Copp v. United States

• Court: Court of Appeals for the First Circuit
• Decided: July 14, 1992
• Docket: 92-1012
• Status: Published

Opinion

USCA1 Opinion

July 14, 1992       UNITED STATES COURT OF APPEALS
                                FOR THE FIRST CIRCUIT
                                       --------

No. 92-1012

RAYMOND H. COPP, JR.,
                                Petitioner, Appellant,

v.

                              UNITED STATES OF AMERICA,
                                Respondent, Appellee.
                                       -------

                                     ERRATA SHEET

The opinion of this Court issued  on July 14, 1992, is amended as
        follows:

             On page 2 remove the hyphen from the word "authorized."

             On  page 4  remove  the  hyphen  from the  words  "interrelated",
        "investigation", "potential."

             On  page  5  remove  the  hyphen  from  the  words  "overturned",
        "disproving."

             On page 7 remove the hyphen from the word "conditionally."

July 14, 1992       UNITED STATES COURT OF APPEALS
                                FOR THE FIRST CIRCUIT
                                 ____________________

No. 92-1012

                                RAYMOND H. COPP, JR.,

                                Petitioner, Appellant,

                                          v.

                              UNITED STATES OF AMERICA,

                                Respondent, Appellee.

                                 ____________________

                     APPEAL FROM THE UNITED STATES DISTRICT COURT

                          FOR THE DISTRICT OF MASSACHUSETTS

                     [Hon. A. David Mazzone, U.S. District Judge]
                                             ___________________

                                 ____________________

                                        Before

                                  Cyr, Circuit Judge,
                                       _____________
                            Roney,* Senior Circuit Judge,
                                    ____________________
                            and Pieras,** District Judge.
                                          ______________

                                 ____________________

            Alfred D. Ellis with whom Loren  Rosenzweig and Cherwin & Glickman
            _______________           _________________     __________________
        were on brief for appellant.
            Sally  J. Schornstheimer,  Attorney, Tax  Division, Department  of
            ________________________
        Justice, with whom James A. Bruton, Acting Assistant Attorney General,
                           _______________
        Gary  R.  Allen,  Charles   E.  Brookhart,  Attorneys,  Tax  Division,
        _______________   _______________________
        Department of Justice, and Wayne A. Budd, United States Attorney, were
                                   _____________
        on brief for appellee. 

                                 ____________________

____________________

        _____________________
        *  Of the Eleventh Circuit, sitting by designation.
        ** Of the District of Puerto Rico, sitting by designation.

PIERAS,  District Judge.   This appeal  stems from
                                ______________

             the issuance  of an  administrative summons by  the Internal

             Revenue  Service in  the  course of  investigation into  the

             income tax liability  of appellant Raymond  H. Copp for  the

             years  1985 through 1989.  The district court granted an IRS

             motion for summary enforcement of the summons.  We affirm.

                       The summons,  which the IRS issued  pursuant to 26

             U.S.C.   7602, directed Goldman  Sachs & Co., a  third-party

             recordholder,   to  appear,   give  testimony   and  produce

             documents.  Appellant filed  a motion to quash  the summons,

             contending primarily that it was improperly served after the

             IRS had  referred the matter  to the Justice  Department for

             criminal  investigation.     The  district  court   rejected

             appellant's  contention and granted  the Government's motion

             for  summary enforcement.  Judge Mazzone  found, based on an

             affidavit   filed   by   the   IRS   agent   directing   the

             investigation, that  no criminal referral had  been made and

             that  the summons was  issued in good faith  to make a civil

             determination of Copp's federal income tax liability.

                       Prior to its  amendment in 1982, 26 U.S.C.    7602

             authorized the IRS to issue  summonses "[f]or the purpose of

             ascertaining the correctness of  any return, making a return

             where none has  been made, determining the  liability of any

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persons for any  internal revenue tax . . .  , or collecting

             any such liability."   In United States v.  LaSalle National
                                       _____________     ________________

             Bank, 437 U.S. 298 (1978),  the Supreme Court considered the
             ____

             limits of this  authorization.  The  Court noted that  since

             Congress created a tax enforcement  system with interrelated

             criminal and civil elements, in enacting Section 7602 it did

             not  intend  that  the  IRS's  subpoena  power  in  a  given

             investigation be limited merely because of the presence of a

             criminal  purpose.  Id. at 310-11.  The Court held, however,
                                 ___

             that   the  IRS's   subpoena   power  did   not  extend   to

             investigations  in which  it  had abandoned  the good  faith

             pursuit  of  all  of  its congressionally  authorized  civil
                          ___

             purposes.  437 U.S. at 316-17.  

                       As  a  result,  after  LaSalle  a  summonee  could
                                              _______

             effectively block  the enforcement of  an IRS summons  if he

             could show  that it  was issued  during an investigation  in

             which  the  IRS had  abandoned the  pursuit  of a  civil tax

             determination or  collection.  In setting forth the reach of

             its  holding, the  LaSalle Court  found that  an abandonment
                                _______

             clearly occurs (and a  summons may not be issued)  after the

             IRS refers an investigation to the Department of Justice for

             criminal prosecution.   Id. at 311.  In addition, aware of a
                                     ___

             potential for abuse where the IRS delays its referral to the

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Justice  Department  in  order  to  gather  evidence  for  a

             subsequent  criminal prosecution,  the Court  found  that an

             abandonment   also  occurs   where  the   IRS  has   "in  an

             institutional sense"  abandoned its  pursuit of a  civil tax

             liability  determination  and  is  instead   conducting  its

             investigation for  "solely criminal purposes."   Id. at 316.
                                                              ___

             On this  appeal, Copp  seeks to  invoke this "sole  criminal

             purpose" defense,  which  he  contends  the  district  court

             incorrectly found  was overturned by the  1982 amendments to

             Section 7602.

