205 F.2d 734 (5th Cir. 1953), 14559, Falsone v. United States

Docket Nº:14559.
Citation:205 F.2d 734
Case Date:June 26, 1953
Court:United States Courts of Appeals, Court of Appeals for the Fifth Circuit

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205 F.2d 734 (5th Cir. 1953)




No. 14559.

United States Court of Appeals, Fifth Circuit.

June 26, 1953

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[Copyrighted Material Omitted]

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         Hugh C. Macfarlane, G. L. Reeves and M. Craig Massey, Tampa, Fla., for appellant.

         Matt O'Brien, Asst. U.S. Atty., Tampa, Fla., for appellee.

         Reeves, Allen & Dell, Tampa, Fla., of counsel for amici curiae.

         Before HOLMES, BORAH and RIVES, Circuit Judges.

         RIVES, Circuit Judge.

         An Internal Revenue agent acting under authority of 26 U.S.C.A. § 3614(a), 1 served appellant, a certified public accountant, with summons to appear before him and testify in the matter of the tax liability of Salvatore Italiano and his wife, Maria, for the years 1947 to 1951, inclusive, and to bring with him the following books and papers:

         'All books, papers, records or memoranda in your files relating to:

         '(1) Individual income tax returns of Salvatore Italiano and Maria Italiano for the years 1940 to 1946, inclusive.

         '(2) Corporation income tax returns of Anthony Distributors, Inc. for the years 1940 to 1951, inclusive.'

         In response to the summons, appellant appeared at the agent's office but refused to produce the books, papers, records and memoranda called for in the summons or to testify regarding said documents.

         The United States then filed in the District Court a petition to enforce the summons under 26 U.S.C.A. § 3633(a). 2 Upon an ex parte hearing, the District Court entered an order directing the appellant to obey the summons and to retain all of said documents in his possession for compliance with the summons or such other disposition as the court might direct.

         A motion to vacate that order and to quash the summons of the Internal Revenue agent was filed by the appellant. After a hearing, the District Court denied that motion and ordered the appellant to appear before another special agent of the Bureau of

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Internal Revenue, to produce the documents requested, and to give testimony pursuant to the summons. From that order this appeal is prosecuted.

         Although the appellee has not moved to dismiss the appeal, it is nevertheless incumbent upon this Court to ascertain whether the order of the District Court is final and appealable, and, hence, whether this Court has jurisdiction. The question is not without difficulty; it has apparently been answered in the affirmative by the Eighth Circuit 3 and by the Ninth Circuit, 4 while a closely related question, the summons having been issued by the Collector under 26 U.S.C.A. § 3615, has been answered in the negative by the Seventh Circuit. 5 In a similar proceeding, an appeal from an order entered earlier than the reported opinion in Torras v. Stradley, D.C. Ga., 103 F.Supp. 737, the present writer has heretofore denied supersedeas, because he was then of the opinion that the order of the District Court was not final.

         It is settled that an order of the District Court denying a motion to quash a subpoena duces tecum requiring one to appear with papers and testify before a grand jury is not a final and appealable decision. Cobbledick v. United States, 309 U.S. 323, 60 S.Ct. 540, 84 L.Ed. 783. The power granted to the Commissioner of Internal Revenue by 26 U.S.C.A. § 3614 is inquisitorial in character and has been compared to the power vested in federal grand juries. Bolich v. Rubel, 2d Cir., 67 F.2d 894, 895; Brownson v. United States, 8 Cir., 32 F.2d 844, 848. An important difference, however, is that, while the reports of grand juries are made to the court, the results of tax investigations are reported to the Commissioner and it is for him to determine what action, if any, is required under the law in view of the facts revealed.

