Schlick v. United States
| Decision Date | 24 April 1984 |
| Docket Number | No. 83 C 2856.,83 C 2856. |
| Citation | 586 F. Supp. 433 |
| Parties | Albert and Sandra SCHLICK, Petitioners, v. UNITED STATES of America, Respondent. |
| Court | U.S. District Court — Northern District of Illinois |
Donald A. Statland, Chicago, Ill., for petitioners.
Ronald F. Fischer, Trial Atty., Tax Div., Dept. of Justice, Washington, D.C., Eileen M. Marutzky, Asst. U.S. Atty., Chicago, Ill., for respondent.
This case was begun by a petition by plaintiffs to quash the service of summonses issued by the Internal Revenue Service to a Frederick D. Rawles, who is the Secretary and Registered Agent for two of plaintiffs' corporations, and to a Lee H. Frank, who is the plaintiffs' accountant. The plaintiffs moved to quash the summons on the ground that Rawles and Frank were "third-party recordkeepers" and under the provisions of the applicable federal law, their status as third-party recordkeepers gives the taxpayer (Schlick) the right to intervene and begin a proceeding to quash the summonses.
This case is one of the first filed in this district demanding an interpretation of the new Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA) which took effect on January 1st of 1983. The facts are sufficient in the pleadings and uncontroverted representations of the parties to permit me to rule dispositively on the matter.
The Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA) affected many areas of Title 26—the Internal Revenue Code, from tax deductions to casualty losses. The only provision of the new law which concerns us in this Schlick case is § 7609 which changes the procedure by which the taxpayer can prevent a "third-party recordkeeper" from complying with an administrative summons.
Under the old law, if a summons were issued to a third-party recordkeeper, notice had to be given to the taxpayer by the government and the taxpayer could prevent the third-party from complying by writing a stay letter to the third party. The government then had to go to the District Court to enforce the summons and the noticee (taxpayer) could intervene and object to the summons. Under TEFRA, the summons must be complied with unless the taxpayer begins a proceeding to quash the summons.
In the Schlick case here, the government issued two summonses to Mr. Rawles, Secretary and Registered Agent for two of Mr. Schlick's corporations. Mr. Rawles is also an attorney. The government also issued one summons to Mr. Frank, the Schlicks' accountant. The government's first argument is that taxpayer Schlick has no right to enter a motion to quash the summons because Mr. Rawles is not a third-party recordkeeper.
Section 7609 waives sovereign immunity and grants a right to sue the United States in the limited case of a petition to quash summons. Only persons entitled to notice under § 7609 may sue, and a person is not entitled to notice unless a summons is issued to a "third-party recordkeeper."
Under the statute,* a third-party recordkeeper is:
In order for the taxpayer to have a right to receive notice of the summons and have the right to file a motion to quash, the summons must require "the production of any portion of records made or kept of the business transactions or affairs of any person (other than the person summoned) who is identified in the description of the records..." § 7609(a)(1)(B).
Indeed, Mr. Rawles is an attorney, but he is not an independent third-party. He is Secretary and Registered Agent of Mr. Schlick's two corporations, and the summonses were issued to him in that capacity. In the legislative history, records of this type are not within the scope of § 7609. The summonses do not seek data about some third party's transactions with the taxpayer but seek the corporations' records about themselves or about their own two-party dealings with Mr. Schlick. An example used in Senate Report # 94-938 (94th Cong., 2d Sess. 369), U.S.Code Cong. & Admin.News 1976, p. 2897 relates to an administrative summons served on a partnership (which would fit into one of the categories in § 7609(a)(3)) with respect to records of the partnership's own transactions. This summons would not be subject to § 7609 because the partnership was not involved in making or keeping records involving transactions with other persons. Another example can be found in Commerce Clearing House Regulations ¶ 5930 CB which states that an accountant is not a third-party recordkeeper with respect to the accountant's records of a sale of property by the accountant to another person. Generally and under normal circumstances when the accountant is giving advice to a client, the accountant is a third-party recordkeeper.
The corporation in this case is in much the same position as the accountant who is himself dealing with another...
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Dean v. United States, Civ. No. A 84-237.
...with an individual, he is not considered a third-party recordkeeper vis-a-vis that individual under § 7609. See Schlick v. United States, 586 F.Supp. 433, 434-435 (D.Ill. 1984). Petitioner Dean is plainly not in an accountant-client relationship with the Accounting Department of Providence ......
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Buckner v. United States, 84 C 1694.
...person summoned, as is the case here. As a result, Buckner lacks standing to quash the summons under § 7609(a). Schlick v. United States, 586 F.Supp. 433, 434 (N.D. Ill.1984); Godwin v. United States, 564 F.Supp. 1209, 1211 Accordingly, the government's motion to dismiss Buckner's petition ......