecessary examination[s],” a requirement that enforce-
ments of summonses be founded on probable cause. The
Court reasoned that “[a}]lthough a more stringent inter-
pretation is possible . . . we reject such an interpretation
because it might seriously hamper the Commissioner in
carrying out investigations he *# aks warranted. . . .” 379
U.S. at 53-54, 85 S. Ct. at 253, quoted in Euge, 444
U.S. at 715, 100 S. Ct. at 880.
Similarly, in Donaldson v. United States, 400 U.S. 517,
91 S. Ct. 534, 27 L.Ed.2d 580 (1971), the Court de-
clined to limit the summons authority to cases where no
criminal prosecution was contemplated. “Any other hold-
ing,” said the Court, “would thwart and defeat the ap-
propriate investigatory powers that the Congress has
placed in ‘the Secretary or his delegate.” 400 U.S. at
533, 91 S. Ct. at 544. Again, in Bisceglia the Court,
finding no discernible contrary purpose by Congress, up-
held the IRS’s authority under section 7602 to issue a
“John Doe” summons to a bank to determine the identity
of unknown individuals who might be liable for unpaid
taxes. The Court again broadly construed the IRS’s sum-
monsing authority in Euge to permit it to compel the
execution of handwriting samples. A contrary result,
reasoned the Court, would “stultify enforcement of federal
law.” 444 U.S. at 715, 100 S. Ct. at 880 (quoting Don-
aldson, 400 U.S. at 536, 91 S. Ct. at 545). Finally, in
ee
A-21
Arthur Young & Co., the Court declined to accord a
privilege to an auditor’s tax accrual workpapers. “We
are unable,” wrote the Court, “to discern the sort of
unambiguous directions from Congress that would justify
a judicially created work-product immunity for tax accrual
workpapers summoned under § 7602.” 465 U.S. at 816,
104 S. Ct. at 1502.
[5] Thus, the Court has refused to impose limitations
upon the IRS’s summons authority unless it found explicit
Congressional directives to do so. We believe that this
judicial constraint used to avoid limiting the IRS’s sum-
mons authority applies equally in this case and a court
should not conditionally enforce a summons. If a court
were to do so, it would then potentially have to become
involved in the proceeding again at a later date to ensure
compliance with the conditions it imposed. There is no
evidence of a Congressional intent to burden the “sum-
mary” nature of summons enforcement proceedings by
allowing the district court to conditionally enforce a
summons.
In fact, it appears that the intent of Congress was
definitely not to burden the summary nature of the en-
forcement proceedings with such an inquiry. Rather than
enact a statute authorizing the district court to condi-
tionally enforce a summons to prevent the government
from violating section 6103, Congress instead enacted
civil remedies that allow an individual to bring suit
against the United States and provided for criminal
prosecution of the disclosing parties. These remedies
clearly are intended to deter unnecessary disclosures of
confidential information.
In a summons enforcement proceeding, the district
court’s only task is to determine whether the summons
A-22
should or should not be enforced. This inquiry is limited
to ensuring that the government has complied with the
four Powell criteria, and that its process is not being
abused. Powell, 379 U.S. at 57-58, 85 S. Ct. at 255.
There is no statutory authority, nor congressional in-
dication that existing statutes supply the authority, nor
Supreme Court authority, to ailow the district court to
make any consideration except whether to enforce or
not to enforce the summons. The district court does not
have the power to conditionally enforce the summons.
If good faith and a legitimate purpose are found to exist,
the summons should be enforced. If they are not present,
enforcement should be denied. There is no middle ground
because to create that remedy would unduly hamper the
investigative efforts of the IRS.
Dr. Barrett contends, however, that numerous decisions
of this circuit provide district courts with the authority
to condition a summons to protect the rights of taxpayers.
While some of this authority may, arguably, support this
view, most of it clearly does not, and we decline to adopt
his position. The case that appears to most directly sup-
port Dr. Barrett’s contention is Dunn vy. Ross, 356 F.2d
664 (Sth Cir. 1966). In Dunn, the court held that a
summons under section 7602 could require the produc-
tion of records for years that were time-barred from in-
vestigation so long as the material from those years was
relevant for the years that were under investigation that
were not time-barred. Jd. at 666. In support for his posi-
tion that a summons should be conditionally enforced
when necessary Dr. Barrett relies on the following lan-
guage in Dunn:
Our decision, therefore, should not be construed
as a blanket endorsement of summonses under 7602
A-23
requiring the production of a vast amount of books
and papers, many of which might be totally ir-
relevant and the production of which would cause
great hardship to the persons at whom such sum-
monses are directed. The District Court has broad
discretion in the protection of the taxpayer and of
third parties against oppressive procedures by work-
ing out appropriate limitations on which records are
subject to investigation and the best location for
such inspection for all concerned.
Id. at 667 (citation omitted). One reading of the second
sentence from this passage could support the view that
a district court has discretion in deciding how or to what
extent to enforce a summons, i.e., conditional enforce-
ment. However, another reading of this language is that
the district court has broad discretion in protecting tax-
payers only by determining whether the sought after in-
formation is relevant. The relevancy inquiry is one of
the Powell inquiries, and it only pertains to whether the
summons should be enforced in its entirety. To the extent
that Dunn can be read otherwise, to endorse the district
court’s ability to conditionally enforce a summons, it is
overruled.
Our decision in Venn vy. United States, 400 F.2d 207
(5th Cir. 1968), is also cited by Dr. Barrett as support
for his position. He argues that in Venn this court af-
firmed the conditional enforcement of a summons to
prevent improper use of the summoned information. We
do not read Venn so broadly. Venn dealt with the issue
of whether an unrelated criminal prosecution of a third
party would prevent enforcement of a summons, when
the taxpayer had materials relating to that third party's
tax liability. 7d. at 209. The court held it would not.
