The 'solely criminal purpose' defense to the enforcement of IRS summonses.

• Author: Mehraban, Darius J.

INTRODUCTION

Recent years have witnessed a gradual erosion of the practical distinctions between the civil and criminal investigations performed by federal administrative agencies.(1) This trend arose naturally from a growing number of federal statutes and regulations that carry both civil and criminal penalties for their violation.(2) Administrative agencies today wield investigative summons power(3) almost as expansive as the grand jury subpoena power(4) and can use that power to investigate without first deciding whether criminal or civil liability ultimately will be sought.(5)

The Internal Revenue Service (IRS) has participated to some extent in this intermingling of civil and criminal inquiry -- with a corresponding increase in investigative efficiency -- despite the fact that before 1982 the IRS issued summonses pursuant to a provision in the Internal Revenue Code, section 7602, that on its face gave the IRS only civil investigative authority.(6) In the 1971 case Donaldson v. United States,(7) however, the Supreme Court interpreted section 7602 to allow the IRS to issue summonses for criminal investigation, at least as long as there existed some valid civil purpose.(8) The Court's decision was not surprising: investigations into tax law violations frequently contain the potential for both civil and criminal liability.(9) It would have greatly hampered tax law enforcement had the Court forced the IRS either to ignore potentially criminal conduct or to give up its civil investigation altogether once it discovered such conduct.(10)

Donaldson, however, placed a singular limitation on the IRS's criminal investigative authority, what this Note calls the "Justice Department referral" doctrine: the IRS must cease issuing summonses for a particular case once it refers that case to the Department of Justice for criminal prosecution.(11) No other federal agency is subject to such a restriction,(12) as the restriction found its roots in the Court's interpretation of the unique language of section 7602.(13)

In the 1978 case United States v. LaSalle National Bank,(14) the Court reaffirmed the Justice Department referral doctrine and added an important corollary to it, what this Note calls the "solely criminal purpose" doctrine(15): even before Justice Department referral, the IRS may not issues summonses solely for a criminal investigative purpose.(16) In other words, the IRS loses the power to investigate criminal elements of a particular case once it has completed its civil investigation of that case. The Court stated that it would "not countenance delay in submitting a recommendation to the Justice Department [for criminal prosecution] when there is an institutional commitment to make the referral and the Service merely would like to gather additional evidence for the prosecution."(17) The Court characterized such a delay as the equivalent of issuing summonses after a Justice Department referral and there fore deemed the practice an impermissible expansion of the government's criminal discovery rights.(18)

Congress codified the Justice Department referral doctrine when it amended section 7602 as part of the Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA).(19) Congress did not codify the solely criminal purpose doctrine, however, and courts have split as to whether this doctrine survived the TEFRA Amendments. Specifically, the Fourth and Seventh Circuits have stated that the solely criminal purpose doctrine survived the amendments,(20) while the Ninth and Eleventh Circuits have held that the amendments to section 7602 eliminated the doctrine.(21)

The solely criminal purpose question is a criminal procedure issue with significant potential consequences for the rights of those under criminal tax investigation. If the LaSalle Court was correctly concerned that allowing the issuance of IRS summonses for a solely criminal investigation would permit the government to "expand its criminal discovery rights,"(22) courts should be reluctant to find that Congress implicitly eliminated the solely criminal purpose defense. The IRS should not be able to use its broad civil investigative powers to subvert protections afforded potential criminal tax defendants.

This Note argues, however, that this important concern for procedural rights is misplaced in this case, and sides with those courts that have held that the TEFRA Amendments did eliminate the solely criminal purpose defense. Part I uses the text and legislative history of the amended section 7602 to show that Congress specifically intended to eliminate the solely criminal purpose defense. Part II contends that the Fourth and Seventh Circuits wrongly relied on language in the Supreme Court case United States v. Stuart(23) which does not, as these courts believed, signal the continuing viability of the solely criminal purpose defense. Finally, Part III demonstrates that eliminating the solely criminal purpose defense does not endanger the rights of potential criminal defendants at all. This Note concludes that the Fourth and Seventh Circuits are incorrect both as a matter of statutory interpretation and as a matter of policy, and that courts should not hesitate to implement Congress's clear intent to eliminate the solely criminal purpose defense.

1. CONGRESSIONAL INTENT

   This Part argues that Congress intentionally amended section 7602 to eliminate the solely criminal purpose defense. Section I.A contends that this intent is clear from the statutory language, while section I.B shows how this intent is visible in the legislative history of the amended provision.

   1. The Statute

      Congress eliminated the solely criminal purpose defense by adding subsections (b) and (c) to section 7602. These amendments gave the IRS an explicit grant of authority for criminal investigation and a clearly defined limitation on its use -- a limitation that did not include the solely criminal purpose doctrine.

      Prior to the TEFRA amendments to section 7602, the IRS possessed no explicit statutory basis for its exercise of criminal investigative authority. The pre-1982 section 7602 -- subsection (a) of the current statute -- gave the IRS the power to examine any documents that "may be relevant or material" to its investigation and to take testimony from the person under investigation or other persons who may have "relevant or material" things to say.(24) The IRS could do these things

      [f]or 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 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 ....(25)

      Yet these were all civil investigative purposes. It was only through the Donaldson and LaSalle decisions that the IRS's criminal investigative authority was explicitly recognized.(26)

      The 1982 amendments to section 7602 gave the IRS express statutory authority to issue summonses for criminal investigations by adding subsection (b), entitled "Purpose may include inquiry into offense."(27) This subsection states, "[t]he purposes for which the Secretary may [issue summonses] include the purpose of inquiring into any offense connected with the administration or enforcement of the internal revenue laws."(28) The word "offense" means criminal violation.(29) Section 7602(b) thus gives the IRS an independent statutory basis for its criminal investigative authority.

      In giving the IRS the authority to perform criminal investigations, subsection (b) implicitly overrules the holding of LaSalle. The LaSalle Court had held that an IRS criminal investigation was permitted only so long as a valid civil investigative purpose was also present, because the statute contained no "affirmative grant of authority for purely criminal investigations."(30) Thus Congress, in providing such an "affirmative grant," effectively changed the fundamental assumptions under which the Court had ruled.

      Furthermore, in carving out but a single...