No. 86-2158.United States Court of Appeals, Tenth Circuit.
April 10, 1987.
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David F. Cunningham (M. Karen Kilgore, with him on the briefs) of White, Koch, Kelly McCarthy, P.A., Santa Fe, N.M., for petitioners-appellants.
Alan Hechtkopf, Attorney (Roger M. Olsen, Asst. Atty. Gen., Michael L. Paup and Charles E. Brookhart, Attorneys, and William L. Lutz, U.S. Atty., of counsel, with him on the brief), Tax Div., Dept. of Justice, Washington, D.C., for respondent-appellee.
Appeal from the United States District Court for the District of New Mexico.
Before MOORE, ANDERSON and BALDOCK, Circuit Judges.
JOHN P. MOORE, Circuit Judge.
[1] This is an appeal from an order of the district court enforcing certain administrative summons issued by the Internal Revenue Service (IRS or Service). The appellant taxpayers contend that enforcement should not have been granted for various reasons, but principally because the IRS had improperly received “grand jury information” about a pending investigation of one of them. After examination of the record, the briefs, and the oral argument, we conclude that disclosures made to the IRS were not protected by Fed.R.Crim.P. 6(e), that the trial court properly ordered enforcement, and no reason exists for disturbing that order. I.
[2] What started as a commonplace proceeding for an order quashing third party IRS summons pursuant to 26 U.S.C. § 7609(b)(2) was quickly escalated by the taxpayers and cast into an inquiry under Fed.R.Crim.P. 6(e) to determine whether the government was guilty of a violation of grand jury secrecy. Indeed, from the virtual inception of the case, the taxpayers put the trial court in the position of dealing with this matter as a criminal case which required in camera treatment.[1] Thereafter, because of the posture in which the case had been cast, this matter soon became confusingly unwieldy.[2]
II.
[4] The taxpayer, Toney Anaya,[3] then Governor of the State of New Mexico, had been implicated in separate and contemporaneous investigations conducted by the Federal Bureau of Investigation (FBI) and the IRS. The investigation conducted by the FBI had focused on Mr. Anaya more than the investigation conducted by the IRS, but both had been in progress for some time prior to the events leading to this case. During the course of the investigation conducted by the FBI, matters pertinent to Mr. Anaya were brought to the attention of a grand jury convened in the District of New Mexico. Subsequently, agents of the FBI decided to confer with agents of the IRS to disclose information about Mr. Anaya’s income learned in the course of the former’s investigation. At a meeting called for that purpose, agents of the FBI disclosed to agents of the IRS in general terms that Mr. Anaya had possibly received income from “payoffs” made in connection with the award of contracts by the State of New Mexico, and that such income probably was not reported on Mr. Anaya’s personal income tax returns.
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[5] On the following day, the IRS Group Manager met with the United States Attorney and agents of the FBI to discuss whether the IRS would join in the pending grand jury investigation. At the conclusion of this meeting, each side independently decided that the IRS would continue on its separate course. Nevertheless, the IRS agents proceeded to intensify their own investigation and focused their attention more closely upon Mr. Anaya. [6] As part of this effort, an IRS agent went to the local FBI office and examined FBI files developed during its investigation of Mr. Anaya. These files contained memoranda of interviews and summaries of investigations made by FBI agents. None of the substantive documents contained in that file were presented to the grand jury.[4] Indeed, in accordance with regular FBI policy, all grand jury evidence was kept segregated in a locked safe physically separated from the files examined by the IRS agent. [7] A subsequent meeting was held between the U.S. Attorney and agents of the IRS. At that meeting the U.S. Attorney advised the IRS agents of four additional allegations that Mr. Anaya had received payoffs. He also told them of certain real estate transactions involving Mr. Anaya about which he had suspicion because they appeared to be beyond Mr. Anaya’s financial means. The subject of the real estate transactions had not been presented to the grand jury, and facts pertinent to one of the alleged payoffs had arisen in evidence at a prior trial. Although the subject of the remaining allegations had been presented to the grand jury, the information conveyed by the prosecutor came from independent sources.[5] Additionally, the U.S. Attorney did not tell the IRS that the grand jury had considered these matters. [8] The information given to the IRS by the United States Attorney was very general in nature. The prosecutor simply stated that allegations had been made by other persons accusing Mr. Anaya of receiving money for performance of certain acts. No details of these transactions were disclosed by the prosecutor. [9] After evidentiary hearings that lasted over eighteen hours, during which the trial court patiently allowed counsel for the taxpayers to conduct a painstaking interrogation of the U.S. Attorney and government agents, the trial court concluded the investigation conducted by the IRS was “independent”; that the summons were issued “for a proper purpose”; that the items sought by the IRS were not in the possession of the IRS; that the taxpayers had been notified; that there had been “no referral to the Department of Justice”; and that there was no evidence of “institutional bad faith on the part of IRS.” The court further concluded that:[The] IRS has acted circumspectly in obtaining the information that it did from the FBI. It informed the FBI, informed [the United States Attorney] that it did not want nor would it consider 6(e) material. And these folks understand what 6(e) material is, and with that preface the files of the FBI, the five files were turned over to IRS and it was a clean deal, in my opinion, and I’m going to so find.