Additionally, there was an issue of whether all the ma-
A-24
terial sought was relevant to the taxpayer’s investigation.
Id. We concluded that the government had not made
such a showing. Thus, the issue in Venn that Dr. Barrett
attempts to rely on as support for his position is one
that deals with the scope of the enforcement order, i.e.,
what amount of information would the government be
provided. This inquiry is also in the nature of asking
whether the material is relevant. The case did not address
the issue presented before us of whether conditions would
be imposed on the government’s use of the information
once it was received. Venn, therefore, does not support
Dr. Barrett.
Another decision, United States v. Roundtree, 420
F.2d 845 (Sth Cir. 1969), is also cited by Dr. Barrett
as support for his position. He quotes the following
language from the opinion which reads: “Furthermore,
courts may limit the invasions of privacy through the
individual scrutiny to which a summons is subject for its
enforcement through the standards enumerated in Powell
of legitimate purpose, proper proceedure, relevance, and
refusal to allow abuse of the courts’ process,” id. at 851,
as support for the conditional enforcement inquiry we
ordered in Barrett I]. We do not believe this language
supports that conclusion. The issue in Roundtree was
whether a summons should be enforced, and what pro-
cedures were available to the taxpayer to assist him in
attacking the summons. The court was not faced with
the issue of whether to conditionally enforce the sum-
mons. Moreover, the language quoted by Dr. Barrett does
not address the conditional enforcement of the summons,
but rather it relates to the enforcement of the summons
in its entirety.’°
10. Dr. Barrett has also cited S.E.C. v. ESM Government Se-
curities, Inc., 645 F.2d 310 (Sth Cir. 1981), United States v. Wright
A-25
In sum, we do not believe that the cases cited by Dr.
Barrett give rise to a conclusion that a district court can
conditionally enforce a summons.”?
V.
We hold that in a summons enforcement proceeding
the only issue that the district court can decide is whether
to enforce the summons. The court cannot conditionally
enforce that order. Therefore, we OVERRULE the hold-
ing in Texas Heart that a district court should determine
whether section 6103 was violated, and, if so, to condi-
tion enforcement on compliance with that section. The
issue presented today does not call for us to decide
whether a court’s enforcement order may impose condi-
tions respecting the time, place, manner, form or circum-
Motor Company, 536 F.2d 1090 (Sth Cir. 1976), United States v.
Newman, 441 F.2d 165 (5th Cir. 1971), Mason v. Pulliam, 557 F.2d
426 (Sth Cir. 1977), Linn v. Chivatero, 714 F.2d 1278 (Sth Cir.
1983), United States v. Wyatt, 637 F.2d 293 (Sth Cir. 1981), and
United States v. Davis, 636 F.2d 1028 (Sth Cir.), cert. denied, 454
U.S. 862, 102 S. Ct. 320, 70 L.Ed.2d 162 (1981), as support for
the proposition that a district court can conditionally enforce a sum-
mons. We have reviewed these cases and do not agree that they
mandate Dr. Barrett’s position.
11. The Ninth Circuit has also confronted the issue of conditional
enforcement. In United States v. Author Service[s], Inc., 804 F.2d 1520
(9th Cir. 1986), the court relied on our decision in Texas Heart.
No further reasoning was provided. Jd. at 1525 (“Courts routinely
modify summonses to protect taxpayers’ interests. See, e.g., Dunn
v. Ross, 356 F.2d 664, 667 (5th Cir. 1966). This power has been
construed to give a court the authority to condition enforcement of
a summons on an IRS agreement to cease improper disclosures.
Texas Heart Institute, 755 F.2d at 481.”) Recently, in United States
v. Zolin, 809 F.2d 1411 (9th Cir. 1987), the Ninth Circuit simply
followed its prior decision in Author Services, based on Texas Heart.
Id. at 1417 (“A district court may, when appropriate, condition en-
forcement of a summons on the IRS’ agreeing to abide by disclosure
restrictions. Author Services, 804 F.2d at 1525 (citing United States
v. Texas Heart Institute, 755 F.2d 469, 481 (Sth Cir. 1985))”).
A-26
stances in which some or all of what is sought by the
subpoena will be furnished, or possibly other conditions
precedent to the government’s receipt, pursuant to the
subpoena, of what it seeks thereby. The summons order
in Barrett I] is AFFIRMED in its entirety.
JOHN R. BROWN, Circuit Judge, with whom PO-
LITZ, 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 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. Like-
wise, 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 (Sth Cir. 1986); and |
later, Barrett II], United States v. Barrett, 804 F.2d 1376 |
(5th Cir. 1986).”
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,
1. As does the court, see its n. 9, I find it unnecessary to deter-
mine 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 a. 9.
a |
A-27
equitable discretion, may not, and has no power to, con-
dition enforcement of the summons to prevent the dis-
closure 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’ 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 tiie Tax Reform Act of 1976
brought about revolutionary changes, not the least of
which was the positive declaration that returns and re-
turn information are confidentiai.* Likewise, the Act de-
fines “return or return information” in the broadest way.*
2. United States v. Powell, 379 U.S. 48, 85 S. Ct. 248, 13 L Ed.
2d 112 (1964).
3. Asa general rule:
Returns and return information sha!l be confidential, and except
as authorized by this titlke—(1) no officer or employee of the
United States . . . shail 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).
