Shakespeare Company v. United States

• Decision Date: 19 January 1968
• Docket Number: No. 448-65.,448-65.
• Citation: 389 F.2d 772
• Parties: SHAKESPEARE COMPANY v. The UNITED STATES.
• Court: U.S. Claims Court

389 F.2d 772 (1968)

SHAKESPEARE COMPANY v. The UNITED STATES.

No. 448-65.

United States Court of Claims.

January 19, 1968.

Michael M. Doyle, Washington, D. C., for plaintiff, George D. Webster, Washington, D. C., attorney of record.

Mitchell Rogovin, Asst. Atty. Gen., for defendant. Edward B. Greensfelder, Jr. and Philip R. Miller, Washington, D. C., of counsel.

Before COWEN, Chief Judge, and LARAMORE, DURFEE, DAVIS, COLLINS, SKELTON, and NICHOLS, Judges.

ON DEFENDANT'S REQUEST FOR REVIEW OF COMMISSIONER'S ORDER

LARAMORE, Judge.

Plaintiff, Shakespeare Company, is a manufacturer of fishing tackle which was subject to tax under section 4161 of the Internal Revenue Code of 1954 on sales of its products at the rate of 10 percent of the price for which such taxable articles were sold. It sells all of its products to volume purchasers which resell to others. It sold its own "Shakespeare" brand name fishing reels at approximately 55 percent off list price. The evidence established that a number of such sales were made to companies having warehouses which sold to retail stores from catalogues and through outside traveling salesmen. It also sold fishing reels to South Bend Fishing Tackle Company (for resale under the South Bend label), at approximately 70 percent off list price.

Section 4216(b) (2) of the 1954 Code, for the period in suit, provided a special constructive sales price rule for manufacturers (otherwise qualifying for its use) which sell to retailers and to one or more wholesale distributors. The special rule is that the manufacturers' excise tax on a taxable article shall be computed on the lesser of (1) the price for which such article is sold or (2) the highest price for which the same article is sold by the manufacturer to wholesale distributors. The Internal Revenue Service computed plaintiff's tax liability here in issue by using as the tax base prices equivalent to 55 percent off list, because this was both the actual price and the price at which it sold to wholesale distributors.¹

Trial was scheduled in Chicago for June 5, 1967. On June 2, 1967, plaintiff caused to be served upon Bernard H. Fischgrund, Chief Excise Tax Branch, Internal Revenue Service, a subpoena duces tecum, requesting his appearance to testify and to bring with him copies of all private rulings and letter rulings issued by the National Office of the Internal Revenue Service since August, 1954, in respect to the following:

1. Determinations under Sections 4216(b), 4216(b)(1), and 4216(b)(2) 1954 Code, and Treas.Reg., Sec. 148.1-5(b) and Treas.Reg., Sec. 316.15(b) as to applicable constructive sales prices resulting from sales in the ordinary course of trade or sales to wholesale distributors; and

2. Determinations as to the existence of a wholesale distributor or distributors of wholesale sales within the meaning of Treas.Reg., Sec. 148.1-5 (b) and Treas.Reg., Sec. 316.15(b) or any predecessor regulations.

At the close of trial the trial commissioner ordered Mr. Fischgrund to appear and testify in Washington, D. C., at a time to be subsequently arranged.

The government contends that a substantial number of the purchasers of plaintiff's "Shakespeare" brand reels at 55 percent off list (those which resold to retailers), were "wholesale distributors," and that the sales prices to them were the highest prices at which such articles were sold by plaintiff to wholesale distributors. The plaintiff contends that none of those which purchased at 55 percent off list price were "wholesale distributors" and, therefore, the only prices to a wholesale distributor (70 percent off list) were those at which it sold to South Bend.

Thus, says the government, the issue is whether any of the purchasers which purchased at 55 percent off list price were "wholesale distributors" within the meaning of the statute.

Plaintiff contends that it is entitled to have the special rule of section 4216(b) (2) applied to it. It further contends that the evidence shows that Shakespeare regularly sells its fishing tackle to retailers, at 55 percent off list price, and also regularly sells the same tackle to one wholesale distributor, South Bend, at 70 percent off list price. Plaintiff contends further that the evidence showed that the normal method of sales for fishing tackle in the industry is not to sell at retail or to retailers, and that Shakespeare's sales to South Bend were, and are, arms-length transactions.

The instant case arises on defendant's request for a review of the commissioner's order relative to its motion under rule 51(c) to quash, or in the alternative to modify, the subpoena duces tecum served on Mr. Fischgrund.

