U.S. v. Lawn Builders of New England, Inc., s. 88-1174

• Decision Date: 08 September 1988
• Docket Number: 88-1411,Nos. 88-1174,s. 88-1174
• Citation: 856 F.2d 388
• Parties: -5549, 88-2 USTC P 9504, 27 Fed. R. Evid. Serv. 38 UNITED STATES of America, et al., Plaintiffs, Appellees, v. LAWN BUILDERS OF NEW ENGLAND, INC., and James T. Shadoian, Defendants, Appellants. UNITED STATES of America, et al., Plaintiffs, Appellees, v. James T. SHADOIAN, Defendant, Appellant.
• Court: U.S. Court of Appeals — First Circuit

Page 388

856 F.2d 388

62 A.F.T.R.2d 88-5549, 88-2 USTC P 9504,

27 Fed. R. Evid. Serv. 38

UNITED STATES of America, et al., Plaintiffs, Appellees, v. LAWN BUILDERS OF NEW ENGLAND, INC., and James T. Shadoian,

Defendants, Appellants.

UNITED STATES of America, et al., Plaintiffs, Appellees, v. James T. SHADOIAN, Defendant, Appellant.

Nos. 88-1174, 88-1411.

United States Court of Appeals,

First Circuit.

Submitted June 30, 1988.

Decided Sept. 8, 1988.

James T. Shadoian, on brief, pro se in appeal No. 88-1174.

Donald W. MacPherson and MacPherson & McCarville, P.A., Phoenix, Ariz., on brief, for defendant, appellant in appeal No. 88-1411.

William S. Rose, Jr., Asst. Atty. Gen., Gary R. Allen, Charles E. Brookhart, William A. Whitledge, Tax Div., Dept. of Justice, Washington, D.C., and Lincoln C. Almond, U.S. Atty., Providence, R.I., on brief, for plaintiffs, appellees.

Before CAMPBELL, Chief Judge, BOWNES and TORRUELLA, Circuit Judges.

PER CURIAM.

In these consolidated appeals, James T. Shadoian appeals a district court order enforcing an Internal Revenue Service (IRS) summons (Appeal No. 88-1174) and a district court order finding Shadoian in contempt for not complying with its order of enforcement (Appeal No. 88-1411). We affirm.

Background

In May 1987, an IRS summons was issued directing Lawn Builders of New England, Inc. (Lawn Builders) and its president, Shadoian, (the respondents) to appear before an IRS revenue officer on June 1, 1987 and produce for examination the corporate records of Lawn Builders. ¹ See 26 U.S.C. Sec. 7602. According to the summons, the IRS was conducting an investigation into Lawn Builder's tax liability for the years 1984, 1985 and 1986.

Shadoian appeared on June 1, 1987 and sought to taperecord the session. The revenue officer refused to allow the taperecording. Shadoian did not produce any records. The appearance was continued to July 9, 1987, but Shadoian failed to appear.

The IRS petitioned the district court in November 1987 for enforcement of the IRS summons. See 26 U.S.C. Secs. 7402(b) and 7604(a). The district court ordered the respondents to appear before the court on January 8, 1988.

At the district court hearing on January 8th, the respondents, with Shadoian acting on his own behalf as well as on behalf of Lawn Builders, objected to the enforcement of the IRS summons on the ground that Shadoian and Lawn Builders have a Fifth Amendment privilege against self-incrimination. The district court ruled that the corporation has no Fifth Amendment privilege and ordered Lawn Builders, through one of its officers or a duly authorized agent, to comply with the summons by appearing before the IRS on February 4, 1988. The respondents appealed that order on January 25, 1988. See Reisman v. Caplin, 375 U.S. 440, 449, 84 S.Ct. 508, 513, 11 L.Ed.2d 459 (1964) (a district court order enforcing an IRS summons is a final, appealable order). The respondents mailed a copy of the notice of appeal to the IRS with a notation that "[b]ecause of the appeal, I would like to inform you, therefore, that I will not be appearing on February 4, 1988."

The respondents did not petition the district court for a stay of its order and did not appear before the IRS as ordered on February 4th. The IRS subsequently moved for an order holding the respondents in contempt for failing to obey the district court order. The district court ordered the respondents to appear before it on March 25, 1988. The respondents then filed a "motion to dismiss for lack of jurisdiction or for stay of the proceedings," in which respondents contended that they were entitled to appellate review of the enforcement order before any contempt sanctions could be imposed, and therefore concomitantly, the district court was without jurisdiction to impose contempt sanctions before such appellate review had occurred.

The district court rejected the respondents' arguments, based on their failure to apply for and obtain a stay of the enforcement order. The district court found the respondents in contempt and ordered compliance with the terms of the IRS summons by April 1, 1988. The district court warned Shadoian that he would be incarcerated if he failed to comply. The respondents filed a petition for mandamus in this court on March 31, 1988, asking for an order directing the district court to vacate its order of contempt and to stay its proceedings. The respondents contended, as they had before the district court, that the district court had no jurisdiction to find them in contempt while the respondents' appeal of the enforcement order was pending in this court. We denied the petition for mandamus that same day. On April 1, 1988, the respondents moved in the district court for reconsideration of its contempt order, which was denied. The respondents failed to comply with the order of enforcement and the district court ordered Shadoian incarcerated for six months or until such time as Shadoian "produce[s] the required tax records."