4. (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 emount of his
income, payments, receipts, deductions, exemptions, credits,
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):
| ner eens
Ployees for investigative purposes.—An internal re- |
venue 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 the internal revenue laws, dis-
close return information to the extent that such dis-
closure is necessary in obtaining information, which
|
(6) Disclosure by Internal Revenue officers and em-
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)
assets, liabilities, net worth, tax liability, tax withheld, de-
ficiencies, Overassessments, or tax payments, whether the tax-
payer'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 deter-
mination 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 oiher imposition, or
offense, and
(B) any part of any written determination or any background
file documents 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
particuler taxpayer.
26 U.S.C. § 6103(b). (Emphasis added).
A-29
This was the clear congressional intent reflected by the
Senate Report’ and in the strictly limited disclosure pro-
visions.°
5. The Senate Report broadly defined the term return informa-
tion:
to include the following data pertaining to a taxpayer: his iden-
tity, the nature, source or amount of his income. payments, re-
ceipts, 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. (Em-
phasis 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 process-
ing is also to be considered return information.
S. Rep. p. 319, U.S. Code Cong. & Admin. News 1976. p. 3748,
2C*7
Bulletin, p. 357.
6. 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 informa-
tion in connection with an audit or investigtion 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 en-
forcement of any provisions in the Code.
S. Rep. pp. 341-42, U.S. Code Cong. & Admin. News 1976, p. 377,
sulletin, 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 nece
A-30
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 investiga-
tion was a disclosure of return information’ and in our
several concurring and dissenting opinions in Barrett 1
and Barrett IJ, we continued that approach, it is now
clear beyond any question that this revelation was return
information."
The Breadth of Congressional Concern
Before trying to analyze whether the IRS and Agent
Hanson have mgt either of the requirements of § 6103
that the disclosuite be (i) authorized’ and (ii) necessary
“in obtaining information which is not otherwise reason-
ably available’’® it is essential to see the apprehended
widespread evils with which Congress was dealing. Ini-
tially, there is the recognition by Congress that this was
sary 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, Bulle-
tin, p. 380. (Emphasis added).
7. See Judge Hill’s original majority opinion, Barrett J, 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.”
8. See, e.g., my dissenting opinion Barrett 1, 787 F.2d 958 at 963;
and majority opinion Barrett J], 804 F.2d 1376 at 1378.
9. Seen. 3, supra.
10. See § 6103(k)(6), supra, p. 6.
A-31
the first comprehensive review of the whole subject in
over 40 years.”
Next, of importance, was the Congressional goal in
reviewing the Internal Revenue Code (IRC) to give
taxpayers greater and greater protection. Congress was
aware ot the complaints of literally millions of taxpayers
concerning abuses in the administration of the IRC.’’
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.** More than that,
11. 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 infcrmation
to other government agencies have been established by execu-
tive order and regulation.
S. Rep. p. 317, U.S. Code Cong. & Admin. News 1976, p. 3746,
Bulletin, p. 355.
12. “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, Bulle-
tin, 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 con-
fidentiality of tax returns. (Title IX).
S. Rep. p. 6, U.S. Code Cong. & Admin. News 1976, p. 3443, Bulle-
tin, 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, Bulle-
tin, p. 75.
13. 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. Con-
A-32
Congress expressed the specific intention to discontinue
pricr practices or regulations. Only those regulations
specifically interpreting § 6103 have any validity.”
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 crys-
talized 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
sequently, almost every other agency that has a need for infor-
mation 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 in-
formation should have that access.
S. Rep. pp. 316-17, U.S. Code Cong. & Admin. News 1976, p. 3746,
Bulletin, pp. 354-55.
14. 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 promul-
gated 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 prior to the effective
date of the amendment which do not interpret any specific pro-
vision of this section are no longer tc 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.
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disclosure called for a written request, signed by the
President personally. Section 6103(g).’° The President,
with all of his other manifold duties, is also required to
file an annual report with the 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 dis-
closure of tax return infomation to the Department of
Justice. See § 6103(h)(2).** With respect to non-tax civil
or criminal cases, the Department of Justice must seek
a court order. 26 U.S.C. § 6103(i)(1).77
15. 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.
16. 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 informa-
tion 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 dis-
closure involved was unwarranted.
S. Rep. pp. 324-25, U.S. Code Cong. & Admin. News 1976, p. 3754,
Bulletin, pp. 362-3. (Emphasis added).
17. 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
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All to be Reported to Congress
More than that, to assure public review of all discre-
tionary 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 acticns taken.
26 U.S.C. § 6103(g)."*
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 inspec-
tion of a taxpayer’s return or return information.
S. Rep., p. 328, U.S. Ccde 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.
18. 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 administra-
tion 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.
A-35
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 [un]authorized’’
disclosure should be increased and that the situations to
which they apply should be broadened to cover all situa-
tions in which returns and return information are treated
as confidential.” 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 dam-
ages of $1,000 for each disclosure.” S.Rep., p. 348, U.S.
Code Cong. & Admin. News 1976, p. 3778, Bulletin,
p. 386.
19. From the context of the total quotation it is evident that
unauthorized disclosure was meant.
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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 /I/, only that to this day there has been no state-
ment, 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 con-
ceivably 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,
(jib) whether paid in cash or check, and (11) 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 de-
mand 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 confiden-
A-37
tiality 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) appli-
cation 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 pro-
tracted 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 litiga-
tion that Section 6103(k)(6) determinations would en-
tail.” 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 is possesses a legiti-
mate 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 pro-
ceeding 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 evidence pertinent to the
A-38
existience of a legitimate investigative purpose for
the summons will also be relevant to the determina-
tion 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 enforce-
ment are an unnecessary invasion of privacy or
threaten injury to a taxpayer's reputation.