         Judge Learned Hand has indicated that the distinction to be observed is between orders which are merely interlocutory steps in judicial proceedings and are not appealable and court orders ancillary to an administrative proceeding and final because they complete the court's action. Capital Company v. Fox, 2d Cir., 85 F.2d 97, 99, 106 A.L.R. 376. Professor Moore seems to follow the same distinction. Moore's Commentary on the United States Judicial Code (1949), pages 501, 502. 6 In Cobbledick v. United States, supra, 309 U.S.at page 330, 60 S.Ct.at page 543, 84 L.Ed. 783, the Supreme Court recognized the difference between a proceeding 'self-contained, so far as the judiciary is concerned' where the District Court's direction to testify "is the end of a proceeding begun against the witness" and controversies 'arising out of court proceedings unrelated to any administrative agency.'

         In First National Bank of Mobile v. United States, 267 U.S. 576, 45 S.Ct. 231, 69 L.Ed. 796, the Supreme Court affirmed an order of the District Court, United States v. First National Bank of Mobile, D.C. Ala., 295 F. 142, requiring an employee of a bank to appear before an Internal Revenue Agent and to testify and produce books and records as to the transactions of one of the bank's depositors; and, as the Eighth Circuit has aptly commented, 'The affirmance of the order necessarily involved a holding that the order was appealable.' Brownson v. United States, supra, 32 F.2d at page 846. We hold, therefore, that the order in the present case was final and that this Court has jurisdiction.

         The pleadings which frame the issues for our decision consist of the petition to enforce the summons and the motion to vacate the ex parte order and to quash the summons. Attached to the petition was an affidavit

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of the agent stating that, in his official capacity at the direction of the Commissioner of Internal Revenue, he was investigating the tax returns of Salvatore Italiano and his wife, Maria, for the years 1947 through 1951 for alleged evasion of income tax; that his investigation had revealed that from the years 1942 through 1951 the taxpayers reported income of approximately $303, 000.00, while their expenditures during that period had been in the approximate amount of $466, 000.00; that it is necessary to make a determination of their income by means of the so-called net worth-expenditures method, 7 and in order to determine net worth as of January 1, 1947, it is necessary to reconstruct the financial history of the taxpayers in prior years; that the official records of the Bureau of Internal Revenue disclosed that at times during the period 1942 through 1951 Salvatore Italiano, as General Manager of Anthony Distributors, Inc., engaged in the purchase and sale of beverages over the O.P.A. Ceiling Prices to his personal benefit.

         Appellant's sworn motion and affidavit denying the District Court's right to issue the order enforcing the summons is based essentially on the following facts and circumstances therein stated:

         1. The appellant, Frank J. Falsone, is a Certified Public Accountant of the State of Florida and enrolled to practice before the Treasury Department; and Salvatore Italiano, Maria Italiano and Anthony Distributors, Inc., are 'clients' of his whom he represents in federal tax matters.

         2. That the books papers, records and memoranda in appellant's files ordered produced by the District Court are of two classifications:

         a. Those which are the personal and private books, papers, records and memoranda of his clients entrusted to him for the purpose of enabling him to prepare their tax returns; and the return of these has now been demanded by the clients;

         b. Those which are the work papers and work products of the appellant based on information given to the appellant by his clients.

         3. Concerning the information and documents for some of the years requested:

         a. The statute of limitations has run.

         b. The returns have once been audited and fully examined by the Internal Revenue Bureau and the taxpayers have paid all taxes found to be due by said examinations and audits.

         In considering appellant's contentions based on privilege, we make two preliminary assumptions in favor of the appellant: 1. That the conduct of investigations under this statute is subject to the same testimonial privileges as judicial proceedings; 8 2. That since the 'client' is not a party, the agent or accountant may claim the privilege in his behalf. 9

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The taxpayer is required to keep records, 26 U.S.C.A. § 54(a) and the Commissioner, for the purpose of ascertaining the correctness of any return, is authorized by any officer or employee of the Bureau to examine the taxpayer's books and records and to require the attendance of the person rendering the return and the taking of his testimony, 26 U.S.C.A. § 3614. (Footnote 1, supra). Statutes granting such authorities have been held constitutional as against the contentions that they provide for unreasonable searches and seizures and compel...

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