United States v. Bisceglia

PETITIONER:United States
RESPONDENT:Bisceglia
LOCATION:169th Judicial District Court of Texas

DOCKET NO.: 73-1245
DECIDED BY: Burger Court (1972-1975)
LOWER COURT: United States Court of Appeals for the Sixth Circuit

CITATION: 420 US 141 (1975)
ARGUED: Nov 11, 1974 / Nov 12, 1974
DECIDED: Feb 19, 1975

ADVOCATES:
Stuart A. Smith – for petitioners
William A. Watson – for respondent

Facts of the case

Question

  • Oral Argument – November 11, 1974
  • Audio Transcription for Oral Argument – November 11, 1974 in United States v. Bisceglia

    Audio Transcription for Oral Argument – November 12, 1974 in United States v. Bisceglia

    Warren E. Burger:

    We’ll resume arguments.

    Mr. Smith, you may proceed whenever you’re ready.

    Stuart A. Smith:

    Mr. Chief Justice and may it please the Court.

    When the Court adjourned yesterday, I have set forth the facts of this case which are essentially that Internal Revenue Service summons was served upon respondent an officer of the bank in order to determine the identity of the depositor or transferor of some 400 $100 bills that were in seriously deteriorated condition.

    Summons was drawn in the matter of the tax liability of “John Doe” because the identity of the depositor was what the Internal Revenue Service wanted to ascertain.

    Now, respondent refused to comply and after a hearing held in the United States District Court brought by the Government

    .The District Court narrowed the summons to require production of all cash deposit tickets equaling $20,000 during a one month period, October 16, 1970 to November 16, 1970 since the Federal Reserve Bank in Cleve — in Cincinnati had received this cash on November 6 by ticket and 10 or 15 days later and also —

    William H. Rehnquist:

    You said deposit tickets equaling $20,000.

    Do you mean deposit the tickets in which the single amount of $20,000 would have been indicated as having been deposited?

    Stuart A. Smith:

    Yes, that was one part of the order.

    The second part of the order involved the production of the deposit tickets of cash equal to an excessive $5,000.

    The District Court felt that in that way by narrowing the summons in that regard the identity of the depositor could be ascertained with the minimum of disruption to the bank.

    Now, respondent appealed to the Court of Appeals for the Sixth Circuit which reversed and it’s the correctness of that statutory ruling which is involved in this case.

    The Court of Appeals held that the Internal Revenue Service has no statutory authority.

    The issue of summons before it has discovered the identity of the particular person it wishes to investigate.

    I think before I discussed the statutes in some detail, I think it’s important to state at the outset what this case does not involve.

    This case does not involve any application of a constitutional protection to the production of records by the bank.

    I think that the Court’s decision last term in California Bankers Association has made clear that there is no claim of privilege against self-incrimination which would be applicable by the bank.

    Its officers or in behalf of these unknown taxpayers who may be incriminated by the records sought by the summons.

    These are third party records which are not protected.

    So the case therefore presents a statutory question, the narrow focus of which is upon two provisions of the Internal Revenue Code which are presently set forth at Section 7601 and Section 7602 of the Code.

    There set forth on pages 2 and 3 —

    Warren E. Burger:

    7601 or 7801?

    Stuart A. Smith:

    7601 of the Code.

    There set forth in pages 2 and 3 of our brief under the caption statutes involved.

    Now, these statutes, we submit our cast in the broadest possible terms.

    Section 7601 admonishes the Secretary of the Treasury has delegate here the Commission of Internal Revenue to proceed from time to time through each Internal Revenue District and inquire after and concerning all persons therein who be may be liable to pay any Internal Revenue tax.

    Section 7602, which affords the service to summons power designed to implement this canvass power in Section 7601 also is cast in broad terms.

    And that these two statutes which the Court recognized in the Donaldson case to be both closely related and rooted in statutes enacted more than a century ago which we believe provide the statutory power for the Internal Revenue Service.

    The issue was summons like this, —

    Potter Stewart:

    Mr. Smith, it’s clear to say that while you say that these two — these are the two statutes that are involved.

    That’s really an issue in this case, isn’t it?

    Your brother says that 7601 is not involved in this case that we —

    Stuart A. Smith:

    Yes Mr. Justice Stewart, I’m aware that there is dispute about 7601 but in our view the statute — that the power of the Internal Revenue Service which we believe Congress has accorded.

    It can be viewed by looking at these statutes in Danville.

    Potter Stewart:

    And indeed the Court of Appeals limited its consideration to the language of 7602, did it not?

    Stuart A. Smith:

    I believe so.

