UNITED STATES ET AL. v. BISCEGLIA
No. 73-1245
Supreme Court of the United States
Argued November 11-12, 1974—Decided February 19, 1975
420 U.S. 141
William A. Watson argued the cause and filed a brief for respondent.*
MR. CHIEF JUSTICE BURGER delivered the opinion of the Court.
We granted certiorari to resolve the question whether the Internal Revenue Service has statutory authority to issue a “John Doe” summons to a bank or other depository to discover the identity of a person who has had bank transactions suggesting the possibility of liability for unpaid taxes.
I
On November 6 and 16, 1970, the Commercial Bank of Middlesboro, Ky., made two separаte deposits with the Cincinnati Branch of the Federal Reserve Bank of Cleveland, each of which included $20,000 in $100 bills. The evidence is undisputed that the $100 bills were “paper thin” and showed signs of severe disintegration which could have been caused by a long period of storage under abnormal conditions. As a result the bills were no longer suitable for circulation and they were destroyed by the Federal Reserve in accord with established procedures. Also in accord with regular Federal Reserve procedures, the Cincinnati Branch reported these facts to the Internal Revenue Service.
It is not disputed that a deposit of such a large amount of high denomination currency was out of the ordinary for the Commercial Bank of Middlesboro; for example, in the 11 months preceding the two $20,000 deposits in $100 bills, the Federal Reserve had received only 218 $100 bills from that bank. This fact, together with the
After interviewing some of the bank‘s employees, none of whom could provide him with information regarding thе two $20,000 deposits, the agent issued a “John Doe” summons directed to respondent, an executive vice president of the Commercial Bank of Middlesboro. The summons called for production of “[t]hose books and records which will provide information as to the person(s) or firm(s) which deposited, redeemed or otherwise gave to the Commercial Bank $100 bills U. S. Currency which the Commercial Bank sent in two shipments of (200) two hundred each $100 bills to the Cincinnati Branch of the Federal Reserve Bank on or about November 6, 1970 and November 16, 1970.” This, of course, was simply the initial step in an investigation which might lead to nothing or might have revealed that therе had been a failure to report money on which federal estate, gift, or income taxes were due.1 Respondent, however, refused to comply with the summons even though he has not seriously argued that compliance would be unduly burdensome.
In due course, proceedings were commenced in the United States District Court for the Eastern District of
The Court of Appeals reversed, holding that
*The American Bankers Assn. filed a brief as amicus curiae urging affirmance.
II
The statutory framework for this case consists of
“Section 7601. Canvass of districts for taxable persons and objects.
“(a) General rule.
“The Secretary or his delegate shall, to the extent he deems it practicable, cause officers or emрloyees of the Treasury Department to proceed, from time to time, through each internal revenue district and inquire after and concerning all persons therein who may be liable to pay any internal revenue tax, and all persons owning or having the care and management of any objects with respect to which any tax is imposed.
“Section 7602. Examination of books and witnesses.
“For the purpose of ascertaining the correctness of any return, making a return where none has been
made, determining the liability of any person for any internal revenue tax . . . or collecting any such liability, the Secretary or his delegate is authorized— “(1) To examine any books, papers, records, or other data which may be relevant or material to such inquiry;
“(2) To summon the person liable for tax or required to perform the act, or any officer or employee of such person, or any person having possession, custody, or care of books of account containing entries relating to the business of the person liable for tax or required to perform the act, or any other person the Secretary or his delegate may deem proper, to appear before the Secretary or his delegate at a time and place named in the summons and to рroduce such books, papers, records, or other data, and to give such testimony, under oath, as may be relevant or material to such inquiry; and
“(3) To take such testimony of the person concerned, under oath, as may be relevant or material to such inquiry.”
We begin examination of these sections against the familiar background that our tax structure is based on a system of self-reporting. There is legal compulsion, to be sure, but basically the Government depends upon the good faith and integrity of each potential taxpayer to disclose honestly all information relevant to tax liability. Nonetheless, it would be naivе to ignore the reality that some persons attempt to outwit the system, and tax evaders are not readily identifiable. Thus,
We recognize that the authority vested in tax collectors may be abused, as all power is subject to abuse. However, the solution is not to restrict that authority so as to undermine the efficacy of the federal tax system, which seeks to assure that taxpayers pay what Congress has mandated and to prevent dishonest persоns from escaping taxation thus shifting heavier burdens to honest taxpayers. Substantial protection is afforded by the provision that an Internal Revenue Service summons can be enforced only by the courts.
