Petition for Writ of Certiorari — Kersting v. United States

IN THE

Supreme Court of the Hnited States

OCTOBER TERM, 1989

RICHARD HONGSERMEIER, FIDELA HONGSER-

MEIER, HOYT W. YOUNG, BARBARA D. YOUNG, |

ROBERT L. DUFRESNE, CAROLYN S. DUFRESNE, |

JERRY DIXON, PATRICIA DIXON, RALPH J. RINA,

TERRY D. OWENS, AND GLORIA K. OWENS,

Petitioners,

V.

UNITED STATES OF AMERICA, ET AL,

Respondents.

PETITION FOR WRIT OF CERTIORARI TO

THE UNITED STATES COURT OF APPEALS

FOR THE NINTH CIRCUIT

Joe ALFRED IZEN, JR.

5222 Spruce Street

Bellaire, Texas 7740]

(713) 668-8815

Attorney for Petitioners

Alpha Law Brief Co., Inc. — 8748 Westpark — Houstor

QUESTIONS PRESENTED

(1) Whether complete or substantial compliance with

a John Doe summons by the summonsed party divests

taxpayers-Petitioners of their right to intervene where their

identities were known to the Service prior to issuance of

the John Doe summons and prior to such compliance?

(2) Whether Petitioners’ Motion for Leave to Intervene

Should have been granted?

(3) Whether the Internal Revenue Service may utilize

a John Doe summons absent proof by the summonsed

party that the identities of the taxpayers, concerning whom

tax information is sought, are known to the government?

Il

PARTIES

The parties in this case are Petitioners, Richard

Hongsermeier, Fidela Hongsermeier, Hoyt W. Young

Barbara D. Young, Robert L. DuFresne, Carolyn S.

DuFresne, Jerry Dixon, Patricia Dixon, Ralph J. Rina,

. Terry D. Owens, and Gloria K. Owens.

Respondents are the United States of America and the

Internal Revenue Service.

III

ADOPTION OF APPENDIX IN

CONSOLIDATED CASE

This Application arises out of three cases which were

consolidated on appeal by the Ninth Circuit. It is the

companion to the Application for Writ of Certiorari filed

concomitantly herewith by Henry F. K. Kersting against

the United States of America. Pursuant to the provisions

of Rule 30.2 of the Rules of the Supreme Court, Peti-

tioners adopt that Appendix as their own and all refer-

ences to Appendix documents are to this.

IV

TABLE OF CONTENTS

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ADOPTION OF APPENDIX IN CONSOLIDATED CASE

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TABLE OF AUTHORITIES

CASES Page

Dixon, Et Al v. CU.R., Tax Court Docket No. 9382-8 5.6

Donaldson v. United States, 400 U.S. 517, 522. 91 S.Ct. 534

938. 27 L.Ed.2d 580 (1971) (Ach eelen Sema te ees 1]

Gluck v. United States, 771 F.2d 750. 754 (3d ( ir., 1985) 8,9,14

Hannah v. Larche, 3603 U.S. 420. 80 S.Ct. 1502. 4 L.Ed.

20 $307 (3960) ©... ie o knee acorn ee ala ei ae a 10

In Re: McElrath, 248 F.2d 612, 617 (D.C. Cir.. 1957). . 13.14

Kersting v. United States, 891 F.2d 1407 (9th Cir.. 1989) $

Legal Aid Society of Alameda County v. Dunlap, 618 $.26

48 (9th Cir., 1980) keen 12

N.A.A.C.P. v. New York, 413 U.S. 345. 366. 93 S( 2591,

Ore, OF Be CFB CUGTSD nb occ nvosnebidievccen.. 1]

Pellegrino v. Nesbit, 203 F.2d 463 (9th Cir.. 1953) ...... 12

Peralta v. Heights Medical Center, Inc. 108 S.Ct. 896

CSOT aie b ad oe pea brane Corned de ee eee 17

Reisman v. Caplin, 375 U.S. 440, 445, 84 S.Ct. 508. 511.

MS Rea 499 (1964) 26 ioc ceca kon ne Pye 10, 11

S.E.C. v. Jer l. O'Brien, Inc., 104 S.Ct. 2720 (1984 » eked

Trbovitch v. UMW ., 404 U.S. 528. 538-39 at note 10, 92

S.Ct. 630. 636. note | 3 L.Ed.2d 686 (1972) . . 12

. boha* .

