Hinchcliff v. Clarke

• Citation: 371 F.2d 697
• Decision Date: 19 January 1967
• Docket Number: No. 16703.,16703.
• Parties: Dorothy HINCHCLIFF, Individually and as Executrix of the Estate of Alfred W. Hinchcliff, Deceased, Plaintiff-Appellees, v. James M. CLARKE, Internal Revenue Agent and Frank S. Turbett, Jr., District Director of Internal Revenue, Defendants-Appellants, UNITED STATES of America, Plaintiff-Appellant, v. Donald J. GRAF, Defendant-Appellee.
• Court: United States Courts of Appeals. United States Court of Appeals (6th Circuit)

371 F.2d 697 (1967)

Dorothy HINCHCLIFF, Individually and as Executrix of the Estate of Alfred W. Hinchcliff, Deceased, Plaintiff-Appellees, v. James M. CLARKE, Internal Revenue Agent and Frank S. Turbett, Jr., District Director of Internal Revenue, Defendants-Appellants, UNITED STATES of America, Plaintiff-Appellant, v. Donald J. GRAF, Defendant-Appellee.

No. 16703.

United States Court of Appeals Sixth Circuit.

January 19, 1967.

John M. Brant, Department of Justice, Washington, D. C., Richard M. Roberts, Acting Asst. Atty. Gen., Meyer Rothwacks, Joseph M. Howard, Attorneys, Department of Justice, Washington, D. C., on brief; Merle M. McCurdy, U. S. Atty., Harry E. Pickering, Asst. U. S. Atty., Cleveland, Ohio, of counsel, for appellants.

Lewis Perelman, Cleveland, Ohio, William Patrick Clyne, Lewis Perelman, Cleveland, Ohio, on brief, for appellee, Dorothy Hinchcliff.

Before EDWARDS and PECK, Circuit Judges, and TAYLOR,^* District Judge.

EDWARDS, Circuit Judge.

We are concerned in these appeals with two cases generally related to the same issues. In the first, the government sought — and was denied — enforcement of an Internal Revenue Service summons addressed to an accountant named Graf. The summons required Graf to produce certain records in his possession pertaining to the income tax problems of his client, Dorothy Hinchcliff, and her deceased husband.

The summons served upon Graf, under authority of Int.Rev.Code of 1954, § 7602, required production of the following:

"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."

In addition to denying enforcement of this summons, the order of the District Judge for the Northern District of Ohio, Eastern Division, also directed return of certain evidence already acquired by the IRS and enjoined the government from using same or reacquiring it in any manner.

The second action is a complaint filed by Mrs. Hinchcliff in the United States District Court for the Northern District of Ohio which alleged that an IRS agent named Clarke and his IRS District Director were threatening to re-examine the books of account and the income tax returns of the Hinchcliffs for the years 1945 through 1957, that such years had already been examined, and that the re-examination was barred by the Statute of Limitations and by Int.Rev.Code of 1954, §§ 7605(a) and (b), as amended.

The taxpayer sought to quash the administrative summons previously referred to and to suppress any evidence which had previously been (allegedly illegally) turned over to the Department of Internal Revenue by Graf and to enjoin the government's use of such evidence in any way. The District Judge's order granted the relief sought.

The section of the Internal Revenue Code of 1954 which is relied upon by the taxpayer and the District Judge reads as follows:

"(b) Restrictions on Examination of Taxpayer. — No taxpayer shall be subjected to unnecessary examination for 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 necessary." Int.Rev. Code of 1954, § 7605.

The section of the Internal Revenue Code of 1954 relied upon by the government reads as follows:

"§ 7602. Examination of books and witnesses

"For the purpose of ascertaining the correctness of any return, making a return where none has been made, determining the liability of any person for any internal revenue tax or the liability at law or in equity of any transferee or fiduciary of any person in respect of any internal revenue tax, or collecting any such liability, the Secretary or his delegate is authorized —

"(1) To examine any books, papers, records, or other data which may be relevant or material to such inquiry;

"(2) To summon the person liable for tax or required to perform the act, or any officer or employee of such person, or any person having possession, custody, or care of books of account containing entries relating to the business of the person liable for tax or required to perform the act, or any other person the Secretary or his delegate may deem proper, to appear before the Secretary or his delegate at a time and place named in the summons and to produce such books, papers, records, or other data, and to give such testimony, under oath, as may be relevant or material to such inquiry; and

"(3) To take such testimony of the person concerned, under oath, as may be relevant or material to such inquiry." Int.Rev.Code of 1954, § 7602.

At trial the evidence disclosed that Clarke, who works on civil aspects of the Department's endeavors, had been assigned to investigate the return of Mrs. Dorothy Hinchcliff for the years 1957, 1958 and 1959. Prior years as to this taxpayer and her now deceased husband and his estate had previously been reviewed and closed. No letter informing the taxpayer of intention to reopen had been sent by the Commissioner.

In pursuance of this assignment, Clarke went to Graf, a certified public accountant, who had for many years been first a bookkeeper and then accountant for the Hinchcliffs. Clarke testified that he asked Graf to show him his working papers pertaining to the Hinchcliff account and warned him not to give him anything which pertained to the closed years and which represented the taxpayer's own records.

It is, however, undisputed that Graf, in pursuance of this request, turned over something over 100 papers, a substantial number of which were records belonging to the taxpayer, which had been left with the accountant. Some of these pertained to years prior to 1957. It appeared that some word of this reached Mrs. Hinchcliff's lawyer and that he called Graf and protested vehemently against Graf's making any such disclosure of Mrs. Hinchcliff's affairs to the IRS. Whereupon Graf asked for the papers back. Clarke had already had them photostated, but he dutifully took them back and at the same time served on Graf a summons for all of them. The two dates involved here are May 3, 1961, when the papers were turned over by Graf to Clarke, and May 19, 1961, when Clarke served the summons.

Graf then turned over the documents to Clarke, who sealed them in Graf's office, where they still remain; and this litigation followed.

The government in this appeal argues that § 7605 of the Revenue Code relied upon by the District Judge applies only to "the books of account" in possession of the taxpayer; that a summons, even for the taxpayer's own records which are in the hands of a third party, was wholly appropriate and enforceable, and that a certified public accountant could not be found to be, as the District Judge had found Graf, an employee and agent of the taxpayer so that the taxpayer had standing to object to the summons served on him for her records.

In this regard the government cited and relied on Deck v. United States, 119 U.S.App.D.C. 240, 339 F.2d 739 (1964), cert. denied 379 U.S. 967, 85 S.Ct. 660, 13 L.Ed.2d 560; In re Fahey, 192 F.Supp. 492 (W.D.Ky.), aff'd, 300 F.2d 383 (C.A. 6, 1961). These cases do indeed appear to say that the working papers of a public accountant are his own property and can be reached by a summons served on him, even though the information came from a taxpayer client.

Further, there is an Ohio Statute which squarely holds that the working papers of a certified public accountant are his property. 47 Ohio Rev.Code § 4701.19 (1966 Supp.).

Under what we deem to be settled law cited above, it appears clear to us that the documents which are the work product of Graf as a professional accountant clearly may be the subject of a summons and the District Judge was in error in quashing the summons as to these documents.

Further, we believe that the District Judge was in error in holding that Int.Rev.Code § 7605 barred the summons issued by the IRS, or rendered illegal the visit by Clarke to Graf's office, or his inspection of the documents...