On Appeal from the United States Tax Court, Nos. 10908-77, 10950-77, 10951-77
Before: ALDISERT, Chief Judge, SEITZ and ADAMS, Circuit Judges
This appeal challenges a judgment of the United States Tax Court determining deficiencies in the taxpayers' income tax liabilities for 1968 and 1969. The taxpayers object to the use of grand jury materials, obtained by the Internal Revenue Service (IRS) through a 1977 order pursuant to Rule 6(e) of the Federal Rules of Criminal Procedure that would now be invalid under United States v. Baggot, 463 U.S. 476, 77 L. Ed. 2d 785, 103 S. Ct. 3164 (1983). The Tax Court declined to suppress the materials. Because the IRS agents acted in good faith reliance on a court order, we will affirm.
Frank Caprio was sole shareholder and an officer of two companies that became the subject of a New Jersey federal grand jury investigation. The companies allegedly were involved in a scheme to defraud the City of Newark. During the investigation, Caprio testified before the grand jury, and latter pleaded guilty to one count of filing a false 1969 federal income tax return for one of the companies.
At the close of the grand jury investigation, the U.S. Attorney moved for an order authorizing the disclosure of matters occurring before the grand jury to the IRS for use in determining the civil tax liabilities of Caprio and his wife, Catherine. On July 28, 1977, the district court granted the motion, pursuant to Rule 5(e), which allows disclosure of otherwise confidential grand jury material "when so directed by a court preliminarily or in connection with a judicial proceeding."*fn1
Upon receiving the grand jury materials, the IRS used them to compute statutory notices of deficiency which it sent to the Caprios on July 29, 1977. The taxpayers challenged the notices in the Tax Court.
On June 30, 1983, with the taxpayers' challenge still pending, the Supreme Court decided United States v. Baggot, 463 U.S. 476, 77 L. Ed. 2d 785, 103 S. Ct. 3164 (1983). Baggot held that Rule 6(e) does not permit disclosure of grand jury matters to the IRS for use in determining civil tax liabilities because such use is not "preliminary to . . . a judicial proceeding." On August 10, 1984, the Caprios moved in the Tax Court to suppress the grand jury materials and all evidence derived from them, on the ground that Baggot should be applied retroactively. The Tax Court denied the motion without opinion. Subsequently, the Caprios and the IRS reached agreement on the correct amount of back taxes and penalties and stipulated to the true amount owed. The taxpayers, however, reserved the right to appeal the Tax Court's denial of their motion to suppress. Thereafter, the present appeal was timely filed.
The Caprios urge us to apply Baggot retroactively and suppress the evidence obtained from the grand jury materials. We need not reach the retroactivity question, however. Even assuming that Baggot applies retroactively, and therefore that the 1977 disclosure was illegal, suppression of the evidence would not be warranted.
In determining whether evidence obtained in violation of a defendant's Fourth Amendment rights should subsequently be suppressed at a criminal trial, the Supreme Court has held that exclusion of evidence is not warranted where it was gathered by law enforcement officers acting in good-faith reliance on a facially valid court order. United States v. Leon, 468 U.S. 897, 104 S. Ct. 3405, 82 L. Ed. 2d 677 (1984). In Leon, police officers obtained a facially valid warrant from a state judge and used it to execute a search, leading to an arrest. Subsequently, however, it was determined in U.S. district court that the search warrant was invalid, because it was not adequately supported by probable cause and thus did not comply with the Fourth Amendment. Despite that, the Supreme Court held that the evidence, although obtained illegally, should not be suppressed. Where a law enforcement officer "acting with objective good faith has obtained a search warrant from a judge or magistrate and acted within its scope," suppression of the evidence "cannot logically contribute to the deterrence of Fourth Amendment violations." Id. at 3420.
Similarly, in United States v. Peltier, 422 U.S. 531, 95 S. Ct. 2313, 45 L. Ed. 2d 374 (1975), the Supreme Court considered the appropriateness of suppressing evidence from a warrantless border patrol search that would have been invalid under a subsequent Supreme Court decision, Almeida - Sanchez v. United States, 413 U.S. 266, 37 L. Ed. 2d 596, 93 S. Ct. 2535 (1973). The Court held that the evidence should not be suppressed, because the officers reasonably believed in good faith that their search was legal under the state of the law as ...