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[10] With those conclusions, the trial court denied relief to the taxpayers, and they appealed. III.
[11] To obtain enforcement of an IRS administrative summons, the government must first show that the IRS has not made a referral of the taxpayer’s case to the Justice Department for criminal prosecution. United States v. LaSalle National Bank, 437 U.S. 298, 98 S.Ct. 2357, 57 L.Ed.2d 221 (1978). The government then must show that the IRS is proceeding in good faith by demonstrating: (1) that the investigation will be conducted pursuant to a legitimate purpose; (2) that the inquiry will be relevant to that purpose; (3) that the information sought is not already in the possession of the IRS; and (4) that the summons was issued in compliance with the administrative steps required by the Internal Revenue Code. United States v. Powell, 379 U.S. 48, 85 S.Ct. 248, 13 L.Ed.2d 112 (1964); United States v. Balanced Financial Management, Inc., 769 F.2d 1440 (10th Cir. 1985).[6] Once the government has met this burden (which is “slight,” Balanced Financial Management, 769 F.2d at 1443), the onus of going forward shifts to the taxpayer to show enforcement of the summons would “constitute an abuse of the court’s process,” United States v. Genser, 582 F.2d 292, 302 (3d Cir.) cert. denied, 444 U.S. 928, 100 S.Ct. 269, 62 L.Ed.2d 185
(1979), or that in issuing the summons the IRS lacks “institutional good faith.” United States v. Moll, 602 F.2d 134, 138 (7th Cir. 1979); Balanced Financial Management, 769 F.2d at 1444.
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criterion of the good faith test.[7] In light of the protection accorded a taxpayer by the restrictions imposed upon the IRS, the Court declared that a taxpayer contending the Service has not acted in good faith in the issuance of a summons has a heavy burden in proving his contention. It is within this matrix that we must judge the issues raised by Mr. and Mrs. Anaya.
IV. A.
[14] The taxpayers contend enforcement of the summons in this case would be an abuse of the court’s process because the summons were based on improper disclosures of “grand jury material” in violation of Fed.R.Crim.P. 6(e). In support of this argument, taxpayers rely upon United States v. Baggot, 463 U.S. 476, 103 S.Ct. 3164, 77 L.Ed.2d 785 (1983), and Gluck v. United States, 771 F.2d 750 (3d Cir. 1985). Neither case is helpful here.
B.
[17] Proper consideration of the issue first requires recognition of the scope of the secrecy requirement itself. Disclosure of “matters occurring before the grand jury” is prohibited unless authorized by the court. Fed.R.Crim.P. 6(e)(1). Therefore, the use of the term “grand jury materials” in connection with Rule 6(e) disclosures has become misleading and shibbolithic. What we must be concerned with is whether the information given to the IRS actually subverted the secrecy veiling what took place before the grand jury. Helpful to this quest is recollection of the reason for the existence of Rule 6(e).
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and to protect the participants from detrimental publicity United States v. Manglitz, 773 F.2d 1463 (4th Cir. 1985). Rule 6(e) is not intended to deter the government from a legitimate investigation, so long as that investigation does not reveal what took place in the grand jury room. With understanding of that purpose, a definition of material protected by the rule becomes much easier.
