U.S. v. Friedman
| Decision Date | 22 March 1976 |
| Docket Number | Nos. 75-1276,75-1277 and 75-1480,s. 75-1276 |
| Citation | 532 F.2d 928 |
| Parties | 76-1 USTC P 9328 UNITED STATES of America and William L. Beerman, Special Agent, Internal Revenue Service v. Paul FRIEDMAN et al., Appeal of Morris KIRSHENBAUM and Joy Kirshenbaum, Intervenors in District Court. UNITED STATES of America and William L. Beerman, Special Agent, Internal Revenue Service v. PITTSBURGH NATIONAL BANK et al., and Morris Kirshenbaum and Joy Kirshenbaum, Intervenors in D. C. UNITED STATES of America and William L. Beerman, Special Agent, Internal Revenue Service v. IVY SCHOOL OF PROFESSIONAL ART, INC. and Morris B. Kirshenbaum, as President of Ivy School of Professional Art, Inc. Appeal of Morris KIRSHENBAUM and Joy Kirshenbaum, Intervenors in D. C., and Ivy School of Professional Art, Inc., and Morris B. Kirshenbaum, as President of Ivy School of Professional Art, Inc. UNITED STATES of America and William L. Beerman, Special Agent, Internal Revenue Service, Appellants, v. PITTSBURGH NATIONAL BANK et al., Morris Kirshenbaum and Joy Kirshenbaum, Intervenors in D. C. |
| Court | U.S. Court of Appeals — Third Circuit |
Scott P. Crampton, Asst. Atty. Gen., Gilbert E. Andrews, Robert E. Lindsay, Jeffrey S. Blum, Attys., Tax Div., Dept. of Justice, Washington, D. C., for U. S. and William L. Beerman, Special Agent, I. R. S.; Blair A. Griffith, U. S. Atty., of counsel.
Robert A. Cohen, Emil W. Herman, Rothman, Gordon, Foreman & Groudine, Pittsburgh, Pa., for appellants-intervenors Morris Kirshenbaum and Joy Kirshenbaum.
B. A. Karlowitz, Donald L. Very, Tucker Arensberg & Ferguson, Pittsburgh, Pa., for Pittsburgh Nat. Bank.
Kenneth P. Simon, Reed Smith Shaw & McClay, Pittsburgh, Pa., for Mellon Bank, N. A.
Robert H. Stevenson, Anderson, Moreland & Bush, Pittsburgh, Pa., for Equibank N. A.
John Fletcher Rolph, III, Tax Counsel, Henry C. Ruempler, III, Asst. Tax Counsel, American Bankers Ass'n, Washington, D. C., for amicus curiae.
These appeals grow out of three separate proceedings in the district court for the enforcement, pursuant to 26 U.S.C. § 7604(b), of Internal Revenue Service (hereinafter IRS) summonses issued by Special Agent William L. Beerman in connection with an examination into the tax liabilities of Morris and Joy Kirshenbaum (hereinafter taxpayers) and the Ivy School of Professional Art, Inc. for the years 1969 through 1972. In one enforcement proceeding the respondents are three banks Pittsburgh National Bank, Mellon Bank, N. A., and Equibank, N. A. In another the respondent is Paul Friedman, taxpayers' accountant. In the third the respondent is Ivy School of Professional Art, Inc. (hereinafter Ivy School) and Morris Kirshenbaum, its president.
Each bank summons, as amended, 1 seeks the following records pertaining to the taxpayers:
1. Ledger sheets of savings and checking accounts, open or closed, and signature cards of each account.
2. Original deposit tickets and cancelled checks.
3. Account ledger sheets of loans and mortgages together with loan and mortgage applications and financial statements submitted by or on behalf of the taxpayers.
4. Safe deposit box applications, signature cards, and entry records.
5. Cashier's checks.
6. Trust agreements, purchase and sale of stocks and/or bonds, and related documents.
7. Records of certificates of deposit.
8. Records of savings certificates. 2
Each of these summonses also advised that the IRS was willing to provide the personnel needed to search the banks' records and to supply its own copying equipment. Alternatively, each of the bank summonses noted that if the banks preferred to use their own personnel to search the records, the IRS would not require that all records be produced at the same time. Instead, the Service would first examine records in categories 1, 3 and 4 of the above list in an attempt to limit the scope of its examination of records in categories 2 and 5. Thereafter, the IRS would attempt to identify specifically those items in categories 6, 7 and 8 it wished to examine. 3 The banks, however, did not comply voluntarily with these amended summonses.
The summons issued to Paul Friedman requested, in addition to his testimony, all books, records, memoranda, correspondence and working papers relating to the tax liabilities of Morris and Joy Kirshenbaum as well as Ivy School for the period 1969-1972. 4 The summons issued to Ivy School and Morris Kirshenbaum as its president directed them to produce the following documents:
(1) Bank statements (ledger sheets), cancelled checks, deposit slips and bank memoranda for all bank accounts maintained by Ivy School of Professional Art Incorporated for the years 1969, 1970, 1971 and 1972.
(2) All records of income, receipts and expenses, including but not limited to general journals, general ledgers, subsidiary journals and ledgers, cash receipts books, disbursements books, payroll records and all supporting documents, including invoices, billings, copies of wage and tax statements (Form W-2), copies of U.S. Information Forms (1099), correspondence, and employee expense account documentation.
(3) Corporate by-laws, stock books, and Minutes of Board of Directors' Meetings.