Shadoian next filed a motion in this court for a stay of the district court order of contempt and of the subsequent incarceration. We denied the motion for stay since Shadoian had not filed any appeal from the contempt order. Shadoian then filed a notice of appeal on April 25, 1988. He moved again for a stay of the contempt order and for release of incarceration pending appeal. We consolidated the appeals from the orders of enforcement and contempt and we stayed the order of incarceration pending the appeal. After Shadoian filed a pro se brief in his appeal from the enforcement order (No. 88-1174), he retained counsel who filed a brief in his appeal from the contempt order (No. 88-1411) and a reply brief under both docket numbers.

Order of Enforcement

The Supreme Court has identified several, although not necessarily exclusive, requirements for the enforcement of an IRS summons. "First, the summons must be issued before the Service recommends to the Department of Justice that a criminal prosecution, which reasonably would relate to the subject matter of the summons, be undertaken." United States v. LaSalle National Bank, 437 U.S. 298, 318, 98 S.Ct. 2357, 2368, 57 L.Ed.2d 221 (1978); see 26 U.S.C. Sec. 7602(c). Second, the IRS must meet the standards of good faith set out in United States v. Powell, 379 U.S. 48, 85 S.Ct. 248, 13 L.Ed.2d 112 (1964). Id. That is, "that the investigation will be conducted pursuant to a legitimate purpose, that the inquiry may be relevant to the purpose, that the information sought is not already within the [IRS] Commissioner's possession, and that the administrative steps required by the [IRS] Code have been followed." United States v. Powell, 379 U.S. 48, 57-58, 85 S.Ct. 248, 254-55, 13 L.Ed.2d 112 (1964). In addition, the IRS must not have abandoned the pursuit of civil tax determination or collection. United States v. LaSalle National Bank, 437 U.S. at 318, 98 S.Ct. at 2368.

The petition to enforce the summons, filed by the government, alleged the above-described requirements and was accompanied by an affidavit of the revenue officer conducting the investigation, which reiterated the petition's claims. "Assertions by affidavit of the investigating agent that the requirements are satisfied are sufficient to make the prima facie case." Liberty Financial Services v. United States, 778 F.2d 1390, 1392 (9th Cir.1985); accord Matter of Newton, 718 F.2d 1015, 1019 (11th Cir.1983), cert. denied, 466 U.S. 904, 104 S.Ct. 1678, 80 L.Ed.2d 153 (1984); United States v. Kis, 658 F.2d 526, 536 (7th Cir.1981), cert. denied, 455 U.S. 1018, 102 S.Ct. 1712, 72 L.Ed.2d 135 (1982); United States v. Garden State Nat. Bank, 607 F.2d 61, 68 (3d Cir.1979).

Shadoian does not challenge the IRS' showing as to any of these requirements. Rather, Shadoian argues that the IRS must prove that the documents sought by the summons exist. Further, Shadoian contends that, although paragraph VI of the petition alleged that the respondents are in possession and control of documents concerning the investigation, his answer sufficiently denied that allegation and his Fifth Amendment right protects him from any further inquiry as to the existence, possession or control of those documents. As Shadoian sees it, the failure of the IRS to prove the existence of the documents as well as his assertion of a Fifth Amendment privilege against self-incrimination required the district court to deny enforcement of the summons.

Shadoian is incorrect. We have previously rejected the contention that the IRS must prove by positive evidence the existence of the records and their possession by the summonee. United States v. Freedom Church, 613 F.2d 316, 322 (1st Cir.1979); see also McPhaul v. United States, 364 U.S. 372, 378-80, 81 S.Ct. 138, 142-43, 5 L.Ed.2d 136 (1960) (criminal conviction for willful failure to comply with Congressional subpoena upheld--evidence of Subcommittee's reasonable basis for believing that petitioner could produce the records in question, coupled with the evidence of his failure even to suggest to the Subcommittee his inability to produce those records, clearly supported an inference that he could have produced them. The burden then shifted to petitioner to present some evidence to explain or justify his refusal); cf. United States v. Antonio J. Sancetta, M.D., P.C., 788 F.2d 67, 72 (2d Cir.1986) (summonee has burden of proving records' nonexistence or that he does not possess them); but cf. United States v. Rue, 819 F.2d 1488, 1493 n. 4 (8th Cir.1987) (burdens of production and proof on question of existence, possession, and authenticity of summoned documents are on the government). We are of the opinion that the district court had sufficient reason to believe that the documents sought existed and that Shadoian had actual or constructive possession of them. The documents sought were the sort of records which one would expect a corporation to routinely create, see footnote 1 supra, and in the...