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From: http://www.usdoj.gov/osg/briefs/1988/sg880291.txt

UNITED STATES OF AMERICA, PETITIONER sV. FRANK S. ZOLIN, ET AL.

No. 88-40

In the Supreme Court of the United States

October Term, 1988

On Writ of Certiorari to the United States Court of Appeals for the
Ninth Circuit

Brief for the United States

PARTIES TO THE PROCEEDING

In addition to the parties named in the caption, Mary Sue Hubbard
and the Church of Scientology of California intervened in the district
court and are respondents here.

TABLE OF CONTENTS
Questions Presented
Parties To The Proceeding
Opinions Below
Jurisdiction
Statutory provisions involved
Statement
Summary of argument
Argument
I. The district court erred in restricting the disclosure of the
summoned information as a condition of enforcing the summons
A. The role of the district court in a summons enforcement
action is limited to determining whether or not the summons
should be enforced and does not extend to monitoring the
IRS's use of the summoned materials
B. Permitting the district court to retain jurisdiction to
monitor the IRS's use of summoned material would conflict
with important policies relating to summonses and with
other provisions of the Code
II. The contents of the document in question may be considered in
determining the applicability of the "crime-fraud" exception
to the attorney-client privilege
Conclusion

OPINIONS BELOW

The order of the en banc court vacating the order granting
rehearing (Pet. App. 1a-9a), is reported at 842 F.2d 1135. The
earlier order of the en banc court granting rehearing (Pet. App. 10a)
is reported at 832 F.2d 127. The opinion of the panel (Pet. App.
11a-24a) is reported at 809 F.2d 1411. The March 12, 1985, interim
order of the district court (Pet. App. 30a-32a), the April 30, 1985,
order of the district court (Pet. App. 27a-29a), and the June 10,
1985, order of the district court denying reconsideration (Pet. App.
25a-26a) are unreported.

JURISDICTION

The judgment of the court of appeals was entered on February 9,
1987. A petition for rehearing en banc was granted on November 6,
1987 (Pet. App. 10a), and that order was vacated as improvidently
granted on March 28, 1988 (Pet. App. 2a). On June 20, 1988, Justice
O'Connor extended the time to petition for a writ of certiorari to and
including July 8, 1988. The petition was filed on July 7, 1988, and
was granted on October 17, 1988. The jurisdiction of this Court is
invoked under 28 U.S.C. 1254(1).

STATUTORY PROVISIONS INVOLVED

Sections 7602, 7604(a) and 7421(a) of the Internal Revenue Code (26
U.S.C.) are set out in a statutory appendix (App., infra, 1a-2a).

QUESTIONS PRESENTED

1. Whether, in the course of an action brought by the Internal
Revenue Service to enforce a summons, the court may place restrictions
on the disclosure of the summoned information.

2. Whether a prima facie case for the invocation of the crime-fraud
exception to the attorney-client privilege must be established by
independent evidence, or, alternatively, whether the applicability of
that exception can be resolved by an in camera inspection of the
allegedly privileged materials.

STATEMENT

1. In July 1984 the Criminal Investigation Division of the Internal
Revenue Service (IRS) began investigating the tax returns of L. Ron
Hubbard and others for tax years 1979 through 1983. Prior to the
commencement of the investigation, Los Angeles newspapers had reported
that former officials of the Church of Scientology had testified in
Church of Scientology v. Gerald Armstrong, No. C420 153 (Cal. Super.
Ct.), that various Church of Scientology entities had transferred
millions of dollars to Hubbard in the late 1970's and early 1980's.
In October 1984, the IRS served an administrative summons on the Clerk
of the California Superior Court, an office now occupied by respondent
Zolin, seeking a number of documents in the record of the Armstrong
case. The Clerk's office produced some of the documents, but it
refused to produce 13 documents that had been ordered sealed by the
Superior Court. The government then initiated this proceeding in the
United States District Court for the Central District of California to
enforce the summons. Pet. App. 12a.

Respondents Mary Sue Hubbard and the Church of Scientology
intervened to oppose enforcement of the summons. They contended,
inter alia, that the summons had been issued for the improper purpose
of gathering information for use by other government agencies. After
an evidentiary hearing, the district court rejected this contention.
The court stated that the "Church has failed to raise any doubt of the
good faith of the Internal Revenue Service in pursuing this summons
enforcement proceeding" (Pet. App. 27a). The court explained that the
summons was validly issued pursuant to a bona fide criminal tax
investigation of L. Ron Hubbard and that the "agent issuing the
summons was in good faith in doing so, and did not do so for an
improper purpose, or to harass the taxpayer, or for a collateral
purpose" (ibid.). The court therefore enforced the summons in part,
ordering production of the five disputed documents that it found to be
relevant and not privileged (id. at 28a). The court's order further
provided that the documents produced "shall not be delivered to any
other government agency by the IRS unless criminal tax prosecution is
sought or an Order of Court is obtained" (id. at 29a).

The court also denied enforcement of the summons in part, ruling
that eight of the documents were either irrelevant or privileged. In
particular, the court ruled that Exhibit 5C, tape recordings of two
meetings between various attorneys and representatives of L. Ron
Hubbard and the Church of Scientology that are known as the "MCCS
tapes," is protected by the attorney-client privilege. The government
argued that the "crime-fraud" exception to the attorney-client
privilege is applicable, /1/ relying on affidavits from an IRS special
agent that contain partial transcripts of the tapes and that state
that the excerpts and his discussions with former Church employees had
given the agent reason to believe that the meetings were part of a
criminal conspiracy to defraud the United States (see Pet. App.
23a-24a, 28a). /2/ The court found that the government had not
demonstrated the applicability of the crime-fraud exception, stating
that "(t)he quoted excerpts tend to show or admit past fraud but there
is no clear indication that future fraud or crime is being planned"
(id. at 28a).

2. The government sought reconsideration of the court's rulings.
In particular, the government requested the court to reconsider the
provision in its enforcement order that prohibits the IRS from
disclosing the summoned information to any other governmental agency
without obtaining advance approval from the district court. The
government argued that the court's role in a summons enforcement
action is limited to granting or denying enforcement, and does not
extend to imposing restrictions on the disclosure of lawfully summoned
documents. The court denied the motion for reconsideration,
explaining as follows (Pet. App. 26a): "Since the entire basis of the
summons proceeding was to obtain material for a tax investigation, the
court thinks it reasonable to restrict the use of the material for
that purpose, unless a criminal prosecution is instituted. If
exigencies of other litigation make it necessary, the IRS is free to
make its case for an exception to this court."

The government also asked the court to reconsider its holding that
there was insufficient evidence that the crime-fraud exception applies
to the claim of attorney-client privilege for the MCCS tapes. In
particular, the government noted that the district court apparently
had reviewed only the partial transcripts of the MCCS tapes and had
not actually listened to the tapes in full. In support of the motion,
the government submitted the sealed Declaration of C. Philip Xanthos,
Chief of the IRS Criminal Investigation Division, who stated that he
had listened to the two MCCS tapes in full and that the partial
transcripts reviewed by the court were very incomplete. Branch Chief
Xanthos stated that he specifically recalled two discussions involving
lawyers recorded on the MCCS tapes that involved the planning of
future crimes and fraudulent acts against the IRS. See May 5, 1985,
Government's Motion for Reconsideration of Order of April 30, 1985,
with attached Declaration of C. Philip Xanthos. The court denied the
government's motion and declined to listen to the tapes in full,
stating that, while "at one time (listening to the tapes in full was)
discussed with counsel, thereafter Mr. Petersell's declaration was
submitted, and no one suggested that this was an inadequate basis on
which to determine the attorney-client privilege" (Pet. App. 25a-26a).
/3/ The court added that "Mr. Xanthos' declaration stands on a
similar footing; no reason is suggested why it could not have been
submitted as part of the materials considered in the April hearings"
(id. at 26a).

3. A panel of the court of appeals affirmed (Pet. App. 11a-24a).
The court rejected the government's contention that the district court
had exceeded its authority in a summons enforcement proceeding by
imposing limitations on the IRS regarding disclosure of the summoned
information (id. at 18a-19a). Relying on its prior decision in United
States v. Author Services, Inc., 804 F.2d 1520 (9th Cir. 1986), which
in turn had relied upon United States v. Texas Heart Inst., 755 F.2d
469, 481 (5th Cir. 1985), /4/ the court concluded that a "district
court may, when appropriate, condition enforcement of a summons on the
IRS' agreeing to abide by disclosure restrictions" (Pet. App. 19a).

The panel also affirmed the trial court's ruling that the
crime-fraud exception is not applicable to the MCCS tapes (Pet. App.
21a-24a). Citing United States v. Shewfelt, 455 F.2d 836, 840 (9th
Cir.), cert. denied, 406 U.S. 944 (1972), the panel explained that
circuit precedent had established the rule that the crime-fraud
exception could be invoked to justify disclosure of otherwise
privileged communications only where the government establishes "'a
prima facie case of fraud independently of the said communications'"
(Pet. App. 21a, quoting 455 F.2d at 840 (emphasis in original)).
While noting that "Shewfelt's independent evidence requirement ha(d)
been strongly criticized" and rejected by other courts, and that
another Ninth Circuit decision, United States v. Friedman, 445 F.2d
1076, cert. denied, 404 U.S. 958 (1971), had "implicitly recognized
that a district court may examine the disputed communications
themselves in order to determine the applicability of the
'crime-fraud' exception," the panel concluded that it was bound to
follow the independent evidence rule of Shewfelt unless that case was
overruled en banc (Pet. App. 22a-23a). Applying that rule, the panel
concluded that the independent evidence in this case, consisting of
the special agent's declarations describing his conversations with
former Church employees (but not the partial transcripts of the actual
MCCS tapes themselves), "while not altogether insubstantial, (was) not
sufficent to make out the requisite prima facie showing of intended
illegality" (id. at 23a-24a). /5/

4. The court of appeals ordered the case to be reheard en banc
(Pet. App. 10a). Following supplemental briefing and oral argument,
however, the en banc court entered an order vacating "as improvidently
granted" the previous order granting rehearing en banc (id. at 1a-2a).
The order explained that there is no conflict between United States
v. Shewfelt, supra, and United States v. Friedman, supra, because
Friedman did not discuss whether there was an independent evidence
requirement. The en banc court confirmed that Shewfelt is the law of
the circuit on this point, holding that "the government must make a
prima facie showing, independent of the communications involved, that
the attorney-client communications were in furtherance of an intended
or present illegality" (Pet. App. 2a). The en banc court also ordered
withdrawn the four paragraphs in the panel opinion that had noted and
discussed the criticisms of Shewfelt (see Pet. App. 21a-22a). Id. at
2a.

