April 10, 1974, Reargued Appeal from the United States District Court for the Eastern District of Pennsylvania. (District Court Misc. No. 72-18).
Aldisert and Hunter, Circuit Judges, and Stapleton, District Judge. On Reargument: Seitz, Chief Judge, and Van Dusen, Aldisert, Gibbons, Rosenn, Hunter, Weis and Garth, Circuit Judges. Gibbons, Circuit Judge, concurring. Hunter, Circuit Judge, concurring in part and dissenting in part.
Couch v. United States, 409 U.S. 322, 34 L. Ed. 2d 548, 93 S. Ct. 611 (1973), held that where a taxpayer had effectively surrendered possession of her business records to her accountant and the accountant was served with an Internal Revenue Service summons, the taxpayer could not successfully assert the Fifth Amendment privilege against compelled incrimination. The question presented by this taxpayers' appeal from a district court order enforcing a summons issued pursuant to 26 U.S.C. § 7602 is a spin off of the Couch issue: where work papers owned by the accountant and prepared by him for tax purposes at the taxpayers' request are transferred from the accountant to the taxpayers and thence by them to their attorney, are the papers immunized from a summons directed against the attorney?
Most of the narrative or historical facts are not in dispute. In the summer of 1971, Feldman was employed as a Special Agent of the Intelligence Division of the Internal Revenue Service and was assigned to investigate the tax liability of the Goldsmiths for years 1969 and 1970. No employee of the Audit Division of the Service was then participating in the investigation. In late July of that year, Feldman spoke with Mr. Goldsmith and made an appointment with him to discuss Mr. Goldsmith's tax liability. On August 3, 1971, Morris and Sally Goldsmith retained Fisher to represent them, and Fisher called Feldman to advise him that Mr. Goldsmith would not appear for the appointment.
In early August of 1971,*fn1 the Goldsmiths obtained from their accountant, Harold Berson, certain records which constituted "the balance" of records concerning the Goldsmiths which Berson then had in his possession. Some dated as far back as 1959. On August 17, 1971, the Goldsmiths turned these records over to Fisher. A stipulation of the parties, as articulated by Fisher, was as follows:
On August 17, 1971 Morris Goldsmith and Sally Goldsmith turned over to me certain records which I now have in my possession. Such records were turned over to me for my use in representing them, furnishing them with legal advice, and from the time those records were turned over to me to the present time I have been using them for that purpose.
These records included the "analyses" which the government seeks to inspect. These "analyses," designated "analysis of receipts and disbursements," are essentially lists of income and expenses compiled by Berson from cancelled checks and deposit receipts supplied by the Goldsmiths, but do not include the checks and deposit receipts themselves.
On October 22, 1971, Feldman served a summons on Berson seeking documents which related to the tax liability of Morris Goldsmith. Berson told Feldman at the time of service that he had no documents of this character and that all documents which he had previously possessed had been turned over to Mr. Goldsmith. Feldman nevertheless put a return date of November 3rd on the summons because Berson indicated he would try to get the papers back.*fn2 Berson testified that he "contacted Mr. Goldsmith and told him that . . . [he, Berson,] would like to get the papers back, that . . . [he] was requested by the Government to bring them to their offices." Berson appeared on November 3rd to report that he did not have the documents sought.
On December 1, 1971, the summons which the government now seeks to enforce was served upon Fisher, directing him to appear "to give testimony relating to the tax liability or the collection of the tax liability" of Morris Goldsmith and to bring with him, among other things, an "Analysis of Receipts and Disbursements for Morris Goldsmith for 1969 and 1970" and an "Analysis of the Receipts and Disbursements of Sally Goldsmith for 1969 and 1970." Fisher appeared with the records in response to the summons, but refused to permit their inspection. This enforcement action was then commenced. The Goldsmiths were permitted to intervene and, together with Fisher, defended on the grounds (1) that the summons was invalid and (2) that production would violate the Goldsmiths' rights under the Fifth Amendment to the United States Constitution.
After a hearing, the district court found as a fact that "no recommendation for criminal prosecution . . . [had] been instituted by the I.R.S." during the relevant period and that the summons was issued in good faith. It also found that "the purpose of the summons is merely to examine the possible tax liability of the Goldsmiths." Considering Donaldson v. United States, 400 U.S. 517, 27 L. Ed. 2d 580, 91 S. Ct. 534 (1971), as controlling, the court held that the summons was issued for a valid purpose. The court further found that the records sought were owned by Berson, rejected the constitutional argument and ordered production.*fn3
Appellants here renew their dual attack on the summons. We address both contentions.