    Potter Stewart:

    Right.

    Stuart A. Smith:

    If I may, I would like to consider in detail the terminology of these statutes which I think are critical to a resolution of this case.

    As I said, Section 7601 talks about a canvass power of the Internal Revenue Service to proceed from time to time and it talks about inquiring after and concerning all persons in our view a broad phrase.

    Now, when you get the answer of Section 7602, the statute talks about four purposes for which a summons like this can be issued.

    It talks about the purpose of ascertaining the correctness of any return for making a return where none has been made for determining the liability of any person for any Internal Revenue tax or collecting any such liability.

    Now, we think that the summons in this case plainly falls within the statutory purposes.

    Warren E. Burger:

    You may have answered Mr. Justice Stewart on this and if so I missed it.

    If you didn’t have 7601 would 7602 be enough to take care of your case?

    Stuart A. Smith:

    We believe it would because we think that the summons that was issued in this case falls within the statutory purpose of Section 7602 alone.

    When we’re talking about the purpose of ascertaining the correctness of any return making a return where none has been made etcetera, etcetera, we think that if the Internal Revenue Service — the proper way to view do this case is as the initiation of a process and which these statutory purposes are fully applicable.

    In this particular case, the Internal Revenue Service does not know the identity of this depositor whose transactions are indeed suspicious.

    I think it’s undisputed that these transactions are suspicious and presumably once the identity is ascertained via the summons power.

    Then this Internal Revenue Service will go on to ascertain the correctness of the depositor’s return, make a return if none had been made, determine his liability under the third purpose and so forth and so on.

    In fact, the third purpose of the statute determining the liability of any person for any Internal Revenue tax, we think it’s sufficiently broad enough to cover this case because what we’re talking about here is the statute does not confine itself in the way that the Court of Appeals confined it to a determination of the tax liability of unidentified person rather it talks about the liability of any person for any Internal Revenue tax.

    And we think that what Congress has done here is to accord the Internal Revenue Service, the power to answer what we think is the basic fundamental question in the enforcement of any law.

    That is who is responsible, who has breached his responsibility under the law in the context of the revenue statutes it simply a question of who has not fulfilled his civil tax liability.

    That’s what’s involved here and we think the statute covers it.

    Now, what the Court said that is the Court of Appeals is that there is no particular taxpayer under investigation.

    Now, in our view that is not correct in any sense that is meaningful when one considers the services statutory responsibility to ascertain and to go through the internal revenue districts and to determine the liability of any person.

    It is only correct in the sense which we think is a trivial sense that the identity of the person has not been ascertained this yet.

    But there is no doubt in this case that there is a particularized person under investigation here.

    Potter Stewart:

    His doubt as to whether or not there’s any tax liability that’s just a suspicion, isn’t there?

    Stuart A. Smith:

    Well, it is a suspicion but —

    Potter Stewart:

    Tax liability by anybody, any person or any other entity or any kind of tax?

    Stuart A. Smith:

    Indeed, but we think that there has — an event has occurred here which has properly raised the suspicion in the Internal Revenue Service that there is a tax liability involved here.

    Cash dealings of this magnitude are unusual and in this context —

    Potter Stewart:

    Could there but for all anybody knows that cash deal — cash dealings of this magnitude there maybe unusual, I suppose they are.

    It doesn’t mean that person didn’t pay taxes?

    Stuart A. Smith:

    Indeed, it doesn’t but our point simply is that Congress has given the Internal Revenue Service the power to ascertain the identity of such a person and then to determine whether he has in fact that it is quite possible —

    Potter Stewart:

    Well, that means anybody, doesn’t it?

    Stuart A. Smith:

    It does, it indeed —

    Potter Stewart:

    I mean — it means anybody on suspicion or even on —

    Stuart A. Smith:

    I think that’s right, I think that Mr. Justice Harlan in setting forth the criteria in the Powell case under which an Internal Revenue Service summons could be issued said, that one of the purposes and there were four was that the investigation must be conducted pursuant to a legitimate purpose and the second test that he used was whether inquiry was relevant to that purpose.

    I think under these circumstances, the Internal Revenue Service’s desire to ascertain the identity of the depositor in this case under these circumstances is a legitimate inquiry and that is a legitimate investigation and that the inquiry to ascertain his identity is a relevant to that purpose.

    Warren E. Burger:

    And after you found his identity then you might check his tax return and see whether he had been returning.

    Stuart A. Smith:

    Indeed, I think we would do so and that essentially all of those acts would fall quite well within the statutory purposes here.

