Rechtzigel v. Comm'r of Internal Revenue

• Decision Date: 26 July 1982
• Docket Number: Docket No. 21627-80.
• Citation: 79 T.C. 132
• Parties: DONALD JOHN RECHTZIGEL, PETITIONER v. COMMISSIONER of INTERNAL REVENUE, RESPONDENT
• Court: U.S. Tax Court

79 T.C. 132

DONALD JOHN RECHTZIGEL, PETITIONER

v.COMMISSIONER of INTERNAL REVENUE, RESPONDENT

Docket No. 21627-80.

United States Tax Court

Filed July 26, 1982.

Rule 104(c)(3), Tax Court Rules of Practice and Procedure.—-Petitioner refused to comply with a Court order that he furnish documents requested by respondent under Rule 72. Held, the petition is dismissed, thereby granting judgment for respondent with respect to the deficiencies and sec. 6654 additions to the tax; a default judgment is granted in favor of respondent with respect to the sec. 6653(b) additions to the tax. Donald John Rechtzigel, pro se.

Dale L. Newland, for the respondent.

OPINION

WHITAKER , Judge:

Respondent determined deficiencies in petitioner's Federal income tax for 1974, 1975, 1976, and 1977, and additions to the tax under sections 6653(b) ¹ and 6654 in the following amounts:

+----------------------------------------------+
                ¦      ¦            ¦Additions to tax          ¦
                +------+------------+--------------------------¦
                ¦Year  ¦Deficiency  ¦Sec. 6653(b  )¦Sec. 6654  ¦
                +------+------------+--------------+-----------¦
                ¦1974  ¦$3,894.02   ¦$1,947.01     ¦$122.84    ¦
                +------+------------+--------------+-----------¦
                ¦1975  ¦5,421.28    ¦2,710.64      ¦233.90     ¦
                +------+------------+--------------+-----------¦
                ¦1976  ¦6,618.48    ¦3,309.24      ¦246.50     ¦
                +------+------------+--------------+-----------¦
                ¦1977  ¦7,520.69    ¦3,760.35      ¦267.63     ¦
                +----------------------------------------------+
                

This case is before us on respondent's motion for sanctions under Rule 104(c).² Respondent's primary request is that the Court dismiss the case pursuant to Rule 104(c)(3) and enter a default judgment against petitioner for the full amount of the deficiencies and the additions to the tax under both sections 6653(b) and 6654. Alternatively, respondent moves under Rule 104(c)(2) that factual allegations with respect to the fraud issue be deemed admitted and that petitioner not be allowed to support certain claims set forth in his petition; respondent would then request under Rule 104(c)(1) that the deficiencies and additions to the tax be deemed established as the amount of the underpayment for purposes of this case. Because of petitioner's refusal to comply with Court-ordered discovery, we grant the primary relief requested by respondent. The petition is dismissed, thereby granting judgment for respondent with respect to the deficiencies and the section 6654 additions to the tax, and a default judgment is granted in favor of respondent with respect to the section 6653(b) additions to the tax.

After receiving the notice of deficiency for the years 1974, 1975, 1976, and 1977, petitioner timely filed a petition contesting the deficiencies and the additions to the tax. The petition alleges that petitioner resides in Lime Springs, Iowa. The petition was accompanied by a request for grant of immunity ³ and an accompanying memorandum citing various cases dealing generally with the privilege against self-incrimination but not discussing how the privilege applied to this case. The petition stated no specific facts but merely alleged that petitioner's income was less than that determined by the Commissioner and that his expenses were more than allowed. It also stated that petitioner had given the Internal Revenue Service no financial information because of the possibility that such information might later be used against him in criminal proceedings and that only if he was granted immunity from later criminal prosecution would he be willing to assume the burden of proof in Tax Court. Attached to the petition were Forms 1040 for 1974, 1975, 1976, and 1977 which petitioner claimed he filed with respondent. These forms provided no information concerning petitioner's tax liabilities for those years, except that one personal exemption was claimed in each of these years, minimal amounts of interest income were reported in 3 of the years, and minimal amounts of withheld income taxes were listed and claimed as refunds in 2 of the years. On virtually every line except those relating to the aforementioned items, either “object self-incrimination” or “none” was entered.

