APPEAL FROM THE ORDERS OF JUDGMENT AND COMMITMENT DATED NOVEMBER 11, 1976, IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF NEW JERSEY
Before Seitz, Chief Judge, and Biggs and Hunter, Circuit Judges.
In this aspect of these appeals we must examine the substantive and procedural implications of the Supreme Court's decision in United States v. LaSalle National Bank, 437 U.S. 298, 98 S. Ct. 2357, 57 L. Ed. 2d 221 (1978), which described the limits of the Internal Revenue Service's authority to issue civil summonses under 26 U.S.C. § 7602. Defendants Lester Genser and Lawrence Forman appealed from their convictions for tax evasion. In an earlier opinion we rejected various challenges to those convictions but retained jurisdiction and remanded the case to the district court for an evidentiary hearing on the defendants' contention that summonses issued during the investigation exceeded the IRS's authority. United States v. Genser, 582 F.2d 292 (3d Cir. 1978).
On remand, the district court conducted an evidentiary hearing and concluded that none of the summonses employed during the investigation were issued "solely for a criminal purpose," as defined in LaSalle. In challenging that ruling, defendants argue that the district court erred in two respects: first, in denying them adequate discovery, and second, in misconstruing the substantive requirements of LaSalle itself.
The IRS conducted an initial audit of defendants' books and records in 1971 but discovered no deficiencies. In 1974 the IRS reopened the investigation that eventually led to defendants' convictions. Our earlier opinion adequately set forth the factual predicate of those convictions. See 582 F.2d at 295-96. Before the recent evidentiary hearing, however, the details of the investigation itself were veiled. The testimony and documents presented at that hearing provide the necessary vehicle to explore the reaches of LaSalle.
According to uncontested testimony, Frank Parisi, a special agent of the IRS, began in August 1974 to investigate defendants' corporate dealings during the taxable years 1969 to 1974. Almost immediately upon assignment to the case, he began to summon records and witnesses under 26 U.S.C. § 7602. That provision empowers agents of 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 person for any internal revenue tax or the liability at law or in equity of any transferee or fiduciary of any person in respect of any internal revenue tax, or collecting any such liability . . . .
On November 12, 1974, after issuing nineteen summonses, Parisi requested permission to reopen a formal investigation in light of new evidence from a confidential source. In the memorandum accompanying his request Parisi asserted that "(t)he investigation to date has disclosed a conspiracy between Genser Forman, Inc. owners and employees and various vendors, to generate currency by the use of ficticious invoices." Parisi's request to reopen was approved sequentially by his group supervisor, the chief of the audit branch of his field office, his district director, and, on November 22, 1974, the chief of the IRS's Intelligence Division, now called the Criminal Investigation Division. See 43 Fed.Reg. 53030 (Nov. 15, 1978).
By December 6, 1974, Parisi had begun to encounter what he believed to be recalcitrance on the part of some of the summonsed witnesses. On that date he filed a "Request for Reluctant Witness Grand Jury Authorization" pursuant to a now-revoked provision in the IRS Manual. Under that provision an IRS agent could request the assistance of a permanent grand jury in securing the testimony of reluctant witnesses. Parisi had discussed resort to this procedure with David Gaston, the IRS's Regional Counsel. As required by the Manual, the chief of the Intelligence Division approved the authorization on December 9, 1974, and forwarded the request to the United States Attorney, who approved on December 18, 1974. Although Parisi had requested grand jury subpoenas for only three persons, a total of six witnesses eventually were served. Only one witness ever had to appear before the grand jury. During this process Parisi was in almost daily contact with the United States Attorney.
Parisi substantially completed his investigation in March 1975. By that time he had issued a total of 106 summonses under section 7602. During the next six months, while writing his final report, he issued nine more summonses.
On October 31, 1975, approximately one month after Parisi filed his final report recommending prosecution, another agent assigned to the case issued the 116th and final summons. Although the record is unclear, Parisi's recommendation must have been reviewed by the district chief of the Intelligence Division sometime between September and November 1975, because it reached the Office of Regional Counsel in November or December of that year. See 26 C.F.R. § 601.107(b) and (c). The Office of Regional Counsel formally referred the case to the Justice Department for prosecution on December 12, 1975. The IRS issued no summonses after that referral.
In considering this chain of events in light of LaSalle, the district court held that all the summonses were valid:
(T)he Court finds that the defendants have failed to demonstrate by a preponderance of the evidence that the Internal Revenue Service at the time any of the summonses were issued had either already referred the matter to the United States Department of Justice or had itself determined that it was interested solely in the criminal tax aspects of the matter.
I further find by a preponderance of the evidence that the United States has demonstrated that throughout the course of the investigation the Internal Revenue Service was at all times interested (in) and actively pursuing substantial amounts of tax penalties and interest owed by the defendant Genser and the defendant Forman to the Treasury of the United States.
As we requested, the district court certified its findings and the record of the proceeding to this court.
In our earlier opinion in this case we focused on defendants' contentions that they had standing to challenge the summonses and that evidence secured through invalid summonses must be suppressed. We did not attempt to examine LaSalle's substantive implications, leaving that task to the district court in the first instance. We therefore turn to the Supreme Court's opinion in ...