United Airlines, Inc. v. McDonald, 432 U.S. 385. 394. 97

S.Ct. 2464, 2469, 53 L.Ed.2d 423 (1977

3 B. J. Moore, Federal Practi Section 24 [4] 12

me 26. Dod. BC Be oe cv ee cent. 3.4

a. ection /009(a sas re aes bee wee /

Title 18 U.S.C. Section 3486(a and b) . ; 12

Title 26 U.S.C. Section 7609(1)(3) ..... oa ve $0,192, fi P

Title 28 U.S.C. Section 133] ee ae rok ge are a)

litle 28 U.S.C. Sections 7602. 7 Pea +, 8, 1

IN THE

Supreme Court of the United States

OCTOBER TERM, 1989

RICHARD HONGSERMEIER, FIDELA HONGSER-

MEIER, HOYT W. YOUNG, BARBARA D. YOUNG,

ROBERT L. DUFRESNE, CAROLYN S. DUFRESNE,

JERRY DIXON, PATRICIA DIXON, RALPH J. RINA,

TERRY D. OWENS, AND GLORIA K. OWENS,

Petitioners,

V.

UNITED STATES OF AMERICA, ET AL,

Respondents.

PETITION FOR WRIT OF CERTIORARI TO

THE UNITED STATES COURT OF APPEALS

FOR THE NINTH CIRCUIT

Petitioners, Richard Hongsermeier, Fidela Hongser-

meier, Hoyt W. Young, Barbara D Young, Robert L.

DuFresne, Carolyn S. DuFresne, Jerry Dixon, Patricia

Dixon, Ralph J. Rina, Terry D. Owens, and Gloria K.

Owens, respectfully pray that a Writ of Certiorari issue

to review the decision of the United States Court of

Appeals for the Ninth Circuit, which sustained an Order

of the United States District Court for the District of

|

a

Hawaii denying Petitioners’ Motion for Leave to Intervene

in a John Doe summons compliance procedure initiated

by the Respondent. United States of America, through

its agency, the Internal Revenue Service of the United

States.

QUESTIONS PRESENTED FOR REVIEW

QUESTION 1

1. Whether complete or substantial compliance with

a John Doe summons by the summonsed party divests

taxpayers-Petitioners of their right to intervene where their

identities were known to the Service prior to issuance of

the John Doe summons and prior to such compliance?

QUESTION 2

2. Whether Petitioners’ Motion for Leave to Intervene

should have been granted?

QUESTION 3

3. Whether the Internal Revenue Service may utilize

a John Doe summons absent proof by the summonsed

party that the identities of the taxpayers, concerning whom

tax information is sought, are known to the government?

REPORTS OF OPINIONS

The Opinion of the Ninth Circuit Court of Appeals in

this case was reported at 891 F.2d 1407 and is set forth

in Appendix B.

The Order of the United States District Court for the

District of Hawaii is not officially reported but a copy

of the official decision is set forth in Appendix A.

3

JURISDICTION

The decision sought to be reviewed here was entered

by the United States Court of Appeals for the Ninth

Circuit on December 13. 1989. An order denying a Re-

hearing with Suggestion for Rehearing En Banc was

entered by the Court of Appeals on February 16, 1990.

That order is set forth in Appendix C.

The jurisdictaai of this Court is invoked pursuant to

28 U.S.C. Sect y254

STATUTES AND RULES INVOLVED

The following statutes and rules are involved in this

case:

26 U.S.C. Section 7602 (Appendix P) and

26 U.S.C. Section 7609 (Appendix R).

RULE 24. INTERVENTION

(a) Intervention of Right. Upon timely application

anyone shall be permitted to intervene in an action:

(1) when a statute of the United States confers an un-

conditional right to intervene: or (2) when the applicant

claims an interest relating to the property or transaction

which is the subject of the action and the applicant is

so situated that the disposition of the action may as a

practical matter impair or impede the applicant's ability

to protect that interest. unless the applicant's interest is

adequately represented by existing parties.

