United States v. Barrett

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.

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 Criminal Investigation Division of the IRS and requesting documentation 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 (5th 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.

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 possessed a legitimate investigatory purpose1 is therefore moot. *960Grathwohl v. United States, 401 F.2d 166 (5th Cir.1968); Lawhon v. United States, 390 F.2d 663 (5th Cir.1968).

Barrett’s claim 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 proceeding the district court could have appropriately restricted the IRS in the manner that it conducted mailings to Barrett’s customers.

Our analysis begins with the provisions of the Internal Revenue Code (Code), 26 U.S.C., which create in Barrett a right to privacy. Section 6103(a) sets forth the general rule that tax return information is confidential and may not be disclosed by officers and employees of the United States.2 One exception to the general rule of confidentiality is described in 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 extent that such disclosure is necessary in obtaining information, which is not otherwise reasonably available____

The Code provides both criminal penalties against individuals who violate the nondisclosure provisions of section 6103 and a civil right of action for damages against the United States for those whose return information 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 disclosed 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.3

Our task is to determine how section 6103 meshes with section 7602 which authorizes the IRS 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.” We begin by noting that in construing the breadth of the summons authority Congress intended to grant the IRS, the Supreme Court has consistently declined to circumscribe purposeful and productive exercises of such authority “absent unambiguous directions from Congress.” U.S. 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). 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 7605(b), prohibiting “un*961necessary examination^],” a requirement that enforcements of summonses be founded on probable cause. The Court reasoned that “[although 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 253, 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 prosecution was contemplated. “Any other holding,” said the Court, “would thwart and defeat the appropriate 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 United States v. Bisceglia the Court, finding no discernible contrary purpose by Congress, upheld 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 summonsing authority in United States v. 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 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 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.

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 enact civil remedies and criminal penalties against unnecessary disclosures of confidential information. We have no indication, however, that Congress intended sections 6103 and 7431 to burden purportedly “summary” enforcement proceedings with the time-consuming litigation that section 6103(k)(6) determinations would entail.4 We concur in the suggestion of Texas Heart5 that a district court may inquire at an enforcement proceeding about the IRS’s plans to conform to section 6103, and it seems to us 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. The taxpayer’s remedy, however, for unlawful violation of section 6103(a) are the civil *962provisions set forth in section 7431. The district court’s authority to find an abuse of process is limited to those instances specifically envisioned by the Supreme Court, 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.” United States v. Powell, 379 U.S. at 58, 85 S.Ct. at 255.

We AFFIRM the order of the district court enforcing the IRS summons issued to appellant Barrett.

. 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 *960a 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.

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

. Section 7431 was added to the Code by section 357(a) of the Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA), Pub.L. No. 97-248, 96 Stat. 324. Section 357(b)(1) repealed former section 7217 of the Code. Former section 7217 provided a right of action against the individual who made the disclosure, and remains effective for disclosures made prior to the effective date of TEFRA, September 3, 1982. Section 357(c) of TEFRA. Section 7217 would be applicable to Hanson’s first mailing to Barrett’s patients. Future contacts with patients which might be determined to be actionable would be governed by section 7431.

. The instant case is a perfect illustration of the wisdom of this position. While the IRS has been racing the statute of limitations Barrett has been leisurely asserting his section 6103(a) claims in the district and appellate courts. If we were to remand this case as Barrett desires, the statute of limitations would be almost certainly run with respect to the 1979 tax year before the IRS learned whether or not it had the authority to proceed with its investigation.

. In admonishing the district court on remand not to refuse to enforce the summonses altogether, the Texas Heart court advised that "even if the past disclosure was improper, the district court has discretion to condition enforcement of the summonses by requiring that the IRS agree to desist from further unlawful disclosures.” 755 F.2d at 482. We do not attach the same degree of significance to this statement as does the dissent. The district court indeed does have "discretion to condition enforcement of the summonses” if unconditional enforcement would constitute an abuse of the court’s process. But, whether the IRS’s efforts to obtain enforcement amount to an abuse of process is an issue left unresolved by Texas Heart. The opinion holds only that “it may well be an abuse of process to allow enforcement of summonses when the IRS concedes it will continue to unlawfully disclose taxpayer return information.” 755 F.2d at 482 (emphasis added). On remand, Texas Heart instructed the district court to determine whether the IRS was authorized, under section 6103(k)(6) to disclose the fact of the IRS’s investigation of Barrett to his patients; it did not, however, instruct the district court to decide whether enforcement of the summonses would constitute an abuse of process. The opinion merely states that ”[t]he district court’s [previously expressed] concern regarding an abuse of process is reached only if it concludes that disclosure by the IRS is not authorized.” Id. at 482.