    I think that it would unduly cripple the Internal Revenue Service’s power to ascertain the tax liability in determent of any person if the rule in this case promulgated by Court of Appeals that first the identity of the person had to be ascertained.

    Well, with the law here, I think that the Internal Revenue Service has a broader power to under these statutes to ascertain the identity of the person under investigation.

    Indeed, the depositor here is a particularized person or persons.

    Now, what the respondent has said here essentially is in support of the Court of Appeals’ test that no particular taxpayer is under investigation.

    Now, in an amicus brief filed by the American Bankers Association, they, in facing these broad statutory purposes of Section 7601 and 7602 say simply that with respect to the statutory phrase determining the liability of any person for any Internal Revenue tax, they would impose a gloss on that provision.

    They would say that the Internal Revenue Service either had to have the name of the person or some evidence of liability.

    Now, we say with respect to their first test, we think that’s answered by the fact that we have a particularize depositor here.

    With respect to whether the Internal Revenue Service had some evidence of liability, we would submit that that would resurrect the very probable cause requirement which the Court firmly rejected in Powell.

    The Internal Revenue Service is not bound by any probable cause requirement in issuing the summons or that it need have is an official suspicion.

    And indeed under these circumstances, the suspicions are amply justified by the transactions that occurred in this case and not only the magnitude of the money involved but the fact that the money was found in rather unusual condition which suggested a long period of storage.

    People do not usually keep money in an airless place unless they are hiding if for some reason and we think under these circumstances, the Internal Revenue Service had ample justification to seek the identity of the depositor here.

    Warren E. Burger:

    Is the bank required to keep the number of bills over certain denominations from they’re deposited under any provision of the Code?

    Stuart A. Smith:

    To keep the currency itself or the serial number?

    Warren E. Burger:

    The serial number.

    Stuart A. Smith:

    No, I’m not aware of any provision in the Code that requires that, but there are of course reporting requirements — Federal Reserve reporting requirements that were involved here which is how the Internal Revenue Service picked those transaction off.

    Warren E. Burger:

    Does include reporting the serial numbers?

    Stuart A. Smith:

    I don’t think so because Mr. Chief Justice if you look at page 16 of the record appendix, you can see the copy of the report of the currency transaction that was filed by the Federal Reserve Bank in this case.

    Stuart A. Smith:

    It’s simply talks about amount to denominations of $100 or higher and you can see in the third column of that in the middle of the page.

    Here, these two instances within 10 days of a deposited $20,000 in hundreds and there’s a notation to hundreds in deteriorated condition apparently from long period of storage.

    And there is a bank in — and the name of the bank the Federal Reserve Bank is at the bottom and the name of the depositor bank is at the top.

    Now, we think it’s absolutely clear on the basis of power that there is no probable cause requirement that binds the service.

    Indeed, the court analogized the power of Internal Revenue Service in this case, the power to the inquisitorial power of a grand jury and surely the grand jury can sit in and investigate the entire industry for a particular period of time and look in and call people before it to offer testimony with respect to the subject matter to investigation.

    Now, we set forth in our brief what we think is rather strong legislative history in supported of this statutory argument that the Internal Revenue Service has this power.

    In 1954, at the time of the codification of the present tax law, the summons power and the canvass power represented an amalgamation of three different provisions which were in the 1939 Code and which in turn date back to statutes going back as far as 1864.

    Now, the particular statute which we think is relevant to Section 3654 (a) of the 1939 Code which similarly talks about the Internal Revenue Service’s power to look into and to insure that the tax laws are being faithfully obeyed and that the collector had this power.

    And we think it is not without significance that in 1878 when Congress was debating the very sort of procedural question is to whether to transfer or to a court the summons powers that were held by collectors to another agents in the Internal Revenue Service.

    The debates made a reference to an incident where the Internal Revenue Service served as summons upon a railroad in order to ascertain the identity of a shipper of liquor which was believed to have been shipped on tax and the railroad complied with that provision — with that summons and offered up its books of account in connection with that inquiry.

    Of course there was no income tax in 1878, but there were excise taxes on liquor and we think that Congress was well aware of the fact that if it accorded this power to the Internal Revenue Service to ascertain the identities of persons.

    Now, we think further that this legislative understanding which is — was almost 100 years ago — occurred almost 100 years ago is also reflected in the decisions of the lower courts.

    Indeed, apart from this case and the Humble Oil case which is presently pending on the Government’s petition for writ of certiorari and which I would imagine the Court is holding in connection with the disposition of this case.

    The Circuits have pretty well uniformly given the Internal Revenue Service the power to ascertain the identities of unknown persons.