Three judges dissented from the en banc court's order, arguing that
rehearing en banc had not been improvidently granted and that the en
banc court should overrule Shewfelt (Pet. App. 2a-9a). The dissenters
criticized the majority for "perpetuat(ing) a maverick version of the
attorney-client privilege" that "clashes with that of a majority of
other circuits" (id. at 3a), citing cases from six courts of appeals
(id. at 4a). The dissenters then discussed the merits of the
independent evidence rule (id. at 4a-8a) and concluded that they
"would overrule Shewfelt, eliminate the independent evidence
requirement, and allow in camera inspection of suspect communications"
(id. at 8a). /6/

SUMMARY OF ARGUMENT

I.

A. Congress has conferred upon the IRS the broad authority to issue
a summons requesting the production of any documents that may be
relevant to a tax investigation (I.R.C. Section 7602). In the event
the summoned party does not comply with the summons, the IRS may apply
to a district court for enforcement, and Congress has conferred upon
those courts jurisdiction "to compel such attendance, testimony, or
production of books, papers, records, or other data" requested by an
IRS summons (I.R.C. Sections 7402(b), 7604(a)). Thus, the scope of
the district court summons enforcement jurisdiction established by
Congress is to determine whether the IRS is entitled to the production
of the information, i.e., whether the particular summons is a valid
exercise of the IRS's summons authority. The content of the court's
inquiry has been well established by this Court in United States v.
Powell, 379 U.S. 48, 57-59 (1964), and subsequent cases. Primarily
the court must determine if the summons was issued in good faith and
for a legitimate purpose authorized by Congress. If these and the
other Powell criteria are satisfied, the court should enforce the
summons; if not, -- for example, if the IRS has sought to abuse the
court's process by issuing the summons for an improper purpose such as
to harass the taxpayer (see 379 U.S. at 58) -- the court should not
enforce the summons.

The role created for district courts by Congress in the summons
enforcement process does not entail continuing supervision over the
summoned material once it has been determined that the summons is
valid and the material is supplied to the IRS. The courts below thus
seriously deviated from the statutory framework in creating "a
mechanism whereby the district court could monitor the IRS' use of the
summoned documents" (Pet. App. 19a). The district court here
unequivocally rejected respondents' challenge to the validity of the
summons, concluding that the Powell criteria were satisfied and
therefore that the IRS was entitled to the summoned documents. At
that point, the materials should have been furnished to the IRS and
subjected to the same rules -- including the rules governing
disclosure -- that govern other taxpayer information in the hands of
the IRS. The authority conferred upon the district court by Congress
had then been fully exercised. A district court has no authority to
maintain jurisdiction to supervise and control the IRS's use or
disclosure of the documents that have been produced in compliance with
a summons. The statute plainly confers no such authority, this Court
has never suggested its existence, and it surely should not be implied
in light of this Court's repeated admonition that "restrictions upon
the IRS summons power should be avoided absent unambiguous directions
from Congress." Tiffany Fine Arts, Inc. v. United States, 469 U.S.
310, 318 (1985) (quoting United States v. Arthur Young & Co., 465 U.S.
805, 816 (1984)).

B. The decision below undermines fundamental congressional policies
embodied in the Internal Revenue Code. It is well established that
summons enforcement proceedings are designed to be "summary" in nature
because delay can seriously interfere with the effectiveness of IRS
investigations. See Donaldson v. United States, 400 U.S. 517, 529
(1971). A procedure under which the court enforcing a summons retains
jurisdiction to monitor the IRS's use of the documents would introduce
unjustified delays into the process. First, it would invite
litigation in the summons enforcement proceeding itself over the
extent to which restrictions should be placed on the use of the
summoned material, with the summoned party arguing that some special
circumstnaces in its case require special restrictions on the IRS's
use of the documents. Second, to the extent that restrictions are
imposed that require monitoring by the district court, they would
provide an opportunity for the summoned party to subject the IRS's
investigation to repeated scrutiny in proceedings that would
inevitably introduce substantial delays into the investigative
process. Here, the court of appeals has held that the IRS may not
make disclosures to government agencies, even if necessary to its
investigation, unless it obtains prior court approval, which may
require a complex inquiry into whether the disclosure is authorized by
Section 6103 of the Code. Since it would undermine the crucial goal
of expedition that underlies the summons provisions, a power to
supervise IRS investigations manifestly should not be implied from the
congressional grant of jurisdiction to enforce summonses.

Moreover, the comprehensive framework established by Congress to
enforce the prohibitions on disclosure contained in Section 6103
strongly suggests that Congress did not desire that summons
enforcement proceedings be used to provide a pre-disclosure forum for
considering Section 6103 issues. The Code generally provides only for
post-disclosure remedies for Section 6103 violations -- in the form of
civil damage suits and criminal penalties -- which are designed as
deterrents. The fact that Congress has explicitly provided for
pre-disclosure judicial involvement in certain specified situations --
requiring court orders before certain disclosures are made under
Section 6103(i) and making injunctive relief available to prevent
disclosures of written determinations under Section 6110 -- reinforces
the conclusion that an additional pre-disclosure remedy should not be
implied for documents produced in compliance with a summons.
Moreover, the supervisory role approved by the court below, which
essentially enjoins the IRS from making certain use of the summoned
material, is sharply at odds with the thrust of the Tax
Anti-Injunction Act, 26 U.S.C. 7421(a). In sum, the entire statutory
scheme indicates that the questions of summons enforcement and
improper disclosure are distinct. Once the district court determines
that the summons should be enforced, its role is at an end; the
documents should be produced, and they then become subject to the same
rules and restrictions on disclosure that apply to any other material
in the possession of the IRS.

II.

It is well established that the purpose of the attorney-client
privilege is "to encourage full and frank communication between
attorneys and their clients and thereby promote broader public
interests in the observance of law and administration of justice"
(Upjohn Co. v. United States, 449 U.S. 383, 389 (1981)) and that,
since the privilege "has the effect of withholding relevant
information from the factfinder, it applies only where necessary to
achieve its purpose" (Fisher v. United States, 425 U.S. 391, 403
(1975)). Under these principles, it is similarly well established
that communications with an attorney in connection with a contemplated
or ongoing fraud are not privileged. There is no justification for
the court of appeals' holding that such communications nonetheless
should be protected from disclosure on grounds of attorney-client
privilege unless "independent evidence" demonstrates a prima facie
case of crime or fraud -- even where the contents of the documents
indisputably reveal that they fall within the crime-fraud exception.

The independent evidence rule adopted by the Ninth Circuit
unnecessarily withholds probative evidence from the factfinder since
the protection of attorney-client communications that plan a crime or
fraud does not advance the purposes of the privilege. Moreover, the
rule is contrary to the common and accepted practice for adjudicating
claims of privilege -- including attorney-client privilege -- namely,
in camera examination of the documents in question themselves. See,
e.g., Kerr v. United States Dist. Court, 426 U.S. 394, 405-406 (1976).
There is simply no reason why invocation of the crime-fraud exception
should be subject to an "independent evidence" procedural hurdle that
is not applied in connection with other privilege issues. Indeed,
this Court has rejected the use of an analogous independent evidence
rule in the hearsay area where there is initially at least some
question about the probative value of the communication at issue. See
Bourjaily v. United States, No. 85-6725 (June 23, 1987). It follows,
a fortiori, that no such rule should apply here where the contents of
the document itself are likely to be the most probative evidence of
whether it is subject to the crime-fraud exception.

ARGUMENT

This case arises out of a summons issued by the Commissioner of
Internal Revenue, pursuant to Section 7602 of the Internal Revenue
Code, /7/ to obtain documents relevant to an ongoing tax
investigation. When the summoned party refused to comply with the
summons, the United States filed this action in district court,
pursuant to Section 7604 of the Code, to compel him to produce the
documents. The district court found that the summons had been issued
in good faith in furtherance of a legitimate tax investigation. The
court, however, did not simply order the summoned party to produce
those documents that the court agreed were relevant to the
investigation. Instead, it imposed a condition on enforcement of the
summons -- namely, that the IRS could not disseminate the summoned
information to any other government agency without prior approval of
the court.

This order restraining disclosure was erroneous, and its affirmance
by the court of appeals should be overturned. If a district court
concludes that an IRS summons has been issued in good faith, the court
is obliged to compel the summoned party to produce the relevant
records. The court is not free to establish for itself a continuing
role as a monitor of the IRS's use of those documents. The imposition
of restrictions on IRS use of the documents -- in effect, an
injunction against future actions that might be taken by the
government -- exceeds the proper scope of the court's inquiry in a
summons enforcement action. Moreover, by requiring prior judicial
approval for specified uses of summoned documents, the court's holding
would undermine the goal of expeditious investigations and thereby
retard the efficient enforcement of the tax laws.

The district court also refused to order production of certain
relevant documents, the MCCS tapes, on the ground that they are
protected by the attorney-client privilege, holding that the
government had not made a prima facie case that the crime-fraud
exception applies here to defeat the privilege claim, i.e., the
government had not adequately shown that the allegedly privileged
conversations were devoted to planning future crimes or fraud. The
court of appeals held that the contents of the tapes could not be
considered in determining the applicability of the crime-fraud
exception and therefore that, even if an in camera inspection of the
tapes would clearly reveal that the conversations were devoted to
planning a crime, the privilege could still be invoked successfully in
the absence of "independent evidence" demonstrating the planning of
crime or fraud. This independent evidence rule, which has been
rejected by every other court of appeals that has considered the
issue, would seriously vitiate the practical utility of the
crime-fraud exception by permitting the attorney-client privilege to
be invoked to shield probative evidence of crimes from investigators
in many cases in which the privilege was not designed to operate. The
rule adopted by the court of appeals is legally erroneous, and it
should be rejected by this Court.