(b) Permissive Intervention. Upon timely application

anyone may be permitted to intervene in an action:

(1) when a statute of the United States confers a con-

ditional right to intervene; or (2) when an applicant's

claim or defense and the main action have a question of

4

law or fact in common. When a party to an action relies

for ground of claim or defense upon any statute or

executive order administered by a federal or state govern-

mental officer or agency or upon any regulation, order,

requirement or agreement issued or made pursuant to the

statute or executive order, the officer or agency upon

be permitted to intervene in the

timely application may

action. In exercising its discretion the court shall con-

sider whether the intervention will unduly delay or

prejudice the adjudication of the right of the original

parties,

(c) Procedure. A person desiring to intervene shall

serve a motion to Intervene upon the parties as provided

in rule 5. The motion shall state the grounds therefor and

shall be accompanied by a pleading setting forth the claim

or defense for which intervention is sought. The same

procedure shall be followed when a statute of the United

States gives a right to intervene. When the constitution-

ality of an act of Congress affecting the public interest

is drawn in question in any action to which the United

States or an office, agency or employee thereof is not a

party, the court sha'l notify the Attorney General of the

United States as provided in Title 28, U.S.C. Section 2403.

Amended effective March 19, 1948; October 20, 1949;

July 1, 1963; July 1, 1966; August i, 1987.

STATEMENT OF THE CASE

Petitioners, Richard Hongsermeier, Fidelia Hongser-

meier, Hoyt W. Young. Barbara D. Young, Robert L.

Dufresne, Carolyn S. DuFresne, Jerry Dixon, Patricia

ph J. Rina, Terry D. Owens, and Gloria K.

Owens, are investors in business transactions structured

by Henry Kersting, an alleged “tax shelter promoter.”

Petitioners pi rchased SHares 1M Various business COrpora-

: Salas fr? . ’ ] ’ > TA » a 4 ‘eT

tions utilizing borrowed funds and deducted the interest

payments thereon.

Apparently, the Internal Revenue Service began an

investigation of Kersting’s investment plans in December

of 1980. In January of 1981, the Internal Revenue Service

obtained and utilized a criminal search warrant to seize

various documents from the promoter’s ( Kersting’s )

offices in Honolulu, Hawaii. I.R.S. agents and officials

conceded, in internal memos, that the search warrant

procedure was used to “accelerate” the investigation so

that the consequences of the expiration of the three-year

Statute of limitations could be avoided.

During the search, which took place on January 22,

1981, I.R.S. agents confiscated and carried away ninety-

six boxes of documents. Kersting’s records were thereafter

copied and disseminated to I.R.S. offices throughout the

United States. By i.R.S. admission, at least six boxes of

documents were turned over to one or more Federal Grand

Juries for investigation of ssIdie Crimimal vioiations.

Pea

Throughout the proceedings below. the Internal Reve-

7 ne ee Fes pata } a=? , 4 ot ot anes? ‘reer’

nue Service has never d Py oners” records

- “ ° | ° . ’ P . — *

were included In those SC1Z¢ inuary 22. 1981.

) 7. ROS one Pam R EE } » Re recat

Petitioners Gtr’ CU ‘ LJ \ . . ay ¢ result ol

N ‘ ‘whe cet { =r ‘ . . < eo

ERS. CXanlinations i rt ‘ ‘ iA records Ne) Cd

ses - thee , be tt A 1] —— a ee aap? | si cial ha 2

under the warrant. Al! of ~ Petitioners herein named

brought actions in the United States Tax Court seeking

a redetermination of the tax deficiencies asserted by the

28.3

The United States Tax Court. Honorable William A.

Gotfe, consolidated all of the Petitioners’ cases for trial

and briefing under the caption, Dixon, Et Al, v. C.LR..

Docket No. 9382-83. As of the date of the fling ot this

6

Petition, the Dixon case, which involves the underlying

tax merits of Kersting’s investment programs, remains

pending for decision before the United States Tax Court.

On May 15, 1987, at a time the Dixon v. C.1.R. Tax

Court case was already pending, the I.R.S. petitioned the

United States District Court for the District of Hawaii

for leave to serve a John Doe summons on Henry Kersting.

