Meister v. C. I. R.

• Decision Date: 16 October 1974
• Docket Number: 73-1852,Nos. 73-1851,s. 73-1851
• Citation: 504 F.2d 505
• Parties: 74-2 USTC P 9761 Arthur MEISTER and Dorothy Meister, Appellants, v. COMMISSIONER OF INTERNAL REVENUE.
• Court: U.S. Court of Appeals — Third Circuit

Page 505

504 F.2d 505

74-2 USTC P 9761

Arthur MEISTER and Dorothy Meister, Appellants, v. COMMISSIONER OF INTERNAL REVENUE.

Nos. 73-1851, 73-1852.

United States Court of Appeals, Third Circuit.

Argued May 30, 1974.

Decided Oct. 16. 1974.

Jerome R. Miller, Gutkin & Miller Milburn, N.J., W. Bradley Ward, Herbert S. Mednick, Schnader, Harrison, Segal & Lewis, Philadelphia, Pa., for appellants.

Scott P. Crampton, Asst. Atty. Gen., Meyer Rothwacks, Bennet N. Hollander, William S. Estabrook, III, Tax Div., Dept. of Justice, Washington, D.C., for appellee.

Before KALODNER, ROSENN and HUNTER, Circuit Judges.

OPINION OF THE COURT

KALODNER, Circuit Judge.

The primary question presented is whether the Tax Court erred in rejecting the appellant-taxpayers' contention that critical documentary evidence in the instant civil tax proceeding was inadmissible because it was obtained in violation of their Fourth and Fifth Amendment rights in that it had been wrongfully taken from them by their bookkeeper and later allegedly illegally 'seized' by the Government in a search of the then deceased bookkeeper's home where they were found.

A second question presented is whether the Tax Court erred in admitting into evidence the bookkeeper's 'workpapers' over the 'hearsay' objection of the appellants.

The facts as found by the Tax Court in its reviewed opinion at 60 T.C. 286 (1973) are as follows:

The appellant-taxpayers, Arthur Meister and Dorothy Meister are husband and wife. They filed joint income tax returns for the years 1960-1964, inclusive, here involved. Included in these returns was the income derived from the Steelcraft Fluorescent & Stamping Co. ('Steelcraft'), of which Arthur Meister ('Meister') ¹ was sole proprietor. Steelcraft engaged in the manufacture and sale of fluorescent lighting fixtures.

Meister maintained a set of books and records in connection with his operation of Steelcraft. They included cash receipts for check transactions, cash transactions, cash disbursements, general ledger, general journal, accounts receivable, accounts payable, sales journal, and special sales journal.

Steelcraft's books and records were set up and examined at regular intervals by one Herman Broder, Meister's brotherin-law, a certified public accountant. Broder made office audits of the books and records. He prepared Meister's federal income tax returns and in the course of doing so prepared schedules showing the income and expenses of Steelcraft as reflected by its books and records.

Morris Abend was office manager and comptroller of Steelcraft from right after World War II to the date of his death on February 4, 1965. Current records were kept by him in a small safe at Steelcraft. Prior years' records were stored on the premises.

On December 17, 1964, while on vacation in Florida, Abend contacted the Internal Revenue Service ('I.R.S.') in Miami, and, in the course of an interview with a representative of the Intelligence Division, disclosed information relating to Meister's income tax returns. As a result of this interview, Special Agent Dale Gardner of the I.R.S. office in Newark, New Jersey was assigned in February of 1965 to investigate allegations made by Abend.

On February 15, 1965, Gardner and another agent called at the Abend home seeking additional information. They were told by Mrs. Abend that her husband had died on February 4, 1965. The agents decided not to pursue the matter further at that time since Mrs. Abend was still distraught over the loss of her husband.

The agents returned on March 11, 1965 and discussed the purpose of their visit with Mrs. Abend, showing her an account of the interview between Abend and the Florida I.R.S. agent. Mrs. Abend had no knowledge of any information which her husband might have possessed. She consented to the agents' search of a cupboard in which Abend had kept various workpapers and other business records. The agents found and removed two brown manila envelopes containing sheets of columnar workpapers on which Abend had purportedly transcribed records of Steelcraft relating to its sales and cash receipts.

Gardner returned to the Abend home on March 15, 1965, when he obtained from Mrs. Abend a shopping bag containing what purported to be Steelcraft sales invoices. On March 24, 1965, Gardner and a fellow agent made a final visit to the Abend home. They then obtained voluminous bundles of records including cancelled checks and bound volumes of Steelcraft invoices.