    One of the prime examples of this power is in connection with tax-return preparers.

    Four Circuits have held that tax-return preparers must under compulsion of an Internal Revenue summons issue give over to the Internal Revenue Service the names and social security numbers of their clients when the Internal Revenue Service has reason to believe that the preparer has filed returns which may not be completely accurate.

    I think if the Court has no further questions, I would like to save the remaining time for rebuttal.

    Warren E. Burger:

    Very well, Mr. Smith.

    Mr. Watson.

    William A. Watson:

    Mr. Chief Justice and may it please the Court.

    I would like to expand briefly to some of the remarks made by counsel.

    He uses repeatedly in his argument the term “depositor” and this depositor he mentions the person who may be a liable for unpaid taxes and there is nothing in this record that says in the first place that this money came to this bank from a depositor.

    We don’t know where it came from.

    I made such a distinction in my brief between customers who may bring in cash exchange and a depositor.

    William O. Douglas:

    Do you mean the bank doesn’t know where the money came from?

    William A. Watson:

    ot in my knowledge, but I’m making a distinction here as to the possibility that it came in off the street as a cash exchange and which instance the record reflects that there is no way of identifying the source.

    William O. Douglas:

    Well, Mr. Watson looking at this page 16 the report to the Federal Reserve at the right, it seems to be column where is suppose to be indicated whether a deposit, withdrawal, exchange of currency, cashing or purchasing a check, is that right?

    William A. Watson:

    You’re referring now to —

    William O. Douglas:

    I’m looking at page 16 — the report for the Federal Reserve.

    William A. Watson:

    TCR-1?

    William O. Douglas:

    Yes, that’s right.

    William A. Watson:

    That form was not utilized in this instance as the record shows when this money went to the Federal Reserve in November.

    William O. Douglas:

    Is it not you?

    I thought Mr. Smith told us this was the report by which the Internal Revenue came upon this transaction?

    William A. Watson:

    No, the way the Internal Revenue Service came upon it was simply that an employee and the Federal Reserve Bank in Cincinnati noticed the condition.

    And based upon an earlier experience where some old money had come through which they in some way had determined have been buried in concrete, his suspicions were again arose on this transaction and the IRS was verbally notified.

    William O. Douglas:

    Was this ever used?

    William A. Watson:

    The TCR-1 was never filed by the bank concerning this transaction that is just the form.

    Warren E. Burger:

    Who made up the details here showing November 6, 1970 $54,600, $20,000 in $100 bill?

    William A. Watson:

    Oh no, that is the report compiled by the Federal Reserve people I presume Your Honor which describes the entire shipment if I’m correct about that.

    Potter Stewart:

    It’s a report from the bank to the Federal Reserve and that doesn’t indicate at all that it was the depositor of the bank, that’s your point?

    William A. Watson:

    Yes.

    Thurgood Marshall:

    Mr. Watson if you can — if you don’t know where the money came from or anything, what are you worried about?

    William A. Watson:

    Well, sir we have of course the basic question of whether the IRS can use the summons under these facts.

    Did they have the summons with an authority?

    Thurgood Marshall:

    Well, how are you hurt by that?

    William A. Watson:

    Well, we of course are involved with confidential relationship of banks with its customers, that’s the underlying concern of the bank.

    Thurgood Marshall:

    But you said it might to coming all to street and somebody change to some like that.

    William A. Watson:

    Theoretically, yes and —

    Thurgood Marshall:

    So if that had happened how would that — the bank be responsible for anything there?

    William A. Watson:

    Well, it means the bank can disclose all of these records.

    However, many depositors or records maybe involved.

    Thurgood Marshall:

    Do you keep a record when you change money?

    William A. Watson:

    No, sir.

    Thurgood Marshall:

    Well, so you’d say this came in and change money we don’t know who did it?

    William A. Watson:

    That’s right.

    Thurgood Marshall:

    And you had no problem at all.

    William A. Watson:

    But we don’t want the IRS to rummage through records of people who are not involved.

    Thurgood Marshall:

    You don’t want to ask any question?

    William A. Watson:

    Sir?

    Thurgood Marshall:

    You don’t want to ask any question?

    William A. Watson:

    Well, not so much asking questions of the bank but taking the records let’s say of a half of dozen or a dozen or however many depositors may fit in the category of the summons as narrowed by the Court and subject innocent depositors to the invasion of their privacy.

    William O. Douglas:

    Mr. Watson could — does a record here show I don’t recall how many customers did any into this category you described here?

    William A. Watson:

    No, sir.

    William O. Douglas:

    One month?

    William A. Watson:

    No, sir.