Finally, we note that the power to summon and inquire in cases such as the instant one is not unprecedented. For example, had respondent been brought before a grand jury under identical circumstances there can be little doubt that he would have been required to testify and produce records or be held in contempt. In Blair v. United States, 250 U. S. 273 (1919), petitioners were summoned to appear befоre a grand jury. They refused to testify on the ground that the investigation exceeded the authority of the court and grand jury, despite the fact that it was not directed at them. Their subsequent contempt convictions were affirmed by this Court:
“[The witness] is not entitled to set limits to the investigation that the grand jury may conduct. . . . It is a grand inquest, a body with powers of investigation and inquisition, the scope of whose inquiries is not to be limited narrowly by questions of propriety or forecasts of the probable result of the investigation, or by doubts whether any particular individual will be found properly subject to an accusation of crime. As has been said before, the identity of the offender, and the precise nature of the offense, if there be one, normally are developed at the conclusion of the grand jury‘s labors, not at the beginning.” Id., at 282.
The holding of Blair is not insignificant for our resolution of this case. In United States v. Powell, supra, Mr. Justice Harlan reviewed this Court‘s cases dealing with the subpoena power of federal enforcement agencies, and observed:
“[T]he Federal Trade Commission . . . has a power of inquisition, if one chooses to call it that,
which is not derived from the judicial function. It is more analogous to the Grand Jury, which does not depend on a case or controversy for power to get evidence but can investigate merely on suspicion that the law is being violаted, or even just because it wants assurance that it is not.’ While the power of the Commissioner of Internal Revenue derives from a different body of statutes, we do not think the analogies to other agency situations are without force when the scope of the Commissioner‘s power is called in question.” 379 U. S., at 57, quoting United States v. Morton Salt Co., 338 U. S. 632, 642–643 (1950).
III
Against this background, we turn to the question whether the summons issued to respondent, as modified by the District Court, was authorized by the Internal Revenue Code of 1954.2 Of course, the mere fact that the summons was styled “In the matter of the tax liability of John Doe” is not sufficient ground for denying enforcement. The use of such fictitious names is common in indictments, see, e. g., Baker v. United States, 115 F. 2d 533 (CA8 1940), cert. denied, 312 U. S. 692 (1941), and other types of compulsory process. Indeed, the Courts of Appeals have regularly enforced Internal Revenue Service summonses which did not name a specific taxpayer who was under investigation. E. g., United States v. Carter, 489 F. 2d 413 (CA5 1973); United States v. Turner, 480 F. 2d 272, 279 (CA7 1973); Tillotson v.
The first question is whether the words of the statute require the restrictive reading given them by the Court of Appeals. Section 7601 permits the Internal Revenue Service to investigate and inquire after “all persons . . . who may be liable to pay any internal revenue tax . . . .” To aid in this investigative function,
Moreover, such a reading of the Internal Revenue Service‘s summons power ignores the fact that it has a legitimate interest in large or unusual financial transactions, especially those involving cash. The reasons for that interest are too numerous and too obvious to catalog. Indeed, Congress has recently determined that information regarding transactions with foreign financial institutions and transactions which involve large amounts of money is so likely to be useful to persons responsible for enforcing the tax laws that it must be reported by banks.
It would seem elementary that no meaningful investigation of such events could be conducted if the identity of the persons involved must first be ascertained, and that is not always an easy task. Fiduciaries and other agents are understandably reluctant to disclose information regarding their principals, as respondent was in this case. Moreover, if criminal activity is afoot the persons involved may well have used aliases or taken other measures to cover their tracks. Thus, if the Internal Revenue Service is unable to issue a summons to determine the identity of such persons, thе broad inquiry authorized by
We hold that the Internal Revenue Service was acting within its statutory authority in issuing a summons to respondent for the purpose of identifying the person or persons who deposited 400 decrepit $100 bills with the Commercial Bank of Middlesboro within the space of a few weeks. Further investigation may well reveal that such person or persons have a perfectly innocent explanation for the transactions. It is not unknown for taxpayers to hide large amounts of currency in odd places out of a fear of banks. But on this record the deposits were extraordinary, and no meaningful inquiry can be made until respondent complies with the summons as modified by the District Court.