No summons or subpoena was ever issued to Mrs. Abend calling for her production of the papers obtained from the Abend home. However, she at no time objected to either the search or the removal of these papers from her home. In resume, the material removed from Mrs. Abend's home consisted of (1) Abend's workpapers which purportedly transcribed Steelcraft's sales cash receipts; and (2) actual records of Steelcraft, viz., invoices, cancelled checks and other documents, which had been wrongfully removed by Abend from Steelcraft's offices.

Internal Revenue Service agents made copies of all the material removed from the Abend home. The records which had been wrongfully removed by Abend from the Steelcraft offices were ultimately returned to Steelcraft pursuant to a court order in a proceeding instituted by Meister for their recovery in the United States District Court for the District of New Jersey.

The copies made of the removed material were utilized by the Government in checking the Steelcraft sales and receipts which they reflected against the sales as reflected in Meister's income tax returns for 1960-1963. Verification of the former was sought by contacting the customers of Steelcraft during the years involved.

In the interim, on October 8, 1965, Gardner delivered a statutory notice of reexamination of Meister's tax returns for 1960-1963, inclusive, with a request for the reproduction of Meister's books and records for those years. No books or records were ever provided in response to this request.

The Tax Court found that Meister 'during the taxable years 1960 to 1963, inclusive, . . . negotiated checks received in payment of certain specific accounts and obtained cash either in the full amount of the check or for part of the check in the form of a so-called 'split deposit," and that 'the cash thus received was not reflected in either sales or income of Steelcraft as reported in the petitioner's (Meister's) Federal income tax returns for the taxable years 1960 to 1963, inclusive.'

The Tax Court further found that Meister's Federal income tax returns for the years 1960 through 1963 were 'false and fraudulent with intent to avoid tax' in that they 'omitted from sales and income' the sum of $57,361.13 for the year 1960; $93,684.95 for the year 1961; $79,043.27 for the year 1962; and $90,774.49 for the year 1963.

It also found that Meister omitted sales and income in the sum of $101,648.13 in his income tax return for the taxable year 1964 and that the resulting underpayment of tax was due to negligent or intentional disregard.

In sustaining the Commissioner's deficiency determinations, plus penalties, in the aggregate sum of $377,185.02, the Tax Court held in its Opinion that the Commissioner had met the burden of proof imposed upon him to establish that Meister had deliberately failed to report sales and income for the taxable years 1960 through 1963, ² and that insofar as the taxable year 1964 was concerned, Meister had failed to present any evidence that the Commissioner's determination as to that year was erroneous in disregard of Meister's burden of proof.

Meister here contends that the Tax Court erred in admitting into evidence copies of Steelcraft documents purloined by Abend and Abend's workpapers. He says that his Fourth Amendment rights were violated when Abend wrongfully removed the documents and again when the Internal Revenue Service agents 'seized such documents without legal process from his employee's home after his death,' and that his Fifth Amendment right against self-incrimination was violated when the Steelcraft documents were admitted into evidence. Meister further contends that the Steelcraft documents and Abend's workpapers were erroneously admitted into evidence under the business records exception to the hearsay rule.

The essence of Meister's Fourth Amendment contention is that (1) Abend's purloining of the Steelcraft documents 'can be imputed to the Government' because it was allegedly in consequence of Treasury Regulations providing for payment of an informer's fee; and (2) Meister was and continued to be the owner of the purloined documents and thus their removal from the Abend home without a search and seizure warrant was unlawful, albeit Mrs. Abend acquiesced in their removal. The essence of Meister's Fifth Amendment contention is that the purloined documents 'are encompassed within the scope of the privilege against self-incrimination.'

We agree with the Tax Court's holding that Meister's Fourth and Fifth Amendment rights were not violated in the admission into evidence of the purloined documents for these reasons:

It was settled in the landmark case of Burdeau v. McDowell, 256 U.S. 465, 41 S.Ct. 574, 65 L.Ed. 1048 (1921) that the Government may retain for use against their owner in a criminal proceeding incriminating documents which were stolen by private individuals, without governmental knowledge or complicity, and turned over to the Government.

Burdeau specifically held that (1) the Fourth Amendment proscription against unreasonable search and seizure applies only to governmental action, and thus it is not contravened by independent actions of individuals, conducted without governmental knowledge; and (2) the Fifth Amendment does not preclude use in a criminal prosecution of incriminating papers wrongfully taken from their owner by private individuals without Government knowledge or participation. In so holding, the Court said in relevant part:

'The Fourth...