Hinchcliff v. Clarke

• Decision Date: 01 August 1963
• Docket Number: Civ. A. No. 37102.
• Citation: 230 F. Supp. 91
• Parties: Dorothy HINCHCLIFF, individually and as Executrix of the Estate of Alfred W. Hinchcliff, deceased, Plaintiff, v. James M. CLARKE, Internal Revenue Agent and Melvin J. Burton, District Director of Internal Revenue, Defendants.
• Court: U.S. District Court — Northern District of Ohio

230 F. Supp. 91

Dorothy HINCHCLIFF, individually and as Executrix of the Estate of Alfred W. Hinchcliff, deceased, Plaintiff, v. James M. CLARKE, Internal Revenue Agent and Melvin J. Burton, District Director of Internal Revenue, Defendants.

Civ. A. No. 37102.

United States District Court N. D. Ohio, E. D.

August 1, 1963.

William Patrick Clyne, Cleveland, Ohio, for plaintiff.

Merle M. McCurdy, U. S. Atty., Cleveland, Ohio, for defendant.

KALBFLEISCH, District Judge.

This matter is before the Court upon the application of the United States of America for an order to enforce the summons served upon Donald J. Graf by James M. Clarke, Internal Revenue Agent, pursuant to the provisions of Section 7602, Title 26 U.S.C.A., and upon the motion of Dorothy Hinchcliff, individually, and as executrix of the estate of Alfred W. Hinchcliff, deceased, intervenor herein, to quash and vacate said summons served upon Donald J. Graf, as the same appears upon the Commissioner's Docket No. 12, Case No. 4325. Also before the Court are (1) the complaint of Dorothy Hinchcliff, individually, and as executrix of the estate of Alfred W. Hinchcliff, deceased, praying for an order restraining the defendants, James M. Clarke, Internal Revenue Agent, and Melvin J. Burton, District Director of Internal Revenue, their successors, deputies, agents and employees, and all persons acting through or under them, from further prosecution of the investigation of the income tax matters of the plaintiff, individually, and of the estate of plaintiff's deceased husband, Alfred W. Hinchcliff, restraining the defendants from gaining access to summonsed records and quashing a summons served upon Donald J. Graf; (2) the order of this Court, dated November 27, 1961, "that James M. Clarke appear and produce certain documents, records, memoranda and papers"; and (3) the motion of the defendants for an order requiring production of the documents set forth in the original summons to Graf, as well as the supplemental summons served upon Dorothy Hinchcliff on November 8, 1962, subsequent to the reopening letter which was served upon Dorothy Hinchcliff on October 2, 1962.

Alfred W. Hinchcliff and Dorothy Hinchcliff, as husband and wife, filed joint income tax returns for the years 1946 through 1959. Alfred W. Hinchcliff died on May 31, 1959, and Dorothy Hinchcliff was duly appointed executrix of the estate of Alfred W. Hinchcliff on June 16, 1959. Dorothy Hinchcliff, individually, and as executrix of the estate of Alfred W. Hinchcliff, deceased, will hereafter be referred to as the taxpayers.

Donald Graf, in 1951 and for some period prior thereto, was a self-employed public accountant, and in 1951 he was employed by Alfred W. Hinchcliff to prepare and file the taxpayers' income tax returns and to help them with other accounting matters. In 1951, Mr. Graf passed the required examination, and received his certificate as a certified public accountant in January of 1952.

Mr. Graf, hereinafter referred to as the accountant, supervised the bookkeeping and accounting procedures and the preparation and filing of income tax returns for the taxpayers for the calendar years beginning 1950 through the calendar year 1959. At the time the taxpayers employed the accountant they placed in his possession copies of their income tax returns for the years 1946, 1947, 1948 and, later, a photograph of the return for 1949, and other data. In some instances, the accountant would receive information and data as to income and expenditures directly from the taxpayers; in other instances, the accountant would collect this information from others, such as the information and data which he obtained from Norma Mantey, the bookkeeper at the Hinchcliff apartments. (TR-88, Jan. 3, 1963.) The accountant would assemble the information from cancelled checks, as well as from dividend income and deposit slips, and from that information he prepared the tax returns for the taxpayers. In referring to the work he performed, Mr. Graf identified himself as the auditor for Mrs. Hinchcliff and the Hinchcliff estate.