I. THE DISTRICT COURT ERRED IN RESTRICTING THE DISCLOSURE OF THE
SUMMONED INFORMATION AS A CONDITION OF ENFORCING THE SUMMONS

A. The Role Of The District Court In A Summons Enforcement Action
Is Limited To Determining Whether Or Not The Summons Be Enforced And
Does Not Extend To Monitoring The IRS's Use Of The Summoned Materials

1. The Secretary of the Treasury is charged with the duty to
enforce the revenue laws and, to that end, the Commissioner of
Internal Revenue, as the Secretary's delegate, is charged with the
duty "to make inquiries, determinations, and assessments of all taxes"
imposed by the Internal Revenue Code (I.R.C. Section 6201(a)). The
summons power is the investigative tool provided by Congress to enable
the Commissioner to make accurate determinations of tax liability.
Section 7602 of the Code authorizes the Commissioner "(t)o examine any
books, papers, records, or other data which may be relevant" to a tax
investigation and to summon any person to appear and produce such
documents and to give relevant testimony. As is the case with other
admnistrative agencies that have subpoena power, however, the IRS does
not have the power to compel obedience to its orders by means of
contempt or other sanctions. See Reisman v. Caplin, 375 U.S. 440,
445-446 (1964); compare ICC v. Brimson, 154 U.S. 447, 485 (1894).
Thus, if the summoned party refuses to produce the requested
documents, the IRS must go to court in order to compel compliance with
teh summons. Sections 7402(b) and 7604(a) of the Code confer upon the
district courts jurisdiction "to compel such attendance, testimony, or
production of books, papers, records, or other data" requested by an
IRS summons. See also Section 7609(h)(1) of the Code (conferring
district court jurisdiction over challenges by taxpayers to summonses
issued to certain third-party recordkeepers (defined in I.R.C. Section
7609(a)(3)).

The purpose of the summons enforcement proceeding is to determine
whether the government is entitled to production of the requested
information, i.e., whether the particular summons is a valid exercise
of the IRS's summons authority. Accordingly, the summons may be
challenged in the enforcement proceeding on "any appropriate ground, "
such as the contention that the material is being sought for an
improper purpose not authorized by statute or that the summoned
material is protected by the attorney-client privilege. See Reisman
v. Caplin, 375 U.S. at 449. If the challenges are rejected by the
district court, however, the taxpayer is required to comply with the
summons, and the district court enters an enforcement order that
compels obedience to the terms of the summons.

The proper limits of the district court's inquiry in a summons
enforcement proceeding were delineated in the seminal case of United
States v. Powell, 379 U.S. 48, 57-59 (1964). This Court held that it
is not within the district court's authority to inquire into whether
the Commissioner had probable cause to issue the summons. Rather, in
order to obtain enforcement, the Commissioner is required to "show
that the investigation will be conducted pursuant to a legitimate
purpose, that the inquiry may be relevant to the purpose, that the
information sought is not already within the Commissioner's
possession, and that the administrative steps required by the Code
have been followed" (id. at 57-58). /8/ The Court added that this
does not mean that the district court cannot make any inquiry at all
into the underlying reasons for the summons, stating that "a court may
not permit its process to be abused" (id. at 58 (footnote omitted)).
The Court explained that "(s)uch an abuse would take place if the
summons had been issued for an improper purpose, such as to harass the
taxpayer or to put pressure on him to settle a collateral dispute, or
for any other purpose reflecting on the good faith of the particular
investigation" (ibid.). The Court specified that the burden of
showing such an abuse is on the party challenging enforcement of the
summons (ibid.). Under the framework established by this Court in
Powell, therefore, a summons is to be enforced if the court concludes
that it was issued in "good faith," i.e., in furtherance of a
legitimate purpose for which the use of the summons authority has been
authorized by Congress. See also United States v. Bisceglia, 420 U.S.
141, 145-146 (1975); Donaldson v. United States, 400 U.S. 517,
526-527 (1971); see generally United States v. Kis, 658 F.2d 526,
535-536 (7th Cir. 1981), cert. denied, 455 U.S. 1018 (1982); United
States v. Garden State Nat'l Bank, 607 F.2d 61, 70-71 (3d Cir. 1979).

The district court's role in a summons enforcement proceeding thus
does not entail continuing supervision over the summoned material once
it has been supplied to the IRS. The court simply determines whether
the taxpayer's objections to the summons are valid. In the words of
the statute, the court must exercise its "jurisdiction * * * to compel
(the) attendance, testimony, or production of books, papers, records,
or other data" requested by the summons (I.R.C. Sections 7402(b),
7604(a)). If the taxpayer's objections are valid, the Commissioner is
not entitled to the requested materials and the summons is not
enforced; if the taxpayer's objections are not valid, the
Commissioner is entitled to the requested materials and the court's
duty is to order compliance with the summons. At that point, the
statutory jurisdiction conferred upon the district court has been
fully exercised, and the summons enforcement proceeding is at an end;
the district court from which the enforcement proceeding is at an end;
the district court from which the enforcement order was sought has no
further role to play in the summons process.

The courts below have deviated from this well-established framework
for summons enforcement proceedings by creating, in the words of the
court of appeals, "a mechanism whereby the district court could
monitor the IRS' use of the summoned documents" (Pet. App. 19a). The
district court, while ordering respondents to produce certain
materials requested in the summons, also ordered the Commissioner not
to release those materials to another government agency without
obtaining prior approval of the court. That order exceeded its
authority. /9/

Until the imposition of this condition on the IRS's use of the
summoned material, the enforcement proceeding here followed the scheme
contemplated by Congress. Respondent Zolin was well within his rights
in declining to comply with the subpoena in the first instance and
requiring the government to petition for enforcement. Respondents
Hubbard and Church of Scientology, who were permitted to intervene in
the enforcement proceeding, had the right to challenge the IRS's good
faith -- on the basis of the assertion that the materials were not
being sought in aid of a legitimate tax investigation, but rather were
being sought to aid other government agencies in other matters that
would not constitute a legitimate purpose for the issuance of a
summons. /10/ But the district court rejected respondents' assertions
in no uncertain terms, stating that the "Church has failed to raise
any doubt of the good faith of the Internal Revenue Service in
pursuing this summons enforcement proceeding (Pet. App. 27a). /11/
The district court thus determined that the summons was valid, and
that respondents had no justification for failing to supply the IRS
with the requested materials.

At that point, the enforcement proceeding should have ended; the
court's decision instead to maintain supervisory authority over the
summoned material departed from the statutory scheme. The summons
power is designed to give the IRS access to material necessary to
conduct its legitimate tax investigations. When the summons is held
to be valid and is enforced, there is no reason why the material
thereby obtained should be subject to rules any different from those
applicable to other taxpayer information in the possession of the IRS.
If a taxpayer produced material to the IRS in prompt compliance with
a summons (without a court order), it is clear that the use of that
material would not be subject to supervision by a court;
correspondingly, after the district court has determined that a
summons should be enforced -- i.e., that the summons was valid and, in
retrospect, should have been obeyed by the taxpayer -- the court has
no continuing reason or authority to supervise the IRS's use of the
materials produced in response to the summons. /12/

2. This Court's decisions in the summons enforcement area reflect
the understanding that the district court's role is limited to
enforcing or denying enforcement (in whole or in part) of a summons,
but does not extend to conditional enforcement with an attendant
continuing supervisory role for the district court. The Court has
emphasized that the IRS's summons power is a broad one, which reflects
"a congressional policy choice in favor of disclosure of all
information relevant to a legitimate IRS inquiry" (United States v.
Arthur Young & Co., 465 U.S. 805, 816 (1984) (emphasis in original)).
Thus, this Court has noted on several occasions that "restrictions
upon the IRS summons power should be avoided absent unambiguous
directions from Congress." Tiffany Fine Arts, Inc. v. United States,
469 U.S. 310,318 (1985); United States v. Arthur Young & Co., 465
U.S. at 816; United States v. Bisceglia, 420 U.S. at 150; see also
United States v. Euge, 444 U.S. 707, 711 (1980). The continuing
supervision authorized by the court of appeals in this case is
manifestly a restriction on the IRS's use of the summoned material.
That restriction has no source in the statutes conferring jurisdiction
on the district court, which contemplate only that the court will
enter (or decline to enter) enforcement orders, and such a potentially
open-ended restriction on the IRS's use of summoned material should
not lightly be implied.

This Court's recognition of the district court's limited role is
well illustrated by United States v. LaSalle Nat'l Bank, 437 U.S. 298
(1978). In that case, the Court was faced with the question whether
to enforce summonses where the district court had concluded that the
IRS special agent who issued the summonses "was conducting his
investigation solely for the purpose of unearthing evidence of
criminal conduct" (id. at 299 (citation omitted)). Stating that the
summons power is not to be allowed to "permit the IRS to become an
information-gathering agency for other departments" (id. at 317), the
Court focused its inquiry on determining the stage at which an IRS
investigation should be deemed to have advanced to the point where
enforcement of a summons would create an unacceptably high risk that
the summons would operate as a means of criminal discovery that would
"substantial(ly)" "infringe()" upon the role of the grand jury (id. at
312). The Court concluded that when the IRS has referred a case to
the United States Department of Justice for criminal prosecution or
when the IRS, as an institution, has abandoned the civil tax
investigation, the risk that a summons would substantially infringe
upon the role of the grand jury was sufficiently great that, as a
"prophylactic restraint" (id. at 312, 313 & n.15), the summons should
not be enforced (id. at 311-318). /13/

Significantly, it is apparent that the Court in LaSalle Nat'l Bank
did not regard the approach of the court of appeals here -- namely,
conditional enforcement of the summons with continuing supervision by
the court of the use of the materials -- as a viable option. The
Court did not find that enforcement of a summons after a Justice
Department referral had been made necessarily would infringe on the
role of the grand jury; it found only that there was a " substantial"
"likelihood" that it would (see 437 U.S. at 312). Because the role of
the summons enforcement court is simply to enforce the summons or to
deny enforcement, the Court concluded that this likelihood required a
"prophylactic" rule against enforcement of the summons; the Court did
not consider an alternative approach under which the summons could be
conditionally enforced with continued supervision of the IRS
investigation to determine whether in fact the IRS's use or disclosure
of the materials would infringe upon the role of the grand jury.
Conversely, the Court also recognized that, even before referral, at
the time of the recommendation of the special agent, there exists "the
potential for expanding the criminal discovery rights of the Justice
Department or for usurping the role of the grand jury" (437 U.S. at
313 n.15). Again, however, the Court did not consider accommodating
those possibilities by conditional enforcement and continued
supervision of the summons. Instead, the Court concluded that the
possibilities were sufficiently "remote" that the prophylactic
restraint of denying enforcement of the summons was not justified.
Thus, this Court implicitly recognized that the role of the district
court in a summons enforcement proceeding is limited to enforcing or
denying enforcement, based on the circumstances surrounding the
issuance of the summons; the court is not empowered to retain
jurisdiction to wait and see how the IRS uses the summoned materials.