    William O. Douglas:

    It does not show that?

    Lewis F. Powell, Jr.:

    Mr. Watson, may I get back to this page 16 petitioners’ file exhibit one.

    I’m confused about this report is.

    Who prepared it, that your client or the Federal Reserve Bank?

    William A. Watson:

    My understanding of that sir is that that is the — prepared by the bank, the Federal Reserve Bank.

    It just shows how much money came in and those two shipments in cash.

    Lewis F. Powell, Jr.:

    But the —

    William A. Watson:

    They’re actually —

    Lewis F. Powell, Jr.:

    But who’s suppose to fill in under nature of transactions whether it’s a deposit or withdrawal, exchange of currency, cashing or purchasing check, who is suppose to fill out it?

    William A. Watson:

    Well, the bank — it was the commercial bank.

    Local bank was to be supposed to provide that information.

    It was not done in this instance, I don’t know that the record reflects but it’s my understanding it was routinely not done.

    And all —

    Warren E. Burger:

    What’s the form, what’s the purpose of having the form done?

    William A. Watson:

    Well the purpose was very obvious to comply with the existing regulation which required the reporting of these currency transactions.

    William O. Douglas:

    Reporting by whom?

    William A. Watson:

    Those are not enforced–

    William O. Douglas:

    Reporting by your client.

    William A. Watson:

    Yes, sir.

    William O. Douglas:

    Well then, then is this a report by your client?

    You’ve been telling us it was something prepared by the Federal Reserve?

    William A. Watson:

    It’s the petitioner’s trial exhibit number 1 and as I understand that that was prepared by the Federal Reserve Bank in Cincinnati.

    William O. Douglas:

    Well, what is your claim?

    Prepare in the way we report?

    William A. Watson:

    They have the TCR-1 form which was suppose to be prepared by them but which was not prepared by them.

    William O. Douglas:

    Where is that?

    Is that form here?

    William A. Watson:

    I’m sure it’s set forth in the record somewhere Your Honor but I could not put my finger right on it.

    Warren E. Burger:

    Well, if they didn’t prepare it as they are required to prepare it, what explanation are you preparing to offer or what hypothesis would you suggest?

    William A. Watson:

    Well, I would only say as in my information that it was routinely not observed and likewise by the Federal Reserve, they did not routinely require it to be observed.

    Warren E. Burger:

    But then the Internal Revenue comes in and indicates that they would like to have that requirement complied with.

    William A. Watson:

    Well, —

    William O. Douglas:

    And that is your case?

    William A. Watson:

    Sir?

    William O. Douglas:

    And that is your case?

    William A. Watson:

    I’m not sure I understand in what context you asked the question judge, when you say that is our case.

    William O. Douglas:

    Well, you’re not — you don’t want to supply it because of the reasons that’s stated in your argument?

    William A. Watson:

    Yes and I presumably that maybe why the bank did not provide the information on the form.

    The record does not reflect precisely the reasons is why it was not supplied in the first place.

    This apparently was not in —

    Warren E. Burger:

    Well, is this form called for by some statute or regulation of the Federal Reserve or —

    William A. Watson:

    There was a Treasury Regulation in a effect which is mentioned in the footnote in the Sixth Circuit’s opinion.

    Potter Stewart:

    It’s the 31 Code of Federal Code Regulations 102.

    William A. Watson:

    102.1

    Potter Stewart:

    102.

    William A. Watson:

    That have been in effect apparently, since around 1959 according to that footnote, but there were no sanctions involved as I understand it.

    There are sanctions under the present domestic currency reporting requirements of the Bank Secrecy with this Court took up last term.

    Potter Stewart:

    How large the bank is this?

    Do you know what is put in there?

    William A. Watson:

    Terms of total assets around 18 million as (Inaudible).

    Byron R. White:

    Seven tellers, I think the record tells us something like this.

    William A. Watson:

    At the main branch, you have about 3, 2 at the other branch.

    I have say 6 or 7 be correct, yes sir.

    Byron R. White:

    If these bills came in of the street, I take that the record indicates it was a most unusual street day or period because this is the only time apparently they have this kind of deposit?

    William A. Watson:

    Yes.

    Byron R. White:

    It surely wouldn’t be usual for the — somebody to bring in $40,000 in $100 within a two-week period and want to change, would it?

    William A. Watson:

    Presuming that a single individual brought it in and a single amount, yes, I think Your Honor would be correct and I think the record shows that perhaps Mr. Bisceglia answered that affirmatively.

    Byron R. White:

    But suppose you don’t have to make that presumption —

    William A. Watson:

    I don’t know of any presumption along those lines sir and in fact I don’t know of any presumption that old money is tainted money.