Appellants contend that the summons served upon Mr. Fisher, pursuant to 26 U.S.C. § 7602,*fn4 is unenforceable because its sole object is to obtain evidence to use in a criminal prosecution. Reisman v. Caplin, 375 U.S. 440, 449, 11 L. Ed. 2d 459, 84 S. Ct. 508 (1964). In support of this proposition, appellants emphasize that Special Agent Feldman was the sole government representative engaged in the investigation of the Goldsmiths' tax liability and that an official statement of the Internal Revenue Service describes the function of the Intelligence Division as an arm of the Service which investigates and enforces criminal violations of various tax laws of the United States.*fn5 On this showing alone the appellants would have us reverse the district court's holding that the summons was issued for a valid purpose. This we decline to do.
It is now well settled that the possibility that criminal prosectuion as well as civil liabilities may arise from a tax investigation is not a sufficient ground for refusing to enforce a summons issued under Section 7602 in good faith and prior to a recommendation for prosecution. Donaldson v. United States, supra. In Donaldson the Supreme Court, in rejecting a contention similar to that here made, said:
Congress clearly has authorized the use of the summons in investigating what may prove to be criminal conduct. * * * There is no statutory suggestion for any meaningful line of distinction, for civil as compared with criminal purposes, at the point of the special agent's appearance. * * * To draw a line where a special agent appears would require the Service, in a situation of suspected but undetermined fraud, to forego either the use of the summons or the potentiality of an ultimate recommendation for prosecution. We refuse to draw that line and thus to stultify enforcement of federal law. * * *
We hold that under § 7602 an internal revenue summons may be issued in aid of an investigation if it is issued in good faith and prior to a recommendation for criminal prosecution.*fn6
It is also well established that the burden of showing an improper purpose is on the taxpayer. Donaldson v. United States, supra, 400 U.S. at 527; United States v. Powell, 379 U.S. 48, 58, 13 L. Ed. 2d 112, 85 S. Ct. 248 (1964); United States v. Erdner, 422 F.2d 835 (3d Cir. 1970); United States v. De Grosa, 405 F.2d 926 (3d Cir.), cert. denied sub nom. Zudick v. United States, 394 U.S. 973, 22 L. Ed. 2d 753, 89 S. Ct. 1465 (1969). The district court found as a fact that "no recommendation for criminal prosecution has been instituted by the I.R.S." Nor did it find that the summons was issued in other than good faith. Moreover, the court affirmatively found that "the purpose of the summons . . . [was] merely to examine the possible tax liability of the Goldsmiths." These findings are not clearly erroneous. Krasnov v. Dinan, 465 F.2d 1298, 1302-1303 (3d Cir. 1972).*fn7
Thus, taxpayers would have us hold that their burden is met by a mere showing that a Special Agent of the Service's Intelligence Division was the only person assigned to investigate their tax liability. If we were to accept taxpayers' argument we would be drawing a line where a special agent appears, a line which the Court in Donaldson expressly refused to draw. Both in De Grosa and Erdner we refused to hold that such evidence, in itself, satisfied the taxpayer's burden of proof. We reaffirm those holdings today.
Thornier issues are raised by taxpayers' claim that production of the "analyses" in the possession of Fisher would violate their rights against self-incrimination. This contention is based, in part, upon the assertion that the only permissible inference to be drawn from the record below is that the Goldsmiths owned the records sought. The finding of the district court that the analyses were the property of the accountant is not clearly erroneous, Krasnov v. Dinan, supra.*fn8 We accordingly accept that finding.
If ownership vel non were the test of the scope of the Fifth Amendment privilege, our analysis would be at an end. But such is not the test, for the Fifth Amendment privilege focuses on personal compulsion upon the person asserting it. Possession, not ownership, "bears the closet relationship to the personal compulsion forbidden by the Fifth Amendment." Couch v. United States, supra, 409 U.S. at 331. Thus we are led to Goldsmiths' argument that, even if Berson is held to own the "analyses," Goldsmiths' transitory possession of the records and their subsequent possession by Fisher established that requisite degree of privacy so that it can be said that enforcement of the summons issued to Fisher amounted to that type of personal compulsion against the Goldsmiths which is prohibited by the Fifth Amendment. To be successful with this argument appellants must convince us of the validity of two propositions: First, if the Goldsmiths had not given the "analyses" to Fisher, they could have successfully resisted the summons because the documents sought would have been in a rightful personally privileged possession, and, second, the Goldsmiths should not be held to have lost their privilege solely because they surrendered actual possession to Fisher for the purpose of obtaining legal advice in connection with the investigation. The government disputes these propositions, arguing that the analyses would not have been within the scope of the privilege in the hands of the Goldsmiths and that, in any event, the Goldsmiths are barred from asserting the privilege because, in fact, they had neither ownership nor possession at the time of the service of the summons.