Other decisions of this Court confirm that the district court's job
is to focus its inquiry on whether the Powell good faith criteria have
been satisfied and thereby make a final determination whether or not
the summons should be enforced, not to enforce the summons
conditionally pending further developments. In Tiffany Fine Arts,
Inc. v. United States, supra, the Court held that a "dual purpose
summons," i.e., one that could assist in IRS investigations of both
the summoned party and unnamed third parties, is not subject to the
special requirements established by Congress for third-party "John
Doe" summonses (I.R.C. Section 7609(f)). The Court concluded that the
traditional requirements for enforcement were satisfied by the IRS's
showing that the summoned materials were relevant to a tax
investigation of the summoned party; Congress had not specified that
there should be any additional restrictions on enforcement in that
situation, and therefore the Court did not impose any. See 469 U.S.
at 318-322. And the Court did not suggest that the ultimate
determination whether the IRS would have to meet the Section 7609(f)
criteria should have been postponed while the district court monitored
the use of the summoned material (to determine whether it in fact
turned out to be relevant to an investigation of the summoned party or
whether it was used by the IRS only to investigate unnamed third
parties).

Similarly, when taxpayers have argued that the IRS has made an
insufficient showing that the summoned materials may be relevant to a
legitimate investigation, the Court has never suggested that the
district court can maintain supervision over the investigation to make
a more accurate determination of the correctness of the taxpayer's
contention. Rather, a final determination regarding enforcement must
be made on the basis of the circumstances as they exist at the time of
the summons enforcement proceeding. Thus, in Powell itself, where the
taxpayer argued that the summons should not be enforced because the
statute of limitations had run except for fraud, and in United States
v. Bisceglia, supra, where it was argued that a particular bank
transaction did not give the IRS sufficient reason to investigate any
particular taxpayer, the Court held that the IRS had made a sufficient
showing of legitimate purpose to justify enforcement, and that was the
end of the matter. In neither instance did the Court suggest creating
a continuing role for the district court to assess, for example,
whether any evidence of fraud turned up in the investigation in
Powell. In short, the district court's role in a summons enforcement
proceeding is "to see that a legitimate investigation (is) being
conducted and that the summons (is) no broader than necessary to
achieve its purpose" (United States v. Bisceglia, 420 U.S. at 151).
Once that inquiry is complete, the court must decide to enforce or to
deny enforcement of the summons, after which it retains no authority
to monitor or control the IRS's access to or use of the documents that
it has obtained.

The established practice in summons enforcement proceedings, as
reflected in decisions in the courts of appeals, similarly
demonstrates that, after the enforcement decision has been made, the
district courts do not retain continuing authority over documents
produced in compliance with a summons. For example, United States v.
Chemical Bank, 593 F.2d 451 (2d Cir. 1979), presented a situation
closely analogous to the instant case. The summons in that case was
issued by a revenue agent in connection with a Strike Force
investigation; the Strike Force was a joint effort by several
government agencies to investigate organized crime, and it was
coordinated by the Criminal Division of the Justice Department.
Accordingly, the taxpayer argued that the summons should not be
enforced because it served the purpose of gathering information for
other government agencies for purposes of a criminal investigation.
The court of appeals acknowledged that the IRS representative's
membership in the Strike Force "could, in practice, lead to
complications" (id. at 458) with respect to dissemination of summoned
information. But the court held that that possibility did not counsel
against enforcement of the summons, which was required because it was
issued in good faith in furtherance of a civil tax investigation. And
the court did not suggest that the summons should be enforced
conditionally, with the district court retaining jurisdiction to
monitor the IRS's use and dissemination of the information. Instead,
the court simply held that the summons should be enforced, and that if
any future problems arose with respect to dissemination in alleged
violation of law, they could be dealt with at that time -- in a
different proceeding. Id. at 455-458. See also United States v.
Balanced Fin. Mgmt., Inc., 769 F.2d 1440 (10th Cir. 1985)
(unconditionally enforcing summons despite taxpayer allegations that
IRS had previously made unauthorized disclosures of that taxpayer's
confidential return information). /14/

B. Permitting The District Court To Retain Jurisdiction To Monitor
The IRS's Use Of Summoned Material Would Conflict With Important
Policies Relating To Summonses And With Other Provisions Of The Code

1. Supervision by the district court of the IRS's use of summoned
material, as approved by the court below, not only would exceed the
well-recognized limits on the scope of a summons enforcement
proceeding, it also would undermine fundamental congressional policies
embodied both in the summons provisions and in other sections of the
Code. It is well established that summons enforcement proceedings are
designed to be "summary" in nature. Donaldson v. United States, 400
U.S. at 529; see also, e.g., United States v. Rylander, 460 U.S. 752,
756 (1983); United States v. Kis, 658 F.2d at 535-536; United States
v. Davis, 636 F.2d 1028, 1038 (5th Cir.), cert. denied, 454 U.S. 862
(1981); M. Saltzman, IRS Practice and Procedure Paragraph 13.04, at
13-25 to 13-27 (1981). This concern for expedition is essential
because delay can seriously interfere with the effective exercise of
the IRS's investigative authority. Accordingly, this Court in
Donaldson limited the right of taxpayers to intervene in summons
enforcement proceedings, "apparently out of concern for the ability of
a taxpayer to delay the investigative process by forcing protracted
enforcement proceedings" (M. Saltzman, supra, at 13-25). And in
rejecting an inquiry into the motivations of the agent issuing a
summons, the Court in LaSalle Nat'l Bank voiced the concern that
permitting that additional inquiry would cause "undesirable" delays in
summons enforcement (437 U.S. at 316). Congressional enactments
stimulated by the decisions in Donaldson and LaSalle have also been
responsive to the need for expedition in summons enforcement so as to
avoid delaying IRS investigations. See 26 U.S.C. 7602(c), 7609(c);
S. Rep. 97-494, 97th Cong., 2d Sess. 285 (1982) ("summons enforcement
proceedings should be summary in nature"); H.R. Rep. 94-658, 94th
Cong., 2d Sess. 309 (1976) ("most important that the disposition of
any court actions involved be heard on as expeditious a schedule as
possible").

The decision below, approving "a mechanism whereby the district
court could monitor the IRS' use of the summoned documents" (Pet. App.
19a), is at odds with this clearly established statutory policy of
expedition. First, the mere availability of such a remedy would tend
to spark additional litigation in the summons enforcement proceeding
itself. An entirely new inquiry, apart from the traditional good
faith inquiry, would be injected into the proceedings as taxpayers
could argue that some special circumstance in their case warrants the
imposition of a particular restriction on the IRS's use of the
summoned material. Opening such a new avenue of inquiry would
inevitably cause undesirable delays in summons enforcement. See
United States v. LaSalle Nat'l Bank, 437 U.S. at 316. Moreover, the
availability of such a remedy could induce some taxpayers, who would
otherwise have complied with clearly valid summonses, to force the IRS
to petition the district court for enforcement, in the hope that they
can persuade the court to include in its enforcement order some
restriction on the IRS's use of the summoned documents.

Second, to the extent any restrictions are approved by the district
court, the proceedings to determine whether IRS actions comply with
those restrictions would provide an opportunity for the summoned party
to subject the IRS's investigation to repeated scrutiny and
harassment. Litigation over special agent summonses typically is a
constant struggle between the government's attempts to obtain
information necessary to its investigations in a timely fashion and
taxpayers' attempts to delay those investigations. Allowing taxpayers
to use the forum of a summons enforcement proceeding to litigate
disclosure questions in advance would lead to the courts' repeated
involvement at each new step of the investigation as the taxpayer
seeks to prohibit the IRS's use of the summoned material to assist it
in obtaining further information. That additional litigation
(including possible appeals) would have the potential to cause
significant delays in the tax investigation, particularly where the
court would be asked to resolve difficult questions of permissible
disclosure under 26 U.S.C. 6103. /15/ Thus, a rule permitting
district courts to extend their jurisdiction in summons enforcement
actions to retain control over the IRS's use or disclosure of the
summoned material would have deleterious effects on the enforcement of
the tax laws because it would "'stultify' and unduly delay the
investigation sought by the IRS" into violations of those laws (United
States v. Ernst & Whinney, 750 F.2d 516, 520 (6th Cir. 1984) (quoting
Donaldson v. United States, 400 U.S. at 531)).

Even the limited restriction placed by the district court in this
case on the IRS's use of the summoned material -- requiring prior
court approval for disclosure to any other government agency -- might
significantly hamper an IRS investigation because there are many cases
in which cooperation with another agency, which may require some
disclosures by the IRS, is essential to obtaining further information
that would advance the investigation. The principle endorsed by the
court of appeals, moreover, goes well beyond the particular
restriction on disclosure involved here. The court of appeals'
approach would validate various other types of restrictions on the
IRS's use of summoned material -- restrictions that inevitably would
severely curtail the IRS's ability to conduct expeditious
investigations.

For example, in United States v. Texas Heart Inst., 755 F.2d 469
(5th Cir. 1985), a case on which the Ninth Circuit heavily relied and
which it has specifically approved (Pet. App. 19a; United States v.
Author Services, Inc., 804 F.2d 1520, 1525 (1986)), the supervisory
authority conferred upon the district court in the enforcement
proceeding was directly aimed at the IRS's investigative process. The
taxpayer there had objected to IRS summonses on the ground, inter
alia, that the IRS allegedly had previously disclosed confidential
return information in the course of the investigation, in violation of
26 U.S.C. 6103, when it sent out letters requesting information from
the taxpayer's patients and those letters stated that the taxpayer was
under investigation by the Criminal Investigation Division of the IRS.
The court of appeals held that this allegation did not suggest that
the summonses should not be enforced because it did not demonstrate
either an abuse of process or a lack of legitimate purpose for the
summonses (755 F.2d at 479). But the court proceeded to hold that, if
the district court on remand concluded that the prior mailings
violated Section 6103, the court could condition enforcement of the
summonses on an IRS agreement not to make such disclosures in the
future (755 F.2d at 480-481).

