UNITED STATES v. GENSER, 602 F.2d 69 (3rd Cir. 1979)
UNITED STATES OF AMERICA, APPELLEE, v. LESTER GENSER, APPELLANT IN NO. 76-2623.
APPEAL OF LAWRENCE FORMAN, IN No. 76-2624.
Nos. 76-2623, 76-2624.
United States Court of Appeals, Third Circuit.
Submitted Under Third Circuit Rule 12(6) June 13, 1979.
Decided July 16, 1979.
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Robert J. Del Tufo, U.S. Atty., Maryanne T. Desmond, Asst. U.S.
Atty., Chief, Appeals Div., Newark, N.J., for appellee.
Irving R. Segal, James D. Fornari, Susan K. Herschel, Herbert
S. Mednick, Schnader, Harrison, Segal & Lewis, Philadelphia, Pa.,
for appellants; Zuckerman & Aronson, Newark, N.J., of counsel.
Appeal from the United States District Court for the District
of New Jersey.
Before SEITZ, Chief Judge, and GIBBONS and HUNTER, Circuit
Judges.
[2] Appellants are now before this Court for the third time,
challenging their convictions for income tax evasion. We
initially remanded this case to the district court for an
evidentiary hearing exploring their contention that summonses had
been issued by the IRS, pursuant to 26 U.S.C. § 7602, "solely for
a criminal purpose," and thus were invalid under United States
v. LaSalle National Bank, 437 U.S. 298, 98 S.Ct. 2357, 57
L.Ed.2d 221 (1978). United States v. Genser, 582 F.2d 292 (3d
Cir. 1978). Following that hearing the district court found by a
preponderance of the evidence that all of the summonses that had
been issued were valid because the IRS had been interested,
throughout the course of its investigation, in pursuing civil tax
liabilities owed by the appellants.
[3] We determined that it was necessary to retain jurisdiction over
this appeal and remand the case for further findings because the
district court had "failed . . . to confront defendants' claim
that the IRS, as an institution, had committed itself before
December 12, 1975, to refer the case for prosecution and that
summonses issued after that commitment served no civil purpose."
United States v. Genser, 595 F.2d 146, 151 (3d Cir. 1979). We
deemed the district court's finding that the IRS had maintained a
continuing civil interest in the outcome of the investigation an
inadequate
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response to the appellants' contention because of our belief that
LaSalle mandates that a court focus on the purpose of each
individual summons. Noting that some of the summonses in this
case had been issued after Frank Parisi, the IRS agent conducting
the investigation, had substantially completed his work, and that
"[i]nordinate and unexplained delays in the investigatory process
are one factor that might lead a court to infer that an agent was
acting at the behest of his superiors solely to pursue criminal
aspects of the investigation," id. at 152, we remanded this
case to the district court for additional findings.
[4] After conducting an evidentiary hearing, at which Agent Parisi
testified and was subjected to cross-examination, the district
court entered its findings of fact. The court found, "by a
preponderance of the evidence and more that each one of the
questioned summonses in this case was issue[d] for a civil
purpose," that there had been no "inordinate" or "extraordinary"
delay in the IRS's investigation, and that two summonses that
appellants introduced into evidence and about which Agent Parisi
was questioned, had been "useful and indeed indispensable in
computing the civil tax owed by the defendants." The court
explicitly refused, however, to make a finding requested by the
government that "no summons was issued after the IRS formed an
institutional commitment to recommend prosecution." To the
contrary, the court noted its belief "that from the first moment
a representative of the Internal Revenue Service knows that a
taxpayer has committed $10,000,000 worth [of tax evasion], they
have a pretty good commitment to prosecute."
[5] The appellants rely on the latter statement as support for the
contention they now raise. Their present position is that, given
an obvious institutional commitment on the part of the IRS to
eventually recommend this case to the Justice Department for
prosecution, the district court abused its discretion, and
ignored the dictates of this court's opinion and that of the
Supreme Court in LaSalle, by failing to hold a "meaningful"
evidentiary hearing. Appellants contend that the hearing they
were afforded on remand was less than meaningful because they
were unable to cross-examine Parisi about contacts he had with
Justice Department officials and his IRS superiors during his
investigation and because they were denied production of a rough
draft of Parisi's final report, of all summonses issued by Parisi
after his initial contact with the Justice Department, and of the
evidence obtained from those summonses.
