O'DWYER v. CIR

• Decision Date: 21 April 1959
• Docket Number: No. 7665.,7665.
• Citation: 266 F.2d 575
• Parties: William O'DWYER and Sloan O'Dwyer, Petitioners, v. COMMISSIONER OF INTERNAL REVENUE, Respondent.
• Court: U.S. Court of Appeals — Fourth Circuit

266 F.2d 575 (1959)

William O'DWYER and Sloan O'Dwyer, Petitioners, v. COMMISSIONER OF INTERNAL REVENUE, Respondent.

No. 7665.

United States Court of Appeals Fourth Circuit.

Argued January 13, 1959.

Decided April 21, 1959.

COPYRIGHT MATERIAL OMITTED

Paul O'Dwyer, New York City, for petitioners.

Myron C. Baum, Atty., Dept. of Justice, Washington, D. C. (Charles K. Rice, Asst. Atty. Gen., Lee A. Jackson and Harry Baum, Attys., Dept. of Justice, Washington, D. C., on the brief), for respondent.

Before SOBELOFF, Chief Judge, and PAUL and BOREMAN, District Judges.

BOREMAN, District Judge.

William O'Dwyer and Sloan O'Dwyer here petition for review of decisions of the Tax Court determining deficiencies in the payment of income taxes for the years 1949, 1950 and 1951. For those years they filed returns as husband and wife. The findings of fact and opinion of the Tax Court are reported in 28 T.C. 698, November 1957. The 1949 return was filed at New York but the 1950 and 1951 returns were filed at Baltimore. To avoid review of proceedings at a single trial by two circuits, the parties agreed to review by this circuit.

William O'Dwyer was Mayor of the City of New York from November 1945 until he resigned in August 1950. He had earlier held other public offices. On August 30, 1950, he was appointed Ambassador to Mexico and served in that capacity until his resignation in December 1952.

The Commissioner of Internal Revenue determined that William O'Dwyer received $10,000.00 from one Crane in 1949 which constituted unreported taxable income. With respect to 1950 and 1951, the dispute related to the disallowance of unreimbursed expenditures claimed by said O'Dwyer to have been made by him as Ambassador, and the failure to report, for the year 1951, an item of $1500.00 represented by an unexplained deposit made by Sloan O'Dwyer, from Mexico, in a joint bank account carried in her name and the name of her mother in a New York bank. The Commissioner determined deficiencies against petitioners for each of the three years, although the Tax Court modified and reduced the asserted deficiencies arising from the disallowance of claimed official expenditures as Ambassador. These determinations are attacked by taxpayers as arbitrary, capricious and improperly motivated.

By direct and positive assertions, as well as by innuendo, insinuation and intimation, taxpayers charge that the determinations of the Commissioner were influenced by political considerations and were arbitrary and capricious, without foundation.

It is a well-established and recognized principle that a determination, by the Commissioner of Internal Revenue, of deficiencies in a taxpayer's income tax is presumed to be correct, and the burden in the Tax Court is upon the taxpayer to prove its incorrectness. Lias v. C. I. R., 4 Cir., 1956, 235 F.2d 879; Harris v. C. I. R., 4 Cir., 1949, 174 F.2d 70; Miles-Conley Co. v. C. I. R., 4 Cir., 1949, 173 F.2d 958; Greenfeld v. C. I. R., 4 Cir., 1947, 165 F.2d 318; Miller Mfg. Co. v. C. I. R., 4 Cir., 1945, 149 F.2d 421. See also 47 C.J.S., Internal Revenue § 901 (1946).

The Government, although armed with this presumption of correctness upon which it could have elected to rely, goaded by taxpayers' accusations, produced witnesses before the Tax Court whose testimony related primarily to the alleged receipt by William O'Dwyer of the sum of $10,000.00 in 1949. These witnesses were Crane, Dolan and Wilders and they were subjected to extensive, vigorous and grueling cross-examination. Crane and Dolan had given statements in writing, pertaining to the same subject matter, to the Internal Revenue Agents and these statements were a part of the Commissioner's file. Witness Wilders had made no written statement to the agents. It is to be noted that the taxpayers did not appear before the Tax Court as witnesses to challenge any evidence offered by the Government, nor did they produce any other witnesses to testify in their behalf.