As the Fifth Circuit subsequently made clear, this was a holding
that "the district court is empowered to make section 6103
determinations in an enforcement hearing" (United States v. Barrett,
804 F.2d 1376, 1379 (1986), rev'd en banc, 837 F.2d 1341 (5th Cir.
1988), petition for cert. pending, No. 87-1705), which would open the
door to protracted litigation quite unrelated to the limited subject
matter of what is supposed to be a summary proceeding. In adhering to
the rationale and holding of Texas Heart (in contrast to the Fifth
Circuit itself, which has overruled it (see pages 38-40, infra)), the
Ninth Circuit has sanctioned a continuing role for the district court
that entails a power of prior restraint, during the progress of the
investigation, over the use of materials obtained pursuant to a
concededly valid summons. That power of prior restraint could be
invoked to stop the investigation in its tracks; at a minimum, it
would interpose a barrier in the midst of the investigative process
that could cause substantial delays while complex issues under Section
6103 are litigated. /16/

2. There are no countervailing considerations that justify the
court of appeals' departure from the statutory scheme of expeditious
summons enforcement proceedings. The justification advanced by the
courts below for imposing the restriction on the IRS's investigation
was to allay the Church of Scientology's generalized fear that the
summoned information might be disclosed to other government agencies
involved in other litigation with the Church; more generally, it was
to prevent disclosures that would violate the limitations of Section
6103 of the Code. See United States v. Author Services, Inc., 804
F.2d at 1526 (involving the same tax investigation); Pet. App. 19a;
J.A. 65-67. The courts thereby mistakenly transformed the summons
enforcement proceeding into a forum for enforcing the Code's
restrictions on disclosure -- in a manner that Congress clearly did
not contemplate or authorize.

Section 6103 has its own detailed enforcement scheme, which makes
no provision for the sort of monitoring and prior restraint
contemplated by the courts below. There is no reason to believe that
Congress viewed the general enforcement scheme for Section 6103 as
inadequate or in need of supplementation when the information in
question has come into the hands of the IRS by way of compliance with
a valid summons. To the contrary, the entire statutory scheme -- the
provisions establishing the IRS's summons power, those conferring
summons enforcement jurisdiction on the district courts, the
provisions restricting disclosures by the IRS of confidential
information, and those designed to enforce those confidentiality rules
-- suggests that the questions of summons enforcement and improper
disclosure are distinct. The summons enforcement proceeding is
designed to resolve the IRS's entitlement to the documents; if the
summons is a valid exercise of the IRS's authority, it should be
enforced and the material produced. At that point, the summoned
material becomes subject to the same rules and restrictions on
disclosure that apply to any other material in the possession of the
IRS, but the material no longer should be subject to the jurisdiction
and supervision of the court enforcing the summons.

The provisions of the Internal Revenue Code governing the
disclosure of confidential tax information are quite comprehensive.
Section 6103(a) generally prohibits the IRS from disclosing tax
returns or "return information," except in circumstances specifically
permitted by the Code. Section 6103(b)(2) defines the term "return
information" broadly, and it generally includes material received by
the IRS in compliance with a summons, as "data * * * collected by the
Secretary with respect to a return or with respect to the
determination of the existence, or possible existence, of liability"
under the Code. See generally Church of Scientology v. IRS, No.
86-472 (Nov. 10, 1987), slip op. 1-3. Section 6103 then sets forth in
considerable detail the circumstances under which such disclosures are
authorized to certain identified parties (Section 6103(c)-(o)). Among
the disclosures that are permitted by the statute, under the
circumstances specified therein, are disclosures: to persons haveing
a material interest, such as the taxpayer's representatie (Section
6103(e)); to congressional committees (Section 6103(f)); to certain
federal officers and employees for purposes of tax administration and
other specified purposes (Section 6103(h) and (i)); to a foreign
government pursuant to a tax treaty (Section 6103(k)(4)); and to the
extent necessary for investigative purposes (Section 6103(k)(6)).

The Code, moreover, provides severe sanctions for violation of the
disclosure restrictions. Section 7213(a) of the Code imposes criminal
sanctions upon federal employees and other persons who willfully
disclose confidential information in violation of Section 6103. And
Section 7431 of the Code establishes the remedy of a civil damage suit
against the United States for "knowing()" or "negligen(t) " violations
of Section 6103. /17/ Section 7431 is designed both "to redress any
injury sustained and to aid in the enforcement of the confidentiality
rules." S. Rep. 94-938, 94th Cong., 2d Sess. 347 (1976).

Clearly, the enforcement scheme established by Congress to protect
the confidentiality of tax return information does not generally
entail judicial involvement before a disclosure is made; Congress
provided for post-disclosure remedies that would act as a deterrent to
unlawful disclosures, not for prior restraint. That approach is not
universal, however; Congress specifically provided for additional,
pre-disclosure safeguards in particular situations where it believed
them to be necessary. Section 6103(i) provides that disclosures to
other government agencies for certain specified purposes unrelated to
tax administration may not be made without an ex parte court order.
/18/ Congress has also provided for a pre-disclosure remedy in
connection with confidential requests for private letter rulings and
other "written determinations." Section 6110 of the Code generally
provides that written determinations and background file documents are
to be open for public inspection, after they have been redacted to
remove identifying and other confidential information. Section
6110(f)(1), however, requires the Secretary to give a taxpayer notice
of his intent to disclose these documents, and Section 6110(f)(3)
explicitly provides the taxpayer with a right to seek pre-disclosure
injunctive relief in the Tax Court if he is dissatisfied with the
deletions that have been made to preserve confidentiality. /19/

Thus, it is apparent that Congress considered the issue of when a
pre-disclosure remedy is appropriate to protect the taxpayer's
interest in confidentiality, and it decided not to create such a
remedy generally under Section 6103. Given this Court's repeated
admonition that "restrictions upon the IRS summons power should be
avoided absent unambiguous directions from Congress" (Tiffany Fine
Arts, Inc. v. United States, 469 U.S. at 318; United States v. Arthur
Young & Co., 465 U.S. at 816), it is clear that a pre-disclosure
remedy should not be implied for the special case of documents
obtained pursuant to a summons.

Indeed, such a special limitation on disclosure of summoned
documents would be particularly anomalous in light of the policies
underlying Section 6103. Congress has recognized that taxpayers'
willingness to provide private information to the IRS depends upon
their trust that it will remain confidential, and it was concern over
the erosion of that trust, and its effect upon the voluntary
furnishing of information to the IRS, that in large part prompted the
1976 revisions to Section 6103. The Senate Report specifically noted
that the breaches of privacy permitted under the pre-1976 statute
could "seriously impair the effectiveness of our country's very
successful voluntary assessment system which is the mainstay of the
Federal tax system" (S. Rep. 94-938, supra, at 317) and that they
could adversely affect "the continuation of compliance with our
country's voluntary assessment system" (id. at 318). It would stand
this congressional policy on its head to imply a special
pre-disclosure remedy in the case of information obtained through
enforcement of a summons -- the one class of information that is not
furnished voluntarily to the IRS but whose production is stubbornly
resisted by the taxpayer -- while such a remedy is not available to
prevent disclosure of information that a taxpayer freely gives to the
IRS in accordance with our voluntary assessment system. In sum, the
existence of the explicit pre-disclosure remedies contained in
Sections 6103 and 6110 strongly counsels against implying additional
judicial remedies, either ex parte or in an adversary injunctive
action, to restrain the disclosure of return information obtained as a
result of a summons enforcement action. /20/

The decision below is also sharply at odds with the thrust of
Section 7421(a) of the Code, commonly known as the Tax Anti-Injunction
Act. That statute generally withdraws jurisdiction from the courts to
hear suits for the "purpose of restraining the assessment or
collection of any tax," and the courts have broadly construed it as
"equally applicable to activities leading up to, and culminating in,
such assessment and collection" (Lowrie v. United States, 824 F.2d
827, 830 (10th Cir. 1987)), including investigative activity. /21/
And, specifically, the Seventh Circuit, noting that the Act bars a
taxpayer from "seeking to enjoin the IRS from acquiring or using the
information necessary for the IRS to determine a proper tax
assessment," has rejected a taxpayer's attempt to enjoin the IRS's use
of material produced in compliance with a summons enforcement order.
United States v. First Family Mortgage Corp., 739 F.2d 1275, 1278
(1984). The court stated that, "(a)bsent a clear indication allowing
remedial powers for the court once the IRS obtains summoned documents"
(id. at 1278-1279), the Tax Anti-Injunction Act does not allow allow a
court "to stop the IRS from using those documents" (id. at 1278). A
request by a taxpayer in a summons enforcement proceeding for a
prohibition (pending application to the court for approval) on
disclosures by the IRS that it deems necessary to its investigation,
such as the restrictions approved by the court below and by the court
in Texas Heart (see page 28, supra), is essentially a suit to enjoin
the IRS in part from using summoned material in its possession to
further its investigation, and it therefore runs squarely counter to
the dictates of the Tax Anti-Injunction Act.

3. Essentially for these reasons, the Fifth Circuit recently
reconsidered en banc the rule that it had propounded in United States
v. Texas Heart Inst., supra, and overruled it. United States v.
Barrett, 837 F.2d 1341 (1988), petition for cert. pending, No.
87-1705. Barrett involved another summons that had been issued in the
course of the same investigation that was the subject of Texas Heart,
and the panel had approved the imposition of the same condition on
enforcement -- namely, that the district court could prohibit
disclosures proposed by the IRS as necessary for its investigation, on
the basis of the district court's judgment that such disclosures would
not comport with Section 6103. The en banc court flatly held that "in
a summons enforcement proceeding the only issue that the district
court can decide is whether to enforce the summons. The court cannot
conditionally enforce that order." 837 F.2d at 1351. The en banc
court pointed out that if a court imposed conditions on the
enforcement of a summons, "it would then potentially have to become
involved in the proceeding again at a later date to ensure compliance
with the conditions it imposed," which would "burden the 'summary'
nature of summons enforcement proceeidngs" (id. at 1349). The court
also stated that such expansion of the scope of summons enforcement
proceedings was "definitely" not the intent of Congress, explaining
that Congress did not enact a statute to authorize conditional
enforcement of summonses, but "instead enacted civil remedies that
allow an individual to bring suit against the United States and
provided for criminal prosecution of the disclosing parties" --
remedies that "clearly are intended to deter unnecessary disclosures
of confidential information" (id. at 1350). The en banc court
summarized its conclusion as follows (ibid.):

There is no statutory authority, nor congressional indication
that existing statutes supply the authority, nor Supreme Court
authority, to allow the district court to make any consideration
except whether to enforce or not to enforce the summons. The
district court does not have the power to conditionally enforce
the summons. If good faith and a legitimate purpose are found
to exist, the summons should be enforced. If they are not
present, enforcement should be denied. There is no middle
ground because to create that remedy would unduly hamper the
investigative efforts of the IRS.