Barrett 1, 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
A-39
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 tax-
payer 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 tax-
payer. 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.*°
Even more than litigious frustration, the damage reme-
dy—no matter how extravagant the damage award—can-
not undo the harm wrought by the illegal disclosure.
Here, revealing that the Doctor is under criminal inves-
tigation is of irreparable damage to his personal and pro-
fessional reputation. Congress, in furtherance of its goal
of strengthening the rights of taxpayers, intended that tax-
payers should not be exposed to such damning, untried,
unproved accusations.
20. Dr. Barrett’s efforts met with opposition from the government
requiring an appeal (and subsequent reversal) of the summary judg-
ment in favor of the government. Barrett J], 804 F.2d at 138].
A-40
In the words of A Youne. the Tax Reform Act of
1976 and Section ¢ .)(6) are the “sort of unam-
biguous directions from@ ress” that support the mild
conditions of Je.
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.”
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.
ALVIN B. RUBIN, Circuit Judge, with whom E.
GRADY JOLLY, Circuit Judge, joins dissenting:
Respectfully, I conclude that this case is moot, and
that we therefore lack jurisdiction. As the majority opinion
notes, we have repeatedly held that an appeal from an
order enforcing a summons becomes moot once a tax-
payer complies with the summons. That rule js not altered
by the fact that panels of this court have in the past
“consistently treated the issues of (1) whether the en-
forcement order was properly rendered and (2) whether
an enforcement order can be conditionally enforced as
distinct issues on appeal.”’ We can and should reach the
21. Section 6103 takes precedence over even the Freedom of
Information Act. See, Church of Scientology v. Internal Revenue
Service, US.___, 108 S. Ct. 271, 98 L.Ed.2d 228 (1987).
1. 837 F.2d at 1348.
A-41
second question only if we conclude that the validity of
the enforcement order is still an issue.
Whether “the conditional enforcement issue . . . at-
tack[s] the validity of the district court’s order to enforce
the summons” is not the question. The validity of the
enforcement order, conditional or not, can no longer
be contested. The summons has been issued, it has been
complied with, and whether this court should now modify
an order that has already been obeyed is simply a dead
issue.
The opinion dissenting from the decision on the merits
argues that the issue is not moot because the issue was
raised in the court, briefed and argued on appeal, and
counsel for both sides seek its decision. That was the
situation in Burke v. Barnes,’ but the Supreme Court
found that the adequacy of the presentation of the issue
and the parties’ avidity for its decision did not prevent
the case from having become moot.
Because the majority opinion overturns our decision
in Texas Heart, because even those of my colleagues who
dissent are eager to consider the correctness of that opin-
ion, and because we have convened the full panoply of
an en banc court to consider this case, I understand the
sentiment that we should decide the substantive issue it
presents. My colleagues must indeed feel that, having
thus laboriously marched up the hill, we should not now
discard all that effort and march down again. Neverthe-
less, I would resist the temptation to expatiate on a
question that is not truly before us.
2. Id., 837 F.2d at 1348.
3. __US.____, 107 S. Ct. 734, 93 L.Ed.2d 732 (1987).
A-42
UNITED STATES of America and Michael O. Hanson,
Special Agent of the Internal Revenue Service,
Plaintiffs-Appellees,
v.
Bernard M. BARRETT, Jr., as President of Plastic and
Reconstructive Surgeons, P.A., Houston, TX,
Defendant-Appellant.
No. 85-2054.
United States Court of Appeals,
Fifth Circuit.
March 2, 1987.
Edward D. Urquhart, Charles J. Escher, Urquhart &
Hassell, Houston, Tex., for defendant-appellant.
William A. Whitledge, Washington, D.C., Henry K.
Oncken. U.S. Atty., James R. Gough, Asst. U.S. Atty.,
Houston. Tex.. Glenn L. Archer, Jr., Asst. Atty. Gen.,
Tax Div.. Michael L. Paup, Chief, U.S. Dept. of Justice,
Washington, D.C., Charles E. Brookhart, Washington,
D.C.. for plaintiffs-appellees.
Appeal from the United States District Court for the
Southern District of Texas; James DeAnda, District Judge.
Before CLARK, Chief Judge, [GEE], RUBIN, REAV-
LEY, POLITZ, RANDALL, JOHNSON, WILLIAMS,
GARWOOD, JOLLY, HIGGINBOTHAM, DAVIS,
HILL, and JONES, Circuit Judges.
ON PETITION FOR REHEARING AND
SUGGESTION FOR REHEARING EN BANC
(5 Cir.. 1986, 804 F.2d 1376)
—————
A-43
BY THE COURT:
A member of the Court in active service having re-
quested a poll on the suggestion for rehearing en banc
and a majority of the judges in active service having
voted in favor of granting a rehearing en banc,
IT IS ORDERED that this cause shall be reheard by
the Court en banc with oral argument on a date hereafter
to be fixed. The Clerk will specify a briefing schedule for
the filing of supplemental briefs.
i. is
A-44
UNITED STATES of America and Michael O. Hanson,
Special Agent of the Internal Revenue Service,
Plaintiffs-Appellees,
V.
Bernard M. BARRETT,-_Jr. as President of Plastic and
Reconstructive Surgeons, P.A., Houston, Texas,
Defendant-Appellant.
No. 85-2054.
United States Court of Appeals,
Fifth Circuit.
Dec. 3, 1986.
