Ryan v. Comm'r of Internal Revenue

• Decision Date: 15 November 1976
• Docket Number: Docket No. 4800—69.
• Citation: 67 T.C. 212
• Parties: RAYMOND J. RYAN AND HELEN RYAN, PETITIONERS v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT
• Court: U.S. Tax Court

67 T.C. 212

RAYMOND J. RYAN AND HELEN RYAN, PETITIONERS

v.COMMISSIONER OF INTERNAL REVENUE, RESPONDENT

Docket No. 4800—69.

United States Tax Court

Filed November 15, 1976.

Petitioners were ordered by this Court to answer respondent's interrogatories but they refused to do so. Petitioners appealed from that order but the appeal was dismissed because our order was not a final order. Pending the appeal, petitioners were granted use immunity by an order of the U.S. District Court for the District of Columbia. Subsequently petitioners were again ordered by this Court to answer the interrogatories but they again refused to do so. Held: Petitioners may not avoid answering the interrogatories on a claim of privilege under the fifth amendment to the U.S. Constitution. They have not established the requisite reasonable basis for apprehension of the hazards of self-incrimination. Held, further, petitioners may not avoid answering the interrogatories on a claim of marital privilege against adverse spousal testimony. Held, further, petitioners' claim of protection under the fourth amendment to the U.S. Constitution is premature.

Held, further: Petitioners are in contempt of court. As sanctions for disobedience of this Court's orders—

1. Pursuant to Rule 104(c)(1), Tax Court Rules of Practice and Procedure, respondent's answers to his interrogatories are taken to be established for the purposes of this case.

2. Pursuant to sec. 7456(d), I.R.C. 1954, and Rule 13(c), Tax Court Rules of Practice and Procedure, petitioner Raymond J. Ryan is fined $1,000.

Held, further, respondent's motion for a protective order against being required to answer petitioners' interrogatories is denied and respondent is directed to answer the interrogatories. Raymond G. Larroca, for the petitioners.

Sommers T. Brown, for the respondent.

OPINION

DRENNEN, Judge:

This protracted litigation, which is still in the pretrial stages, had its genesis in the petition filed by petitioners in this Court in 1969 asking the Court to redetermine the deficiencies in petitioners' joint income taxes for the years 1958 through 1962, totaling.$4,375,868.48, and additions to tax for fraud for each of those years totaling $2,312,322.35.

As reflected in the opinion of this Court found in Raymond J. Ryan, 58 T.C. 107, on October 16, 1969, the Internal Revenue Service of the United States requested from the Federal Tax Administration of Switzerland on the basis of article XVI of the Double Taxation Convention of May 24, 1951, between Switzerland and the United States, information from the books and records of a Swiss bank on allegedly questionable dealings between that bank and petitioner Raymond J. Ryan, asserting there was reason to suspect that Ryan had defrauded the United States tax authorities. Ryan and the bank objected to this procedure but eventually, on the basis of the decision of the Swiss Federal Supreme Court in X. v. The Federal (Swiss) Tax Administration, 28 AFTR2d 71—5510, 71—1 USTC par. 9435 (Dec. 23, 1970), the Swiss Federal Tax Administration apparently gave the Internal Revenue Service the information requested, or at least part thereof. Thereafter respondent sought authority from this Court to request the United States Competent Authority, as referred to in the Double Taxation Convention of 1951, to request the Swiss Competent Authority to take depositions upon written interrogatories of various officers of the Swiss bank for the purpose of obtaining evidence of petitioners' dealings with the Swiss bank in a form that would be admissible as evidence in this proceeding. This authority was granted by this Court by order entered April 24, 1972, for reasons explained in the opinion of this Court referred to above.

When the Swiss Competent Authority attempted to obtain the evidence requested by the U.S. Competent Authority through the interrogatories, petitioners again objected and appealed to the Swiss Federal Supreme Court. However, in x. and Y-Bank v. Confederation (Swiss) Tax Administration, 37 AFTR2d 76—1282, 76—1 USTC par. 9452 (May 16, 1975), the Swiss Federal Supreme Court held that while under the tax treaty information from bank records could be made available to the Internal Revenue Service under certain conditions, the treaty did not authorize the Swiss Confederation Tax Administration to furnish the Internal Revenue Service with evidence from the bank records in a form that would be admissible in evidence in a trial in the United States Courts. Pursuant to that decision the Swiss Confederation Tax Administration refused, so we are informed, to furnish the evidence requested for use in this proceeding. Activity in this proceeding was more or less suspended until the culmination of the Swiss proceedings.