We do not mean to suggest by this holding that respondent‘s fears that the
“That the power may be abused, is no ground for denying its existence. It is a limited power, and should be kept within its proper bounds; and, whеn these are exceeded, a jurisdictional question is presented which is cognizable in the courts.‘” McGrain v. Daugherty, 273 U. S. 135, 166 (1927), quoting People ex rel. McDonald v. Keeler, 99 N. Y. 463, 482 (1885).
So here, Congress has provided protection from arbitrary or capricious action by placing the federal courts between the Government and the person summoned. The District Court in this case conscientiously discharged its duty to see that a legitimate investigation was being conducted and that the summons was no broader than necessary to achieve its purpose.
The judgment of the Court of Appeals is reversed and the cause is remanded to it with directions to affirm the order of the District Court.
It is so ordered.
MR. JUSTICE BLACKMUN, with whom MR. JUSTICE POWELL joins, concurring.
I join the Court‘s opinion and its judgment, and add this word only to emphasize the narrowness of the issue at stake here. We decide today that the Internal Revenue Service has statutory authority to issue a summons to a bank in order to ascertain the identity of a person whose transactions with that bank strongly suggest liability for unpaid taxes. Under the circumstances here, there was an overwhelming probability, if not a certitude, that one individual or entity was responsible for the deposits. The uniformly deteriorated condition of the currency and the amount, combined with other unusual
The summons, in short, was issued pursuant to a genuine investigation. The Service was not engaged in researching some general problem; its mission was not exploratory. The distinction between an investigative and a more general exploratory purpose has been stressed appropriately by federal courts, see, e. g., United States v. Humble Oil & Refining Co., 488 F. 2d 953, 958 (CA5 1974), pet. for cert. pending, No. 73-1827; United States v. Armour, 376 F. Supp. 318 (Conn. 1974), and that distinction is important to our decision here.
We need not decide in this case whether the Service has statutory authority to issue a “John Doe” summons where nеither a particular taxpayer nor an ascertainable group of taxpayers is under investigation. At most, we hold that the Service is not always required to state a taxpayer‘s name in order to obtain enforcement of its summons, and that under the circumstances of this case it is definitely not required to do so. We do not decide that a “John Doe” summons is always enforceable where the name of an individual is lacking and the Service‘s pupose is other than investigative.
Upon this understanding, I join the Court‘s opinion.
MR. JUSTICE STEWART, with whom MR. JUSTICE DOUGLAS joins, dissenting.
The Court today says that it “recogniz[es] that the authority vested in tax collectors may be abused,”
Congress has carefully restricted the summons power to certain rather precisely delineаted purposes:
“ascertaining the correctness of any return, making a return where none has been made, determining the liability of any person for any internal revenue tax or the liability at law or in equity of any transferee or fiduciary of any person in respect of any internal revenue tax, or collecting any such liability.”
26 U. S. C. § 7602 .
This provision speaks in the singular—referring to “the correctness of any return” and to “the liability of any person.” The delineated purposes are jointly denominated an “inquiry” concerning “the person liable for tax or required to perform the act,” and the summons is designed to facilitate the “[e]xamination of books and witnesses” which “may be relevant or material to such inquiry.”
By contrast, the general duties of the IRS are vastly broader than its summons authority. For instance,
“to proceed, from time to time, through each internal revenue district and inquire after and concerning all persons therein who may be liable to pay any internal revenue tax, and all persons owning or having the care and management of any objects with respect to which any tax is imposed.” (Emphasis added.)
Virtually all “persons” or “objects” in this country “may,” of course, have federal tax problems. Every day the economy generates thousands of sales, loans, gifts, purchases, leases, deposits, mergers, wills, and the like which—because of their size or complexity—suggest the possibility of tax problems for somebody. Our economy is “tax relevant” in almost every detail. Accordingly, if a summons could issue for any material conceivably relevant to “taxation“—that is, relevant to the general duties of the IRS—the Service cоuld use the summons power as a broad research device. The Service could use that power methodically to force disclosure of whole categories of transactions and closely monitor the operations of myriad segments of the economy on the theory that the information thereby accumulated might facilitate the assessment and collection of some kind of a federal tax from somebody. Cf. United States v. Humble Oil & Refining Co., 488 F. 2d 953. And the Court‘s opinion today seems to authorize exactly that.
