Lash v. Nighosian, 5537.
| Decision Date | 29 February 1960 |
| Docket Number | No. 5537.,5537. |
| Citation | 273 F.2d 185 |
| Parties | David LASH, Treasurer, David's, Inc., Respondent, Appellant, v. Laurence A. NIGHOSIAN, Revenue Agent, Internal Revenue Service, Petitioner, Appellee. |
| Court | U.S. Court of Appeals — First Circuit |
Jacob Spiegel, Boston, Mass., with whom Zipporah B. Wiseman, Boston, Mass., was on brief, for appellant.
Rita E. Hauser, Attorney, Department of Justice, Washington, D. C., with whom Charles K. Rice, Asst. Atty. Gen., Lee A. Jackson and A. F. Prescott, Attorneys, Department of Justice, Washington, D. C., Anthony Julian, U. S. Atty., and Charles F. Barrett, Asst. U. S. Atty., Boston, Mass., were on brief, for appellee.
Before WOODBURY, Chief Judge, HARTIGAN, Circuit Judge and SWEENEY, District Judge.
Certiorari Denied February 29, 1960. See 80 S.Ct. 610.
This is an appeal from an order of the United States District Court for the District of Massachusetts directing the respondent, as the treasurer of David's Inc., to appear with specified corporate records before a revenue agent of the Internal Revenue Service at a given time and place to testify as to the tax liability of David's, Inc., for the years 1952 to 1955, inclusive.1
David's, Inc., to be referred to as the taxpayer hereinafter, is engaged in the loan business in Fall River, Massachusetts. Its returns for the fiscal years 1952 and 1953 were examined by one revenue agent and its returns for the fiscal years 1954 and 1955 were examined by another. These agents duly submitted their audit reports in September, 1954, and July, 1956, respectively.
Subsequent to these examinations the Regional Inspector, who operates independently of the Regional Commissioner and reports directly to headquarters in Washington, and who is concerned with the operating practices and the security and integrity of the Internal Revenue Service in his Region, and the Regional Commissioner, who is concerned primarily with the determination and collection of taxes in his Region, set up a joint project to investigate allegations of collusion between taxpayers and revenue agents in the Fall River area. Field agents working on this joint project reported to the project coordinator that their investigations disclosed close personal and business relationships between the respondent and the agents who had examined the taxpayer's returns for the years involved. They reported that prior, during and subsequent to his audit the agent who had examined the taxpayer's returns for 1952 and 1953 had negotiated for himself and members of his immediate family several loans from the taxpayer amounting in gross to $11,000 and that these loans were unsecured, bore either no interest or interest at one half of one per cent per month, and that the taxpayer's cards recording the loans were marked DND for "do not dun."2 And they reported that the respondent had a longstanding personal relationship with the agent who had examined the taxpayer's returns for 1954 and 1955, that the respondent had negotiated an exchange of checks in the amount of $6,500 for the agent's minor son, that the respondent had served as an accommodation party in a real estate transaction entered into on behalf of members of the agent's family pending the outcome of a law suit and that he had also served as an officer of the agent's family corporation. They also reported that in an interview the respondent had said that he made loans to revenue agents at favorable rates, that he encouraged good relations with revenue agents, and that he had frequent social meetings with revenue agents, such as meeting with them for drinks at cafes two or three times a week.
The coordinator of the joint project passed this information on to the Regional Commissioner with the request for a reopening letter addressed to the taxpayer and the Commissioner complied on May 20, 1958. The respondent declined to make the taxpayer's books and records for the years 1952 through 1955 available for inspection as requested in the reopening letter and on June 13 he was served with a summons issued by the Commissioner under § 7602 of the Internal Revenue Code of 1954. 26 U.S. C. § 7602. The respondent appeared at the time and place designated in the summons with some corporate records but refused to permit any inspection of them. Application under § 7604 id. for attachment against the respondent as for a contempt was thereupon made to the court below and that court after hearing entered the order enforcing the summons from which this appeal has been taken.
The first three of the four tax years here involved admittedly are "closed" by the three year statute of limitations (§ 6501 of the Internal Revenue Code of 1954, 26 U.S.C. § 6501), to the assessment of any tax except for fraud or other matters not involved herein. The basic questions on this appeal are whether the Commissioner as the Secretary's delegate had statutory authority to issue his summons requiring disclosure as to those closed years, and, if he did, whether there was enough evidence before the District Court to warrant its conclusion that there was "probable cause" to believe that the taxpayer's returns for the "closed" years were fraudulent. See O'Connor v. O'Connell, supra. We think both questions must be answered in the affirmative.
Counsel for the appellant asserts that all of the evidence points inescapably to the conclusion that the sole purpose of the Regional Commissioner in issuing the summons directed to the taxpayer was to further the investigation of the Inspection Service into the conduct of the revenue agents who had audited the taxpayer's returns for the closed years in question. Wherefore he contends that the Commissioner as the Secretary's delegate lacked statutory authority to issue the summons, for § 7602, supra, gives the Secretary or his delegates power to summon a person liable for tax only "For the purpose of ascertaining the correctness of any return."
The District Court found that "the Regional Inspector could be said to have instigated the reopening letter," and that "the Inspection Service hopes that its investigation may benefit from the present proceeding." 171 F.Supp. 122. But it found that the investigation of the conduct of the revenue agents was not the Commissioner's sole purpose for issuing the summons. And it found that this case was not one in which no discoverable incorrectness in the taxpayer's returns for the closed years could lead to the determination of a tax liability. On the basis of these findings it, we think entirely correctly, distinguished United States v. O'Connor, D.C.Mass.1953, 118 F.Supp. 248. See Boren v. Tucker, 9 Cir., 1957, 239 F.2d 767, 772, 773. The court then found and ruled as follows:
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De Masters v. Arend
...that "probable cause" in the Fourth Amendment sense be shown (O'Connor v. O'Connell, 253 F.2d 365, 369-370 (1958); Lash v. Nighosian, 273 F.2d 185, 188-189 (1959)), and in so doing expressly disagrees with holdings of Courts of Appeals for the Second and Fifth Circuits (253 F.2d at 370). Ho......
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...upon the question appear, with one exception, to be in accord. O'Connor v. O'Connell, 1 Cir., 1958, 253 F.2d 365-367; Lash v. Nighosian, 1 Cir., 1959, 273 F.2d 185, 186, cert. denied 362 U.S. 904, 80 S.Ct. 610, 4 L.Ed.2d 554; In re Albert Lindley Lee Memorial Hosp., 2 Cir., 1953, 209 F.2d 1......
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