Riland v. Comm'r of Internal Revenue

• Decision Date: 02 August 1982
• Docket Number: Docket No. 6854-79.
• Citation: 79 T.C. 185
• Parties: W. KENNETH RILAND and GLADYS G. RILAND, PETITIONERS v. COMMISSIONER of INTERNAL REVENUE, RESPONDENT
• Court: U.S. Tax Court

79 T.C. 185

W. KENNETH RILAND and GLADYS G. RILAND, PETITIONERS

v.COMMISSIONER of INTERNAL REVENUE, RESPONDENT

Docket No. 6854-79.

United States Tax Court

Filed August 2, 1982.

1. The Department of Justice's files relating to petitioner-husband were lost in 1973, but subsequently recovered. Held, the loss of such files does not constitute a violation of due process entitling petitioners to summary judgment or suppression of evidence.

2. Petitioner-husband was tried and acquitted of criminal tax fraud in May 1974. Respondent mailed a statutory notice of deficiency to petitioners concerning the years involved in the criminal trial and several prior years in March 1979. Petitioners argue that respondent's near 5-year delay in issuing a notice of deficiency after the criminal trial acquittal constituted a violation of due process, a violation of the Administrative Procedure Act (specifically, 5 U.S.C. secs. 555(b), 706(1) (1976)), and a violation of respondent's own procedures, requiring the invalidation of the deficiency notice or suppression of certain evidence. Held, petitioners are entitled to no due process relief on the ground of delay because they have failed to show actual prejudice from the delay. Held, further, petitioners are entitled to no relief under the cited Administrative Procedure Act provisions. Held, further, any violations of respondent's own procedures in the post-criminal-trial review period did not rise to the level of due process violations in the instant case.

3. Petitioners contend that respondent engaged in spoliation and destruction of evidence and that this behavior violated due process. In particular, one of respondent's agents destroyed the original notes of interviews he conducted with petitioner-husband and third parties after incorporating such notes into more formal memoranda. Held, the destruction of such notes does not constitute a ground for summary judgment or suppression of evidence since petitioners have not shown the notes were destroyed on the eve of trial or that their contents substantially differed from the formal memoranda. Held, further, no other spoliation or destruction of evidence meriting sanctions occurred.

4. Petitioners contend that respondent obtained certain documentary evidence by way of a conspiracy with petitioners' accountant in violation of their Fourth, Fifth, and Sixth Amendment rights. They request summary judgment or suppression of this evidence. Held, the Sixth Amendment does not require the suppression of such evidence in a civil trial. Harper v. Commissioner, 54 T.C. 1121, 1137 (1970), followed. Held, further, summary judgment would be inappropriate as a sanction. Held, further, there appearing to be genuine issues as to material facts in dispute regarding the motives, intent, and knowledge of petitioner-husband and petitioners' accountant, an evidentiary hearing is ordered on the Fourth and Fifth Amendment claims. Boris Kostelanetz and Edward J. Daus, for the petitioners.

Richard M. Campbell and Michael N. Balsamo, for the respondent.

OPINION

NIMS , Judge:

This case is before us on petitioners' motion for summary judgment or, in the alternative, suppression of evidence. The issues for decision are: (1) Whether the alleged loss of the Department of Justice's files relating to petitioner W. Kenneth Riland in 1973 constitutes a violation of petitioners' due process rights; (2) whether respondent has engaged in unconstitutional delay in issuing his statutory notice of deficiency to petitioners; (3) whether petitioners' rights to due process have been violated by spoliation and intentional destruction of evidence allegedly engaged in by respondent's agents; and (4) whether petitioners' books and records were improperly obtained by respondent by means of an alleged conspiracy between petitioners' accountant and respondent's agents in violation of petitioners' rights under the Fourth, Fifth, and Sixth Amendments to the Constitution. For each of these alleged violations, petitioners seek either the entry of summary judgment against respondent or, alternatively, suppression of certain possible testimony or documentary evidence.

Pursuant to Rule 121,¹ petitioners and respondent filed affidavits with exhibits in connection with the instant motion. These documents and the pleadings contain the facts used for purposes of this motion. Rule 121(b). Certain material facts, as to which there is no genuine issue, follow. Where a genuine issue exists, we so indicate.

Petitioners Dr. W. Kenneth Riland (hereinafter referred to as petitioner or Dr. Riland) and Gladys G. Riland, husband and wife, resided at New York, N.Y., at the time the petition was filed.

