U.S. v. Gilpin

• Citation: 542 F.2d 38
• Decision Date: 03 September 1976
• Docket Number: No. 76-1359,76-1359
• Parties: 76-2 USTC P 9636 UNITED STATES of America and Patrick W. McDermott, Special Agent of the Internal Revenue Service, Petitioners-Appellees, v. Sam GILPIN, as President of Illinois Office Supply Company, and Illinois Office Supply Company, Respondents-Appellants.
• Court: U.S. Court of Appeals — Seventh Circuit

Page 38

542 F.2d 38

76-2 USTC P 9636

UNITED STATES of America and Patrick W. McDermott, Special

Agent of the Internal Revenue Service, Petitioners-Appellees, v. Sam GILPIN, as President of Illinois Office Supply Company, and Illinois Office Supply Company, Respondents-Appellants.

No. 76-1359.

United States Court of Appeals, Seventh Circuit.

Argued June 4, 1976.

Decided Sept. 3, 1976.

Lewis M. Porter, Jr., Chicago, Ill., for respondents-appellants.

Samuel K. Skinner, U. S. Atty., Chicago, Ill., Scott P. Crampton, Asst. Atty. Gen., William A. Whitledge, Atty., Tax Div., Dept. of Justice, Washington, D. C., for petitioners-appellees.

Before CUMMINGS and BAUER, Circuit Judges, and GRANT, Senior District Judge. ^*

PER CURIAM.

Appellees, United States of America and Internal Revenue Special Agent Patrick W. McDermott, filed a petition on 25 September 1975 in the United States District Court for the Northern District of Illinois, Eastern Division, to enforce compliance with an Internal Revenue Service summons. The summons sought the production of designated books and records of Appellant Gilpin for the years 1969 through 1972 and Gilpin's testimony relating to the tax liability of Illinois Office Supply Company, the corporation of which Gilpin is president. The district court entered an order on 21 October 1975 requiring appellants to show cause why they should not comply with the terms of the summons. Appellants responded and filed a motion to dismiss. Subsequently, on 9 January 1976, a hearing was held on the order to show cause. On 22 January 1976, the court ordered that the summons be enforced and entered as its Findings of Fact and Conclusions of Law those submitted by appellees. Thereafter, appellants' motion for new trial was denied by the district court for the reason that the "new evidence neither contradicts nor alters the evidentiary basis upon which this court determines that the investigation had not been completed." Appellants thereupon filed the instant appeal.

Appellants contend that § 7605(b) of the Internal Revenue Code of 1954 authorizes only one inspection of a taxpayer's books of account for each taxable year unless, after investigation, the Commissioner notifies the taxpayer that an additional inspection is necessary. In this regard, appellants assert that the Revenue Agent who conducted the investigation in this case, Robert Chejlava, had completed his examination and that the summons issued herein was in aid of a second examination for which the statutory notice requirement was not fulfilled. Appellants assert that Agent Chejlava's testimony as to whether he completed his examination lacks trustworthiness in that he previously admitted to the bookkeeper, Verna Irwin, having completed his examination of the taxpayer prior to the summons hearing. Even if Agent Chejlava did not complete his examination, however, appellants contend that the district court's conclusion that the notice provisions of § 7605(b) are inapplicable is not supported by the record. Finally, appellants claim that the summons in review here was issued merely to harass them. This court is urged, then, for the above reasons, to reverse the order of the district court with directions to dismiss the petition with prejudice.

Appellees respond by saying that the enforcement of the summons herein, which was issued as part of an ongoing investigation, does not constitute a second inspection within the meaning of § 7605(b). In this regard, although it is admitted that the facts of this case are somewhat in dispute, appellees claim that Agent Chejlava, while he was still examining the taxpayer's books, discovered an indication of fraud. Thereupon, as required by IRS procedure, he referred the case to the Intelligence Division which then issued the summons. In such a situation, appellees contend that a second inspection notice is not required. This is especially so, say appellees, where the facts of this case show that the Revenue Agent had not completed his audit of taxpayer when the matter was referred to intelligence. Furthermore, appellees assert that Agent Chejlava's purported admission is inconsistent with the other facts of the case. Here, appellees are referring to the testimony of bookkeeper Irwin who stated that Agent Chejlava had said that he had completed the corporation audit a year prior to the issuance of the summons. Appellees contend that this uncorroborated testimony, which the trial court found to be less credible than that of Agent Chejlava, should not be controlling in this appeal. Finally, appellees argue that the time spent by Agent Chejlava on the audit is irrelevant to the determination of whether the Service was entitled to the enforcement of the summons. For all of these reasons, appellees ask this court to affirm the district court's decision to enforce the Internal Revenue Service summons.

The sole issue that is presented in this appeal is whether the summons issued herein was part of an ongoing investigation, or whether the issuance of the summons constituted a second inspection within the meaning of Section 7605(b) of the Internal Revenue...