In its affidavit, the I.R.S. alleged that Kersting promoted

tax shelters of questionable validity and that it sought

the summoned documents in order to identify taxpayers

participating in his investment program. Neither the I.R.S.

nor government counsel made any effort whatsoever to

limit the descriptive portion of the John Doe summons

so that the names of taxpayers already known to the

Service would be deleted.

The John Doe summons purported to relate, on its

face, to an investigation of tax years 1984, 1985, and

1986.' Yet, the summons directed Kersting to produce

all documents relevant to tax years 1981 through 1986.

On August 24, 1987, Henry F. Kersting, the alleged

promoter, appeared at a show cause hearing before the

Hawaii District Court and contested enforcement of the

John Doe summons on various grounds. One of the grounds

asserted by Kersting was that I.R.S. issuance of the John

Doe summons as to persons whose identities were already

known to the Service was an effort by I.R.S. “to subvert”

the notice requrements imposed on the government under

I.R.C. Section 7609(a).

On January 14, 1988, the District Court ordered en-

forcement of the John Doe summons over Kersting’s

objections.

1. The records summonsed related to taxable years for which

some of your Petitioners have pending Tax Court cases.

7

Petitioners, who were part of the group of taxpayers

“described” in the descriptive portion of the John Doe

summons filed a Joint Motion for Leave to Intervene in

the John Doe summons enforcement proceedings just

prior to the District Court hearing conducted on May 31,

1988. During that hearing, the District Judge held Kerst-

ing in contempt and ordered him to produce all of the

documents specified in the summons. (See Appendix B,

P. 9a) Petitioners’ Motion sought both permissive inter-

vention and intervention as a matter of right.

On August 31, 1988, the District Court denied Peti-

tioners’ Motion for Leave to Intervene resulting in Peti-

tioners’ timely appeal to the Ninth Circuit.

The Ninth Circuit affirmed the District Court’s denial

of Petitioners’ intervention efforts. In its opinion, the

Court of Appeals never addressed Petitioners’ claims of

lack of notice and procedural bad faith, holding, instead,

that these issues need not be reached since Kersting’s

compliance with the John Doe summons, if “. . . sub-

stantial . . .” mooted further appellate consideration of

the merits of the enforcement. The Ninth Circuit re-

manded the case to the District Court with instructions

“ . . to develop the record further and to decide the

motions on their merits should it find that Kersting’s

opposition to enforcement is not made moot by com-

pliance .. .” (Appendix B, P. 17a.)

Petitioners specifically adopted Henry F. Kersting’s

Request for Rehearing, which was denied. Petitioners

herein join Kersting in petitioning this Court for a Writ

of Certiorari to reconcile the conflict which exists between

the Federal Courts of Appeals as to whether compliance

with a John Doe summons moots any appeal from such

enforcement. Petitioners also seek a determination which

8

will protect Petitioners’ rights to avoid I.R.S. utilization

of John Doe summons proceedings where the taxpayer's

identity is known.

The statutory basis for federal jurisdiction in the United

States District Court is 28 U.S.C. Section 1331 and 26

U.S.C. Sections 7602, 7609.

REASON FOR ALLOWANCE OF THE WRIT

1. The decision of the United States Court of Appeals

for the Ninth Circuit in Kersting v. United States, 891

F.2d 1407 (9th Cir. 1989) directly conflicts with the

decision of the United States Court of Appeals for the

Third Circuit in Gluck v. United States, 771 F.2d 750

(3d Cir., 1985).

Specifically, the Ninth Circuit opinion holds that ap-

peals from summons proceedings after “substantial com-

pliance” are moot while the | hird Circuit holds that they

are not. (26 U.S.C. Section 7609 )

The opinion of the Ninth Circuit in Kersting departs

from the “accepted and usual course of judicial proceed-

ings” by failing to uphold specific statutory prohibitions

on IRS utilization of John Doe summons procedures en-

acted by Congress in 26 U.S.C. Section 7609(f£) (3) re-

quiring the exercise of this Court’s supervision, Specifl-

cally, the Ninth Circuit's decision allows the IRS to utilize

John Doe summons procedures where the identities of

taxpayers being investigated are known to the government.

The above specific issues constitute “important ques-

tions of federal law which “. . . have not been but should

be settled . . .” by this Court.

