Graham v. Comm'r of Internal Revenue
| Decision Date | 27 February 1984 |
| Docket Number | Docket Nos. 7603–80,7604–80. |
| Citation | 82 T.C. No. 25,82 T.C. 299 |
| Parties | THOMAS A. GRAHAM AND ELIZABETH GRAHAM, Petitioners v. COMMISSIONER OF INTERNAL REVENUE, RespondentMERIDIAN ENGINEERING, INC. OF PENNSYLVANIA, Petitioner v. COMMISSIONER OF INTERNAL REVENUE, Respondent |
| Court | U.S. Tax Court |
OPINION TEXT STARTS HERE
R determined deficiencies and fraud additions against Ps based upon documents, testimony and other information secured by R's agents from grand jury proceedings. These grand jury materials were obtained under Federal District Court orders under Rule 6(e), Federal Rules of Criminal Procedure, which were issued by the District Courts in 1971 and 1973 before the Supreme Court's decisions in United States v. Sells Engineering, Inc., 463 U.S. 418, 103 S.Ct. 3133 (1983) and United States v. Baggot, 463 U.S. 476, 103 S.Ct. 3164 (1983). Held, assuming R's use of the grand jury materials was improper, such use does not invalidate the statutory notices. Leonard J. Bucki and Dennis L. Cohen, for the petitioners.
Eugene J. Wien, for the respondent.
Respondent has determined the following deficiencies in and additions to these petitioners' Federal income taxes:
+--------------------------------------------------+
¦Docket No. ¦Year ¦Deficiency ¦Sec. 6653(b) 1 ¦
+------------+------+------------+-----------------¦
¦ ¦ ¦ ¦ ¦
+------------+------+------------+-----------------¦
¦7603-80 ¦1969 ¦$34,301 ¦$17,151 ¦
+------------+------+------------+-----------------¦
¦7603-80 ¦1970 ¦62,689 ¦31,345 ¦
+------------+------+------------+-----------------¦
¦7603-80 ¦1971 ¦64,849 ¦32,425 ¦
+------------+------+------------+-----------------¦
¦7603-80 ¦1972 ¦28,513 ¦14,256 ¦
+------------+------+------------+-----------------¦
¦ ¦ ¦ ¦ ¦
+------------+------+------------+-----------------¦
¦7604-80 ¦1969 ¦36,344 ¦18,172 ¦
+------------+------+------------+-----------------¦
¦7604-80 ¦1970 ¦58,905 ¦31,603 ¦
+------------+------+------------+-----------------¦
¦7604-80 ¦1971 ¦74,700 ¦37,350 ¦
+------------+------+------------+-----------------¦
¦7604-80 ¦1972 ¦71,291 ¦35,646 ¦
+--------------------------------------------------+
Respondent's statutory notices of deficiency to these petitioners were based upon information respondent secured from grand jury proceedings. We must decide whether respondent's use of these grand jury materials to determine deficiencies and additions against these petitioners invalidates the statutory notices.
These cases were submitted fully stipulated under Rule 122, Tax Court Rules of Practice and Procedure, and the stipulated facts are so found. The stipulation of facts and exhibits attached thereto are incorporated herein by this reference. The pertinent facts are summarized below.
Petitioners Thomas A. Graham and Elizabeth Graham (“the Grahams”), husband and wife, resided in Gwynedd Valley, Pennsylvania, at the time they filed their petition herein. The Grahams timely filed their joint Federal income tax returns for the taxable years 1969, 1970, 1971, and 1972, using the cash receipts and disbursements method of accounting.
Petitioner Meridian Engineering, Inc. of Pennsylvania (“Meridian”) is a corporation and its last address, effective at the time it filed its petition herein, was in Philadelphia, Pennsylvania. Meridian timely filed its corporate income tax returns for the calendar years 1969, 1970, 1971, and 1972, using the accrual method of accounting. Petitioner Thomas A. Graham was president, chairman of the board, and principal shareholder of Meridian.
In September 1971, a Federal grand jury sitting in Philadelphia began an investigation of certain purchases and contracts between various vendors and contractors and the City of Philadelphia. The investigation was to determine possible Federal criminal violations, including extortion, racketeering, bribery, mail fraud, and conspiracy. On October 4, 1971, the United States Attorney for the Eastern District of Pennsylvania and a Justice Department attorney filed an ex parte motion with the district court, pursuant to Rule 6(e) of the Federal Rules of Criminal Procedure (hereinafter Rule 6(e)), 2 seeking authorization to disclose to agents, special agents, and employees of the Internal Revenue Service matters occurring before the grand jury. In support of this motion, the government attorneys represented, in pertinent part, as follows:
3. The investigation requires careful meticulous analysis of an extremely large volume of business records, of the contractors and vendors involved, and also of the City of Philadelphia.
