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United States v. Livingston National Bank

decided: February 13, 1980.

UNITED STATES OF AMERICA AND JOHN R. CASSIE, JR., SPECIAL AGENT, INTERNAL REVENUE SERVICE, PETITIONER V . FIRST NATIONAL STATE BANK OF NEW JERSEY, RESPONDENT, PERRY LEVEY, INTERVENOR ; UNITED STATES OF AMERICA AND JOHN R. CASSIE, JR., SPECIAL AGENT, INTERNAL REVENUE SERVICE, PETITIONER V . BERKELEY FEDERAL SAVINGS AND LOAN ASSOCIATION, RESPONDENT, PERRY LEVEY, INTERVENOR ; UNITED STATES OF AMERICA AND JOHN R. CASSIE, JR., SPECIAL AGENT, INTERNAL REVENUE SERVICE, PETITIONER V . HUDSON CITY SAVINGS BANK, RESPONDENT, PERRY LEVEY, INTERVENOR ; UNITED STATES OF AMERICA AND JOHN R. CASSIE, JR., SPECIAL AGENT, INTERNAL REVENUE SERVICE, PETITIONER
v.
LIVINGSTON NATIONAL BANK, RESPONDENT, PERRY LEVEY, INTERVENOR ; UNITED STATES OF AMERICA AND JOHN CASSIE, PETITIONERS IN D.C. CIVIL NO. 78-3054, APPELLANTS, NO. 79-1707, PERRY LEVEY, INTERVENOR IN D.C. CIVIL NO. 78-3054 AND MYRON LEVEY, APPELLANTS, NO. 79-1708



APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF NEW JERSEY

Before Gibbons, Rosenn and Garth, Circuit Judges.

Author: Garth

Opinion OF THE COURT

In these cross-appeals, we are again presented with a challenge to the enforcement of Internal Revenue Service (I.R.S.) summonses directed to third-party recordkeepers. The taxpayer-intervenor (Levey) appeals at No. 79-1708 from the district court's order which granted enforcement with respect to most of the documents requested. The Government appeals at No. 79-1707 from the district court's refusal to order production of retained copies of forms 1099 and 1087. In light of our recent opinion in United States v. Garden State National Bank, 607 F.2d 61 (3d Cir. 1979), we hold that Levey's challenge to enforcement must fail and we therefore affirm enforcement in No. 79-1708. In the Government's appeal at No. 79-1707, however, we hold that the district court erred in exempting the subpoenas for forms 1099 and 1087 from enforcement, and accordingly reverse that portion of the district court's order.

I.

The salient facts of this case are simple and follow the familiar Garden State pattern. I.R.S. Special Agent John Cassie was investigating the tax liabilities of Perry, Vicki, Myron, and Heidi Levey, jointly referred to as "Levey." In aid of his investigation, he issued several summonses to banks,*fn1 under the authority of I.R.C. §§ 7602, 7604, for the production of records relevant to the years 1973 through 1976. Levey caused the summonses to be stayed under I.R.C. § 7609(b)(2), and the Government and Cassie instituted enforcement proceedings against the banks, who took no position on supporting or opposing enforcement. Levey intervened under I.R.C. § 7609(b)(1), opposing enforcement. The petitions for enforcement of all of the summonses were consolidated in the district court.

Levey answered the enforcement petition by asserting that the summonses had been issued in bad faith. The district court heard oral argument, inspected Special Agent Cassie's files in camera, and enforced the summonses, except as to the banks' retained copies of forms 1099 and 1087.*fn2 United States v. First National State Bank, 469 F. Supp. 612 (D.N.J. 1979). The district court refused to deny enforcement generally. Essentially it held, as it did in the Keech appeal in Garden State, see 607 F.2d at 66, that as it understood United States v. LaSalle National Bank, 437 U.S. 298, 98 S. Ct. 2357, 57 L. Ed. 2d 221 (1978), no taxpayer could ever prove "institutional bad faith" as required by LaSalle. 469 F. Supp. at 616-19.*fn3 But the district court held that forms 1099 and 1087 were already in I.R.S.' possession and therefore could not be obtained by summons under United States v. Powell, 379 U.S. 48, 57-58, 85 S. Ct. 248, 254, 255, 13 L. Ed. 2d 112 (1964). While acknowledging that it might be difficult for I.R.S. to retrieve these forms from its files, it held that this burden could not, and should not, be shifted to the banks. 469 F. Supp. at 615-16.

The district court determined that Levey could not appeal effectively without access to the sealed materials examined in camera, and so ordered their release to counsel on the condition that counsel not disclose them to Levey. But the district court stayed that order pending action thereon by this court, and on June 19, 1979 we refused to grant counsel access to the sealed materials.

II.

A.

Levey argues that the district court's conclusion that I.R.S. was not guilty of "institutional bad faith" was clearly erroneous. Levey points to three items which he claims to be indicative of "institutional bad faith" or of abandonment of a civil tax-collection purpose:

(1) the fact that the I.R.S. Deputy Commissioner wrote two letters denying a request under the Freedom of Information Act for reopening memoranda and continuation sheets on the ground that disclosure would disturb an ongoing criminal investigation;

(2) a personal attitude of one I.R.S. official that he desired that the case be referred to the Justice Department for criminal prosecution; and

(3) a refusal by I.R.S. to negotiate a compromise of the civil aspects of the case.

These items cannot either individually or collectively justify a denial of summons enforcement.

The parties stipulated that the Service has not referred this case to the Justice Department for criminal prosecution. 469 F. Supp. at 614. Levey has not challenged and our examination of the record, including the sealed transcript, does not contradict the Government's representation that the investigating agent has not yet recommended prosecution to his superiors within I.R.S. The taxpayer's burden of proof in challenging enforcement is therefore virtually insurmountable under Garden State, 607 F.2d at 70. We have concluded that the evidence in this case does not satisfy this burden of proof. Nor does it indicate that the investigating agent was acting as a conduit for the United States Attorney or that a recommendation for ...


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