But Congress has provided otherwise. The Congress has recognized that information concerning certain classes of transactions is оf peculiar importance to the sound administration of the tax system, but the legislative solution has not been the conferral of a limitless summons power. Instead, various special-purpose statutes have been written to require the reporting or disclosure of particular kinds of transactions. E. g.,
Thus, a financial or economic transaction is not subject to disclosure through summons merely because it is large or unusual or generally “tax relevant“—but only when the summoned information is reasonably pertinent to an ongoing investigation of somebody‘s tax status. This restriction checks possible abuses of the summons power in two rather obvious ways. First, it guards against an
The Court today completely obliterates the historic distinction between the general duties of the IRS, summarized in
This is a sharp and dangerous detour from the settled course of precedent. The decision of the Court of Appeals in this case has been explicitly accepted as sound by the Courts of Appeals of two other Circuits. See United States v. Berkowitz, 488 F. 2d 1235, 1236 (CA3), and United States v. Humble Oil & Refining Co., 488 F. 2d 953, 960 (CA5), cert. pending, No. 73-1827. No federal court has disagreed with it.
The federal courts have always scrutinized with particular care any IRS summons directed to a “third party,” i. e., to a party other than the taxpayer under investigation. See, e. g., United States v. Humble Oil & Refining Co., supra, at 963; Venn v. United States, 400 F. 2d 207, 211–212; United States v. Harrington, 388 F. 2d 520, 523. When, as here, the third-party summons does not identify the party under investigation, a presumption naturally arises that the summons is not genuinely investigative but merely exploratory—a device for general research or for the hit-or-miss monitoring of “unusual” transactions. Unless this presumption is rebutted by the Service, the courts have denied enforcement.
Thus, the IRS was not permitted to summon from a bank the names and addresses of all beneficiaries of cer-
On the other hand, enforcement has been granted where the Service has been able to demonstrate that the John Doe summons was issued incident to an ongoing and particularized investigation. Thus, enforcement was granted of summonses seeking to identify the clients of those tax-return-preparation firms which prior investigation had shown to be less than honest or accurate in the preparation of sample returns. United States v. Theodore, 479 F. 2d 749; United States v. Turner, 480 F. 2d 272; United States v. Berkowitz, supra; United States v. Carter, 489 F. 2d 413. Similarly, enforcement was granted of summonses directed to an attorney, and his bank, seeking to identify the client for whom the attorney had mailed to the IRS a large, anonymous check, purporting to satisfy an outstanding tax deficiency of the client. Tillotson v. Boughner, 333 F. 2d 515; Schulze v. Rayunec, 350 F. 2d 666. Like the prior investigative work in the tax-return-preparer cases, the receipt of the mysterious check established the predicate of a particularized investigation which was necessary, under
Today‘s decision shatters this long line of precedent.
The Court‘s attempt to justify this extraordinary departure from established law is hardly persuasive. The Court first notes that a witness may not refuse testimony to a grand jury merely because the grand jury has not yet specified the “identity of the offender,”
The Court next suggests that this expansion of the summons power is innocuous, at least on the facts of this case, because the Bank Secrecy Act of 19704 itself com-
Finally, the Court suggests that respect for the plain language of
I would affirm the judgment of the Court of Appeals.
Notes
The Internal Revenue Service agent testified:
“Q. What possible tax effect could this have on the taxpayer if he is determined?
“A. Well, it could be anything from nothing at all, a simple explanation, or it could be that this is money that has been secreted away for a period of time as a means of avoiding the tax.
“Q. Then you really have not reached first base yet, is that correct?
“A. That‘s correct.”
The canvassing duties and the summons power have always been found in separate and distinct statutory provisions. The spatial proximity of the two contemporary provisions is utterly without legal significance.
He testified at the enforcement hearing:
“Q. What possible tax effect could this have on the taxpayer if he is determined?
“A. Well, it could be anything from nothing at all, a simple ex-
planation, or it could be that this is money that has been secreted away for a period of time as a means of avoiding the tax.
“Q. Then you really have not reached first base yet, is that correct?
“A. That‘s correct.”