New York State Department of Taxation & Finance v. New York State Department of Law

OPINION OF THE COURT

The question presented on this appeal is whether the nondisclosure provision of subdivision (e) of section 697 of the Tax Law requires the Department of Taxation and Finance to refuse to comply with a Grand Jury subpoena duces tecum for the production of an individual income tax return.

Full compliance with its laws on such information-gathering is particularly vital to tax collection. Without gainsaying the fact that penal sanctions against tax evasion constitute the ultimate compulsion for observance of these laws (see Garner v United States, 424 US 648 , 652-653; United States v King, 73 FRD 103 , 108), the degree to which self-reporting and partial self-auditing by the taxpayer is relied on by our revenue system is not to be underestimated. Were it not for the volitional acts of countless citizens in providing complete statements of their financial affairs, the manpower and resources which would have to be expended to enforce our tax laws would increase enormously. "[Bjasically the Government depends upon the good faith and integrity of each potential taxpayer to disclose honestly all information relevant to tax liability” (United States v Bisceglia, 420 US 141 , 145).

Clearly, the Legislature, in whom resides the power to levy taxes under our scheme of government (NY Const, art III, § 1; Matter of United States Steel Corp. v Gerosa, 7 NY2d 454 , 459), has reached a calculated conclusion that, if the information provided by taxpayers is held in the strictest confidence, the temptation to withhold information and, consequently, tax payments, will be warded off. Thus, it is recognized that a major "purpose of * * * statutory provisions prohibiting disclosure is to facilitate tax enforcement by encouraging a taxpayer to make full and truthful declarations in his return, without fear that these statements will be revealed or used against him for other purposes” (Webb v Standard Oil Co., 49 Cal 2d 509 , 513).

Significantly, the exceptions contained within the statute are integrally related to this dominant purpose. By allowing the limited use of returns in investigations and proceedings dealing with the collection of taxes themselves, or in cases in which the returns themselves are at issue, the statute serves to insure swift enforcement of revenue laws and to prevent other irregularities in the processing of tax collections. So too does the provision allowing for the reciprocal sharing of information with other taxing jurisdictions. And neither the State’s interest in obtaining a full report nor the taxpayer’s in his privacy is diminished by affording the right to receive a certified copy of his or her own return. But, notedly, none of

To be sure, our Legislature has enacted other statutes which allow intrusion into the protected domain of tax return information. For example subdivision 8 of section 663 of the Education Law, which deals with the monitoring of data on applications made by students seeking financial aid, requires the State Tax Commission in certain situations to compare information submitted for that purpose with that appearing on tax returns and to indicate to the education authorities any discrepancy that is thus made to appear. Similarly, section 49 of the Executive Law explicitly provides that section 697 of the Tax Law shall not be construed to prevent the welfare inspector general, who is charged with investigation of the efficiency and probity with which the allocation of funds for those in need of public assistance is administered (Executive Law, § 48), from obtaining "the name, address, social security number, employment history and number of dependents claimed” by recipients suspected of abusing the system. However, it is interesting that it required the adoption of these statutory sections, which consciously and articulately expressed a legislative determination that these exceptional public interests permit deviation from the policies embodied in the secrecy provisions of the Tax Law, to allow even the limited disclosure so permitted. Moreover, since these relate to eligibility for aid voluntarily sought from the State and no disclosure is required unless the application is pursued, disclosure may be thought to have a voluntary character (cf. Matter of Strycker’s Bay Apts. v Walsh, 67 Misc 2d 134 ).

Furthermore, we can find no comparable legislative decision to ease the restrictions in favor of the OCTF. To fill this vacuum, respondent places heavy reliance on subdivision 3 of section 70-a of the Executive Law which directs the Department of Taxation and Finance, as well as every other State agency, to afford the Deputy Attorney-General in charge of the Task Force "cooperation and assistance in the performance of his duties”. But such a generalized authorization to "cooperate”, which is commonplace in the statutory descriptions of the powers granted public State agencies (see, e.g., ECL 3-0301, subd 2, pars d, i; Vehicle and Traffic Law, § 210,

Nor can the subpoena be justified in this case by reference to subdivision (e) of section 697’s initial exception for disclosures "in accordance with proper judicial order”. Absent possible circumstances so extraordinary that they plumb the very depths of judicial and Grand Jury power, a "proper order” is one which either effectuates the enumerated exceptions within the statute or which arises out of a case in which the report is itself at issue, as in a forgery or perjury prosecution.

It is true, as the Task Force urges, that a Grand Jury has very broad investigative powers (see People v Stern, 3 NY2d 658 ; Matter of Manning v Valente, 272 App Div 358 , affd 297 NY 681 ; cf. Matter of Heisler v Hynes, 42 NY2d 250 ; Matter of Sussman v New York State Organized Crime Task Force, 39 NY2d 227 ). These powers must, however, be exercised in accordance with the procedural and evidentiary rules laid down in the Criminal Procedure Law and other statutes, none of which sanctions a general remission of the Tax Law’s call for secrecy merely to accommodate a Grand Jury subpoena in a case where there is a total absence of any showing or intimation that the investigation bears some relationship to tax matters (see CPL 190.30, 190.40, 60.10, 610.10).

Whether or not there may be Grand Jury nontax investigations in which the extraordinary circumstances to which we have so hypothetically and cautiously referred, and in which great public urgency exists and alternative means to secure the information are totally lacking, it is clear beyond peradventure that this is not such a case.

The order of the Appellate Division should, therefore, be affirmed.

Order affirmed, without costs.