Louisville Builders Supply Company v. CIR

• Citation: 294 F.2d 333
• Decision Date: 07 September 1961
• Docket Number: No. 14593.,14593.
• Parties: LOUISVILLE BUILDERS SUPPLY COMPANY, Petitioner, v. COMMISSIONER OF INTERNAL REVENUE, Respondent.
• Court: United States Courts of Appeals. United States Court of Appeals (6th Circuit)

294 F.2d 333 (1961)

LOUISVILLE BUILDERS SUPPLY COMPANY, Petitioner, v. COMMISSIONER OF INTERNAL REVENUE, Respondent.

No. 14593.

United States Court of Appeals Sixth Circuit.

September 7, 1961.

Charles F. Wood, Louisville, Ky., Bernard H. Barnett, L. L. Leatherman, Greenebaum, Barnett, Wood & Doll, Louisville, Ky., for petitioner.

Michael I. Smith, Dept. of Justice, John B. Jones, Jr., Acting Asst. Atty. Gen., Lee A. Jackson, Edward L. Rogers, Attorneys, Tax Division, Department of Justice, Washington, D. C., for respondent.

Before CECIL, WEICK and O'SULLIVAN, Circuit Judges.

O'SULLIVAN, Circuit Judge.

Petitioner, Louisville Builders Supply Company, a corporation of Louisville, Kentucky, (sometimes referred to herein as Louisville) seeks reversal of an Order of the Tax Court of the United States entered on April 20, 1961, granting an application of respondent, Commissioner of Internal Revenue, for an Order to take a deposition to perpetuate the testimony of one Fred von Siebenthal.¹ The application avers that tax returns of Louisville Builders Supply Company for the years 1951-1958 have been under examination by the Commissioner, resulting in a tentative determination of deficiencies and additions to tax in the amount of $427,575.67; that taxpayer and the Commissioner disagree as to various items; that further time will be required in an attempt to resolve various items; that it is unlikely that the disputed items will be resolved; and that litigation will undoubtedly result. The application avers that Fred von Siebenthal was, during the period of time in question, a Director of taxpayer corporation and has personal knowledge concerning various matters relevant to the review of the tax returns in question; that von Siebenthal is presently afflicted with cancer and has advised the Commissioner that he will live only a short time.

The application (as amended) avers in paragraphs 5, 6 and 7:

"5. One of the transactions concerning which the Commissioner and the taxpayer presently are not in agreement involves a so-called `employment contract\' executed by the taxpayer and Fred von Siebenthal. In dispute is the question whether the so-called `employment contract\' was in fact an employment contract or a sale of part of Mr. von Siebenthal\'s stockholdings in the company.

"6. Parol evidence concerning the terms of said contract, the circumstances surrounding its execution, and the action of the parties to the contract in performance thereof will be material, relevant, and necessary if the tax consequences of said `employment contract\' and payments made thereunder by Louisville Builders Supply Company to Mr. von Siebenthal are properly resolved.

"7. Another question in dispute is the treatment of expenditures made by the taxpayer for the remodeling of a residence owned by Mr. C. L. Owens, president and major stockholder of taxpayer. The taxpayer contends that Mr. Owens agreed to purchase the property as agent of the taxpayer and that the Board of Directors informally approved of said purchase as agent. At the time of the purported `informal approval,\' Mr. von Siebenthal was a director of Louisville Builders Supply Company and he has personal knowledge concerning this matter."

A prior application to take the mentioned deposition, filed on January 23, was denied by the Tax Court, and an amended application was filed on April 6, 1961.

No notice of deficiency has ever been served on taxpayer, nor has there been any petition by the taxpayer for redetermination of tax filed with the Tax Court. A proceeding was docketed on what the Tax Court refers to as its Special Docket, entitled Louisville Builders Supply Company, Petitioner, v. Commissioner of Internal Revenue, Respondent. This was done for the sole purpose of hearing the Commissioner's application to take the deposition of von Siebenthal. Louisville Builders Supply Company filed written objections to the granting of the Order applied for on various grounds, including the following:

"(1) The Commissioner * * * failed to state in the application filed * * * (i) the facts which he desires to establish by the proposed testimony (ii) the substance of the testimony which he expects to elicit from the witness, Fred von Siebenthal, and (iii) the materiality of the evidence sought to be obtained. * * *

"(4) The Tax Court does not have the jurisdiction to grant the application to take the deposition requested because there is no petition before this court to determine the validity of any assessments made by the Commissioner of Internal Revenue against Louisville Builders Supply Company."