    This is the basis of the Government’s suspicion, but people do keep money — they keep it long time in odd places.

    It doesn’t mean that when they finally bring it in that it necessarily represents a fraud on the IRS or any other —

    Warren E. Burger:

    Well, doesn’t have to be — does the Government have to meet a burden of showing that it’s tainted in order to make an inquiry under 7602?

    William A. Watson:

    I would think that they must have some strong reason for indulging the authority and I think they must act within the authority of the statute.

    They say that this is enough to justify their actions here.

    Warren E. Burger:

    Or aren’t there a lot of IRS activities, that are practiced and sustained which don’t involve any taint that is to give one as illustration if the taxpayer was consistently reporting taking deductions for $40,000 of interest payments out each year on an income of $50,000?

    William A. Watson:

    Yes, sir.

    Warren E. Burger:

    Wouldn’t you think that would reasonably arouse some inquiry?

    William A. Watson:

    More than inquiry I would think so, yes sir.

    Warren E. Burger:

    It doesn’t have to be any taint, does it?

    True?

    He might be just overloaded with debts?

    William A. Watson:

    [Laughter] Or some like that, but again in that instance, you have a taxpayer.

    You know that there is a taxpayer.

    You are not asking to someone whereas perhaps we could use the example of a man who sells new automobile. He sells a Cadillac car.

    Can an IRS walk-in to his office and say you must sell to a lot of people with a lot of money.

    I want to see all your records.

    I’m not investigating anybody I’m just curious.

    Now, what’s the limit on official curiosity?

    Byron R. White:

    Mr. Watson, does the record show whether this that the old-fashioned big bills or not?

    William A. Watson:

    It does not to my knowledge sir.

    It’s just they were all deteriorated $100 bills.

    Potter Stewart:

    It must have been hard for the tellers to count, if it was hard for the Federal Reserve people to count?

    William A. Watson:

    Presumably so.

    Of course the district judge, as you know from the record, suggested that the agent was making a mountain out of a mole here that there was an easier way procedurally anyway to get to this and that was to summons the head teller who was Mrs. Dorothy Sulfrage (ph) and in fact the record shows that agent Bruecher talked to her and she could not recollect at the time and suggested perhaps the records might refresh her recollection.

    William A. Watson:

    She was never summons either by summons or by subpoena.

    Of course we get into another can of worms if she had been and what might have happen then but it was the District Court’s thinking that in any bank he had ever been in and the teller would remember without the necessity of invading all these records.

    Byron R. White:

    May I ask Mr. Watson?

    I’m looking at Judge McCree’s opinion footnote 1 at page 9-a of the Government’s petition in which this sentence appeared.

    It does appear however that this regulation, that’s regulation 102, required the commercial bank in this case to file a form TCR-1 in which of course the information sought by the IRS in this proceeding would have been disclosed.

    Does that mean that had commercial complied with the regulation the name of the depositor would have appeared in a TCR-1?

    William A. Watson:

    I think so if it was a deposit and they had furnished that information, it would have been there.

    William O. Douglas:

    And I gather what you’re telling is that the commercial bank did not comply with the regulation.

    William A. Watson:

    That’s correct.

    William O. Douglas:

    Because there was no compulsion upon the?

    William A. Watson:

    As I understand it, now again that is not precisely stated in the record, but that’s the information that I have.

    William O. Douglas:

    But may that have been changed by the Currency Act of 1970?

    William A. Watson:

    Well, I think so because under the Currency Act, you’re not only have the requirement of reporting domestic transactions of $10,000 but you also have sanctions to whereby the Secretary (Voice Overlap) is not reported.

    William O. Douglas:

    So where this case to arise after the — that as 1970 law we wouldn’t be here, would we?

    You would’ve reported it.

    William A. Watson:

    I would think so yes.

    Byron R. White:

    Unless, you said the regulation was invalid on the same basis —

    William A. Watson:

    Unless we challenge.

    Byron R. White:

    As we take the subpoena, yes.

    William A. Watson:

    Yes sir, unless it were challenged on some appropriate ground.

    Of course, the Currency Reporting Act talks in terms of $10,000 currency transactions again.

    We don’t know (Voice Overlap).

    Byron R. White:

    Incidentally, the answer the question I first, put you prepared this petitioner’s trial exhibit 1 according to Judge McCree it was as you suggested prepared by the Cincinnati Branch of the Federal Reserve.

    William A. Watson:

    Yes, sir.