The order of Commissioner James F. Davis regarding defendant's motion to quash, or in the alternative to modify, reads as follows:

On June 2, 1967, plaintiff served a subpoena duces tecum on Bernard H. Fischgrund, Chief, Excise Tax Branch, Miscellaneous Tax Division, Office of the Assistant Commissioner, Technical, Internal Revenue Service, to appear in Chicago, Illinois, on June 6, 1967, or, in Washington, D. C., at such other time as may be convenient with the court. At the trial in Chicago on June 5 to 8, 1967, it was agreed by the parties and approved by the Commissioner, to defer taking the testimony of Mr. Fischgrund.1

1. The subpoena did not comply with Rule 51(b) (1) nor was it served on Mr. Fischgrund personally. Government counsel noted this at the trial in Chicago but raises neither point in his motion to quash.

Defendant, on July 10, 1967, filed a motion under Rule 51(c) to quash, or in the alternative to modify, the subpoena duces tecum on the grounds that it is "unreasonable and oppressive." Plaintiff filed a brief in response to defendant\'s motion. The documents called for in the subpoena are:

Copies of all private rulings and letter rulings issued by the National Office of the Internal Revenue Service since August, 1954, in respect to the following:

1. Determinations under Sections 4216(b), 4216(b)(1) and 4216(b)(2) and Treas.Reg. 148.1-5(b) and Treas. Reg. Sec. 316.15(b) as to applicable constructive sales prices resulting from sales in the ordinary course of trade or sales to wholesale distributors, and

2. Determinations as to the existence of a wholesale distributor or distributors of wholesale sales within the meaning of Treas.Reg. 148.1-5(b) and Treas.Reg. Sec. 316.15(b) or any predecessor regulations.

Defendant included with its motion the affidavit of Mr. Fischgrund, setting forth IRS procedures for rendering and cataloguing letter rulings to taxpayers. The affidavit states that some letter rulings are published, others are filed in a so-called "Precedent File" and others are filed in a "Non-Precedent File." The precedent file is classified and digested by IRS Code Sections. The non-precedent file is maintained chronologically and alphabetically by names of the taxpayers. The affidavit also states it would take approximately 2 weeks for a tax law specialist in the International Revenue Service to search and identify the documents in the precedent file and 3 to 6 months for the non-precedent file. Defendant therefore considers plaintiff\'s subpoena "unreasonable and oppressive." In the alternative, defendant moves that the subpoena be modified to require production only of the precedent rulings issued under Section 4216(b)(2), 1954 Code, as to applicable constructive sales prices resulting from sales to wholesale distributors.

Defendant argues that Section 4216(b) (1) is irrelevant to this case since plaintiff\'s counsel admitted at trial that plaintiff sells no goods "at retail" but only "to retailers."

An informal conference was held August 8, 1967, with counsel for the parties, to discuss the motion and a suitable order. In view of the matters discussed at the conference and the briefs of the parties, IT IS HEREBY ORDERED THAT:

1. (a) Defendant shall make available for inspection and copying by plaintiff all letter rulings since 1954 in the precedent file, classified and digested under Section 4216(b)(2) of the Internal Revenue Code of 1954, at a time and place to be mutually agreed upon by the parties, but not later than August 29, 1967;

(b) In any copies made of the documents noted in 1.(a) above, the names of persons, corporations or other identifying details shall be deleted;

(c) This order, with respect to paragraphs 1.(a) and (b) above, shall be deemed an order made for discovery under Rule 40.

2. (a) Defendant shall make available for inspection and copying by plaintiff (i) all letter rulings since 1954 in the precedent file, classified and digested under Section 4216(b) (1), and (ii) all letter rulings since January 1, 1959, in the non-precedent file which relate to determinations under Section 4216(b), 4216(b)(1), and 4216(b)(2), and Treasury Regulation See. 148.1-5(b) and Treasury Regulation Sec. 316.15(b) as to applicable constructive sales prices resulting from sales in the ordinary course of trade or sales to wholesale distributors, and determinations as to the existence of a wholesale distributor or distributors of wholesale sales within the meaning of Treasury Regulation See. 148.1-5(b) and Treasury Regulation See. 316-15 (b) or any predecessor regulations;

(b) Plaintiff shall pay the reasonable cost, including searching time, of producing the documents named in paragraph 2. (a) hereof;

(c) Compliance with paragraph 2. (a) hereof shall be at a time and place mutually to be arranged by the parties and approved by the commissioner after the taking of testimony of Bernard H. Fischgrund as ordered in paragraph 3. below; and

(d) This order, with respect to paragraphs 2.(a), (b) and (c) above, shall be deemed an order made for discovery under Rule 40.

3. Bernard H. Fischgrund shall comply with the subpoena issued June 2, 1967, and appear as a witness in the trial of this cause at 10:00 a.m., Friday, September 8, 1967, United States Court of Claims, 717 Madison Place, N.W.,

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