The amended application was granted by the Tax Court and on April 20, 1961, Petition for Review by this Court followed. The Commissioner has made a motion to dismiss the petition for review, asserting that the order granting his application to take the deposition of von Siebenthal is not a "decision of the Tax Court" subject to our review as provided in Section 7482(a) of the Internal Revenue Code of 1954 (Title 26 U.S.C.A. § 7482(a)). He likewise contends that the entry of the challenged order was proper and within the power of the Tax Court. Petitioner taxpayer attacks the validity of the order for deposition upon the grounds detailed in its written objections filed in the Tax Court.

We have set out above the exact language of the Commissioner's amended application so as to disclose the true nature of the deposition which the Commissioner proposes to take. We construe it to be an application for leave to take a deposition for discovery. A fair reading of it demonstrates that while he seeks to perpetuate testimony, he likewise is seeking to employ the procedural aid of pre-trial discovery. His application, other than giving a description of the subject matter of his proposed inquiry, does not set out the facts which he desires to establish by the witness von Siebenthal, nor the substance of the testimony which he expects to elicit from him. (Such would be required if Rule 27 of the Federal Rules of Civil Procedure, 28 U.S.C.A., were available and employed by the Commissioner for the purpose of perpetuating testimony.) Absent some statement of what the witness is expected to say, it cannot be determined whether his testimony will be material and relevant. Whatever the form of procedure used, one seeking to perpetuate testimony must, by his application for leave to do so, demonstrate that the testimony sought "will be material in the determination of the matter in controversy; that the testimony will be competent evidence;" State of Arizona v. State of California, 292 U.S. 341, 348, 54 S.Ct. 735, 737, 78 L.Ed. 1298, 1301. Whether legally sufficient for either purpose, the application involved seeks leave to take a deposition which will both discover and perpetuate testimony.

Accordingly, the matters for decision here are, first, whether the order of the Tax Court is a "decision" of that court subject to review here under the authority of Section 7482(a), I.R.C.1954 (26 U.S.C.A. § 7482(a)) and, second, whether it was within the jurisdiction or authority of the Tax Court of the United States to order the taking of the deposition in question.

1) Motion to Dismiss Petition for Review: The statute authorizing this court to review decisions of the Tax Court of the United States is Section 7482(a), Internal Revenue Code 1954 (26 U.S.C.A. § 7482(a)) and, in pertinent part, reads as follows:

"(a) Jurisdiction — The United States Courts of Appeals shall have exclusive jurisdiction to review the decisions of the Tax Court, * * * in the same manner and to the same extent as decisions of the district courts in civil actions tried without a jury * * *."

The Commissioner here asserts that the order granting leave to take von Siebenthal's deposition is not a decision of the Tax Court. He argues that specific definition of "decisions of the Tax Court" is set forth in Section 7459(c), I.R.C.1954 (26 U.S.C.A. § 7459(c)), and that such definition does not comprehend the order sought to be reviewed on this appeal. The general title of that Section is "Reports and decisions;" its subsection (c) entitled "Date of decision" contains the language which the Commissioner asserts sets strict and confining limits to the general language "decisions of the Tax Court" contained in Section 7482(a). Section 7459(c) reads:

"(c) Date of decision — A decision of the Tax Court (except a decision dismissing a proceeding for lack of jurisdiction) shall be held to be rendered upon the date that an order specifying the amount of the deficiency is entered in the records of the Tax Court. If the Tax Court dismisses a proceeding for reasons other than lack of jurisdiction and is unable from the record to determine the amount of the deficiency determined by the Secretary or his delegate, or if the Tax Court dismisses a proceeding for lack of jurisdiction, an order to that effect shall be entered in the records of the Tax Court, and the decision of the Tax Court shall be held to be rendered upon the date of such entry."

His argument is that unless a decision of the Tax Court can be found to fit into the language of the above quoted section, it is not a "decision of the Tax Court;" that only where the Tax Court specifies an amount of deficiency or dismisses a petition for lack of jurisdiction or for other reasons, can its order be reviewed. Respondent's brief to this court says that by such subsection, "Congress * * * saw fit to define in precise terms just what constitutes a reviewable Tax Court decision." We disagree. If Congress intended to make such a limiting definition of the words, "decisions of the Tax Court" it could have done so in precise language. We are not persuaded that Congress left such an intent to be inferred from the language of a subsection of the statute which had for its only purpose the fixing of the date to be applied to certain types of decisions.

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