The United States brought action to enforce Internal
Revenue Service summons. The United States District
Court for the Southern District of Texas at Houston,
James DeAnda, J., entered enforcement order, and tax-
payer appealed. The Court of Appeals held that taxpayer,
4 medical doctor who was subject to IRS criminal in-
vestigation, was entitled to district court determination
of whether enforcement of IRS summons should be con-
ditioned in order to protect taxpayer against unnecessary
disclosure of fact that he was under criminal investigation.
Affirmed and remanded.
Robert Madden Hill, Circuit Judge, concurred and
filed opinion in which Reavley, Circuit Judge, joined.
Brown, Circuit Judge, concurred and filed opinion.
Opinion, Sth Cir., 787 F.2d 958, withdrawn.
a
A-45
Edward D. Urquhart, Urquhart & Hassell, Charles J.
Escher, Houston, Tex., for defendant-appellant.
William A. Whitledge, Atty., Tax Div., U.S. Dept. of
Justice, Washington, D.C., Henry K. Oncken, U.S. Atty.,
James R. Gough, Asst. U.S. Atty., Houston, Tex., Glenn
L. Archer, Jr., Asst. Atty. Gen., Michael L. Paup, Chief
Asst. Atty. Gen., Charles E. Brookhart, Atty., Tax Div.,
U.S. Dept. of Justice, Washington, D.C., for plaintiffs-
appellees.
Appeal from the United States District Court for the
Southern District of Texas.
Before BROWN, REAVLEY and HILL, Circuit Judges.
ON PETITION FOR REHEARING AND
SUGGESTION FOR REHEARING EN BANC
(Opinion April 16, 1986, 5 Cir. 1986, 787 F.2d 958)
PER CURIAM:
After receiving the application for rehearing we have
decided that we misgauged the scope of our prior holding
in United States v. Texas Heart Institute, 755 F.2d 469
(5th Cir. 1985). Accordingly we withdraw our opinion
and substitute the following in its stead.
In this appeal, Dr. Bernard M. Barrett, Jr. challenges
the district court’s order enforcing an Internal Revenue
Service (IRS) summons directing him te produce all the
financial records of his incorporated medical practice.
We affirm the district court’s order enforcing the sum-
mons but remand for resolution of Barrett’s claim that,
to prevent an abuse of the court’s process, the order
should be modified so as to prohibit the IRS from vio-
lating the terms of 26 U.S.C. § 6103(a).
A-46
I,
Barrett is the president of an incorporated medical
practice specializing in plastic and reconstructive surgery.
In 1979 the IRS began an audit of Barrett’s personal and
corporate income tax returns for the years 1976, 1977
and 1978. When the initial investigation uncovered a
$100,000 discrepancy between Barrett’s books and his
bank records, the IRS transferred the case from its civil
to its criminal division.
Agent Michael O. Hanson, to whom the case was
transferred, determined that it would be necessary to
inquire of Barrett’s patients the amount each had payed
for Barrett’s services. To this end, Agent Hanson sent
two sets of summonses calling for patient’s records, one
to the hospitals where Barrett practiced and one to
Barrett himself. All but four of the hospitals complied
with the summonses providing a total of 350 patients’
names. Agent Hanson then sent a letter to each patient
advising that Barrett was being investigated by the Crimi-
nal Investigation Division of the IRS and requesting docu-
mentation of fees paid to Barrett. The IRS’s right to
enforce the summonses issued to the four noncomplying
hospitals was litigated in this court in United States v.
Texas Heart Institute, 755 F.2d 469 (Sth Cir. 1985).
The instant appeal involves the validity of the district
court’s decision to enforce the IRS summons issued to
Barrett.
Barrett maintains that the summons was not issued
to him for a legitimate purpose. Alternatively Barrett
urges this court to follow the example of Texas Heart
and to remand for further proceedings to determine
whether the district court’s enforcement order should be
A-47
modified so as to prohibit the IRS from informing his
patients that he is under criminal investigation.
Il.
[1] Barrett has fully complied with the district court’s
order requiring him to release the names of his patients.
His claim that the district court based its decision to
enforce the summons upon an erroneous finding that the
IRS possesses a legitimate investigatory purpose’ is there-
fore moot. Grathwohl v. United States, 401 F.2d 166
(Sth Cir. 1968); Lawhon v. United States, 390 F.2d
663 (Sth Cir. 1968).
Barrett’s ciaim that he is entitled to remand under
Texas Heart is less easily disposed of. At the time of
this appeal, the IRS has not yet conducted mailings to
Barrett’s office patients. If Barrett was entitled, in the
first instance, to obtain an order from the district court
prohibiting certain uses of the summoned information,
we see no reason why he should not be entitled to have
those restrictions imposed upon remand. The question we
must answer, then, is whether in an enforcement pro-
ceeding the district court could have appropriately re-
stricted the IRS in the manner that it conducted mailings
to Barrett’s patients.
1. Under United States v. Powell, 379 U.S. 48, 57-58, 85 S. Ct.
248, 254-55, 13 L.Ed.2d 112 (1964), the government must meet
four requirements in order to obtain enforcement of its summons
by a district court: the government must show (1) that the summons
was issued for a legitimate purpose; (2) that the information sought
may be relevant to that purpose; (3) that the information sought is
not already within the IRS Commissioner’s possession; and (4) that
all administrative steps required by the Internal Revenue Code have
been followed.
A-48
Ill.
Section 6103(a) of the Internal Revenue Code’ sets
forth the general rule that tax return information is con-
fidential and may not be disclosed by officers and em-
ployees of the United States.* This general right of
privacy is limited by section 6103(k)(6) which provides:
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 the internal
revenue laws, disclose return information to the ex-
tent that such disclosure is necessary in obtaining
information, which is not otherwise reasonably avail-
abi. ...