Thus, after due consideration, the Fifth Circuit, whose Texas Heart
decision provided the basis for the decision below, has recognized its
error and emphatically rejected conditional enforcement of summonses.
/22/ This Court should reach the same conclusion.

II. THE CONTENTS OF THE DOCUMENTS IN QUESTION MAY BE CONSIDERED IN
DETERMINING THE APPLICABILITY OF THE "CRIME-FRAUD" EXCEPTION TO THE
ATTORNEY-CLIENT PRIVILEGE

The attorney-client privilege is the oldest of the privileges for
confidential communications recognized by the common law (see 8 J.
Wigmore, Evidence Section 2290 (McNaughton rev. 1961)), and this Court
has considered its scope on several occasions. The purpose of the
privilege is "to encourage full and frank communication between
attorneys and their clients and thereby promote broader public
interests in the observance of law and administration of justice"
(Upjohn Co. v. United States, 449 U.S. 383, 389 (1981)). See also
Trammel v. United States, 445 U.S. 40, 51 (1980); Hunt v. Blackburn,
128 U.S. 464, 470 (1888). The privilege, however, does not absolutely
bar the disclosure of all communications between attorney and client.
Since it "has the effect of withholding relevant information from the
factfinder, it applies only where necessary to achieve its purpose"
(Fisher v. United States, 425 U.S. 391, 403 (1976)), and several
exceptions have been recognized to the general rule against disclosure
of attorney-client communications.

One of the exceptions to the attorney-client privilege that has
long been recognized is the "crime-fraud exception." See, e.g., 8 J.
Wigmore, supra, Section 2298. When a client consults an attorney for
advice in carrying on a contemplated or ongoing crime or fraud, the
communication is not privileged. See Clark v. United States, 289 U.S.
1, 15-16 (1933); see generally 2 J. Weinstein and M. Berger,
Weinstein's Evidence Paragraph 503(d)(1)(01) (1988); S. Stone and R.
Liebman, Testimonial Privileges Section 1.65 (1983 & Supp. 1987).
Such a communication is not designed to promote "the observance of law
and administration of justice" (Upjohn Co. v. United States, 449 U.S.
at 389), but to subvert it. Extending a privilege to this type of
communication would deny to the courts what may be highly probative
evidence, without advancing any desirable policy, and therefore such
communications clearly do not meet the standards for invocation of the
attorney-client privilege set forth in Fisher v. United States, supra.

Under these principles, it must be assumed at this stage of the
litigation that the MCCS tapes at issue in this case are outside the
scope of the attorney-client privilege. The government submitted
partial transcripts of the tapes that assertedly showed that the
meetings recorded on the tapes were devoted in part to planning to
defraud the IRS. The government also submitted the affidavit of an
IRS official who had listened to the tapes in their entirety when they
were in the possession of the government, and he stated that part of
the discussion involved the planning of future crimes and fraudulent
acts against the IRS. See pages 3-5 & note 2, supra. While
respondents and the district court disputed the conclusions to be
drawn from the government's submissions -- maintaining that the
partial transcripts did not demonstrate the planning of a fraud and
that the affidavit should be rejected as untimely (see Pet. App.
25a-26a, 28a; pages 4-6 & notes 2-3, supra) -- the court of appeals
did not resolve that dispute. The court of appeals did not question
the strength of the government's showing; its opinion assumed
arguendo that the government's submissions concerning the contents of
the tapes adequately demonstrated that the discussion involved the
planning of future crimes or fraud. The court of appeals' rejection
of the government's claim to the tapes rested entirely on the type of
evidence used to prove the fraud; because the proof had come from the
contents of the tapes themeselves, rather than from "independent
evidence," the court concluded that the crime-fraud exception could
not be invoked (see Pet. App. 2a, 23a, citing United States v.
Shewfelt, 455 F.2d 836, 840 (9th Cir.), cert. denied, 406 U.S. 944
(1972)). /23/

Thus, the rule established by the Ninth Circuit -- "that the
government must make a prima facie showing, independent of the
communications involved, that the attorney-client communications were
in furtherance of an intended or present illegality" (Pet. App. 2a) --
inevitably contemplates that in some cases probative evidence of a
crime will be shielded from the factfinder even though it is readily
apparent that the communication in question was in furtherance of a
crime or fraud and thus should not fall within the protection of the
attorney-client privilege. /24/ This rule on its face is directly
contrary to this Court's admonition in Fisher that, "since the
privilege has the effect of withholding relevant information from the
factfinder, it applies only where necessary to achieve its purpose"
(425 U.S. at 403). Yet the Ninth Circuit has made no attempt to
explain why such a procedural hurdle should be erected to the
invocation of the crime-fraud exception -- either in its decision
below (see Pet. App. 2a) or in its original decision in Shewfelt, 455
F.2d at 840. In fact, there is no sound justification for the
"independent evidence" rule. The dissenters from denial of rehearing
en banc correctly characterized the rule as "a maverick version of the
attorney-client privilege" (Pet. App. 3a) that should be
"eliminate(d)" (id. at 8a).

Clearly, the most accurate method of determining whether a document
is privileged against disclosure is by examination of the document
itself. For this reason, the courts routinely resolve disputes over
the validity of privilege claims by examining the documents --
preserving their confidentiality by conducting the examination in
camera. This Court has stated, in the context of a claim of
"governmental privilege," that "an in camera review of the documents
is a relatively costless and eminently worthwhile method to insure
that the balance between petitioners' claims of irrelevance and
privilege and plaintiffs' asserted need for the documents is correctly
struck" (Kerr v. United States Dist. Court, 426 U.S. 394, 405 (1976)
(footnote omitted)). The Court further noted that "this Court has
long held the view that in camera review is a highly appropriate and
useful means of dealing with claims of governmental privilege" (id. at
405-406). See also United States v. Nixon, 418 U.S. 683, 706, 713-714
(1974). The reported cases reflect the broad acceptance of this
approach as a matter of common practice, with both district courts and
courts of appeals examining the contested documents in camera to
resolve privilege disputes, including claims of attorney-client
privilege made in opposition to the enforcement of IRS summonses.
See, e.g., Hodges, Grant & Kaufmann v. United States, 768 F.2d 719,
720 (5th Cir. 1985); United States v. Lawless, 709 F.2d 485, 486, 488
(7th Cir. 1983); In re Grand Jury Witness (Salas), 695 F.2d 359, 362
(9th Cir. 1982) (grand jury subpoena); United States v. Osborn, 561
F.2d 1334, 1337, 1339 (9th Cir. 1977).

There is no apparent reason why the question of the applicability
of the crime-fraud exception should be singled out in this respect for
treatment different from that accorded to any other privilege
question, and, with the notable exception of the Ninth Circuit, the
courts have recognized that in camera examination of the documents in
question is an appropriate and, indeed, commendable method of
resolving this issue. Thus, the Sixth Circuit noted in one
crime-fraud case that "in camera review of the documents could have
assisted the court in determining whether a prima facie violation had
been made," and it therefore reversed the district court's refusal to
apply the crime-fraud exception on the ground that "the district court
erred in not reviewing the documents * * * in camera in order to
determine whether they reflect communications or work product made in
furtherance of a contemplated or ongoing (statutory) violation" (In re
Antitrust Grand Jury, 805 F.2d 155, 168-169 (1986)). The one court
that has been asked to follow the "maverick" Shewfelt precedent
explicitly rejected it instead, noting that the cases relied upon in
Shewfelt "do not support the independent evidence restriction" (In re
Berkley & Co., 629 F.2d 548, 553 n.9 (8th Cir. 1980)). See also In re
Sealed Case, 676 F.2d 793, 815 (D.C. Cir. 1982) (footnote omitted)
(opinion of Wright, J.) ("the subpoenaed material itself may provide
prima facie evidence of a (crime or fraud)"). More commonly, the
courts have simply utilized in camera examination of the disputed
documents in order to resolve a crime-fraud issue without any
discussion at all of the validity of that procedure. See, e.g., In re
Grand Jury Proceedings (FMC Corp.), 604 F.2d 798, 800 (3d Cir. 1979);
Union Camp Corp. v. Lewis, 385 F.2d 143, 144 (4rth Cir.1967); Irving
Trust Co. v. Gomez, 100 F.R.D. 273, 277 (S.D.N.Y. 1983).

It is clear, therefore, that the Ninth Circuit's independent
evidence rule has been uniformly rejected. See generally 2 J.
Weinstein and M. Berger, supra, Paragraph 503(d)(1)(01), at 503-71;
M. Larkin, Federal Testimonial Privileges Section 2.07, at 2-88.1
(1986). The same conclusion was also embodied in the proposed Rule of
Evidence addressed to the attorney-client privilege, Rule 5-03, that
was transmitted by this Court to Congress. Proposed Rule 5-03(d) set
forth several exceptions to the attorney-client privilege, including
the crime-fraud exception in 5-03(d)(1). See 46 F.R.D. 161, 251
(1969). This rule, which was characterized by its drafters as
"incorporat(ing) well established exceptions" (id. at 256), did not
impose an independent evidence requirement. And the Advisory
Committee's Note on the crime-fraud exception was quite explicit on
this point, stating that "(n)o preliminary finding that sufficient
evidence aside from the communication has been introduced to warrant a
finding that the services were sought to enable the commission of a
wrong is required" (ibid.). /25/ Thus, both the decisions of other
courts and the expert secondary sources on questions of privilege
confirm the dissenters' characterization of the Ninth Circuit's
independent evidence rule as a "maverick" (Pet. App. 3a) approach that
is squarely at odds with prevailing law. /26/

As this Court's recent decision in Bourjaily v. United States, No.
85-6725 (June 23, 1987), makes clear, there is no policy justification
for an independent evidence rule in this context. In Bourjaily, the
Court held that a previously-recognized independent evidence
requirement for invocation of the co-conspirator hearsay exception
(Fed. R. Evid. 801(d)(2)(E)) is no longer good law in modern practice.
The Court explained that the Federal Rules of Evidence had eliminated
the prohibition on the use of hearsay evidence in making
determinations of admissiblity (see Fed. R. Evid. 104, 1101(d)(1)).
In the absence of such a prohibition, which arguably would be an
absolute bar to examination of the statement in question, the Court
found no justification for an independent evidence rule. Rather, it
concluded that the court should be entitled to consider all probative
evidence in making its determination as to the admissibility of the
evidence. See Bourjaily, slip op. 7-8; see also United States v.
Matlock, 415 U.S. 164, 172-177 (1974).