In paragraphs 8(A) through (S) of the answer, respondent, with sufficient specificity, alleged facts which, if proven, are more than adequate to support his fraud determination. These alleged facts include specific items of income in each of the years, paid by checks which petitioner deposited or negotiated, information from Forms W-2, false Forms W-4, and the failure to file income tax returns. In paragraphs 8(T) and (V), respondent makes the conclusory allegations of fraud.⁴

Only after respondent filed a Rule 37(c) motion for an order that undenied allegations in the answer be deemed admitted did petitioner file a reply. His reply was simply a denial of all the allegations set forth in paragraph 8 of the answer.

On August 20, 1981, respondent served upon petitioner a request under Rule 72 for the production of all books, papers, records, and other data in petitioner's possession or control reflecting in the years 1974 through 1977 taxable income received by him, farm or ranching expenses incurred, and any itemized deductions. On the basis of his Fifth Amendment privilege against self-incrimination, petitioner objected to furnishing any information to respondent. On October 16, 1981, respondent filed a motion for an order compelling petitioner to produce requested documents or to impose sanctions under Rule 104. On November 6, 1981, petitioner filed with the Court a memorandum in support of his objections to respondent's motion. Again, petitioner asserted his privilege against self-incrimination but did not allege any factual basis for his claiming such privilege. By order dated November 9, 1981, the Court ordered petitioner to produce the documents requested by respondent on or before December 10, 1981. Petitioner did not comply with this order, but on December 21, 1981, filed with the Court a document alleging that respondent's attorney had stated that there was a pending criminal investigation of petitioner.

On February 1, 1982, respondent filed a motion for an order to impose sanctions under Rule 104(c). Petitioner did not appear at the hearing on this motion on February 17, 1982, during which respondent's counsel stated that no criminal investigation of petitioner was pending. By order dated February 17, 1982, the Court continued respondent's motion until the calendar call at the St. Paul, Minn., trial session of the Court on March 22, 1982, so that petitioner would have one further opportunity to produce the requested documents. This order recited that counsel for respondent in open court had stated unequivocally that there was now no criminal investigation pending against petitioner, and that the Court had again found that there was no basis for petitioner's continued refusal to comply with the order to produce. The order specifically admonished petitioner that unless he complied with the order to produce books and records by March 10, 1982, the Court would be disposed, at the March 22, 1982, calendar call, to grant respondent's motion to impose sanctions, and that this action would have the effect of a determination that the deficiencies and sections 6653(b) and 6654 additions to the tax asserted by respondent were correct.

Petitioner did not comply with this order. At the March 22, 1982, hearing, he appeared and again invoked the privilege against self-incrimination but would not give any factual basis for this claim except that two agents of the Criminal Investigation Division had previously investigated him. Respondent advised that there had once been a criminal investigation of petitioner for the years in issue but that the Criminal Investigation Division had declined to pursue a criminal investigation for a variety of policy reasons, and that there was at the time of the hearing no pending or threatened criminal investigation. Petitioner nevertheless declined to proceed or to produce his books and records.

Privilege Against Self-Incrimination

An individual can rely on the Fifth Amendment privilege against self-incrimination as the ground for refusing to testify or furnish records if the testimony or records might tend to reveal that the individual has engaged in criminal activities, and if there is a substantial and real, rather than fanciful, risk that the individual will be prosecuted for the criminal activities that the records or testimony might touch on. In re Corrugated Container Antitrust Litigation—-Appeal of Culy, 662 F.2d 875, 882-883 (D.C. Cir. 1981) (hereinafter Culy); In re Corrugated Container Anti-Trust Litigation—-Appeal of Franey, 620 F.2d 1086, 1091 (5th Cir. 1980). Respondent's counsel assured that no criminal prosecution of petitioner was pending or threatened, and respondent has assumed that such assurance establishes that petitioner had no privilege to withhold any of the requested records. On the basis of certain recent decisions of the Courts of Appeals, however, it may be argued that Government counsel's mere statement that prosecution is not contemplated may well be insufficient to establish that there is no possibility of a future criminal prosecution. See United States v. D'Apice, 664 F.2d 75 (5th Cir. 1981); Culy, supra; In re Corrugated Container Antitrust Litigation—-Appeal of Conboy, 661 F.2d 1145, 1151 (7th Cir. 1981), cert. granted sub nom. Pillsbury v. Conboy, 455 U.S. (1982), and cases cited therein. Here, respondent's counsel stated that as a matter of Internal Revenue Service policy, a decision against criminal prosecution had been made with respect to the years before the Court, and that representation could probably have been made more all inclusive if petitioner had requested it. Although it is far from clear, production of financial records in reliance upon such a representation might be held to be sufficient to...