Dr. Riland, a prominent New York City osteopath, during the years 1962-70 numbered among his patients such notable figures as former President Richard M. Nixon and the late Vice President Nelson A. Rockefeller. During this period, petitioner retained two accountants: one, Norman Goffner (Goffner), to keep his books and records, and another, Bernard Weiner (Weiner), to prepare his Federal income tax returns.

In March 1971, Revenue Agent Stanley Ringel (Ringel) was assigned to audit petitioner's 1969 income tax return. On May 21, 1971, Ringel began a field audit of Dr. Riland's return at Weiner's offices. During the morning of that day, Ringel reviewed numerous records relating to the 1969 tax year. Shortly after lunch, Ringel made a routine request to see passbooks relating to any savings accounts maintained by petitioners. Ringel wanted to look for any unreported interest income or unexplainable cash deposits. Weiner did not have possession of any passbooks, so he and Ringel proceeded to Dr. Riland's offices where Ringel was introduced to Dr. Riland, and two savings account passbooks were produced. Weiner and Ringel then returned to Weiner's offices, where Ringel reviewed the contents of the passbooks.

Ringel noted approximately $19,000 in deposits to these accounts in 1969 and asked Weiner if he knew the source of the deposits. Weiner said he did not. At that point, photostatic copies of the two passbooks were made for Ringel to keep. Years other than 1969 covered by the passbooks were also photocopied.

It is respondent's position in this case that these unexplained deposits (both in 1969 and several other years) represented, in part, per visit fees paid on behalf of Richard M. Nixon and retainer fees from Nelson A. Rockefeller, which amounts were neither revealed to petitioners' accountants nor reported by petitioners as income.

On May 25, 1971, Ringel met Dr. Riland at the latter's office. A line on Ringel's “Examining Officer's Activity Record,” intended to be a contemporaneous memorandum, contains the following entry for that date: “Appt. 3:30 P.M. at Dr. Riland's office—-questioned about deposits to sav. a/cs—-could not offer explanation.”

In a handwritten draft of a report dated September 22, 1971, from Ringel to the Chief of the Audit Division, Ringel described the events of May 25, 1971, as follows:

Appointment made 3:30 pm at Dr. Riland's office to discuss with Dr. Riland source of deposits. Dr. Riland could offer no plausible explanation why the deposits were not included in gross income and he stated that perhaps I should have him put into jail.

Ringel's Group Chief, Bernard Singer, crossed out the words “and he stated that perhaps I should have him put into jail” on this draft.

A second handwritten draft of this report was prepared by Ringel. In this second draft, Ringel described the events of May 25, 1971, as follows:

Appointment made at Dr. Riland's office to discuss with the taxpayer source of deposits. Dr. Riland could offer no possible explanation why the deposits were not included in gross income. After editing by Ringel's Branch Chief, a third handwritten draft of the above passage read as follows:

Appointment made at Dr. Riland's office to discuss with the taxpayer the source of deposits. Dr. Riland could offer no possible explanation as to the source of the deposits and why the deposits were not included in gross income. [[[Emphasis added as to additional language.]

This third draft was then typed and signed by Ringel.

Sometime in late 1971 or early 1972, Special Agent Sidney Connor (Connor) and Ringel prepared a typewritten summary of Ringel's contacts and interviews with Dr. Riland. In regard to the events of May 25, 1971, this summary, signed by Ringel only, stated:

On 5/25/71 I went to Dr. RILAND'S office where I spoke to him. At this conference when I asked him to explain the source of unexplained deposits for 1969, Dr. RILAND stated that he did not know the source of the deposits and did not know why the deposits were not included in Gross Receipts.

Dr. RILAND held out his hands and said to me “Arrest Me” at this conference.

At Dr. Riland's criminal trial, discussed infra, Ringel testified that on May 25, 1971, in response to Ringel's inquiries, Dr. Riland stated that—-

He [Dr. Riland] had no idea what the source of these deposits were, and his secretary usually handled his deposits into bank accounts, and she was on vacation, and he could offer me [Ringel] no explanation of what the deposits represented. Then he also held up his hands and said, “Well, what are you going to do now, arrest me?”

Ringel further testified that he told Dr. Riland he was not there to arrest him, but only to find out the source of the deposits.

In June 1971, Dr. Riland signed a power of attorney appointing Weiner as the doctor's representative before the Internal Revenue Service (IRS) with respect to the taxable years 1969 and 1970. Shortly thereafter, Ringel referred his investigation to the Intelligence Division and began investigating Dr. Riland for possible criminal fraud under the supervision of Special Agent Joseph T. Della Porta (Della Porta).

On September 30, 1971, Special Agent Della Porta and Ringel met with Weiner at the accountant's offices and read him the text of ...