Arend v. De Masters, Civ. No. 9940.

• Decision Date: 18 January 1960
• Docket Number: Civ. No. 9940.
• Parties: Egon D. AREND and Mela K. Arend, Plaintiffs, v. Perry A. DE MASTERS, Internal Revenue Agent, Internal Revenue Service, R. C. Granquist, District Director of Internal Revenue, Russell Harrington, Commissioner of Internal Revenue and the United States National Bank of Portland (Oregon), Defendants.
• Court: U.S. District Court — District of Oregon

181 F. Supp. 761

Egon D. AREND and Mela K. Arend, Plaintiffs, v. Perry A. DE MASTERS, Internal Revenue Agent, Internal Revenue Service, R. C. Granquist, District Director of Internal Revenue, Russell Harrington, Commissioner of Internal Revenue and the United States National Bank of Portland (Oregon), Defendants.

Civ. No. 9940.

United States District Court D. Oregon.

January 18, 1960.

Garthe Brown and Morris J. Galen, Jacob, Jones & Brown, Portland, Or., for plaintiffs.

C. E. Luckey and Edward J. Georgeff, U. S. Atty. and Asst. U. S. Atty., Portland, Or., for defendants.

EAST, District Judge.

The plaintiff taxpayers were investigated by the agents of the Internal Revenue Commissioner (Commissioner) and cleared as to certain years in question. Now, after the statute of limitations has run as to years 1940 through 1955, the Commissioner is attempting to again investigate the same. On August 14, 1958, the Commissioner caused a summons to be served upon the defendant The United States National Bank of Portland (Oregon) (Bank), directing the Bank to furnish to the defendant DeMasters for his use in such investigation all of the records pertaining to the deposits, withdrawal, and transfer of funds in all savings and commercial accounts and all records pertaining to the financial, loan, and investment activity of plaintiffs and each of them, of plaintiffs' children, Richard and Inez Arend, and of Arend Shoe Company, a sole proprietorship owned by plaintiff Egon D. Arend. The taxpayers are advised that the Bank feels itself obliged to comply with this summons.

The taxpayers brought this action to have the Commissioner and his agents enjoined from further prosecution of the investigation, the said summons quashed, and said Bank in turn prevented from surrendering or otherwise granting access to the summonsed records to the Commissioner or his agents.

The Commissioner and his agents ask for a summary judgment pursuant to Rule 56(b) of the Federal Rules of Civil Procedure, 28 U.S.C.A.

That the summary judgment is not to issue if there is the slightest doubt of an issue or question of fact to be determined is elemental law and need not be here supported by the many cases which determined this point. See 6 Moore's Federal Practice, § 56.15.

In the instant case the taxpayers allege violation of their constitutional rights under the Fourth Amendment of the Constitution of the United States, and that, therefore, the defendants are acting in excess of the authority granted to such agents by 26 U.S.C.A. § 7602, as restricted by 26 U.S.C.A. § 7605(b). And, further, that the years in question are outside the limitations set by the statute for reassessment of taxes.

Taxpayers contend that 26 U.S.C.A. § 7605(b), providing:

"Restrictions on examination of taxpayer.—No taxpayer shall be subjected to unnecessary examination or investigations, and only one inspection of a taxpayer's books of account shall be made for each taxable year unless the taxpayer requests otherwise or unless the Secretary or his delegate, after investigation, notifies the taxpayer in writing that an additional inspection is ncessary."—

prevents the defendants from re-examining the papers or transactions of the plaintiffs during this period. Further, that the requirements of § 7605(b) were not met in notifying taxpayers that these years were to be audited again.

As pointed out, the years in question are outside the period of limitations against a reassessment of taxes. In an attempt to fall within an exception of the statute of limitations, the affidavit of the defendant DeMasters raises an apparent contention and imparts to the taxpayers fraud on their part against the Government in connection with the preparation and filing of their tax returns for the years in question. The taxpayers in turn refute this contention and intimate, if not assert, that the requested inspection of the Bank's records is arbitrary and a harassment to the taxpayers, bringing absolutely unnecessary and extreme hardship.

Thus, it clearly appears that issues and questions of fact are raised in this controversy.

The only issue of law on which the case could be settled, without determination of the factual situation and issues raised, would be whether or not the Court has the jurisdiction to enjoin the Commissioner and his agents to prevent certain conduct on their part which is arbitrary or in excess of their authority, or whether or not the Code itself prevents such investigation.

Although the Courts are hesitant to interfere with other branches of the Government, still it is horn-book law that the courts can prevent unconstitutional and arbitrary harassment of citizens by agents of the administrative agencies, or prevent such agents, from acting in excess of their authority as established by law, and the agents of the Bureau of Internal Revenue are no exception. See 28 Am.Jur., Injunctions, §§ 176-181.

Title 28 U.S.C.A. § 1340 provides:

"The district courts shall have original jurisdiction of any civil action arising

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