The Code provides both criminal penalties against in-
dividuals who violate the non-disclosure provisions of
section 6103 and a civil right of action for damages
against the United States for those whose return infor-
mation is impermissibly disclosed. Section 7213 makes
it unlawful to disclose any return or return information,
except as authorized by the Code, and punishes a willful
violation of that section by five years’ imprisonment or
a $5,000 fine, or both. Section 7431. provides to the
individual whose return information is unlawfully dis-
closed a right of action for damages against the United
States and sets the minimum amount of the damages at
$1,000 for each unauthorized disclosure. Barrett main-
tains that in addition to these statutory remedies for
2. All references hereinafter to sections of the Code are under
26 U.S.C.
3. It is conceded by the government that the proposed mailings
to Barrett’s patients contain “return information.”
erates
A-49
violations of section 6103(a), Texas Heart permits him
to challenge the IRS summons as an abuse of process
at the enforcement proceedings. The IRS contends the
proper forum for defining the interplay between sections
6103(a) and 6103(k)(6) is not an enforcement hearing
but a civil or criminal trial as explicitly provided for
by sections 7213 and 7431 of the Code.
[2] We find that Texas Heart supplies the law of the
case and that Barrett is entitled to a determination by
the district court whether unconditional enforcement of
the IRS summons would constitute an abuse of its process.
In Texas Heart we found that the disclosure by the
IRS to Barrett’s patients that he was under criminal
investigation might be an unauthorized disclosure of re-
turn information prohibited by section 6103. On remand
we directed the district judge to make three determina-
tions:
(1) whether the statement in the prior patient mail-
ings that Dr. Barrett was under criminal in-
vestigation was a disclosure of “return informa-
tion” under section 6103; and, if so,
(ii) whether the disclosure of that informaiton was
authorized under section 6103(k)(6); and
(iii) whether enforcement of the summons should
be conditioned upon requiring the IRS to desist
from further unlawful disclosures.
755 F.2d at 482.
While we do not explicitly state in Texas Heart that
the district court is empowered to make section 6103
determinations in an enforcement hearing, our treatment
of the cause on remand can be reconciled with no other
A-50
view of the case. Accordingly, we find that our mandate
in Texas Heart requires the district court to consider
whether enforcement of the {RS summons should be
conditioned in order to protect Barrett against unneces-
sary disclosure of the fact that he is under criminal
investigation. We affirm the order of the district court
enforcing the IRS summons; we remand for the district
court to determine whether the summons should be
conditionally enforced.
AFFIRMED and REMANDED.
ROBERT MADDEN HILL, Circuit Judge, with whom
Circuit Judge REAVLEY joins, concurring:
While I am compelled by our holding in United States
v. Texas Heart Institute, 755 F.2d 469 (Sth Cir. 1985),
to join in the panel’s opinion, I believe that the result
reached today is out of step with the Supreme Court’s
expansive reading of 26 U.S.C. § 7602 which grants the
IRS the authority to “examine any books, papers, records
or other data which may be relevant . . . [and to summon]
any person having possession of books of account...
relevant or material to such inquiry.”
The statutory right to privacy asserted by Barrett im-
poses significant limitations on the IRS’s power under
section 7602 to collect information which is relevant to
its investigation. Had Texas Heart examined the authori-
ties which address the scope of the IRS’s powers under
section 7602 I believe it would have discerned a common
theme; they all decline to circumscribe purposeful and
productive exercise of these powers “absent unambiguous
directions from Congress.” United States v. Arthur Young
& Co., 465 U.S. 805, 816, 104 S. Ct. 1495, 1502, 79
A-51
L.Ed.2d 826 (1984) (quoting United States v. Bisceglia,
420 U.S. 141, 150, 95 S. Ct. 915, 920, 43 L.Ed.2d 88
(1975)); United States v. Euge, 444 U.S. 707, 715, 100
S. Ct. 874, 880, 63 L.Ed.2d 141 (1980). The following
summary of the relevant authority supports this con-
clusion.
In United States v. Powell, 379 U.S. 48, 85 S. Ct. 248,
13 L.Ed.2d 112 (1964), for example, the Supreme Court
refused to read into section 706(b), prohibiting “uneces-
Sary examination[s],” a requirement that enforcements of
summonses be founded on probable cause. The Court
reasoned that “[a]lthough a more stringent interpretation
is possible . . . we reject such an interpretation because
it might seriously hamper the Commissioner in carrying
out investigations he thinks warranted. . . .” 379 U.S. at
53-54, 85 S. Ct. at 252-53, quoted in United States v.
Euge, 444 U.S. at 715, 100 S. Ct. at 880. Similarly in
Donaldson v. United States, 400 U.S. 517, 91 S. Ct. 534,
27 L.Ed.2d 580 (1971), the Court declined to limit the
summons authority to cases where no criminal prosecu-
tion was contemplated. “Any other holding,” said the
Court, “would thwart and defeat the appropriate investi-
gatory powers that the Congress has placed in ‘the Sec-
retary or his delegate.’ ” 400 U.S. at 533, 91 S. Ct. at 543.