Further. the Ninth Circuit opinion decides a federal

question in a way that conflicts with applicable decisions

9

of this Court which have consistently upheld statutory

limitations on subpoena or summons power promulgated

by Congress. S.E.C. v. Jerry T. O’Brien, Inc., 104 S.Ct.

2720 (1984).

ARGUMENT

QUESTION 1

Whether complete or substantial compliance with

a John Doe summons by the summonsed party divests

taxpayers-Petitioners of their right to intervene where

their identities were known to the Service prior to

issuance of the John Doe summons and prior to such

compliance?

Recognizing a conflict in the Circuits on the issue, the

Court of Appeals refused to reach the merits of Peti-

tioners’ Motion for Leave to Intervene absent a deter-

mination by the District Court that Kersting had “failed

to substantially comply” with the John Doe summons

enforcement order prior to Petitioners’ intervention ef-

forts. (Appendix B, Page 10a). In its opinion the Ninth

Circuit noted but rejected the reasoning of the Third Cir-

cuit in Gluck v. United States, 771 F.2d 750, 754 (3d

Cir., 1985). (Appendix B, Page 10a, Note 8).

In overruling the I.R.S. argument that compliance with

the summons mooted the appeal, the Third Circuit ob-

served—

“If we find the summonses were illegal. we could

still fashion a remedy—prohibition of the use of the

summoned documents—to afford the Glucks effective

relief.”

See Gluck at P. 754.

10

Petitioner Kersting in his related Petition for W rit of

Certiorari sets out, at great length, the conflict in the

Circuits on the mootness issue. Petitioners adopt Kerst-

ing’s arguments and further assert that their interest as

Intervenors in post-enforcement hearings under Title 26

U.S.C. Section 7609 including contempt proceedings,

and any subsequent appeal, is of equal weight and gravity

as their position prior to enforcement.

QUESTION 2

Whether Petitioners’ Motion for Leave to Intervene

should have been granted?

While this Court has previously held in Hannah vy.

Larche, 363 U.S. 420, 80 S.Ct. 1502, 4 L.Ed.2d 1307

(1960) that—

Neither the Due Process Clause of the Fifth

Amendment nor the Confrontation Clause of the

Sixth Amendment is offended when a federal ad-

ministrative agency, without notifying a person un-

der investigation, uses its subpoena power to gather

evidence adverse to him .

specific statutory schemes enacted by Congress limiting

agency summons or subpoena power have been upheld

to the letter.

Prior to the enactment by Congress of the statutory

limitations on John Doe summons procedure embodied

in Title 26 U.S.C. Section 7609(f}(3) this Court held, in

Reisman v. Caplin, 375 U.S. 440, 445, 84 S.Ct. 508,

511. 11 L.Ed.2d 459 (1964) that—

Both parties summoned [under Section 7602]

and those affected by disclosure may appear or inter-

vene before the District Court and challenge the

7

11

summons by asserting their constitutional or other

claims.”

See Reisman at P. 445,

Later, in Donaldson v. United States, 400 U.S. 517, 522.

91 S.Ct. 534, 538, 27 L.Ed.2d 580 (1971) this Court

held that the right of a third party to intervene in an

enforcement action—

“, . . Was permissive only and... not mandatory.

99

See Donaldson, 400 U.S. at P. 529, 91 S.Ct., at P. 541.

Third party intervention in summons cases depended

upon “the usual process of balancing opposing equities.”

Both Reisman and Donaldson were decided prior to

the specific statutory enactment of the limitations on use

of John Doe summons procedures found in 26 U.S.C.

Section 7609(f)(3).

Petitioners had a specifically defined statutory interest

which precluded J.R.S. utilization of John Doe summons

proceedings with respect to their tax liabilities. The I.R.S.

violated this statutory interest prior to the date of filing

of Petitioners’ Motion to Intervene. Petitioners thus had

a statutorily created interest implicated by the proceed-

ings below and, therefore, had standing to intervene ir-

respective of whether this Court ultimately determines

Petitioners’ intervention rights to be mandatory or per-

missive.