[6] The district court's statement about the Service's
institutional commitment, standing alone, offers no support to
the appellants' contention. It is not just an institutional
commitment to recommend prosecution that renders a summons issued
under § 7602 invalid; rather, it is the absence of a civil
purpose for that summons that triggers the LaSalle rule. As the
Supreme Court there stated: "We shall not countenance delay in
submitting a recommendation to the Justice Department when there
is an institutional commitment to make the referral and the
Service merely would like to gather additional evidence for the
prosecution." 437 U.S. at 316-17, 98 S.Ct. at 2367 (emphasis
supplied). Likewise, in remanding this case to the district
court, we noted: "The district court failed, however, to confront
defendants' claim that the IRS, as an institution, had committed
itself before December 12, 1975, to refer the case for
prosecution and that summonses issued after that commitment
served no civil purpose." 595 F.2d at 151 (emphasis supplied).
[7] The burden placed on criminal defendants in appellants'
position is a heavy one. They "bear the burden to disprove the
actual existence of a valid civil tax determination or collection
purpose by the Service." LaSalle, supra at 316, 98 S.Ct. at
2367. During the course of most investigations where significant
amounts of civil liability are involved the IRS agents conducting
and reviewing the inquiry will recognize that a recommendation
for criminal prosecution might eventually be forthcoming.
Nevertheless,
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a valid summons still may be issued under § 7602 so long as the
IRS uses that summons to pursue civil penalties and interest. As
the Court stated in LaSalle: "For a fraud investigation to be
solely criminal in nature would require an extraordinary
departure from the normally inseparable goals of examining
whether the basis exists for criminal charges and for the
assessment of civil penalties." Id. at 314, 98 S.Ct. at 2366.
[8] In our earlier opinion we recognized several indicators that
could lead a reviewing court to infer that a given case may
present such an "extraordinary departure" from those "normally
inseparable goals." Where such indicators are present we stated
that it may be necessary for the district court to scrutinize
each suspect summons in order to satisfy itself of the existence
of the requisite link between that summons and the IRS's
preferred civil purpose. 595 F.2d at 151.
[9] One such indicator, of course, would be evidence that the
Justice Department influenced the conduct of an IRS
investigation, and the appellants here contend that their
inquiries into Agent Parisi's contacts with Justice Department
officials were unduly limited by the district court. We have
already affirmed a finding by the district court, however, that
"specifically rejected defendants' contention that Agent Parisi
was influenced in his investigation by the Department of
Justice." Id. Thus the district court did not err in limiting
the appellants' inquiry into this area after remand.
[10] We identified the issuance of a summons after the date of an
IRS agent's recommendation that a case be referred to the Justice
Department for prosecution as a second indicator that might lead
a court to infer that the summons was not designed to advance a
legitimate civil purpose. Id. One such summons was issued in
this case following the filing of Agent Parisi's final report
recommending prosecution. The defendants have been given access
to that summons, however, and the district court has satisfied
itself that the evidence obtained from that summons advanced a
civil purpose.
[11] Recognizing the possibility that an IRS investigating agent
might delay his formal recommendation that a case be referred for
prosecution, and that summonses might be issued during that
period of delay solely for a criminal purpose, we noted that
summonses issued during periods of "inordinate and unexplained"
delay in the investigation would also merit special attention.
Id. at 152. Because Agent Parisi did not file his final report
in this case until five months after his investigation was
substantially completed, we asked the district court to focus its
inquiry on the causes of that delay. Based on its evaluation of
Parisi's testimony and the record developed earlier in this case,
the district court found that there were no delays of any kind
during the course of the IRS's investigation. The court stated:
Indeed, I find, given what we usually see in these
courts by way of processing of IRS civil
investigations or criminal investigations, or civil
and criminal investigations, there not only was no
inordinate delay but by those terms the investigation
proceeded very rapidly indeed.
[12] Having so found, the district court was not obligated by the
terms of our prior opinion to examine each summons, or the
evidence derived therefrom, that was issued during the period
between the substantial completion of Agent Parisi's
investigation and the filing of his final report. Moreover, we
conclude that the district court did not abuse its discretion in
limiting appellants' cross-examination of Parisi, or in failing
to grant appellants' request that Parisi's draft report, the 96
summonses issued after November, 1974, and the evidence derived
therefrom, be produced.
[13] We conclude that the district court's findings, based on
Parisi's sworn testimony, that there were no inordinate or
unexplained delays in the IrS's investigation and that each of
the questioned summonses served a civil purpose, are not clearly
erroneous. The appellants' request that this matter again be
remanded to the district court for yet another evidentiary
hearing will be denied.
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[14] We have previously determined that the other grounds raised by
appellants in support of their contention that their convictions
must be reversed are without merit. See United States v.
Genser, 582 F.2d at 296-99. We now conclude that with respect to
each of the summonses issued during the IRS's investigation of
this case the appellants have failed to meet their heavy burden
of "disprov[ing] the actual existence of a valid civil tax
determination or collection purpose by the Service." LaSalle,
supra at 316, 98 S.Ct. at 2367. The judgments of the district
court will be affirmed.
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