Application of Cole, 333

• Decision Date: 26 February 1965
• Docket Number: Docket 29374.,No. 333,333
• Citation: 342 F.2d 5
• Parties: Application of Marvin R. COLE, Gladys Cole, Arthur A. Fischer and Cole, Fischer, Rogow, Inc., for an order staying the Franklin National Bank from complying with a summons issued to it by the Internal Revenue Service and further staying the Internal Revenue Service from proceeding with an examination of the books and records requested under said summons. In the Matter of UNITED STATES of America, Petitioner, v. FRANKLIN NATIONAL BANK, Respondent.
• Court: U.S. Court of Appeals — Second Circuit

342 F.2d 5 (1965)

Application of Marvin R. COLE, Gladys Cole, Arthur A. Fischer and Cole, Fischer, Rogow, Inc., for an order staying the Franklin National Bank from complying with a summons issued to it by the Internal Revenue Service and further staying the Internal Revenue Service from proceeding with an examination of the books and records requested under said summons.

In the Matter of UNITED STATES of America, Petitioner, v. FRANKLIN NATIONAL BANK, Respondent.

No. 333, Docket 29374.

United States Court of Appeals Second Circuit.

Argued January 15, 1965.

Decided February 26, 1965.

Laurence Vogel, Asst. U. S. Atty., New York City (Robert M. Morgenthau, U. S. Atty. for the Southern District of New York and Eugene R. Anderson, Asst. U. S. Atty., on the brief), for petitioner-appellant.

Sheldon Oliensis, New York City, (Kaye, Scholer, Fierman, Hays & Handler, New York City, on the brief), for respondent, Franklin National Bank.

Seymour B. Goldfeld, New York City (Goldfeld, Charak & Goldman, New York City, on the brief), for appellees, Cole and others.

Before SMITH, KAUFMAN and ANDERSON, Circuit Judges.

ANDERSON, Circuit Judge.

On November 16, 1964 the Franklin National Bank was served with a summons issued, pursuant to § 7602 and § 7603 of the Internal Revenue Code,¹ by a special agent in the office of the District Director of Internal Revenue at Los Angeles. This summons was issued by the special agent in the course of his examination into the tax liability of Marvin R. Cole and his wife, Gladys Cole. It directed the Bank to appear and testify to certain matters relating to transactions with the taxpayers for the years 1955-1963 and to bring with it, for examination, "All credit files, application for loans, financial statements, loan ledger sheet, loan repayment tickets and memoranda relating to secured or unsecured commercial or personals granted to Marvin and Gladys Cole, Arthur A. Fischer and the firm of Cole, Fischer, Rogow, Inc. during the above period, including any such records relating to the M. C. Co. — a partnership."

The records and documents thus sought were the Bank's own files and papers concerning these transactions. They did not concern or include any records or papers belonging to either or both of the taxpayers and neither a copy of the summons nor any other formal notice of its issuance was served upon or given to the taxpayers.

The Bank waived the ten day waiting period and the examination of the records actually commenced on the morning of November 17, 1964. Later in the day it became known to the taxpayers and their attorney that the examination was in progress. Thereupon the taxpayers' attorney in the mid-afternoon caused to be delivered to the Bank a letter ordering the Bank to refuse further to comply with the summons "until such time as an order of the court has been issued permitting the same." The Bank complied and the examination was discontinued.

On November 18, 1964 the district court issued an ex parte order enjoining the Bank and the Internal Revenue Service from continuing with the examination. On November 19th the Government obtained an order to show cause why enforcement of the summons of November 16th should not be granted,² and the taxpayers moved for suppression of any evidence already obtained in the interrupted examination of November 17th. Both of these matters came on for hearing before Judge Croake. He temporarily enjoined the use of evidence already disclosed by the examination until final adjudication of the question relating to the objection to the summons, and he denied enforcement of the summons itself, without prejudice to its renewal after issuance of a new summons to the Bank with reasonable notice to the taxpayers to give them the opportunity to challenge the summons before the special agent as hearing officer. This decision of the court below, concerning the necessity for service of notice of the summons to the taxpayers and for an opportunity for a hearing thereon before the hearing officer, was based upon the court's interpretation of the Supreme Court's decision in Reisman v. Caplin, 375 U.S. 440, 84 S.Ct. 508, 11 L.Ed.2d 459 (1964).

The sole question presented on this appeal, therefore is whether or not the Internal Revenue Service, when it issues a summons to a third person to examine him relative to a taxpayer's liability, is required, under § 7602, to give notice to the taxpayer of its intention to examine the third party. We conclude that the Internal Revenue Service is not required to give such notice at least in the factual situation presented by this case. The Reisman case, on which the court below relied, concerned a petition by a partnership firm of attorneys for declaratory and injunctive relief against the Commissioner of Internal Revenue and a firm of accountants which the attorneys had retained to work on the financial records of their clients, Martin J. and Allyn Bromley, whose tax matters were under investigation by the Commissioner. The accountants, under the supervision of the attorneys, analyzed various original records of the taxpayers and reported on them. These reports and the original records and papers of the taxpayers were kept in a separate file by the accountants and labeled as property of the petitioners....