    Of course the Sixth Circuit decided in this case as you know was simply on the basis that those four requirements set forth in 7602 did not apply.

    They did not reach the constitutional or the philosophical issue if you will.

    They simply said did you had to have a taxpayer at least identifiable, if not by name as an existing taxpayer or in the case of the tax preparer cases upon which the United States relies there was known to be taxpayers whose returns have been prepared by those people and the Government wanted to check them.

    Now, every Circuit Court and District Court which has talked about the Bisceglia since its rendition has distinguished Bisceglia on the facts from all of these other cases and I don’t know the same authority for the Government’s position here.

    Warren E. Burger:

    Only the second phrase of 7602, have a rather broad sweep for the purpose of making a return where none has been made.

    Now, it doesn’t have to suggest that it’s a rather wide ranging authority in IRS.

    William A. Watson:

    I don’t give that broad in interpretation Mr. Chief Justice.

    I think it is implicit in that phrase as in the others that you know a taxpayer exists, you know or have reasonably he hasn’t made a return and you’re going to make one for him which of course the IRS has the authority to do.

    Warren E. Burger:

    Aren’t there some reasonable presumptions that could be indulged in that people making deposits of this amount may conceivably have some tax liability?

    William A. Watson:

    I don’t think so.

    I really don’t think so even its old money I don’t think that presumption arises.

    Byron R. White:

    (Voice Overlap) as I understand vis-à-vis the Internal Revenue Service under the statute and the regulation have no authority whatsoever that it may anything unless without it knows the name of the taxpayer and the breadth of the subpoena has something to do with it.

    William A. Watson:

    Not unless it knows the name of a taxpayer, but certainly they must know that there is a taxpayer.

    I don’t think the IRS has the authority just to browse.

    Byron R. White:

    Well, what do you mean browse?

    Let’s assume there could only talk within that subpoena there’s only be one person.

    William A. Watson:

    We can’t assume that, Your Honor.

    Byron R. White:

    Just assume it for the moment

    William A. Watson:

    Alright.

    Byron R. White:

    Wouldn’t you still be taking the same position?

    William A. Watson:

    I would be, yes.

    Byron R. White:

    Yes, so it isn’t a browsing process at all.

    Just as if you’re search is done but unless Internal Revenue Service either knows the name of the taxpayer or knows the tax liability, it has no business.

    William A. Watson:

    It has no business in the record.

    Thurgood Marshall:

    Suppose IRS asked the question of the bank we like the name and address of the man who deposited $102,000 in your bank at 3:30 yesterday afternoon.

    Would you think that’s —

    William A. Watson:

    I don’t think that’s any of their business.

    Thurgood Marshall:

    You don’t?

    William A. Watson:

    No, sir.

    That’s invading a private transaction for no lawful purpose absent —

    Thurgood Marshall:

    Well, it is the auditing of the income tax return invading the privacy?

    William A. Watson:

    Not under the statute I don’t believe, sir.

    Thurgood Marshall:

    Well, they do it everyday.

    William A. Watson:

    They do it every and they would certainly do it to every —

    Thurgood Marshall:

    (Voice Overlap) different.

    William A. Watson:

    — every single customer of this bank has that fits this category if they were disclosed.

    Thurgood Marshall:

    Well, if they came to you and said that we are investigating the tax returns of Joe Black, and we like to see the returns, would you give it to them?

    William A. Watson:

    If I am to prepare of his return?

    Thurgood Marshall:

    No, sir.

    You’re the bank.

    We are investigating Joe Black and we want his bank statement.

    William A. Watson:

    Oh, I think they’re entitled to have it.

    They —

    Thurgood Marshall:

    Well, is that an invasion of privacy?

    William A. Watson:

    Well, sir it may go farther than I would go if I wrote the statute, but they have the statutory authority and I think that this Court has held in Donaldson and some other cases that they can see the records of third parties and that there is no abuse into the self-incrimination or unreasonable search and seizure per se on that basis.

    Lewis F. Powell, Jr.:

    Does that suggest Mr. Watson, if we disagree with the Court of Appeals on the interpretation of the statutes, what we would do about the constitutional question that you raised and that the Sixth Circuit didn’t (Voice Overlap).

    Because as I understand that the only question you raised was the Fourth Amendment for this, wasn’t it?

    William A. Watson:

    Yes, then that question must be face if this Court feels —

    Lewis F. Powell, Jr.:

    You don’t think you’ve already decided that in some of these other cases?

    William A. Watson:

    Not on these facts.

    Lewis F. Powell, Jr.:

    So what would you have us do?

    Decide the Fourth Amendment question here or send it back for the Sixth Circuit to decide it first?

