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United States v. Bank of Commerce

decided: January 6, 1969.


Hastie, Chief Judge, Seitz and Aldisert, Circuit Judges.

Author: Seitz


SEITZ, Circuit Judge.

This is an appeal from an order of the district court which granted a petition for enforcement of internal revenue summonses and which also granted the government's motion to quash subpoenas served on special agents of the Internal Revenue Service.

In June, 1967, and again in July, 1967, Special Agent Morrison of the Internal Revenue Service served summonses on the Bank of Commerce pursuant to 26 U.S.C.A. § 7602, directing the bank to produce certain specified bank records relating to transactions between the bank and its depositor, Arthur Meister, whose tax liability Agents Morrison and Miller were investigating. The bank produced the records requested for the years 1961 through 1964, but, at Meister's direction, refused to surrender the records for the year 1960. In December, 1967, an action was brought in the district court pursuant to 26 U.S.C.A. § 7604 for enforcement of the summonses. The bank appeared in the district court, declined to volunteer the records and otherwise stood mute. Meister was granted leave to intervene to contest enforcement although the records are concededly the exclusive property of the bank. After intervening, Meister served civil subpoenas on the special agents conducting the investigation directing them to appear to testify. The government promptly moved to quash the subpoenas and for an order directing the bank to comply with the demand of the summonses.

After briefs and oral argument, the district court granted, without written opinion, both the petition for enforcement and the motion to quash the subpoenas. Meister, appellant, now appeals. The bank does not join in the appeal.

Appellant argues that the district court erred in granting enforcement and that it abused its discretion when it erroneously denied the appellant the right to examine the special agents for the purpose of establishing his defenses to the enforcement petition. More specifically, the appellant contends that the petition for enforcement should not have been granted because (1) the summonses were issued without full compliance with the statutory requisites set out in 26 U.S.C.A. § 7605(b), (2) the summonses are being used for an improper purpose -- i.e., that enforcement is sought with the "primary view" of gathering evidence for a criminal prosecution of the appellant, (3) the summonses lack relevance in that both the criminal and civil statutes of limitations have run as to the year 1960 and the records are neither relevant nor material to the investigation of the years 1961 to 1963, inclusive, (4) enforcement of the summonses would result in violations of the appellant's Fourth and Fifth Amendment rights, and (5) 26 U.S.C.A. § 7602 is unconstitutional in that it does not require notice to a taxpayer when a summons is issued to a third party.

At the outset, we are confronted by the appellee's contention that the appellant lacks standing to raise the objections which he asserts. We do not agree. The rule approved by the Supreme Court in Reisman v. Caplin, 375 U.S. 440, 84 S. Ct. 508, 11 L. Ed. 2d 459 (1964), is that a taxpayer may intervene in an enforcement proceeding and challenge enforcement of the summons by raising constitutional or other objections in protection of his rights and interests. Here, appellant's defenses, as he styles them, are aimed solely at protecting his individual rights and interests. Appellant makes no claim on behalf of the bank, either derivatively or in a representative capacity.

The opening challenge of the appellant to the order of enforcement is based on 26 U.S.C.A. § 7605(b), "Restrictions on examination of taxpayer", which provides:

"No taxpayer shall be subjected to unnecessary examination or investigations, and only one inspection of a taxpayer's books of account shall be made for each taxable year unless the taxpayer requests otherwise or unless the Secretary or his delegate, after investigation, notifies the taxpayer in writing that an additional inspection is necessary."

Appellant argues that the instant investigation is not necessary, that it is an unauthorized reexamination, and that neither the investigation nor the notice requirements of the statute have been satisfied. Therefore, citing United States v. Powell, 379 U.S. 48, 85 S. Ct. 248, 13 L. Ed. 2d 112 (1964), appellant submits that enforcement should have been denied. Appellant's reliance on § 7605(b) is misplaced. The language of § 7605(b) and the legislative history surrounding its enactment in 1921*fn1 show that the reach of this section is limited to the situation where the taxpayer is called to produce his records for examination. United States v. Howard, 360 F.2d 373 (3rd Cir., 1966). Among other things, the records sought here are not those of the taxpayer.

Next, appellant contends that enforcement should have been denied because the summonses are being used for an improper purpose, that is, they are being used with the "primary view" of obtaining evidence for a criminal prosecution of the appellant. Assuming that the appellant could prove that the summonses are in fact being used as he suggests, he would not have established a defense to enforcement, inasmuch as he would not have proven that the summonses are being used beyond the statutory purpose. As we observed in United States et al. DeGrosa, 3rd Cir., 405 F.2d 926, filed January 6, 1969, a § 7602 summons will be enforced where it is being used for a purpose intended by Congress notwithstanding the fact that the material sought might also be used in a criminal prosecution of the taxpayer.

Appellant's third contention is that the records for 1960 are not relevant because no tax liability can be predicated on those records, the civil and criminal statutes of limitations having run as to 1960, and because the records are not material or relevant to the investigation of the years 1961 through 1963. If we assume that the appellant could prove what he asserts here, we find that he would not have stated a defense to enforcement of the summonses. We say this because proof of what he alleges does not negative the existence of a proper use of the summonses. Cf. United States v. Powell, supra. For example, and as the appellee suggests, the records for 1960 would bear directly on a civil fraud assessment for that year, which of course, would not be barred by any statute of limitations. 26 U.S.C.A. § 6501(c)(1).

The first of the two Fifth Amendment defenses asserted by the appellant is that production of the bank records will violate his Fifth Amendment privilege against self-incrimination. Appellant's theory is that production of the records should be barred because the records contain information which he gave to the bank in confidence as its depositor. Even if this were not a proceeding for the production of records relating to income tax liability, appellant's claim is without merit. There can be no valid assertion of the privilege where, as here, the records sought are neither the ...

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