On January 18, 1974, respondent served on petitioners seven interrogatories pertaining to petitioners' transactions with the Swiss bank or Swiss banking officers. Petitioners objected to the interrogatories on the grounds, inter alia, that these answers would incriminate them in violation of their rights under the fifth amendment to the U.S. Constitution. For reasons appearing in the transcript of these proceedings and discussed in the briefs, this Court by order entered May 24, 1974, granted respondent's motion to compel answers to the interrogatories and directed petitioners to answer the interrogatories. Petitioners filed a writ of mandamus with the United States Court of Appeals for the Seventh Circuit to compel the Chief Judge of the Tax Court to vacate its order, which writ was denied. Petitioners also filed with the Court of Appeals for the Seventh Circuit an appeal from the order. On May 23, 1975, the Court of Appeals dismissed petitioners' appeal for the reason that the order was not an appealable final order and suggested that the procedure for petitioners to test the validity of the Tax Court order was to fail to comply with the order and risk being held in contempt of the Court. See Ryan v. Commissioner, 517 F.2d 13 (7th Cir. 1975), cert. denied 423 U.S. 892 (1975).

During the pendency of the appeal in the Seventh Circuit, the Department of Justice obtained from the United States District Court for the District of Columbia an immunity order pursuant to 18 U.S.C. sections 6002 and 6003 protecting petitioners from the use against them in any subsequent criminal proceedings of testimony which they may be required to give in the proceedings in the Tax Court. Petitioners appealed the immunity order to the United States Court of Appeals for the District of Columbia Circuit on the grounds, inter alia, that it was granted in an ex parte proceeding and that the immunity was not coextensive with their rights under the fifth amendment. On June 28, 1976, the United States Court of Appeals for the District of Columbia Circuit dismissed petitioners' appeal on the grounds that the immunity order was not an appealable final order and also suggested the contempt procedure as a vehicle for adjudication of petitioners' claims. See In Re Ryan, 538 F.2d 435 (D.C. Cir. 1976), 38 AFTR2d 76—5452, 76—2 USTC par. 9518, dismissing appeal from an unreported District Court decision.

Upon conclusion of the appellate proceedings above mentioned, this Court entered an order on July 16, 1976, again directing petitioners to answer respondent's first interrogatories on or before July 28, 1976. By letter dated July 28, 1976, from their attorney, petitioners declined to comply with the Court's order. In the meantime, both petitioners filed with the Court a claim of marital privilege against either spouse testifying against the other. By order dated July 30, 1976, the Court set August 18, 1976, for hearing on: (1) Petitioners' claims of marital privilege; (2) what sanctions if any should be imposed on petitioners for failure to comply with the Court's order to answer respondent's first interrogatories; and (3) a motion filed by respondent for a protective order against being required to answer petitioners' initial interrogatories served upon respondent.¹

Per order dated August 24, 1976, this Court ruled as follows in respect of the matters considered at the hearing held August 18, 1976: Petitioners' claims of marital privilege were denied to the extent the claims were made to avoid answering respondent's interrogatories as directed by this Court by its orders entered May 24, 1974, and July 16, 1976; respondent was permitted to proffer his answers to his first interrogatories, which answers would be deemed admitted unless petitioners filed their own answers on or before September 10, 1976; and respondent's motion for a protective order was denied and respondent was directed to answer or object to petitioners' initial interrogatories on or before October 18, 1976.

This Court's order of August 24, 1976, further specified that if petitioners did not answer respondent's first interrogatories by September 10, 1976, petitioners would be held to be in contempt of this Court and subject to penalty of fine to be determined. Petitioners did not file answers to the interrogatories. Accordingly, pursuant to the above order and upon notice given per order dated September 17, 1976, this Court set October 1, 1976, for further hearing as to the citation for contempt and penalty therefor.

Counsel for both parties were present at the hearing on October 1, 1976, as was Raymond J. Ryan. Helen Ryan was not present but filed a waiver of her right to be present. All were given an opportunity to be heard. At the conclusion of the hearing the Court found petitioners to be in contempt of Court for failing and refusing to obey the Court's orders to answer the interrogatories. As a sanction for petitioners' civil disobedience the Court ordered that respondent's answers to the interrogatories would be taken as established as facts for purposes of this case. As punishment for contumacious disobedience of the Court's orders, an unconditional fine of $1,000 was imposed on ...