    William A. Watson:

    I would just as happy if the Court affirms the Sixth Circuit on the basis the opinion was written.

    Lewis F. Powell, Jr.:

    I know but suppose we don’t, suppose we disagree with the Sixth Circuit on the interpretation of the statute?

    William A. Watson:

    Well, the Court of course could remand for that purpose but and I think that will be just a satisfactory with me but I believe our ground is solid on that issue.

    I think that this does —

    Byron R. White:

    What will you do?

    William A. Watson:

    This does go far, far beyond any reasonable seeking of corporate records and of course this Court has suggested in the California Bankers case, a corporate identity does not have an absolute right and an unqualified right to conduct its affairs in secrecy or privacy but that it does have some privileges in that regard and perhaps if the Court gets into constitutional question it will have to decide what those limits are.

    Warren E. Burger:

    If your client has no state here except an obligation you feel that take the privacy of your own customer’s transaction?

    William A. Watson:

    Yes confidentiality of the records.

    Lewis F. Powell, Jr.:

    Was the decision below pre or post are this Court’s think cases last year.

    William A. Watson:

    It was before I believe.

    Lewis F. Powell, Jr.:

    Before and was there a petition for rehearing that came after or not?

    William A. Watson:

    Yes, a petition for a rehearing I think came also before the California Bankers case.

    Lewis F. Powell, Jr.:

    Before and it was disposed of before?

    William A. Watson:

    I believe I’m correct on that maybe, yes sir.

    William A. Watson:

    This Sixth Circuit decision was decided October 18, 1973.

    Byron R. White:

    The record indicates the petitioner of rehearing was denied November 16, 1973?

    William A. Watson:

    Yes sir, I think that’s correct.

    Byron R. White:

    So that would be before bank cases too?

    William A. Watson:

    Yes, sir.

    Byron R. White:

    So there was no further petition for rehearing.

    William A. Watson:

    If this Court has no further question, I will close.

    Warren E. Burger:

    Thank you Mr. Watson.

    Mr. Smith.

    Stuart A. Smith:

    I just want — I think the Court is clear on this point and that is this form TCR-1.

    I just want to clarify it.

    Lewis F. Powell, Jr.:

    Well, I misunderstood you I thought (Voice Overlap).

    Stuart A. Smith:

    Yes, this was — in other words, the Commercial Bank of Middlesboro did not comply with the requirements of the then existing code — provisions in the code of federal regulation so that when the moldy money hit the Federal Reserve Bank, the Federal Reserve Bank in effect can filled the to form that the bank should have to comply.

    Potter Stewart:

    (Voice Overlap) IRS, did it?

    Stuart A. Smith:

    Exactly.

    Now, of course under the Bank Secrecy Act, there are criminal sanctions for failure to report, so presumably —

    William O. Douglas:

    Well, what do you think if we disagree with the Sixth Circuit on the statutory construction?

    What should we do about the Constitution?

    Stuart A. Smith:

    Well, we have made reference to the fact that we think the Fourth Amendment claim is insubstantial here because of the District Court’s narrowing of the summons which we think removes any claim that it’s unreasonable or overbroad of course —

    William O. Douglas:

    But it was decided by the Sixth Circuit, was it?

    Stuart A. Smith:

    Right, it was never decided of course the Court has discretion to consider it as an alternative basis to affirm but we think that if the Court does consider it that there is no basis for it, but the discretion is broad enough —

    William O. Douglas:

    What about the extending to let the —

    Stuart A. Smith:

    We think that would be a perfectly a reasonable disposition of the case since it is a factual matter and while the District Court considered the facts of the case to Court of Appeals did not have an opportunity to face the issue in the way it disposed to the case.

    Warren E. Burger:

    You began to say something about sanctions on the bank for not filing this form.

    Stuart A. Smith:

    I think that under the Bank Secrecy Act, there are criminal fines now but not —

    Warren E. Burger:

    That’s under the new Act?

    Stuart A. Smith:

    Under the new Act, right.

    Warren E. Burger:

    But at the time of this (Voice Overlap)?

    Stuart A. Smith:

    No under the — at the time there were no sanctions whatsoever, it was theoretically a voluntarily thing that the Federal Reserve Bank expected member banks and banks that dealt with that used the Federal Reserve facilitates to make these submissions.

    Indeed, it’s because of the kind of failure in this case that Congress finally addressed the problem and put some teeth in the law with respect to the reporting requirements.

    Stuart A. Smith:

    I have no further.

    Warren E. Burger:

    Very well, thank you gentlemen.

    The case is submitted.