99 T.C. 604 (1992), 26785-90, Grandbouche v. C.I.R.

Docket Nº:26785-90.
Citation:99 T.C. 604
Opinion Judge:JACOBS, Judge:
Party Name:Joanna M. GRANDBOUCHE, Petitioner, v. COMMISSIONER OF INTERNAL REVENUE, Respondent.
Attorney:Larry M. Lopez, for petitioner. Frederick J. Lockhart, Jr., for respondent.
Case Date:November 30, 1992
Court:United States Tax Court
 
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Page 604

99 T.C. 604 (1992)

Joanna M. GRANDBOUCHE, Petitioner,

v.

COMMISSIONER OF INTERNAL REVENUE, Respondent.

No. 26785-90.

United States Tax Court

November 30, 1992

Page 605

Larry M. Lopez, for petitioner.

Frederick J. Lockhart, Jr., for respondent.

OPINION

JACOBS, Judge:

Respondent determined a deficiency in petitioner's 1987 Federal income tax as follows:

Additions to Tax
Sec. Sec. Sec. Sec.
Deficiency 6653(a)(1)(A) 6653(a)(1)(B) 6654 6661
$238,606 $11,930 1 $12,881 $59,652
All section references are to the Internal Revenue Code in effect for 1987, and unless otherwise indicated, all Rule references are to the Tax Court Rules of Practice and Procedure. The matters presently before the Court are a motion under Rule 103(a)(7) for a protective order filed by the National Commodity and Barter Association/National Commodity Exchange (NCBA/NCE; NCBA and NCE); a supplemental motion under Rule 103(a)(7) for a protective order filed by NCBA/NCE; and a motion under Rules 103(a)(9) and 147(b) filed by Affiliated National Bank-Littleton (the Bank) for an award of costs and expenses relating to a subpoena duces tecum. Background The facts recited herein are derived from moving papers and affidavits provided by the parties and NCBA/NCE. Recital of those facts for purposes of this opinion implies no conclusion on our part that they will ultimately be established at trial or otherwise. Page 606 Petitioner was a resident of San Jose, California, at the time she filed her petition. She is the widow of John Grandbouche (Grandbouche). Grandbouche was the founder of NCBA and NCE (a " service wing" of NCBA), and various other groups involved in the tax protester movement. Grandbouche died in 1986. Grandbouche, NCBA, NCE, and individuals associated with them have been under investigation by respondent over a number of years because of their suspected tax protester activities. FN1 NCBA has been described as an " unincorporated, voluntary, political association of individuals whose members promote individual civil liberties, and extensive tax and monetary reforms" . Holderbaum v. United States, 589 F.Supp. 107, 108 (D.Colo.1984). NCBA, in its own words, " espouses dissident views on the federal tax system and advocates a return to currency backed by gold and/or silver" . Voss v. Bergsgaard, 774 F.2d 402, 405 (10th Cir.1985). More specifically, it has been found that: NCBA is an association dedicated to limited government, privacy in personal and financial affairs, and the protection of private property. NCBA advocates * * * the abolition of the Internal Revenue Service, and a return to the gold standard. It disputes the constitutionality of the Federal Reserve System and many of the federal administrative agencies. * * * NCBA also provides its members with various financial services. For example, members can participate in a plan under which NCBA pays legal expenses for IRS audits and criminal tax prosecutions. * * * NCBA operates, through its wing NCE, a service through which members can purchase precious metals and pay bills with a minimum of recordkeeping. * * * In re Grand Jury Proceeding, 842 F.2d 1229, 1230 (11th Cir.1988). In addition, NCE has been described as a " warehouse bank" which operates as follows: members send their federal reserve notes to the NCE, which converts the notes into silver and gold. Thereafter, when directed by a payout authorization signed by a customer, the NCE reconverts the silver and gold into federal reserve notes and makes payment directly to the customer's Page 607 designated creditors. NCE literature claims that the NCE protects customer privacy " by providing a bill-paying service through which you can pay your creditors without generating a paper trail in the Federal Reserve System which is traceable back to you." That same literature declares that " should [NCE] receive an order from a court of competant [sic] authority directing that records of an account-holder be turned over to the I.R.S., etc., the legal resources of [NCBA] will fight the order." [Citations omitted.] Heinold Hog Market, Inc. v. McCoy, 700 F.2d 611, 612-613 (10th Cir.1983). Further, NCE has been found to be an organization designed to operate in secrecy, leave no paper trail, and avoid service of process by means of the following: [NCE] [provides] a bill paying service that leaves no paper trail through the Federal Reserve System (even NCE's cancelled checks representing payment of bills for its account holders are destroyed after 90 days). To avoid taxation and scrutiny from any source, Grandbouche