Again, in United States v. Bisceglia, 420 U.S. 141, 95
S. Ct. 915, 43 L.Ed.2d 88, the Court, finding no discern-
ible contrary purpose by Congress, upheld the IRS’s au-
thority under section 7602 to issue a “John Doe” sum-
mons to a bank to determine the identity of unknown
individuals who might be liable for unpaid taxes. The
Court again broadly construed the IRS’s summonsing
authority in United States v. Euge to permit it to compel
the execution of handwriting samples. A contrary result,
A-52
reasoned the Court, would “stultify enforcement of federal
law.” 444 U.S. at 715, 100 S. Ct. at 880 (quoting
Donaldson v. United States, 400 U.S. at 536, 91 S. Ct.
at 545). Finally, in United States v. Arthur Young &
Co., the Court declined to accord a privilege to an audi-
tor’s tax accrual workpapers. “We are unable,” wrote
the Court, to “discern the sort of ‘unambiguous directions
from Congress’ that would justify a judicially created
work-product immunity for tax accrual workpapers sum-
moned under § 7602.” 465 U.S. at 816, 104 S. Ct. at
1502.
[3] The power to solicit information from third parties
having financial dealings with a particular taxpayer is a
vital part of the IRS’s information-gathering authority.
In connection therewith Congress has also seen fit to pro-
tect citizens from unnecessary intrusions into their privacy
and has enacted civil remedies and criminal penalties.
We have no indication, however, that Congress intended
sections 6103 and 7431 to burden purportedly “summary”
enforcement proceedings with the time-consuming litiga-
tion that section 6!03(k)(6) determinations would entail.
It is my belief that this statutory right of privacy is not
without bounds; under the current jurisprudence of the
Supreme Court it is circumscribed by the remedies ex-
plicitly made available by Congress. Although it seems
to me that the IRS could pursue its investigation in the
present case without informing all of Dr. Barrett’s patients
that he is under criminal investigation, I conclude that
there is no basis for Texas Heart’s expansion of the district
court’s authority in summary enforcement proceedings to
find an abuse of discretion beyond those instances specifi-
cally envisioned by the Supreme Court in United States
v. Powell, 379 U.S. 48, 58, 85 S. Ct. 248, 255, 13 L.Ed.
A-53
2d 112 (1964), namely, when “the summons has been
issued for an improper purpose, such as 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.”
JOHN R. BROWN, Circuit Judge, concurring:
I write separately to emphasize my strong conviction
that our holding in United States v. Texas Heart, 755
F.2d 469 (Sth Cir. 1985), is not only controlling, but
is also prudent. Dr. Barrett's request that the District
Court protect his privacy rights by allowing conditional
enforcement of the summonses does not restrict the IRS
in their investigatory capacity beyond restrictions already
imposed by Congress and the Supreme Court.
The mandate of Texas Heart provides for an easy and
efficient method of avoiding the necessity of requiring
the District Court to stand idly by while its processes are
unnecessarily used to inflict damage upon a taxpayer’s
reputation when such harm can easily be prevented.
Texas Heart explicitly provides that:
the district court has discretion to condition enforce-
ment of the summonses by requiring that the IRS
agree to desist from further unlawful disclosures.
755 F.2d at 482. Therefore, if it is an unlawful disclosure,
Texas Heart vests authority in the District Court to dis-
cover and prohibit an abuse of discretion through sum-
mary enforcement proceedings.
My brothers continue to fear that permitting the Dis-
trict Court to inquire whether the breadth of the IRS
summons, or the practices flowing from its use, can be
A-54
tailored so as not to collide with the congressional pur-
pose of protecting the taxpayer from an unnecessary in-
vasion of his/her privacy would burden the enforcement
proceedings and/or expand the inquiry of the District
Court beyond the limits of United States v. Powell, 379
U.S. 48, 85 S. Ct. 248, 13 L.Ed.2d 112 (1964). This
fear is unnecessary. -
The IRS is already required to go before the District
Court to prove that it possesses a legitimate investigative
purpose for the summons. Powell, 379 U.S. at 57-58, 85
S. Ct. at 254-55. Much of the evidence pertinent to the
existence of a proper legislative purpose will also be
relevant to determining whether the disclosure of return
information is necessary to obtain information not other-
wise available. The determination of whether there exists
a legitimate investigative purpose for the summons is not
far removed from the determination of whether the prac-
tices flowing from its enforcement are an unnecessary
invasion of privacy or threatened injury to the taxpayer’s
reputation.
Furthermore, my reading of the authorities compels the
conclusion that such an inquiry is included in the District
Court’s review of JRS summonses. The Supreme Court
stated that the IRS’s power to collect information is
limited where unambiguously directed by Congress. United
States v. Arthur Young & Co., 465 U.S. 805, 816, 104
S. Ct. 1495, 1502, 79 L.Ed.2d 826 (1984). Congress
has expressly provided that the IRS investigative powers
do not include the power for unnecessary invasions of
privacy or injuries of a taxpayer’s reputation. Sections
6103 and 7431 provide civil and criminal penalties to
redress unnecessarily injurious enforcement processes by
the IRS. Congress unambiguously stated that these reme-
A-55
dies were for unnecessary injuries; they did not say the
injuriés were necessary but unavoidable. Congress ex-
pressly limited the IRS investigative powers to prohibit
the unnecessary injuries Dr. Barrett has petitioned the
District Court to enjoin.
In these days of overloaded dockets and scarce judicial
resources, the other panel members would require the
taxpayer to commence a separate lawsuit to redress an
injury which could be prevented through the immediately
available vehicle of conditional enforcement at the sum-
mons enforcement hearing.
We need not speculate on the efficacy of any such
proposed remedy. Indeed, Dr. Barrett attempted to fol-
low this very path and comply with this panel’s original
holding by filing a civil action for damages under Section
7431. The District Court granted summary judgment for
the government and Dr. Barrett was forced to bring his
claim before the Fifth Circuit yet another time. This
Court reversed the grant of summary judgment. Barrett
v. United States, 795 F.2d 446 (Sth Cir. 1986). After
three cases in the District Court and three times in this
Court—a total of twelve United States Judges-—the
doctor has yet to get the protection which Texas Heart
assures.