It follows, a fortiori, from Bourjaily that an independent evidence
rule should not be imposed as a procedural hurdle to invocation of the
crime-fraud exception. In the co-conspirator hearsay context, the
evidence whose admissibility is in question is "presumed (to be)
unreliable" (slip op. 7 (emphasis omitted)) until a conspiracy is
established. It was therefore arguable that such evidence is not
probative and should not be considered by the court unless the
existence of the conspiracy is proved by independent evidence. In the
crime-fraud context, by contrast, there is no doubt as to the
reliability of the evidence; indeed, in camera examination of the
disputed communication is often the most reliable way of determining
whether it relates to a contemplated or ongoing crime or fraud. See
Kerr v. United States Dist. Court, 426 U.S. at 405; In re Antitrust
Grand Jury, 805 F.2d at 168. Moreover, the independent evidence rule
at issue in Bourjaily had been fairly well established prior to the
promulgation of the Federal Rules of Evidence and therefore it was
arguable that the rule should not have been disturbed; here, by
contrast, the Ninth Circuit's rule that invocation of the crime-fraud
exception must rest upon independent evidence is plainly at odds with
prevailing law. Despite the considerations arguing in favor of
retention of the independent evidence requirement in the
co-conspirator hearsay context, this Court rejected that rule in
Bourjaily because it was inimical to the search for truth. The Court
manifestly should reach the same result here where there are no
countervailing considerations.

In sum, there is no justification for the independent evidence rule
that is applied by the Ninth Circuit. Its adoption would result in
the withholding of probative evidence from the factfinder on the
grounds of attorney-client privilege in situations where it is readily
apparent that the privilege is not applicable because in camera
inspection of the communication in question would reveal beyond
dispute that the communication relates to an ongoing or contemplated
crime or fraud. No policy objective of the attorney-client privilege
is advanced by such a rule, and there is accordingly no basis for
accepting its deleterious effect on the search for truth. /27/ When a
district court learns -- whether by means of in camera examination or
otherwise -- that the contents of an attorney-client communication
itself demonstrate that the communication was in furtherance of a
crime or fraud, the court should not permit the communication to be
shielded from disclosure on grounds of attorney-client privilege.
Such a communication self-evidently does not qualify for the
privilege.

CONCLUSION

The judgment of the court of appeals should be reversed.

Respectfully submitted.

CHARLES FRIED

Solicitor General

WILLIAM S. ROSE, JR.

Assistant Attorney General

LAWRENCE G. WALLACE

Deputy Solicitor General

ALAN I. HOROWITZ

Assistant to the Solicitor General

CHARLES E. BROOKHART

JOHN A. DUDECK, JR.

Attorneys

DECEMBER 1988

/1/ It is well established that the attorney-client privilege does
not protect communications made in furtherance of a crime or fraud.
To invoke this exception, there must be prima facie showing that the
client was engaged in or planning criminal or fraudulent conduct and
that the attorney's advice was in furtherance of or closely related to
the criminal or fraudulent activity. See, e.g., Clark v. United
States, 289 U.S. 1, 15-16 (1933); In re Grand Jury Investigation, 842
F.2d 1223, 1226-1227 (11th Cir. 1987).

/2/ The affidavits allege that the taped meetings, part of the MCCS
(Mission Corporate Category Sortout) Project, "focused generally on
the intentional violation of the tax laws," specifically, "i) a
proposed scheme whereby the Church's cash transfers to Hubbard would
be disguised as payments for services rendered (allegedly to insulate
Hubbard from tax liability and to protect the Church of Scientology's
tax-exempt status), and ii) a proposed scheme whereby Hubbard would be
able to control royalty income * * * without that control being
traceable to him" (Pet. App. 23a-24a). In separate litigation, the
Tax Court has found that the Church of Scientology engaged in a
conspiracy, which lasted from 1969 until at least 1977, to defraud the
IRS and obstruct lawful IRS tax administration functions. See Church
of Scientology v. Commissioner, 83 T.C. 381, 429-443, 504-506 (1984),
aff'd, 823 F.2d 1310 (9th Cir. 1987), cert. denied, No. 87-1377 (May
16, 1988). The Tax Court concluded that "criminal manipulation of the
IRS to maintain its tax exemption * * * was a crucial and purposeful
element of (the Church's) financial planning" (83 T.C. at 504
(footnote omitted)).

/3/ The record refutes the district court's suggestion that the
government did not timely request the court to listen to the tapes in
full. The pleadings filed with the court, together with the Petersell
declarations on March 8 and 15, 1985, specifically show that the
government requested the court to listen to the tapes themselves if
the court concluded that the partial transcripts and the special
agent's declarations did not sufficiently demonstrate the
applicability of the crime-fraud exception. See March 8, 1985,
Government's Response to Intervenor's Opposition at 6; March 15,
1985, Petitioner's Memorandum in Response to Court's Request and for
Partial reconsideration of Interim Ruling at 11.

/4/ Texas Heart was later overruled by the en banc Fifth Circuit in
United States v. Barrett, 837 F.2d 1341 (1988), petition for cert.
pending, No. 87-1705. See pages 38-40, infra.

/5/ Because of its reliance on the independent evidence rule, the
panel did not address either the sufficiency of the in camera showing
considered by the district court or the question whether the district
court should have examined the entire contents of the tapes, rather
than merely the partial transcripts initially submitted by the
government. See pages 5-6 & note 3, supra.

/6/ Judge Norris later filed an opinion concurring in the result in
which he criticized the majority for failing to make clear whether its
order was intended to be a disposition on the merits (Br. in Opp. App.
1a-2a).

/7/ Unless otherwise noted, all statutory references are to the
Internal Revenue Code of 1954 (26 U.S.C.), as amended (the Code or
I.R.C.).

/8/ Thus, as the Court pointed out in Powell (379 U.S. at 57), the
scope of review in a summons enforcement proceeding is akin to the
limited judicial role in reviewing subpoenas issued by other
administrative agencies. The investigative power of an agency
generally has been validly exercised if the "inquiry is one the
demanding agency is authorized by law to make and the materials
specified are relevant," so long as the subpoena is not unduly
burdensome or indefinite. Oklahoma Press Publishing Co. v. Walling,
327 U.S. 186, 208 (1946). See also Donovan v. Lone Steer, Inc., 464
U.S. 408, 415 (1984); United States v. Morton Salt Co., 338 U.S. 632,
642-643 (1950).

/9/ As noted infra (at 32), the proffered justification for this
condition was to allay respondents' generalized fear that the summoned
information might be disclosed to other government agencies involved
in other litigation with the Church of Scientology. There is, of
course, no absolute bar to the IRS's disclosing summoned material to
other government agencies. Section 6103 of the Code specifically
authorizes IRS disclosures to other agencies under specified
conditions (see page, 33, infra), and it is "perfectly proper" for the
IRS to make such disclosures of summoned material if it complies with
Section 6103. United States v. Stuckey, 646 F.2d 1369, 1377 (9th Cir.
1981) (Merrill, J., concurring), cert. denied, 455 U.S. 942 (1982);
see also United States v. Scholbe, 664 F.2d 1163 (10th Cir. 1981);
United States v. Chemical Bank, 593 F.2d 451, 456-457 (2d Cir. 1979).
The district court recognized this fact, and it made clear that it
would authorize disclosures that the government could show were in
compliance with the terms of Section 6103 (see J.A. 66, 68). Thus, it
is clear that the court's order was not simply a traditional type of
order enforcing the summons in part; rather, it created for the
district court a continuing supervisory role over the IRS's use of the
documents -- one that would require the court to make determinations
about the meaning of Section 6103 in the midst of the IRS's
investigation. Accordingly, the cases relied upon by the court of
appeals (see Pet. App. 19a; United States v. Author Services, Inc.,
804 F.2d 1520, 1525 (9th Cir. 1986)), which hold only that a summons
may be partially enforced or narrowed and that the court may specify
the time and place for production in order to ensure that compliance
is not unduly burdensome, lend no support to the decision in this
case.

/10/ Nor was it inappropriate for respondents to contend that there
had been prior unlawful disclosures by the IRS. The existence of a
prior unlawful disclosure, which in any event was not demonstrated
here, would not in itself require that enforcement be denied (see,
e.g., United States v. Balanced Fin. Mgmt., Inc., 769 F.2d 1440, 1448
(10th Cir. 1985)), but it could conceivably be probative of the IRS's
good faith or legitimate purpose in issuing the summons. Similarly,
the courts have held that the alleged failure of the IRS to comply
with the provisions of the Privacy Act, 5 U.S.C. 552a, is not in
itself a ground for denying enforcement of a summons. See United
States v. McAnlis, 721 F.2d 334, 337 (11th Cir. 1983), cert. denied,
467 U.S. 1227 (1984); United States v. Berney, 713 F.2d 568, 572-573
(10th Cir. 1983).

/11/ At the hearing the court elaborated on this finding (J.A.
45-46):

There's not an iota of evidence that this summons is being
prosecuted for any reason other than to gather information for
the on-going investigation. No indication it's being used to
harass anybody. No indication it's being used out of personal
spite. No indication that it's being used for a collateral
purpose.

/12/ The court of appeals justified a continuing supervisory role
for the district court by invoking this Court's statement that "'a
court may not permit its process to be abused'" in a summons
enforcement proceeding (Pet. App. 19a (quoting United States v.
Powell, 379 U.S. at 58)). But this Court was quite explicit in Powell
in describing what sorts of actions would be viewed as abuse of the
summons enforcement process -- namely, "if the summons had been issued
for an improper purpose, such as to harass the taxpayer or to put
pressure on him to settle a collateral dispute, or for any other
purpose reflecting on the good faith of the particular investigation"
(379 U.S. at 58). Thus, the "abuse of process" inquiry in a summons
enforcement action is simply part of the Powell "good faith" inquiry.
It examines the facts as they exist at the time of the enforcement
proceeding in order to assess the purposes for which the summons was
issued" the inquiry is not directed to the use that the IRS may
ultimately make of the summoned information at some future date, which
would require continued supervision of the IRS investigation.

/13/ Congress subsequently resolved by statute the issue that the
Court had considered in LaSalle Nat'l Bank. In Section 333(a) of the
Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA), Pub. L. No.
97-248, 96 Stat. 622, Congress amended Section 7602 of the Code to
address that question. Section 7602(c) of the Code codifies part of
the majority opinion in LaSalle Nat'l Bank, providing that a summons
may not be issued when there is in effect a referral to the Justice
Department for criminal prosecution. Congress, however, overruled the
other part of the majority opinion, relating to whether the IRS, as an
institution, has abandoned the pursuit of a civil tax investigation.
Such an inquiry is no longer relevant to the summons enforcement
question. Instead, Section 7602(b) specifies that an inquiry into the
possibility that a criminal offense has been committed is a legitimate
purpose for the issuance of a summons.