4. The above-named attorneys of the Government have sought the assistance of agents, special agents, and employees of the Internal Revenue Service to conduct the necessary analysis of records and to provide the necessary supportive investigative personnel, all under the aegis of the said attorneys for the government.
5. To utilize the said assistance of agents, special agents, and employees of the Internal Revenue Service it is necessary that the said attorneys for the Government be authorized to disclose to the agents, special agents and employees of the Internal Revenue Service books, records, documents and transcripts of testimony before the United States Grand Jury.
6. It is necessary for the said agents, special agents and employees of the Internal Revenue Service, upon receipt of such matter to use it in their official duties, for both civil and criminal purposes, in order to both assist the Grand Jury and the attorneys for the Government in a complete manner, and to fulfill the obligations of their offices. [Emphasis added.]
On October 4, 1971, District Court Judge Edward R. Becker entered an order granting the ex parte motion, providing as follows:
O R D E R
AND NOW, THIS 4th day of October, 1971, upon consideration of the Ex Parte Motion pursuant to [Criminal] Rule 6(e) for Authorization to Disclose Matters Occurring Before the Grand Jury, filed herein, and the representations made in support thereof, it is hereby
that the United States Attorney and Special Attorneys of the United States Department of Justice are authorized to utilize the assistance of agents, special agents and employees of the Internal Revenue Service in this Grand Jury Investigation, and may give access to such persons of books, records, documents and transcripts of testimony before the Grand Jury in this investigation, and the said agents, special agents, and employees shall not be prohibited from utilizing such material in the course of their official duties, for either criminal or civil purposes, provided that the subpoenaed material shall remain at all times under the aegis of attorneys for the Government. [Emphasis added.]
On January 15, 1973, the grand jury issued a subpoena directing Meridian to produce the following records:
Sales, Journals, Sales Invoices, Accounts Payable, Ledgers General Journals, General Ledgers, Payroll Records, Invoices, Purchase Orders, Notes Payable, Loans Payable (Contracts and Records), Articles of Incorporation, Stock Transfer Book, Minutes Book, Cash Receipts Book, Cash Disbursement Book, Bank Ledger Statements, Check Stub Registers, Cancelled Checks, Duplicate Deposit Tickets, Petty Cash Book, Petty Cash Vouchers, Purchase Journals, Purchase Invoices, Memoranda, Correspondence, and all other supporting documents relating to all business transactions, income, expenses, and balance sheet items shown on filed tax returns; all for calendar years or fiscal years ended 1969, 1970, and 1971.
The subpoena directed Meridian to deliver the subpoenaed records to the Internal Revenue Service in Philadelphia, Pennsylvania. Meridian complied with the subpoena.
On October 25, 1973, another Federal grand jury was convened in Philadelphia to investigate possible Federal criminal violations, including interference with commerce, conspiracy to defraud the Government, interstate travel in aid of racketeering, and tax evasion.
On November 20, 1973, the United States Attorney filed an ex parte petition under Rule 6(e) for authorization to disclose matters occurring before the grand jury to agents of the Internal Revenue Service “to assist the Grand Jury in determining whether there have been any violations of Title 18 and Title 26 of the United States Code; and if the above-mentioned investigation discloses additional tax liabilities, to use this information for determining the exact civil tax liabilities due and owing to the United States.” (Emphasis added.) In support of this petition, the United States Attorney represented, in pertinent part, as follows:
2. In connection with this investigation, information and evidence has been obtained by the Grand Jury that could be of material assistance to the Internal Revenue Service with respect to official criminal investigations being conducted by that agency, and the disclosure of such evidence to the Internal Revenue Service would enable that agency to be of invaluable assistance to the Grand jury in the investigation being conducted by the Grand Jury.
3. The Grand Jury has requested the assistance of Federal agents who possess the requisite expertise to assist them in analyzing the notes of testimony of witnesses who testify and the books and records subpoenaed before them.
The United States Attorney's prayer in his petition also asked that “agents, officials and employees of the Internal Revenue Service . . . shall not be prohibited from utilizing such [grand jury] material in the course of their official duties for civil purposes . . . .” (Emphasis added.)
On November 20, 1973, District Court Judge A. Leon Higginbotham, Jr., entered an order granting the ex parte petition, providing as follows:
O R D E R
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