This Court has previously held that the date on which

a party seeking intervention became aware of the litigation

is, by itself, not always relevant. N.A.A.C.P. v. New York,

413 US. 345, 366, 93 S.Ct. 2591, 2603, 37 L.Ed.2d

648 (1973). Of more import, in the timeliness context,

is the point at which the Intervenor—

12

“ Became aware that its interest would no longer

be protected adequately by the parties... .”

United Airlines, Inc. v. McDonald, 432 U.S. 385, 394,

97 S.Ct. 2464, 2469, 53 L.Ed.2d 423 (1977).

Under the facts of this case, Petitioners sought to inter-

vene at the point that Kersting was held in contempt and

faced severe fines in the event Petitoners’' records were

not turned over. It was, at this point, that Kersting’s

representation of Petitioners’ interests became “. . . In-

adequate... .” Legal Aid Society of Alameda County v.

Dunlap, 618 $.2d 48 (9th Cir.. 1980) at P. 50.

The burden imposed on a prospective intervenor to

show that the representation of his interest “may be”

inadequate is minimal under the rule. Trbevitch v.

UMAW.. 404 US. 528, 538-39 at note 10, 92 S.Ct. 630,

636. note 10, 30 L.Ed.2d 686 (1972).

Intervention should be allowed even after final judg-

ment where it is necessary to preserve some right which

can not otherwise be protected. Pellegrino v. Nesbit, 203

F.2d 463 (9th Cir., 1953) at PP. 465 and 466.

Any doubts about the adequacy of representation should

be resolved in favor of granting leave to intervene.

Trbovitch at P. 636. 3 B. J. Moore, Federal Practice,

Section 24.09-1[4] (1969).

Over thirty years ago, the former Chief Justice of this

Court had occasion to consider efforts to intervene in a

proceeding brought under a federal immunity statute.

Title 18 U.S.C. Section 3486(a and b). The District Court

denied intervention on the ground that the prospective

witnesses who would be forced to give up their Fifth

Amendment rights against self-incrimination in exchange

13

for immunity from prosecution had “no justiciable inter-

est.” Justice Warren E. Burger, in a concurring opinion

reversing the denial of intervention status stated—

“We go beyond the companion opinion and hold

that the witness should be given reasonable notice

of the application, be allowed to appear in the pro-

ceeding and be heard on the following: (1) whether

the committee was a committee of the current ses-

sion of Congress purporting to exercise powers duly

conferred upon it; (2) whether the witness recently

and at least during the current session of Congress

declined on the grounds of the privilege against self-

incrimination, to answer questions asserted by said

committee to be within the scope of Title 18, Section

3486(a); (3) whether the Attorney General of the

United States was given notice pursuant to the statute:

(4) whether the committee by the prescribed two-

thirds vote authorized the application to the District

Court for a grant of immunity to the witness after

having claimed his privilege; (5) whether the appli-

cation is made to the District Court for the district

wherein such inquiry of the committee is being con-

ducted.

The discretion of the District Court is limited at

this stage to a determination of the procedural irregu-

larity of an application and does not embrace such |

issues as the scope of the inquiry, the pertinency |

and relevancy of the questions propounded or the

constitutionality of the statute.”

In Re: McElrath, 248 F.2d 612, 617 (D.C. Cir. 1957).

While McElrath was decided en bane with a concurring

opinion, all nine Justices agreed that intervention was

mandatory. As noted in Justice Edgerton’s opinion—

i4

“The Court erred also in not allowing Appellants to

intervene as Defendants. Orders against them were

sought and obtained, /f they had ‘been valid, these

orders might have compelled them to make disclo-

sures that would have injured their reputations and

so their economic and social interest. The law does

not ignore such injuries. Appellants were squarely

within Rule 24(a) of the Federal Rules of Civil

Procedure: Intervention of Right. Upon timely ap-

plication anyone shall be permitted to intervene In

an action: . . . when their representation of the

Applicant's interest by existing parties is or may he

inadequate and the Applicant is or may be bound

by a judgment in the action,

The D.C. Circuit went on to rule that the Motion for

Leave to Intervene should have been granted “notwith-

standing a holding that this particular proceeding was

prematurely instituted.” McElrath at P. 6106.