Taxpayers had procured the issuance of two subpoenas duces tecum addressed to the Regional Commissioner of Internal Revenue, one of which, as the Tax Court noted, demanded the production before the Tax Court of: (1) The complete 1949 and 1950 Revenue Agents' reports, including the confidential elements thereof; (2) all of the information from which it was determined that the petitioners understated their 1949 and 1950 income; (3) all affidavits and all statements or transcripts of statements, under oath or not, submitted or made by the petitioners, to any office or officer of the Internal Revenue with respect to their tax liabilities for the years 1949 and 1950; (4) transcript of statement of interview with William O'Dwyer, witness, held in Room 1007, Intelligence Unit, 253 Broadway, New York, N. Y., on March 28, 1951.

The other subpoena required the production of complete 1951 Revenue Agents' reports, including the confidential elements thereof; all of the information from which it was determined that the taxpayers understated their 1951 income; and all affidavits and all statements or transcripts of statements, under oath or not, submitted or made by the petitioners to any office or officer of the Internal Revenue with respect to their tax liabilities for the year 1951.

The Commissioner refused to comply with the requirements of the subpoenas and taxpayers made two motions before the Tax Court for orders directing compliance, which motions were overruled. In refusing to comply with the subpoenas, Government counsel stated that, although declining to hand over the Government's files, he was not thereby making a blanket refusal to produce specific items. The Tax Court made it clear that its ruling was merely a "denial of the broad request * * * for all the papers and all the files relating to these cases", indicating that it would rule upon request for specific items when they became pertinent. Some of the items requested by taxpayers were made available by the Government. The Commissioner voluntarily produced William O'Dwyer's statement of March 28, 1951, containing an absolute denial of the receipt of $10,000.00 in the year 1949, the delivery of which sum to said taxpayer was the subject of the testimony of Crane and other witnesses. The Commissioner produced a statement of assets and liabilities which had been submitted by the taxpayers, and later voluntarily delivered to taxpayers' attorney the written statements of two of the Government's witnesses, namely, Crane and Dolan. Thus there remained in issue, in substance, only the Agents' reports and taxpayers' counsel made a specific demand therefor. The Tax Court refused to direct production upon the ground that taxpayers were not entitled to such documents merely upon the basis of a general claim that the determination of deficiencies were arbitrary and improperly motivated.

Following the denial of the motions to direct compliance with the subpoenas, taxpayers then rested their case and failed to produce any witnesses to testify concerning any of the issues. It is the contention of taxpayers that the denial of these motions amounted to a denial of constitutional due process and that relevant statutes and rules, including the Administrative Procedure Act, required production of such records for scrutiny by taxpayers and the reviewing tribunal.

In a colloquy between the Tax Court and counsel for taxpayers, counsel admitted that the determination of fact made by the Commissioner is one which the taxpayers are obliged by law to refute, and further stated: "We had hoped that if the Government would present the record in toto and expose it here, that we might have something even much more sinister than that in writing and I respectfully submit if we see it, we will find it. * * * Your Honor, the only thing that I had in mind was this, that in these days when we have complaints with respect to taxation, would it not be a wholesome thing if for the first time the Government came forward and opened up their files to a taxpayer as they should? There is no reason why there should be any secrecy between a Government and its taxpayer. If they see fit to take taxes from him, at least they should show him the conditions under which they impose the taxation."

The Court stated: "This Court is not subject to the Administrative Procedure Act. We do not review in the same sense as other courts perhaps review actions of the Federal Communications Commission or some other federal agency. We do not review in that same manner the determinations of the Commissioner. This is a trial `de novo' and the question before me is simply whether or not the deficiencies determined by the Commissioner are correct. I have no means whatever of bringing before me the entire record, so-called, as you describe it, that was before the Commissioner. In fact, there probably is no such record. When the Commissioner makes determination, he may have numerous documents before him. The determination may be made on the basis not only of those documents, but also on the basis of various conversations which may or may not be reduced to writing. And it would be wholly impractical for this Court to undertake to review what you describe as the record before the Commissioner. There is no such record in any technical sense."

Counsel for taxpayers then stated: "If Your Honor please, in view of Your Honor's ruling with respect to what we regard as the most important issue in this case, from a standpoint of civil rights, the Petitioner rests and will appeal in the event of an adverse ruling."

Applicability of Administrative Procedure Act

Taxpayers contend: That the determination of the Commissioner of Internal Revenue is subject to judicial review in accordance with the provisions of Section 10 of the Administrative Procedure Act; that the Tax Court is a "reviewing court" within the meaning, and subject to the provisions of Section 10(e), (5 U.S.C.A. § 1009(e): c. 324, 60 Stat. 237, at pages...