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UNITED STATES v. DOLLAR SAV. BANK

April 15, 1980

UNITED STATES of America
v.
DOLLAR SAVINGS BANK. UNITED STATES of America v. PITTSBURGH NATIONAL BANK.



The opinion of the court was delivered by: ROSENBERG

The United States of America and Timothy H. Myers, Special Agent of the Internal Revenue Service (IRS) acting through the United States Attorney, seek judicial enforcement of IRS summonses which Special Agent Myers issued to and served Dollar Savings Bank and Pittsburgh National Bank at Civil Action No. 80-159 and Civil Action No. 80-160, respectively. These actions were consolidated by Order of Court at the hearing on March 4, 1980, after stipulation by counsel for the intervenors.

The summonses as issued by Special Agent Myers seek from each of the banks records relating to the intervenors, Josephine DeLuca and Barber DeLuca, individually or jointly, as such person or persons might have had in dealing with the respective banks, as such records included, inter alia, money transactions, whether of deposit or business, charge accounts, safe deposit applications, certificates of deposit or savings, and of other negotiations relating to money transactions during the years 1972 and 1977.

 Neither Dollar Savings Bank nor Pittsburgh National Bank appeared or was represented at the hearing. The intervenors, Josephine DeLuca and Barber DeLuca, however, filed an answer in which they made denials and sought protection and privileges under the Fifth Amendment of the United States Constitution, and objected generally to the enforcement of the summonses by this court for various reasons, and as well were represented at the hearing by counsel.

 The Government, through Assistant United States Attorney, Thomas A. Daley, presented evidence through Special Agent Myers to the effect that as the Special Agent of the IRS he was assigned the task of procuring records of Josephine DeLuca and Barber DeLuca for the purpose of ascertaining the correctness and auditing the returns as made in certain past years; that he attempted to establish contact with the DeLucas but was refused any contacts; that had he been granted such contact, he would have attempted to procure the information which he needed in order to make the proper inquiry and report as required by law; that originally there had been action by the police of the City of Pittsburgh in which a bank book of Pittsburgh National Bank was found and the City Police reported this to the IRS; that the IRS had other records and information but that relevant evidence for a complete understanding of the financial affairs and possible obligation of the DeLucas was not in its possession, and that it was necessary that it have such additional information to determine whether there was either civil, criminal, or perhaps both liability or not liability against the DeLucas, and even for a possible refund if such should be revealed; that while reports from the banks relating to interest and dividend bearing accounts and securities were filed with the IRS, other business records exist which it does not have and can only procure through the aid of the records of both defendant banks; that unless such evidence is procured, Special Agent Myers cannot perform his obligatory task as assigned to him; that he performed all the proper administrative steps necessary and proceeded in accordance with law by complaining to the court for the enforcement of the summonses; that the investigation is in its initial stages; and that Special Agent Myers has not made any recommendation for criminal prosecution in this case and to his knowledge no one else within the IRS has made any such recommendation.

 Special Agent Myers filed an affidavit with the complaint, but this affidavit was not countered by an affidavit of the DeLucas, and no evidence other than cross-examination of Myers was presented by counsel for the DeLucas.

 Under these circumstances, from the evidence presented at the hearing and from the record as a whole, I find the following facts:

 
1. The plaintiff, Timothy H. Myers, is a special agent of the Internal Revenue Service, employed in the Criminal Investigation Division of the Office of the District Director, and is conducting an investigation for the purpose of reviewing the tax liability of Josephine DeLuca for the years 1975 through 1977;
 
2. Pursuant to the authority contained in § 7602 of Title 26 U.S.C. *fn1" and relevant Treasury Regulations, 26 C.F.R. § 301.7602-1, Agent Myers issued IRS summonses to the respondent banks requiring the production of records pertaining to accounts and transactions at the banks by the taxpayer, Josephine DeLuca and her husband, Barber DeLuca, for the purpose of providing necessary information for the investigation;
 
3. Josephine DeLuca and Barber DeLuca have intervened to prevent compliance by the banks with the summonses;
 
4. The information sought from the banks regarding the accounts and transactions of Josephine DeLuca and Barber DeLuca is not within the possession of the IRS, with the possible exception of certain interest income reported on 1099 forms filed by the banks, and the joint tax returns of Josephine DeLuca and Barber DeLuca;
 
5. The investigation to determine the existence of any civil or criminal liability, or lack thereof, of the taxpayer is in its preliminary stage;
 
6. Special Agent Myers has not made, nor has anyone else in the Internal Revenue Service made, any recommendation for prosecution of this case to the Justice Department; and
 
7. All of the proper administrative steps, including those outlined in 26 U.S.C. § 7609 (see Appendix) for the issuance of these summonses have been followed.

 The law is well settled in cases such as these now before me and requires certain compliance by the government in order to procure the records necessary for ascertaining the liabilities or credits which may be due the taxpayer. It also sets forth the method and procedure which must be followed and essential elements involved thereby.

 In United States v. LaSalle National Bank, 437 U.S. 298, 98 S. Ct. 2357, 57 L. Ed. 2d 221 (1978), the Supreme Court outlined the requirements to enforce a summons under § 7602. Since the civil and criminal elements of the tax enforcement system are inherently intertwined regarding the investigation of civil and criminal liability, the Supreme Court established the cutoff rule that after a particular investigation has been referred to the Justice Department for criminal prosecution, the Service may not issue a § 7602 summons for taxpayer-related records pertaining to that matter. This cutoff point for the enforcement of IRS summonses is necessary for prevention of these summonses being used as an adjunct to the Justice Department's sources of criminal discovery. See United States v. LaSalle, supra, at pages 308-313, 98 S. Ct. at pages 2363-66; United States v. Garden State National Bank, 607 F.2d 61, 68 (C.A.3, 1979). In the instant case, the uncontroverted evidence indicates that neither the investigating agent, nor anyone else in the Internal Revenue Service, has ever made any recommendation for prosecution against anyone and that the investigation is still in an early stage.

 The Court in LaSalle, supra, further stated that the enforcement of a summons is conditioned upon the good-faith use of the summons authority by the IRS. The government, through the affidavit and testimony of Agent Myers, successfully established the four prongs of the prima facie showing of "good faith" as required by LaSalle, and as outlined in United States v. Powell, 379 U.S. 48, 57-58, 85 S. Ct. 248, 255, 13 L. Ed. 2d 112 (1964), namely:

 
(1) that the investigation is being conducted pursuant to a legitimate (some civil tax collection) purpose;
 
(2) that the inquiry or material sought is relevant to the legitimate purpose ...

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