                       The LaSalle Court stated that taxpayers seeking to
                           _______

             avail themselves of the  sole criminal purpose defense "bear

             the burden to disprove the actual existence of a valid civil

             tax  determination or  collection  purpose by  the Service."

             Id.    As  a result,  even  if  the  defense has  continuing
             ___

             vitality, Copp  has the  burden of  disproving that in  this

             case  the   IRS   is  not   pursuing  a   valid  civil   tax

             determination.    The  first  hurdle  which  appellant  must

             therefore clear is the district court's finding that the IRS

             has not abandoned the pursuit of Copp's civil tax liability.
                 ___

             Copp  must show  that  this finding  was clearly  erroneous.

             See, e.g., Hintze v. IRS, 879 F.2d 121, 125 (4th Cir. 1989),
             ___  ____  ______    ___

             reh'd denied  en banc,  1989 U.S.  App. LEXIS  13075; United
             _____________________                                 ______

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States v. Claes, 747 F.2d 491, 495 (8th Cir. 1984).  We find
             ______    _____

             that this burden has  not been met.  In  seeking enforcement

             of an administrative summons, the IRS must meet the standard

             of good faith set forth in United States v. Powell, 379 U.S.
                                        _____________    ______

             48 (1964).   It "must  show that the  investigation will  be

             conducted pursuant to a legitimate purpose, that the inquiry

             may be relevant to that purpose, that the information sought

             is not  already within  the  Commissioner's possession,  and

             that the administrative steps required by the Code have been

             followed."   Id. at 57-58.   In this case, the  IRS filed an
                          ___

             affidavit  signed by Revenue Agent Ernest Van Loan which was

             uncontroverted and established each  of these elements.  The

             district  court relied  on  this affidavit  in finding  that

             "there is  no criminal referral,  the summons was  issued in

             good  faith   to  make   a  correct  determination   of  the

             petitioner's federal income tax liabilities, if any, for the

             taxable years  under investigation, and all  of the required

             procedures of the Internal Revenue Code have been followed."

             Implicit in the district  court's ruling was a  finding that

             in  issuing its  summons to  Goldman Sachs  the IRS  was not

             seeking  information solely  for a  criminal purpose.   Even

             under  LaSalle, the  IRS is entitled  to enforcement  of its
                    _______

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summons  where determination  of civil  tax liability  is at

             least one of its purposes.  Accord 437 U.S. at 310-11.
                                         ______

                       Copp's  effort  to  establish  that  the  district

             court's ruling was clearly erroneous is limited.  He alleges

             that several facts -- including the alleged expansion of the

             audit to include tax  years outside of 1988 and  the refusal

             of the IRS  to conditionally accept  a portion of  requested

             additional documents --  constitute evidence of  an improper

             purpose  on the  part  of the  IRS.   He  has not,  however,

             demonstrated how these facts, none of which are inconsistent

             with  a civil audit, suggest an improper purpose.  Copp also

             relies on the fact that in a related case before Judge Stahl

             in  the   District  of  New  Hampshire,   based  on  similar

             allegations made by Copp in  response to summonses issued in

             New Hampshire  against other third-party  recordkeepers, the

             court concluded  that sufficient  showing had been  made for

             Copp to pursue a sole criminal purpose defense.  Judge Stahl

             directed the IRS agent  to appear at an evidentiary  hearing

             at which Copp would  be afforded the opportunity  to examine

             the agent  regarding his purposes in  issuing the summonses.

             Judge  Stahl's  ruling is  not  before  this Court  on  this

             appeal,  however.    And the  fact  that  Judge  Stahl in  a

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separate  proceeding  has  allowed  Copp to  proceed  to  an

             evidentiary hearing on this claim does not establish that 

Judge  Mazzone's   finding   in  this   case   was   clearly

             erroneous.1

                       The district court order of summary enforcement of

             the summons is therefore affirmed.
                                      ________

                       So ordered.

____________________

             1 Copp also  contends that Judge Mazzone  erred in enforcing
             the IRS  summons without conducting an  evidentiary hearing.
             In order  to proceed to  an evidentiary hearing  to question
             the  propriety of  an IRS  summons, a  taxpayer must  make a
             sufficient  threshold  showing  that there  was  an improper
             purpose behind an IRS summons.  United States v. Salter, 432
                                             _____________    ______
             F.2d  697 (1st  Cir.  1970).   To  make this  show-ing,  the
             taxpayer must do  more than allege  an improper purpose;  he
             must  introduce evidence  to support  his allegations.   Id.
                                                                      ___
             District  court decisions  to  enforce a  summons without  a
             hearing  are  review-able  under  the  abuse  of  discretion
             standard.  Accord Tiffany Fine Arts, Inc. v.  United States,
                        ______ _______________________     _____________
             469 U.S. 310,  324 n.7  (1985); Hintze, supra,  879 F.2d  at
                                             ______  _____
             126;  United States v. Samuels, Kramer & Co., 712 F.2d 1342,
                   _____________    _____________________
             1345 (9th Cir.  1983).  Appellant again  relies primarily on
             Judge Stahl's  conclusion that the allegations  made by Copp
             were sufficient to  proceed to an  evidentiary hearing.   As
             with  his  substantive  claim,  the fact  that  Judge  Stahl
             reached a  contrary conclusion  does not  yield an  abuse of
             discretion on the part of Judge Mazzone. 

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