Application of Magnus

• Decision Date: 13 February 1962
• Docket Number: Docket 27174.,No. 231,231
• Citation: 299 F.2d 335
• Parties: Application of Percy C. and Margaret A. MAGNUS to quash certain summonses issued by the Internal Revenue Service to testify, and produce records, etc., Petitioners-Appellants, United States of America, Respondent-Appellee.
• Court: U.S. Court of Appeals — Second Circuit

299 F.2d 335 (1962)

Application of Percy C. and Margaret A. MAGNUS to quash certain summonses issued by the Internal Revenue Service to testify, and produce records, etc., Petitioners-Appellants,

United States of America, Respondent-Appellee.

No. 231, Docket 27174.

United States Court of Appeals Second Circuit.

Argued January 19, 1962.

Decided February 13, 1962.

Boris Kostelanetz, New York City (Corcoran, Kostelanetz, Gladstone & Lowell, New York City, on the brief; Jules Ritholz, Edward J. Daus, New York City, of counsel), for the petitioners-appellants.

John F. X. Peloso, Asst. U. S. Atty., Southern District of New York, New York City (Robert M. Morgenthau, U. S. Atty., for the Southern District of New York, New York City, on the brief; Morton L. Ginsberg, Asst. U. S. Atty., New York City, of counsel), for the respondent-appellee.

Before MEDINA, MOORE and SMITH, Circuit Judges.

LEONARD P. MOORE, Circuit Judge.

Percy C. and Margaret A. Magnus (referred to as "the taxpayers") whose income tax liability for the years 1948 through 1957 is under investigation by agents of the Internal Revenue Service (IRS) appeal from an order denying a motion to quash two summonses issued under authority of Section 7602, Internal Revenue Code of 1954, 26 U.S. C.A. § 7602, (the Code). One summons was directed to a corporation, Magnus, Mabee & Reynard, Inc., of which Percy C. Magnus is president, a director, and a stockholder; the other was directed to the firm, Hurdman & Cranstown, Certified Public Accountants, which performed services for the corporation (including the preparation of tax returns) and for Mr. Magnus personally.

Section 7602, "Examination of books and witnesses," gives to the Secretary or his delegate broad powers "to examine any books, papers, records, or other data which may be relevant or material to such inquiry i. e., ascertaining correctness of any return, determining or collecting any liability." He may also summon any person deemed proper to produce books and records containing entries relating to the business of the taxpayer under investigation and to take relevant or material testimony. Accordingly, the Secretary served summonses not upon the taxpayers but upon third parties to give testimony and produce certain specified records. These third parties did not appear upon the motion to quash and object that their appearance to give testimony or the production of records would be "unreasonably onerous" or that the information sought is not "material and relevant to the investigation" (Foster v. United States, 2 Cir., 1959, 265 F.2d 183, 186, cert. denied 360 U.S. 912, 79 S.Ct. 1297, 3 L.Ed.2d 1261 (1959).

That these "considerations constitute the criteria for judicial enforcement of subpoenas issued by various administrative agencies is well established: an affirmative showing of probable cause for the administrative inquiry is not required. Citing cases." Ibid. We have held that: "The same principles and the same criteria are applicable to the enforcement of Internal Revenue subpoenas. Citing cases." Ibid. In Foster a summons was served on the New York Agency of a foreign bank to produce records of the taxpayers under investigation. Failure to obey brought about the issuance of an ex parte order directing compliance which the Bank sought to have vacated. At this point, the taxpayers moved to intervene, which motion unopposed was granted. The taxpayers were the appellants, the Bank apparently being willing to abide the event and not claiming that the summons was overburdensome or called for records which were irrelevant and immaterial. The taxpayers, in objecting to the summons, asserted that on the merits any tax claim against them was barred by the statute of limitations; hence, they argued that the examination was "unnecessary and unreasonable." This court affirmed the denial of the motion to vacate.

Appellants in the case now before us, as they did in the court below, endeavor to bring themselves within the provisions of Section 7605(b)¹ of the Code which deals with "Restrictions on examination of taxpayer." This section has no bearing on the issue now before us. The examination which IRS seeks is of third parties and not a further examination of the taxpayer. The inspection desired is of corporate books and accounting firm papers and not of the taxpayer's books. Under these circumstances, the taxpayers have no standing to quash the summonses which call neither for their further appearance or examination nor for further production of their books.

Although headings are not to be read as a limitation on the multiple purposes of a statute (Brotherhood of Railroad Trainmen v. Baltimore & O. R. Co., 331 U.S. 519, 528, 67 S.Ct. 1387, 91 L.Ed. 1646 (1947)), Section 7605(b) itself clearly reveals the accuracy of the heading. It deals with taxpayers and...