U.S. v. Antonio J. Sancetta, M.D., P.C.

• Decision Date: 10 April 1986
• Docket Number: D,No. 327,327
• Citation: 788 F.2d 67
• Court: U.S. Court of Appeals — Second Circuit
• Parties: , 57 A.F.T.R.2d 86-1158, 86-1 USTC P 9329 UNITED STATES of America, and Guy Tomasicchio, Special Agent, Internal Revenue Service, Plaintiffs-Appellants, Cross-Appellees, v. ANTONIO J. SANCETTA, M.D., P.C., Defendant-Appellee, Cross-Appellant, Dr. Antonio J. Sancetta, Defendant-Appellee, Cross-Appellant. ockets 85-6107, 85-6179.

Page 67

788 F.2d 67

87 A.L.R.Fed. 161, 57 A.F.T.R.2d 86-1158,

86-1 USTC P 9329

UNITED STATES of America, and Guy Tomasicchio, Special Agent, Internal Revenue Service Plaintiffs-Appellants, Cross-Appellees, v. ANTONIO J. SANCETTA, M.D., P.C., Defendant-Appellee, Cross-Appellant Dr. Antonio J. Sancetta, Defendant-Appellee, Cross-Appellant.

No. 327, Dockets 85-6107, 85-6179.

United States Court of Appeals Second Circuit.

Argued Oct. 29, 1985.

Decided April 10, 1986.

Gary D. Gray, Tax Div., Dept. of Justice, Washington, D.C. (Glenn L. Archer, Jr., Asst. Atty. Gen., Raymond J. Dearie, U.S. Atty., Michael L. Paup, William A. Whitledge, Attys. Tax Div., Dept. of Justice, Washington, D.C., of counsel), for plaintiffs-appellants, cross-appellees.

Michael Q. Carey, New York City (Carey & Deinoff, New York City, of counsel), for defendant-appellee, cross-appellant.

Before MESKILL, CARDAMONE, and WINTER, Circuit Judges.

CARDAMONE, Circuit Judge:

The government appeals from an order in a tax enforcement proceeding under 26 U.S.C. Sec. 7402(b) (1982), initiated when a sole shareholder corporate taxpayer and its taxpayer owner contested a summons pursuant to 26 U.S.C. Sec. 7602 (1982) issued against the corporation to obtain corporate records. The corporate taxpayer has cross-appealed. One question raised is whether the district court may designate a person to search the corporate taxpayer's office for records without first finding that the records being searched for in fact exist and that the taxpayer possesses them. A second question presented is whether the sole shareholder may refuse to produce corporate checking account records by claiming that the act of production would incriminate him.

With respect to the first issue, we hold that the trial court's findings that the records existed at one time and that the taxpayer had failed to carry its burden of proof on the affirmative defense of nonpossession were adequate to support the search order. Hence, on this issue we affirm. But, since the district court held that the act of production would incriminate the taxpayer, apparently because it believed that a sole shareholder should be treated like a sole proprietor, we must reverse on this second issue.

I Facts and Proceedings Below

In 1984 the Criminal Investigation Division of the Internal Revenue Service (IRS) commenced an inquiry into the federal income tax liabilities of Antonio J. Sancetta, M.D. for the years 1980 and 1981. On February 1, 1984 Special Agent Tomasicchio issued a summons to Dr. Sancetta's medical corporation, Antonio J. Sancetta, M.D., P.C. (Sancetta Corp.). ¹ Although addressed

to the corporation, the summons was personally served on Dr. Sancetta who is the sole shareholder and director of Sancetta Corp., as well as its President, Vice-President and Treasurer. The only other official connected to the corporation is Dr. Sancetta's wife who serves as its Secretary. The summons commands appellee corporation to appear, testify and produce the following corporate documents for the years April 1, 1979 through April 30, 1982:

(1) All ledgers, journals and workpapers reflecting cash receipts, receivables, payables, loans, disbursements, payroll (941's, including 1099's and W-2's), administrative expenses, petty cash and assets.

(2) All patient account records including daybook or calendar, history account cards, collection referrals, billing and payment records.

(3) All health insurance claim and payment records.

(4) All monthly bank statements, deposit tickets and cancelled checks for the corporate checking account and the records of all other corporate bank accounts.

(5) All other records of Antonio J. Sancetta, M.D., P.C. relevant to the preparation of tax returns.

Dr. Sancetta appeared in response to the summons but refused either to produce the requested documents or give testimony concerning their contents. The IRS then petitioned the United States District Court for the Eastern District of New York (Weinstein, Ch. J.) for an order enforcing the summons. The district court ordered the corporation to show cause why it should not be compelled to obey the summons. Dr. Sancetta moved to intervene and filed a proposed answer on the same day that the corporation responded to the enforcement petition. Both answers opposed the summons on the grounds that it "seeks the production of books, records, papers and other data, which, if they exist, have an undetermined ownership and location." Dr. Sancetta additionally asserted that the records were protected by the Fifth Amendment privilege against self-incrimination and by the doctor-patient privilege, and that the summons as issued was not sufficiently particular.

