The opinion of the court was delivered by: Will, District Judge.
Petitioners in this case seek judicial enforcement of various
Internal Revenue Service summonses issued pursuant to 26 U.S.C. § 7402(b)
and 7604(a). Respondents resist enforcement on the
ground that the IRS was acting in bad faith when it issued the
summonses. The case is now before us on respondents' motions to
compel testimony and to compel production of certain IRS
documents. We deny these motions for the reasons set forth below.
The present case is one of sixteen cases stemming from an IRS
investigation of the respondents. Taxpayers Daniel B. Nelsen,
Sr., Estelle Nelsen, Daniel B. Nelsen, Jr., Clifford D. Nelsen,
and Cleon D. Nelsen sought and were granted leave to intervene as
respondents in these cases. United States v. Nelsen Steel & Wire
Co., No. 77 C 4505 (N.D.Ill. January 13, 1978). Their primary
ground for resisting enforcement of the summonses is the IRS'
alleged bad faith in issuing them. Respondents claim essentially
that Revenue Agent Donald L. Carpino, who was assigned to
investigate their affairs, was a "stalking horse" for the IRS'
Intelligence Division, now called the Criminal Investigation
Division. The summonses involved in this suit, they say, were
issued to secure evidence for a prospective criminal prosecution.
Respondents also resist enforcement of the summonses on the
ground that the IRS, in reopening certain tax years, is
subjecting them to an unnecessary, harassing investigation in
violation of 26 U.S.C. § 7605(b). Section 7605(b) provides that
the IRS may inspect a taxpayer's books only once for a particular
tax year unless the District Director of the IRS, after
investigation, notifies the taxpayer in writing that an
additional inspection is necessary. Respondents contend that §
7605(b) also implicitly requires that the District Director have
good cause to reopen an investigation, something which
respondents claim is missing in this case.
We agreed to respondents' earlier request for limited discovery
concerning whether the IRS acted in good faith in issuing its
summonses and whether it had good cause to reopen its
investigation of certain tax years. In particular, we directed
the government to produce the reopening memorandum prepared by
Agent Carpino at the start of his investigation and to submit
Charles Miriani, the District Director of the IRS, for
deposition. The government complied and also submitted Agent
Carpino and Revenue Agent Thomas Culumber, who had previously
audited respondents, for deposition.
Because United States v. LaSalle National Bank, 437 U.S. 298,
98 S.Ct. 2357, 57 L.Ed.2d 221 (1978), was at the time under
advisement in the United States Supreme Court, we deferred ruling
on these motions. Now that the Court has decided LaSalle National
Bank we proceed to consider the motions. We shall discuss, first,
the scope of discovery in IRS summons enforcement cases and,
second, whether, in light of this, respondents are entitled to
the additional discovery they seek.
THE SCOPE OF DISCOVERY IN SUMMONS ENFORCEMENT CASES
Congress, in § 7602 of the Internal Revenue Code, authorized
the IRS to use the civil summons process "for the purpose of
ascertaining the correctness of any return or for the purpose of
making a return where none has been made." United States v.
LaSalle National Bank, supra at 310, 98 S.Ct. at 2364. Section
7602 permits the use of the summons process not only to ascertain
a taxpayer's civil liability but to investigate fraudulent, and
possibly criminal, conduct as well. Id. at 310-11, 98 S.Ct. at
2364-2365. At the same time, however, there are limitations on
the use of the summons process. Congress did not intend the civil
summons process to become a tool for criminal investigations or
to broaden discovery in criminal cases. Id. at 312, 98 S.Ct. at
Until recently, the question of under what circumstances the
IRS could use the summons enforcement power to investigate a
taxpayer's affairs where the investigation might lead to criminal
prosecution was unresolved. It is now clearly established,
however, that the IRS may use the summons process to investigate
possible criminal conduct so long as the summons is issued before
the IRS recommends criminal prosecution to the Department of
Justice, and so long as it acts in a good faith pursuit of the
taxpayer's civil tax liability. Id. at 318, 98 S.Ct. at 2368.
"Good faith" in this context requires not only that the inquiry
into the taxpayer's affairs be conducted pursuant to an
investigation of civil tax liability, but also that the
information sought be relevant to that investigation, that the
information is not already within the IRS' possession, and that
the IRS follow the proper administrative steps. United States v.
Powell, 379 U.S. 48, 57-58, 85 S.Ct. 248, 254-255, 13 L.Ed.2d 112
As might be expected, LaSalle National Bank's resolution of
the question as to what circumstances permit the IRS to use the
civil summons process raises another question, the answer to
which is not yet entirely clear: to what extent is a taxpayer
entitled to discovery regarding the IRS' good faith, or lack of
it, in a summons enforcement proceeding.*fn2 Discovery in such
cases obviously must be limited if the enforcement process is to
retain its summary character. See United States v. Interstate
Tool & Engineering Corp., 526 F.2d 59, 62 (7th Cir. 1975);
United States v. Church of Scientology, 520 F.2d 818, 824 (9th
Cir. 1975). At the same time, the taxpayer must be permitted some
discovery if his right to challenge the IRS' good faith in
issuing a summons is to have any meaning. The burden rests with
the taxpayer, once the IRS has made a prima facie showing that it
acted in good faith in issuing a summons, to disprove the IRS'
assertions. United States v. Powell, supra, 379 U.S. at 58, 85
S.Ct. at 255. Without some discovery, however, the taxpayer will
rarely if ever be able to prove that the IRS is engaged in a
primarily criminal investigation.
One of the few courts to consider this problem since LaSalle
National Bank has
concluded that a taxpayer is entitled to certain basic discovery.
At a minimum, he is entitled to learn the identities of
investigating agents, the date their investigation began, the
date any agent filed a report recommending prosecution of the
taxpayer, the date the District Chief of the Intelligence or
Criminal Investigation Division received the recommendation, the
date the Office of Regional Counsel referred the matter to the
Department of Justice for prosecution, the dates of issuance of
all summonses relating to the investigation of the taxpayer, and
"the nature of any contacts, relating to and during the
investigation, between investigating agents and officials of the
Department of Justice." United States v. Garden State National
Bank, 607 F.2d 61, 71 (3d Cir. 1979); United States v. Genser,
595 F.2d 146, 152 (3d Cir. 1979).
The answers to these questions should reveal whether the IRS
has already made the decision to prosecute the taxpayer and is
using the civil summons process primarily to gather evidence in
furtherance of the prosecution. If this basic information casts
suspicion on the IRS' purpose in issuing a summons — for example,
issuance of summonses after the investigating agents have
recommended prosecution, inordinate and unexplained delays in the
investigation, or contacts between the investigating agents and
the Department of Justice — the taxpayer is entitled to further
discovery.*fn3 United States v. Garden State National Bank,
supra at 71; United States v. ...