designed an " unincorporated association" apparently with no formal governing structure, oral irrevocable delegations, and no paper records (except the " Common Law" contract, the ledger showing gold and silver balances, and checks that cleared within the last 90 days). * * * Id. at 616. On audit respondent determined that petitioner had unreported income for 1987 from certain NCBA currency transactions. Such deficiency determination was based on certain currency transaction reports (Form 4789) which the Bank completed and submitted to respondent. These reports reflected currency transactions involving NCBA and NCE which referenced petitioner's Social Security number. Petitioner timely filed a petition with this Court for review of respondent's determinations. Thereafter, on October 9, 1991, respondent served a subpoena duces tecum on Cindy S. Hathaway (Ms. Hathaway) in her capacity as a vice president of the Bank (the First Subpoena). The First Subpoena commanded Ms. Hathaway to appear before the Court on November 4, 1991, and to bring with her: The following records and any other written documents in your possession and control and/or to which you have access and a right to possession and control of or relating to all banking transactions between December 1, 1986, and February 1, 1988, in the name of Joanna M. Grandbouche or using or referencing the Social Security number of Joanna M. Grandbouche, * * *, including specifically, but without limitation, the following: Page 608 1. All Internal Revenue Service Forms 1099 issued to Joanna M. Grandbouche or under * * * [her] taxpayer identification number. 2. All signature cards, bank statements, checks, microfilm of checks, deposit slips, and microfilm, or other record, of deposit items for each bank account in the name of Joanna M. Grandbouche. 3. All signature cards, bank statements, checks, microfilm of checks, deposit slips, and microfilm, or other record, of deposit items for each bank account in the name of the National Commodity and Barter Association and/or the National Commodity Exchange, including, specifically, but without limitation for account number 014 756 3. 4. All Form 4789 Currency Transaction Reports completed in the name of the National Commodity and Barter Association and/or the National Commodity Exchange. 5. All Form 4789 Currency Transaction Reports completed in the name of Joanna M. Grandbouche and/or using [her] Taxpayer Identification Number/Social Security Number * * *. 6. All microfilm or other copies of the checks cashed for currency and referenced in the currency transaction reports described in paragraphs numbered 4. and 5. above. 7. All correspondence and memoranda of conversations with Joanna M. Grandbouche and with the National Commodity and Barter Association and/or the National Commodity Exchange, or their representatives, concerning the subject currency transaction reports. On October 28, 1991, NCBA mailed to respondent a document captioned for this case entitled " Motion with Points and Authorities to Modify Tax Court Subpoena for Records" . NCBA did not file this document with the Court. Also on October 28, 1991, NCBA's attorney telephoned respondent's attorney to request that respondent agree to modify the First Subpoena. Respondent rejected such request. By order dated October 29, 1991, on motion by petitioner, this case was stricken from the calendar for the November 4, 1991, Denver, Colorado, trial session and continued indefinitely. As a result, the First Subpoena was not returnable on the November 4, 1991, calendar call date. On February 4, 1992, respondent served another subpoena duces tecum on Ms. Hathaway (the Second Subpoena). The Second Subpoena commanded Ms. Hathaway to appear before the Court on May 11, 1992, and to bring with her the same documents previously identified in the First Subpoena. On March 26, 1992, petitioner served a subpoena duces tecum on Frank Taylor (Mr. Taylor), president of the Bank (the Third Subpoena). The Third Subpoena commanded Mr. Taylor to appear before the Court on April 16, 1992, and to bring with him those Bank records relating to petitioner. The Page 609 Third Subpoena identified only those records reflecting petitioner's name or taxpayer identification number and documents pertaining to the Bank's policy and instructions in preparing and filing currency transaction reports. NCBA filed a motion for a protective order with supporting affidavit on April 3, 1992. In its motion, NCBA alleges that some of the Bank records requested in the Second Subpoena contain names and other information identifying members of NCBA and NCE. NCBA asks the Court to order the Bank to redact all information identifying NCBA members other than petitioner from the documents requested in the Second Subpoena before such documents are delivered to respondent. In its motion, NCBA argues that the disclosure of the names and other information of NCBA...

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