At a preliminary hearing, the district court found that Dr. Sancetta's Fifth Amendment objection precluded enforcement because a corporation formed solely for tax purposes by one person is "purely ephemeral. It doesn't exist. There is no corporation. [It is simply] a corporate idea." At a subsequent hearing the district judge modified this view somewhat and ordered on April 25, 1985 that Dr. Sancetta produce, through his secretary Gladys B. Endersby, all relevant patient account cards, health insurance forms, and patient appointment books, if they are found to exist, after a search of the corporation's office. The order did not enforce the summons with respect to monthly bank account statements, deposit tickets and cancelled checks for the corporate checking account.

The hearing record reveals that agent Tomasicchio relied on an earlier interview he and another agent had with Dr. Sancetta to establish the existence and Dr. Sancetta's possession of the requested records. Agent Tomasicchio stated that during the interview Dr. Sancetta admitted keeping each patient's account cards in his office during the relevant tax years and maintaining the corporate checking account records at home. Dr. Sancetta further admitted that his accountant had used the checking account statements and cancelled checks to The district court found that these records were probably in the doctor's possession unless he had previously destroyed them. Abandoning the view that Dr. Sancetta's Fifth Amendment privilege as the corporation's sole owner precluded production, the trial court held that because these banking records were kept in Dr. Sancetta's home, only an order to produce the records against him personally (rather than a summons issued to the corporation) would be effective. The court thereupon refused to require Dr. Sancetta to produce these records personally, presumably because it believed the act of production would incriminate him.

prepare the corporation's tax returns for the fiscal years 1979-1981.

The government appeals only from that part of the district court's order denying enforcement of the summons relating to the corporation's checking account records because the corporation has delivered all the relevant patient account cards and health insurance forms. The corporation and Dr. Sancetta appeal only from that part of the order--which we have stayed--requiring Mrs. Endersby to search the corporate offices for the corporation's patient appointment books for the relevant periods and, if they exist, to produce them.

II Challenging the Existence and the Possession of the Subpoenaed Records

To obtain enforcement of an IRS summons, the government must demonstrate that the summons is issued for a proper purpose, the inquiry may be relevant to that purpose, the information sought is not already within the Commissioner's possession, and the appropriate administrative steps have been followed. United States v. Powell, 379 U.S. 48, 57-58, 85 S.Ct. 248, 254-55, 13 L.Ed.2d 112 (1964). Once the government establishes a prima facie case for enforcement, the burden shifts to the taxpayer to disprove one of the four Powell criteria, or to demonstrate that judicial enforcement of the subpoena should be denied as an abuse of the court's process. United States v. Centennial Builders, Inc., 747 F.2d 678, 680 (11th Cir.1984); United States v. Barth, 745 F.2d 184, 186-87 (2d Cir.1984), cert. denied, --- U.S. ----, 105 S.Ct. 1356, 84 L.Ed.2d 378; United States v. Beacon Federal Savings & Loan, 718 F.2d 49, 52 (2d Cir.1983); United States v. Davey, 543 F.2d 996, 1000 (2d Cir.1976). Other defenses, such as nonpossession or a showing that the documents do not exist, may also be asserted. United States v. Rylander, 460 U.S. 752, 757, 103 S.Ct. 1548, 1552, 75 L.Ed.2d 521 (1983); Barth, 745 F.2d at 187.

The government enforcement petition satisfied the Powell requirements. The summons for Sancetta Corp.'s appointment books and corporate checking account records was properly issued to determine Dr. Sancetta's correct tax liability for the years under investigation and for the IRS to assess whether Dr. Sancetta should be prosecuted for income tax evasion or in a civil suit for fraud. The enumerated documents are plainly relevant to these determinations and the information sought is not already in the possession of the IRS. Moreover, all appropriate administrative steps were followed and a prima facie showing of the existence and personal possession by Dr. Sancetta of all corporate checking account documents was made by the IRS Agent in his January 28, 1985 affidavit.

Appellee does not seriously dispute that the prima facie Powell showing was made. Rather, he contends that the government had the burden of proving the existence and location of the subpoenaed records. More particularly, with regard to the checking account records, appellee asserts that his answers to Agent Tomasicchio's February 1, 1984 questions were confused, because he did not understand that he was being asked whether he kept the 1979-1981 records at home. The claimed confusion is not convincing. Despite some minor discrepancies in the accounts of those conversations given by the two IRS agents, it is clear that Dr. Sancetta understood the...