[19] It is clear from the record that none of the material examined by the IRS was itself presented to the grand jury. Nevertheless, the taxpayers argue that the material was so closely related to what was presented that it must fall within the shadow of 6(e). Citing SEC v. Dresser Industries, Inc., 628 F.2d 1368(D.C. Cir.), cert. denied, 449 U.S. 993, 101 S.Ct. 529, 66 L.Ed.2d 289 (1980); Fund for Constitutional Government v. National Archives, 656 F.2d 856 (D.C. Cir. 1981); and In re Sealed Case, 801 F.2d 1379 (D.C. Cir. 1986), they contend that disclosure of any information which would reveal the identities of witnesses, the substance of their testimony, the strategy of the investigation, and the deliberations of the grand jury would violate the rule. [20] Our examination of these cases leads us to a different conclusion. While we do not quarrel with either the reasoning or the conclusions expressed in them, we do not believe they are applicable in this instance. [21] Both Fund and Sealed Case involve the request for disclosure under Rule 6(e)(3)(C)(i) of material which had actually been considered by a grand jury. In Fund, there was a request under the Freedom of Information Act to release the names of grand jury witnesses; quotes or summaries of grand jury testimony; evaluations of testimony; discussions of the “scope, focus, and direction of the grand jury investigations”; identification of documents considered, and conclusions reached, by the grand jury. Fund, 656 F.2d at 869. The court held disclosure of this material was properly denied because it would have revealed matters occurring before the grand jury. Id. I Sealed Case, the government sought disclosure under 6(e)(3)(C)(i) of materials that had been subpoenaed by and presented to the grand jury. The court held disclosure was improper in light of a deficient showing of particularized need[10] because the documents revealed “at the very least, the direction of the grand jury’s investigation, and the names of the persons involved . . .” Sealed Case, 801 F.2d at 1381. In both these cases, the court dealt with disclosure of material which itself had actually been before a grand jury. In contrast, the taxpayers here would have us extend the scope of those cases to material which at best deals only in a parallel fashion with subjects that were before the grand jury. We do not believe such an expansive view of Rule 6(e) is warranted.[11] [22] When documents or other material will not reveal what actually has transpired before a grand jury, their disclosure is not an invasion of the protective secrecy of its proceedings, nor is it an interference with the grand jury as a principal tool of criminal accusation. Indeed, the test of whether disclosure of information will violate Rule 6(e) depends upon “whether revelation in the particular context would in fact reveal what was before the grand jury.” Fund, 656 F.2d at 871. As we perceive the proper inquiry, a reviewing court must find that disclosure is certain to destroy the protections of Rule 6(e) before it finds a violation of the rule. In contrast, revelation of information that has not been submitted to the grand jury does not vitiate those protections for the simple reason that the information was not part of what transpired in the grand jury room. [23] As we suggested in United States ex rel. Woodward v. Tynan,
it is not the information itself, but the fact that the grand jury was considering that information which is protected by Rule 6(e). For that reason, we cannot accept the taxpayers’
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argument that the information disclosed to the IRS agents was “grand jury material” or that disclosure was an act of institutional bad faith of the IRS which mandates the quashing of the summons.
[24] The IRS was in pursuit of a legitimate investigation, and revelation of information learned by other governmental agencies in a parallel investigation without disclosure of what had been submitted to the grand jury was not improper.[12] See In re Grand Jury Matter, 682 F.2d 61 (3d Cir. 1982); In re Grand Jury Investigation, 610 F.2d 202 (5th Cir. 1980); United States v. Stanford, 589 F.2d 285 (7th Cir. 1978), cert. denied, 440 U.S. 983, 99 S.Ct. 1794, 60 L.Ed.2d 244 (1979). We believe there is a clear distinction between a memorandum of the testimony given by a witness before the grand jury and a memorandum of what that person told an investigator outside the grand jury room. While disclosure of the former would violate the secrecy rule, the latter does not.[13] None of the FBI witness memoranda viewed by the IRS agent in this case were summaries of grand jury testimony; hence, they did not and could not disclose matters occurring before the grand jury. We are satisfied that the integrity of the grand jury proceeding was scrupulously protected by all persons, and no violations of Rule 6(e) have occurred.V.
[25] Taxpayers contend that the trial court improperly curtailed discovery because it refused to grant them access to the FBI files turned over to the IRS. While the court allowed taxpayers’ counsel to question the agents who dealt with these files at length about the contents, it refused counsel’s requests for turnover of the files themselves. The court also refused counsel’s request that the court inspect the files in camera.
VI.
[27] Taxpayers finally argue that the IRS issued their administrative summons in order to collect information for the Department of Justice. The evidence simply fails to support this argument.
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clearly erroneous. It therefore must stand. United States v. Sain, 795 F.2d 888 (10th Cir. 1986).
[29] The judgment of the district court is AFFIRMED, and all stays heretofore entered are dissolved. The mandate shall enter forthwith.To do so would unnecessarily frustrate the enforcement of the tax laws by restricting the use of the summons according to the motivation of a single agent without regard to the enforcement policy of the Service as an institution. Furthermore, the inquiry into the criminal enforcement objectives of the agent would delay summons enforcement proceedings while parties clash over, and judges grapple with, the thought processes of each investigator. . . . As a result, the question whether an investigation has solely criminal purposes [lacks good faith] must be answered only by an examination of the institutional posture of the IRS.
437 U.S. at 316, 98 S.Ct. at 2367.
(W.D.Mo. 1978).