(4) All copies of Employer's Quarterly Federal Tax Returns (Forms 941) filed for the years 1969, 1970, 1971 and 1972. 5
Kirshenbaum's testimony regarding his and his wife's tax liability for the years in question was also requested by the Ivy School summons. Neither Friedman nor Kirshenbaum, however, voluntarily complied with their summonses, and Special Agent Beerman initiated § 7604(b) enforcement proceedings in district court.
The taxpayers were permitted by the district court to intervene in the enforcement proceedings, and they attempted to resist enforcement on the ground that each summons sought evidence for a criminal prosecution. The banks resisted enforcement on two grounds: first, because the summonses were overbroad and burdensome; and second, because they could not lawfully be required to undertake, without compensation, the extensive search of records that compliance with the summonses would entail. The district court ordered that the summons against Friedman and against Ivy School be enforced in full, and that the summonses against the banks be enforced in full except for the request for records of entry into taxpayers' safe deposit boxes (see Category 4 above). The district court also ordered the government to reimburse the banks for the cost of the record search. 6
The taxpayer intervenors appeal from the enforcement order in each proceeding. The IRS appeals both from the order requiring the reimbursement of the banks for the cost of the record search and from the refusal to enforce the portion of the summonses requesting the records of entry into safe deposit boxes. On appeal both the taxpayer intervenors and the banks defend the ruling exempting the production of the safe deposit entry records.
The taxpayer intervenors were unable to obtain a stay of the enforcement orders directed against Friedman and Ivy School pending appeal, and these respondents complied with the court's orders. Because of this compliance the IRS has moved to dismiss as moot the appeal from these orders. That motion was
referred to the same panel to which the appeals have been
assigned. I. THE MOTION TO DISMISS AS MOOT THE
Although Friedman has complied with the court's order, the legality of that order is still being challenged by the taxpayer intervenors. If the taxpayers were to prevail in their contention that all summonses were illegal because they were issued solely to gather evidence for use in a criminal prosecution, then the records acquired from Friedman would have been obtained unlawfully. Such a ruling could affect the possible use of these records in any subsequent criminal or civil proceeding brought against the taxpayers. The same analysis applies to the records obtained from the Ivy School. Moreover, in the Ivy School case there has been incomplete compliance with the court's order since the IRS has not yet taken Kirshenbaum's testimony.
We conclude that the motion to dismiss the appeal in the Friedman and Ivy School cases should be denied because the controversy between the IRS and the taxpayers over these records is still very much alive. In any event, the issues raised by the taxpayers in these two cases are identical to those raised in taxpayers' appeal in the bank case.
II. THE TAXPAYERS' APPEAL
The district court's decision to permit intervention by the taxpayers in the three enforcement proceedings is not an issue in these appeals. 7 Nor is there any issue about the amenability to process of books and records in the possession of an accountant. 8 The taxpayers contend, however, that IRS Special Agent Beerman is investigating them solely to obtain evidence of violations of the criminal provisions of the tax laws, and that26 U.S.C. § 7602 does not permit such a use of an administrative summons.
The standards for judicial enforcement of a § 7602 summons are found in Donaldson v. United States, supra, and explained by Chief Judge Seitz for this court in United States v. McCarthy, 514 F.2d 368 (3d Cir. 1975), and more recently by Judge Forman in United States v. Lafko, 520 F.2d 622 (3d Cir. 1975). These cases recognize that the IRS has no authority to conduct a criminal investigation through the use of a § 7602 civil summons. 9 But if (1) the Intelligence Division of the IRS has not yet recommended prosecution, (2) the investigating agent has not already formed a firm purpose to recommend prosecution, (3) the summons is not being used to harass the taxpayer and (4) the material referred to in the summons has not already been inspected by the government, these cases hold that the mere fact that criminal as well as civil liability may result will not prevent judicial enforcement. 10 In this case, after an...
To continue reading
Request your trial
-
Grand Jury Subpoena, Matter of
...a subpoena duces tecum. In re Grand Jury No. 76-3 (MIA) Subpoena Duces Tecum, 555 F.2d 1306, 1308 (5th Cir.1977); United States v. Friedman, 532 F.2d 928, 937 (3d Cir.1976) (holding that court can order government to reimburse reasonable cost of producing documents requested; "[e]ven if not......
-
U.S. v. Kis
...F.2d 116 (8th Cir. 1978). Ninth Circuit: SEC v. Laird, 598 F.2d 1162 (9th Cir. 1979) (analogous SEC subpoena case).United States v. Friedman, 532 F.2d 928 (3d Cir. 1976), the only decision to hold otherwise, is distinguishable from this case and the others cited above, because it involved a......
-
U.S. v. Diggs, 75-1547
... ... These facts when contrasted with those of the usual search and seizure case highlight the basic issue which confronts us, namely, which of two conflicting rights shall prevail, the right of the defendant owner to have the privacy of his property protected against a ... 21, 52-54, 94 S.Ct. 1494, 39 L.Ed.2d 812 (1974); Katz v. United States, 389 U.S. 576, 88 S.Ct. 507, 19 L.Ed.2d 576 (1967); United States v. Friedman, 532 F.2d 928, 934 (3d Cir. 1976) ... 2 See United States v. Botsch, supra at 550-51 (Smith J. dissenting) ... 3 Agent Shields took the ... ...
-
F. T. C. v. Texaco, Inc.
...under investigation. See FTC v. Bowman, 149 F.Supp. 624, 630 (N.D.Ill.), aff'd, 248 F.2d 456 (7th Cir. 1957). Cf. United States v. Friedman, 3rd Cir., 532 F.2d 928 (1976); United States v. Davey, 426 F.2d 842 (2d Cir. 1970); United States v. Dauphin Deposit Trust Co., 385 F.2d 129 (3d Cir. ......