/14/ The principle that summons enforcement proceedings are
concerned solely with the question whether the summons should be
enforced is also reflected in the recognition by the courts of
appeals, with one exception, that compliance with a summons moots an
appeal from the district court's order enforcing the summons. Once
the documents have been produced, although there may still be a
dispute regarding tax liability, "the controversy surrounding the
enforceability of the summons no longer exist(s)," and an appeal from
the enforcement order is moot. United States v. First Family Mortgage
Corp., 739 F.2d 1275, 1277 (7th Cir. 1984). See also United States v.
Kis, 658 F.2d at 532-533 and cases collected there at n.10; but see
Gluck v. United States, 771 F.2d 750, 754 (3d Cir. 1985) (holding
appeal not mooted by compliance with summons because court could
prevent IRS from using summoned material).

/15/ The provision under which material summoned by the IRS would
most likely be disclosed in the course of a tax investigation would be
26 U.S.C. 6103(k)(6), which authorizes "(d)isclosure by Internal
Revenue officers and employees for investigative purposes." That
subsection contains no bright-line rules, and a proceeding to
determine whether a particular proposed disclosure satisfies its
general standards may well be a complex one.

/16/ The serious harm that could befall an IRS investigation under
the court of appeals' holding is also illustrated by a subsequent
unpublished district court decision, Vardax Consultants (Canada), Inc.
v. United States, No. C86-1206 (W.D. Wash. 1987), appeal pending, No.
87-3814 (9th Cir.). In that case, the IRS issued summonses in
furtherance of an investigation being conducted under the auspices of
the United States-Canada Simultaneous Criminal Investigation Program
(SCIP) -- under which each country conducts an investigation of the
target to determine if its own revenue laws have been violated and the
agents meet periodically to coordinate their investigations and to
exchange information. The district court held that the summons should
be enforced because it was in furtherance of a legitimate
investigation of the target's United States tax liability. The court,
however, conditioned that enforcement by prohibiting the IRS from
sharing any of the summoned information with Canadian authorities --
because of its concern that such a disclosure of information would
violate the Ninth Circuit's holding regarding the enforcement of
treaty summonses in Stuart v. United States, 813 F.2d 243 (1987),
cert. granted, No. 87-1064 (May 2, 1988). The result is that the
IRS's ability to conduct its investigation in cooperation with the
Canadian authorities has been derailed for an indefinite and lengthy
period (the appeal in Vardax is being held pending this Court's
decision in Stuart), while the courts determine the legality of a
possible future disclosure of material to which the IRS is concededly
entitled.

/17/ Section 7431(a)(1) provides that a damage suit may be brought
against the United States if the disclosure is made by one of its
officers or employees. If the disclosure is made by another person,
Section 7431(a)(2) authorizes a damage suit directly against the
person making the unlawful disclosure. Section 7431(c) authorizes a
damage recovery of costs, actual damages, and punitive damages in the
case of willful or grossly negligent disclosures; it also specifies a
minimum damage award of $1,000 for each act of unauthorized
disclosure.

/18/ An ex parte application for a disclosure order from a district
judge or magistrate is required before the IRS can disclose return
information to another government agency for use in non-tax criminal
investigations (Section 6103(i)(1)) or in locating fugitives from
justice (Section 6103(i)(5)). And return information obtained under
Section 6103(i)(1) cannot be disclosed in judicial proceedings in
non-tax criminal cases or related civil forfeiture cases without prior
approval by the court (Section 6103(i)(4)).

/19/ The particular injunctive remedy established by Congress in
Section 6110(f)(3) is highly probative of Congress's intent under
Section 6103 because the two sections were enacted contemporaneously.
In the Tax Reform Act of 1976, Pub. L. No. 94-455, 90 Stat. 1520,
Congress undertook to overhaul the confidentiality provisions of the
Internal Revenue Code because of its concern that the statutory
protections for return information were inadequate and that the
existing level of disclosure "breache(d) a reasonable expectation of
privacy on the part of the American citizen" (S. Rep. 94-938, 94th
Cong., 2d Sess. 317 (1976)). See Church of Scientology v. IRS, slip
op. 6-7. Accordingly, Congress comprehensively revised Section 6103
to tighten the disclosure rules, and it also added the civil damage
remedy now contained in Section 7431 "to redress any injury sustained
and to aid in the enforcement of the confidentiality rules" (S. Rep.
94-938, supra, at 347). The provisions of Section 6110 governing the
publication of "written determinations" were also enacted as part of
the 1976 Act. Thus, the two provisions should be read in pari
materia, and the express provision in Section 6110(f)(3) of a
pre-disclosure injunctive remedy strongly suggests that an additional
remedy should not arise by implication to prevent other possible
disclosures in violation of Section 6103 -- particularly a remedy
which, unlike that in Section 6110(f)(3), would tend to interfere with
the IRS's access to information in the first place.

/20/ Indeed, even the Ninth Circuit has recognized in another
context that the detailed enforcement scheme erected by Congress
suggests that the courts should be "reluctan(t) to imply a judicial
remedy for violations of Section 6103 given Congress' explicit
provision of a remedy" (United States v. Michaelian, 803 F.2d 1042,
1049 (1986)). Thus, the courts generally have declined to recognize
implied judicial remedies for unlawful disclosure, such as suppression
of evidence or dismissal of an indictment. See id. at 1048-1050;
Marvin v. United States, 732 F.2d 669, 673 (8th Cir. 1984); United
States v. Barnes, 604 F.2d 121, 146 (2d Cir. 1979), cert. denied, 446
U.S. 907 (1980).

/21/ See, e.g., Zimmer v. Connett, 640 F.2d 208, 210 (9th Cir.
1981) (Tax Anti-Injunction Act prohibits enjoining IRS inspection of
taxpayers' books); Black v. United States, 534 F.2d 524, 527 (2d Cir.
1976); Lewis v. Sandler, 498 F.2d 395, 397 (4th Cir. 1974); Koin v.
Coyle, 402 F.2d 468, 469 (7th Cir. 1968) (Act bars suit to enjoin IRS
from using evidence to make tax assessments).

/22/ While the Fifth Circuit's decision in Barrett directly
addresses the contention that a summons should be conditionally
enforced to prevent unlawful disclosures, other court of appeals
decisions also recognize that the possibility that summoned material
will be disclosed in violation of Section 6103 is a matter to be dealt
with by the remedies established by Congress for such violations, not
by expanding the scope of summons enforcement proceedings beyond the
traditional good faith/legitimate purpose inquiry. In United States
v. Chemical Bank, supra, the court of appeals held that the summons
should be enforced despite the court's recognition that the Strike
Force's involvement in the investigation created a possibility than an
unlawful disclosure would ultimately occur. The court ruled that this
possibility was not a sufficient basis for declining to enforce the
summons and that it was not the role of the district court to
guarantee that such a disclosure would not take place in the future.
The court explained that "the judiciary does not anticipate that the
Government will act unlawfully. When it does, there is usually the
time as well as the means to repair the damage." 593 F.2d at 455. The
court further noted that, outside the framework of a summons
enforcement action, Congress has provided sanctions for violations of
the disclosure statutes (id. at 457-458). Similarly, in United States
v. Balanced Fin. Mgmt., Inc., 769 F.2d at 1447-1448, the court
rejected the taxpayer's claim that allegedly unlawful prior
disclosures were grounds for denying enforcement of a summons. The
court stated that "less extreme remedies than denial of enforcement
should be sufficient" to address the problem of unlawful disclosure,
citing Sections 7213 and 7431 of the Code, the enforcement provisions
enacted by Congress (769 F.2d at 1448).

/23/ The Ninth Circuit's rule is clearly an absolute bar to any
consideration by the district court of the contents of the
communication itself in determining whether the crime-fraud exception
is applicable. That is why the court of appeals did not consider
whether the district court was correct in finding that the partial
transcripts that it examined were insufficient to demonstrate the
applicability of the crime-fraud exception. The correctness of that
absolute rule is the question presented in this case. This case does
not present the question of the extent to which a district court can
be required to make an in camera inspection of documents. Cf. Br. in
Opp. 21-23. Nor is this Court presented with questions concerning the
adequacy of the showing made by the government in this case by way of
the partial transcripts or the later Xanthos affidavit (found by the
district court to be untimely). Those issues will be open on remand
in the event that this Court holds, as we urge, that the applicability
of the crime-fraud exception can be shown by other than independent
evidence.

/24/ This consequence of the Ninth Circuit's rule is clearly
illustrated by Shewfelt itself. In that case, the court of appeals
began its discussion of the crime-fraud issue with the observation
that "it is clear that the thrust of these attorney-client
conversations was to effectuate a plan of fraud" (455 F.2d at 840).
The court did not, however, view this conclusion as dispositive of the
privilege question. It proceeded to state the independent evidence
rule and to engage in a detailed examination of the independent
evidence that had been adduced before ruling that the claim of
privilege should be rejected (id. at 840-841).

/25/ Congress did not adopt any of the proposed rules governing
evidentiary privileges. Instead, it determined that questions of
privilege should continue to be governed by common law evidentiary
rules, rather than by the Federal Rules of Evidence. See Fed. R.
Evid. 501. As we have shown, the prevailing common law rules do not
contain an independent evidence requirement for the invocation of the
crime-fraud exception.

/26/ Indeed, the Shewfelt rule is such a departure from prevailing
principles that even one district court in the Ninth Circuit declined
to follow it. See United States v. King, 536 F. Supp. 253, 261-262
(C.D. Cal. 1982).

/27/ The independent evidence requirement could have significant
practical effects on the administration of justice. In many cases,
the contents of the communication may be the only accessible evidence
of whether it is related to crime or fraud. In such cases, the
independent evidence rule would operate as a bar to the introduction
of evidence even though the purposes of the attorney-client privilege
manifestly are not served by its invocation. Moreover, in some cases
the communication itself may be the only evidence of crime -- for
example, where an attorney is charged with obstruction of justice. In
a case like that, the Ninth Circuit's rule would "simply serve to
insulate dishonest attorneys from prosecution for obstruction of
justice" (United States v. King, 536 F. Supp. at 262)).

APPENDIX

   

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