The facts in this case must be compared with those in Couch. Here, ownership was found to be in the accountant; there, ownership was in the taxpayer. Here, possession was in the lawyer, the subject of the summons; there, possession was in the accountant, also the subject of the summons. Here, the taxpayers, as in Couch, had to be aware that at least summaries of the information furnished the accountant from which he fashioned his records had to be disclosed in certain tax returns. But that which distinguishes this case from Couch is the additional question of the reasonable likelihood of privacy and freedom from compulsion expected by the taxpayers at the time they delivered the accountant's records to their lawyer.
In Couch, as previously noted, the Supreme Court rejected the thesis that the Fifth Amendment privilege was equated with ownership. The Court said: "The criterion for Fifth Amendment immunity remains not ownership of property, but the 'physical or moral compulsion exerted.' * * * We hold today that no Fourth or Fifth Amendment claim can prevail where, as in this case, there exists no legitimate expectation of privacy and no semblance of governmental compulsion against the person of the accused." 409 U.S. at 336 (footnote omitted). It emphasized that "actual possession of documents bears the most significant relationship to Fifth Amendment protections . . ." 409 U.S. at 333, acknowledged the possibility of constructive possession in certain cases and refrained from deciding "what qualifies as rightful possession enabling the possessor to assert the privilege." 409 U.S. at 330 n. 12.
Because concepts of "ownership" and "possession" and "expectations of privacy" dominate the text of the cases, it becomes important to remind ourselves that these are organons of the decisional process only. Although effective as jurisprudential tools, these concepts are not, in and of themselves, controlling. This "is a constitution we are expounding."*fn9 We must never wander from the principle that what the Fifth Amendment prohibits is compelled incrimination.
Supporting the notion that there may not be compelled production of "a man's private books and papers" is the 1886 case of Boyd v. United States, 116 U.S. 616, 633, 29 L. Ed. 746, 6 S. Ct. 524, whose vital signs are still given formal recognition, Bellis v. United States, 417 U.S. 85, 94 S. Ct. 2179, 40 L. Ed. 2d 678 (1974) Couch v. United States, supra, 409 U.S. at 330, but whose vigor has been seriously sapped by subsequent analyses by the Supreme Court. The ratio decidendi of Boyd was premised on the notion that court-ordered production of a person's "private papers" to be used as evidence to convict him of crime violated the Fourth as well as the Fifth Amendment. Fourth Amendment considerations do not detain us; such an argument has not been presented in this appeal.*fn10
Boyd's Fifth Amendment premise was based on the twin concepts of ownership and possession. Although addressing property notions in the context of the Fourth Amendment, Warden v. Hayden, 387 U.S. 294, 304, 87 S. Ct. 1642, 18 L. Ed. 2d 782 (1967), emphasized:
The premise that property interests control the right of the Government to search and seize has been discredited. Searches and seizures may be "unreasonable" within the Fourth Amendment even though the Government asserts a superior property interest at common law. We have recognized that the principal object of the Fourth Amendment is the protection of privacy rather than property, and have increasingly discarded fictional and procedural barriers rested on property concepts. See Jones v. United States, 362 U.S. 257, 266, 4 L. Ed. 2d 697, 80 S. Ct. 725; Silverman v. United States, 365 U.S. 505, 511, 5 L. Ed. 2d 734, 81 S. Ct. 679. This shift in emphasis from property to privacy has come about through a subtle interplay of substantive and procedural reform.
We detect the same "shift in emphasis from property to privacy" in the Court's treatment of the Fifth Amendment in compelled production of documents. "The criterion for Fifth Amendment immunity remains not ownership of property. . . .", Couch v. United States, supra, 409 U.S. at 336;*fn11 "the papers and effects which the privilege protects must be the private property of the person claiming the privilege, or ...