The Court of Appeals’ rationale in McElrath answers

not only the merits of Petitioners’ Motion for Leave to

Intervene but, also, addresses and rejects the mootness

arguments advanced by the District Court and the Court

of Appeals. McElrath inferentially aligns the District of

Columbia Circuit with the Third Circuit's rationale ex-

pressed in Gluck supra.

Since the procedural irregularity of LR.S. use of John

Doe summons procedures was squarely at issue and re-

mained so throughout the pre-entorcement and post-en-

forcement summons proceedings, Petitioners should have

been granted leave to intervene. The failure to grant such

leave was error and should be reversed.

15

QUESTION 3

Whether the Internal Revenue Service may utilize

a John Doe summons absent proof by the summonsed

party that the identity of the taxpayers, concerning

whom tax information is sought, are known to the

government?

In S.E.C. v. Jerry T. O'Brien, Inc., 104 S.Ct. 2720

(1984) this Court, refused to uphold a “notice require-

ment” imposed on the S.E.C. by the Ninth Circuit. This

Court, acting under its supervisory powers, refused to

impose a requirement that the S.E.C. notify a third party

upon the issuance of a subpoena seeking information

concerning his interest.

This Court, through Justice Marshall, laboriously ex-

amined Congress’ statutory scheme which “balanced” the

interest of governmental enforcement against personal

right to privacy and non-disclosure. In so doing, Justice

Marshall, and the unanimous members of this Court

noted—

“It appears, in short, that Congress intended to vest

the S.E.C. with considerable discretion in determin-

ing when and how to investigate possible violations

of the statutes administered by the Commission. We

discern no evidence that Congress wished or expected

that the Commission would adopt any particular pro-

cedures for notifying ‘targets’ of investigations when

it sought information from third parties. ”

The inference that the relief sought by Respond-

ents is not necessary to give effect to Congressional

intent is reinforced by the fact that, in one special

context, Congress has imposed on the Commission

16

an obligation to notify persons directly affected by

its subpoenas.

O'Brien, 104 S.Ct. 2720, 2726, 2727.

Here, the exact opposite holds true. Congress has speci-

fically refused to allow I.R.S. to utilize John Doe sum-

mons procedures when the identity of a taxpayer iy Anown.

In promulgating the limitations on John Doe summons

enforcement power embodied in Title 26 U.S.C. Section

7609(f)(3), Congress created a “taxpayer's right,” which

the District Court and the Court of Appeals completely

ignored,

The inquiry of this Court should be whether the actions

of the District Court and the Court of Appeals are-—

“Consistent with the underlying purposes of the

legislative scheme... .”

S.E.C. v. Jerry T. O'Brien, Inc, 467 U.S. 735, at 104

S.Ct. 2720, 2727, 2728, note 17.

Under Justice Marshall's analysis the intent of Congress

that John Doe summons procedures not be used against

known taxpayers supports a finding of procedural irregu-

larity in the issuance of the John Doe summons which ts

analogous to bad faith and abuse of Court process. United

States v. Powell, 379 U.S. 48, 85 S.Ct. 248, 13 L.Ed.2d

112 (1964). The intent of Congress should be upheld

and the District Court’s Order enforcing the John Doe

summons should be reversed,

This Court has recently held that a Petitioner denied

notice of due process should be—

17

“ . . Restored . . . to the position he would have

occupied had due process of the law been accorded

him in the first place... .”

Peralta v. Heights Medical Center, Inc., 108 S.Ct. 896

(1988). As noted there by Justice White—

“The Due Process Clause demands no less.”

CONCLUSION

In an era of diminishing civil and personal rights,

Petitioners do not expect this Court’s decision to stem

the flood of decline. To uphold the actions of the District

Court and the Court of Appeals would be to “pull the

finger from the dike.”

The District Court’s order denying Petitioners’ Motion

for Leave to Intervene should be reversed. The District

Court’s order enforcing the John Doe summons should

be reversed and this Court should render judgment direct-

ing that Respondents return all of Petitioners’ documents

produced under the District Court’s enforcement order

and that no further use of same be made by Respondents.

in the alternative to a rendition at this level the case

should be remanded with instructions.

Respectfully submitted,

Jor ALFRED IZEN, JR.

5222 Spruce Street

Bellaire, Texas 77401

(713) 668-8815

Attorney for Petitioners