Nowhere can the injustice of restricting taxpayers to
post-injury remedies be seen as well as it can in this case.
Dr. Barrett’s attempts to follow the course of conduct
urged by the concurring—yet unbinding—opinion have
resulted in no relief and a considerable waste of time and
money by the taxpayer, the government, and the courts.
The position urged in this panel’s original holding and
in the concurring opinion on rehearing has already proven
A-56
that restricting the taxpayer to post-injury remedies is not
only inefficient, but most importantly, it is ineffective.
This rehearing is the fourth time this circuit has heard
virtually the same claim by Dr. Barrett and has yet to
provide him any relief. We now have the clear indication
of the burden imposed upon these proceedings and the
time-consuming litigation that sections 610[3] and 7431
entail; however, contrary to the concurring opinion, the
true burden has resulted from prohibiting the District
Court from examining the question at the summons en-
forcement hearings when it had all the evidence before
it and was in a position to prevent both the harm and
the wasteful, time-consuming litigation that has followed.
I do not believe Congress intended to preclude the
courts from preventing unecessary injuries when they
adopted legislation to compensate taxpayers for unneces-
sary injuries. Disclosing information which would violate
sections 6103 and 7431 clearly constitutes an unlawful
disclosure and would be an abuse of discretion to permit
the disclosure of return information that is, by statute,
not necessary to the investigation. Therefore, I read Texas
Heart’s mandate permitting the District Court to use
conditional enforcement at the summons enforcement pro-
ceeding as totally consistent with the unambiguous intent
of the guidelines established by Congress and interpreted
by the Supreme Court.
A-57
UNITED STATES of America and Michael O. Hanson,
Special Agent of the Internal Revenue Service,
Petitioners-Appellees,
V.
Bernard M. BARRETT, Jr. as President of Plastic and
Reconstructive Surgeons, P.A., Houston, Texas,
Respondent-Appellant.
No. 85-2054.
United States Court of Appeals,
Fifth Circuit.
April 16, 1986.
United States brought action to enforce Internal Reve-
nue Service summons. The United States District Court
for the Southern District of Texas, James DeAnda, J.,
entered enforcement order, and taxpayer appealed. The
Court of Appeals, Robert Madden Hill, Circuit Judge,
held that taxpayer, a medical doctor who was subject
of IRS criminal investigation, was not entitled to have
district court modify its enforcement order so as to pro-
hibit IRS from informing his patients he was under crimi-
nal investigation.
Affirmed.
Brown, Circuit Judge, concurred in part and dissented
in part with opinion.
A-58
Edward D. Urquhart, Urquhart & Hassell, Charles J.
Escher, Houston, Tex., for respondent-appellant.
William A. Whitledge, Atty., Henry K. Oncken, U.S.
Atty., James R. Gough, Asst. U.S. Atty., Houston, Tex.,
Glenn L. Archer, Jr., Asst. Atty. Gen., Tax Division,
Michael L. Paup, Chief, U.S. Dept. of Justice, Wash-
ington, D.C., Charles E. Brookhart, Atty., for petitioners-
appellees.
Appeal from the United States District Court for the
Southern District of Texas.
Before BROWN, REAVLEY and HILL, Circuit Judges.
ROBERT MADDEN HILL, Circuit Judge:
Dr. Bernard M. Barrett, Jr., appeals from a district
court order enforcing an Internal Revenue Service (IRS)
summons directing him to produce all the financial records
of his incorporated medical practice. We affirm.
fl
Barrett is the president of an incorporated medical prac-
tice specializing in plastic and reconstructive surgery. In
1979 the IRS began an audit of Barrett’s personal and cor-
porate income tax returns for the years 1976, 1977 and
1978. When the initial investigation uncovered a $100,000
discrepancy between Barrett's books and his bank re-
cords, the IRS transferred the case from its civil to its
criminal division.
Agent Michael O. Hanson, to whom the case was trans-
ferred, determined that it would be necessary to inquire
of Barrett’s patients the amount each had payed for
Barrett’s services. To this end, Agent Hanson sent two
sets of summonses calling for patient’s records, one to
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the hospitals where Barrett practiced and one to Barrett
himself. All but four of the hospitals complied with the
summonses providing a total of 350 patients’ names.
Agent Hanson then sent a letter to each patient advising
that Barrett was being investigated by the Criminal In-
vestigation Division of the IRS and requesting documen-
tation of fees paid to Barrett. The IRS’s right to enforce
the summonses issued to the four noncomplying hospitals
was litigated in this court in United States v. Texas Heart
Institute, 755 F.2d 469 (Sth Cir. 1985). The instant
appeal involves the validity of the district court’s decision
to enforce the IRS summons issued to Barrett.
Barrett maintains that the summons was not issued to
him for a legitimate purpose. Alternatively Barrett urges
this court to follow the example of Texas Heart and to
remand for further proceedings to determine whether
the district court’s enforcement order should be modified
so as to prohibit the IRS from informing his patients that
he is under criminal investigation.
II.
[1] Barrett has fuiiy complied with the district court’s
order requiring him to release the names of his patients.
His claim that the district court based its decision to
enforce the summons upon an erroneous finding that the
IRS possessed a legitimate investigatory purpose’ is there-
1. Under United States v. Powell, 379 U.S. 48, 57-58, 85 S. Ct.
248, 254-55, 13 L.Ed.2d 112 (1964) the government must meet f
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