In March of 1961, James M. Clarke, an Internal Revenue agent, hereinafter referred to as the agent, began an examination of the 1957, 1958 and 1959 income tax returns filed by Alfred W. and Dorothy Hinchcliff to determine their correctness. (TR-46, Jan. 3, 1963.) The agent conversed with the accountant at various times in the months of March, April and the first half of May of 1961. In the course of these conversations, the agent informed the accountant that the examination involved the taxpayers' understatement of income from rental property, and the agent requested the accountant's permission to examine not only the accountant's records and data pertaining to the current open years but also his records for closed years prior to 1957. The accountant discussed this request with the taxpayers' attorney and was advised by the attorney to grant the request as to current open years but to refuse the request as to closed years.

On May 3, 1961, sixteen days prior to the issuance of the summons, the accountant permitted the agent to examine certain records in his possession, some of which were records owned by the taxpayers, particularly the income tax returns of the taxpayers for the years 1946, 1947, 1948 and 1949, and on the same date the accountant further permitted the agent to take such records and data to the Internal Revenue Office to have them photographed. (TR-45, Jan. 3, 1963.) The original documents and data photographed by the agent were returned to the accountant and the photographic copies have been identified and admitted as "Government's Exhibit No. 1 in Contempt Proceeding."

Thereafter, further conversations relative to documents and data of closed years occurred between the agent and the accountant and between the accountant and taxpayers' attorney. As a result of the objections of the taxpayers' attorney, the agent visited the office of the accountant on May 19, 1961, and on that occasion the agent and the accountant placed in boxes, which they then sealed, all of the records and data pertaining to the taxpayers which were at that time in the possession of the accountant. The agent, on the same date, May 19, 1961, at 2:39 P.M., executed and served upon the accountant a summons requiring the accountant to appear before James M. Clarke (the agent) at 2:30 P.M. on May 19, 1961, at the accountant's office, to give testimony relating to the tax liability of Alfred W. and Dorothy Hinchcliff and to bring with him and produce for examination "all books, records, work papers, and files pertaining to the above-named taxpayers. These records should include all net worth statements, financial statements, and profit and loss statements, certified or not." After the accountant and the agent had sealed in boxes all of the aforesaid pertinent documents, the accountant retained the sealed boxes in his possession.

On May 24, 1961, the agent and an Assistant United States Attorney appeared before United States Commissioner Herbert A. Horn and filed an application for an order of attachment against Donald J. Graf, under and by virtue of Sections 7602, 7603 and 7604 of Title 26 of the United States Code. This proceeding before the United States Commissioner was docketed as Case No. 4325 of Commissioner's Docket 12. On the same date, the accountant not being present but being represented by counsel, the Commissioner examined the agent who testified that the aforementioned summons was served on Mr. Graf on the 19th day of May, 1961, and that Mr. Graf had refused to turn over the documents for examination at the time the summons was served upon him. The Commissioner found that the Government was entitled to a writ of attachment; ordered that the documents sought be impounded; and that the accountant be restrained from dispossessing himself of said documents. The writ of attachment directed the accountant to appear before the Commissioner on June 2, 1961, at 2:00 P.M., to show cause why he should not be found in contempt. This show cause hearing was postponed until June 13, 1961. On June 13, 1961, the accountant filed a motion to quash and vacate the order of attachment, the order to impound, and the writ of attachment, for the reason that the summons as served did not comply with Section 7605(a) of Title 26 of the United States Code in that it failed to give the accountant ten days in which to appear before the agent or to produce the documents summonsed. This motion to quash was assigned for hearing on June 23, 1961, on which date the Commissioner overruled the motion. On June 23, 1961, a motion to quash and vacate the summons was filed on behalf of the taxpayers; however, the Commissioner refused to accept such motion for filing and the case was then passed to July 10, 1961. On July 10, 1961, the Commissioner vacated his order of June 23, 1961, wherein he overruled the motion to quash filed by the accountant, and the case was continued to July 31, 1961.

A few days prior to July 31, 1961, a dispute arose between the accountant and the taxpayers, which resulted in the accountant's informing the taxpayers that he was withdrawing and dismissing his motion to quash and declaring that he would comply with the summons by delivering to the agent the documents and data summonsed.

On July 31, 1961, and prior to the hour when the action was to proceed before the United States Commissioner, the taxpayers filed their complaint in the United States District Court (Civil No. 37102) seeking a temporary restraining order, a preliminary injunction, and a permanent injunction restraining the agent and the Director of Internal Revenue from further prosecuting the action pending before the United States Commissioner. A temporary restraining order was granted by the Court, and the proceeding before the United States Commissioner was passed until August 11, 1961, and then to August 18, 1961. On August 18, 1961...