U.S. v. Maxey & Co., P.C.

• Decision Date: 24 February 1997
• Docket Number: No. 3:97-CV-0111 AS.,3:97-CV-0111 AS.
• Citation: 956 F.Supp. 823
• Parties: UNITED STATES of America, Petitioner, v. MAXEY & COMPANY, P.C., Respondent.
• Court: U.S. District Court — Northern District of Indiana

956 F.Supp. 823

UNITED STATES of America, Petitioner, v. MAXEY & COMPANY, P.C., Respondent.

No. 3:97-CV-0111 AS.

United States District Court, N.D. Indiana, South Bend Division.

February 24, 1997.

Clifford D. Johnson, Office of the U.S. Attorney, South Bend, IN, Kevin P. Jenkins, U.S. Dept. of Justice, Washington, DC, for U.S.

Gerald F. Lutkus, Stephen A. Seall, Barnes and Thornburg, South Bend, IN, for Maxey & Co., P.C.

MEMORANDUM AND ORDER

ALLEN SHARP, Chief Judge.

This cause is before the court pursuant to the Petition to Enforce Internal Revenue Service Summons filed by the petitioner, the United States of America, on February 11, 1997. This petition was filed pursuant to 26 U.S.C. §§ 7402(b) and 7604(a), and seeks an order from this court directing the respondent, Maxey & Company, P.C. ("Maxey & Company"), a corporate entity, to obey the summons served upon it on March 28, 1996, and to order the attendance and testimony of an agent of the respondent, as well as the production of the requested documents, before Special Agent James D. Robertson of the Internal Revenue Service ("IRS") as required by the summons.

I. FACTUAL AND PROCEDURAL BACKGROUND

On March 28, 1996, Special Agent James D. Robertson of the IRS personally served an IRS summons upon Mr. Michael C. Maxey, the sole agent of Maxey & Company, directing the respondent, through its agent, to appear before him on April 9, 1996. The summons directed the respondent to produce and testify to the following documents:

Any and all records of Maxey & Company, P.C., for the period December 1, 1991 through January 31, 1995, to include, but not limited to the following: (1) Corporate minutes; (2) Cash receipt journal; (3) Cash disbursements journal; (4) General journal; (5) Bank account information to include, account statements, canceled checks deposit slips; (6) Payroll journal; (7) Account statements for all corporate credit accounts; (8) Account statements for all corporate investment accounts; (9) Financial statements of Maxey & Company; (10) Copies of all deeds and titles of corporate assets; (11) Loan ledgers and loan agreements; (12) Purchase invoices; (13) Sales invoices; (14) Corporate contracts; (15) Asset files; (16) Receipt journals.

See Petition, Ex. 1, p. 3.

On April 9, 1996, the respondent failed to produce the summoned data for examination and appear before Special Agent Robertson. As a result, on December 20, 1996, the United States of America filed this petition to enforce the March 28, 1996, IRS summons pursuant to 26 U.S.C. §§ 7402(b) and 7604(a).¹ The Government submits that the testimony and the production of the requested documents are necessary to determine the accuracy of Mr. Michael C. Maxey's income tax returns for tax years 1992, 1993 and 1994, as well as to ascertain whether Mr. Maxey has committed any criminal offense connected with the administration or enforcement of internal revenue laws. In addition, the Government asserts that the testimony and other data sought by the summons are not already in the possession of the IRS. Therefore, the Government requests that this court order the respondent to appear before Special Agent Robertson, and to produce and testify to the summoned documents.

On December 26, 1996, this court granted the United States of America's motion for an order to show cause, and ordered Maxey & Company, by a representative designated by the corporation to produce records and to testify on the corporation's behalf, to appear before this court on January 31, 1997, to show cause why the corporation should not be compelled to obey the IRS summons issued and served upon it on March 28, 1996. Further, the respondent was ordered to have its representative appear with the documents summoned by the IRS on January 31, 1997. In addition, the respondent was granted eleven (11) days from the date of the order to show cause in which to file and serve its response to the petition on the Government.

Subsequently, the United States of America filed a motion to modify the order to show cause. In that motion, the Government requested that this court grant the respondent until February 3, 1997, to respond, since, due to severe weather conditions, personal service of the petition and this court's December 26, 1996, order on the respondent's agent was not effected until January 19, 1997. The court granted the Government's motion, allowing the respondent additional time in which to file its response, and set February 14, 1997, as the date the respondent, by its agent, would be compelled to appear before this court.

The respondent subsequently filed its response to this court's order to show cause on February 11, 1997.² In its response, Maxey & Company asserts that Mr. Maxey, as the sole agent and employee of the corporation, is entitled to production immunity, or its equivalent, with respect to the IRS summons in this case. Further, Maxey & Company submits that if a criminal prosecution should commence against Mr. Maxey, evidence of his identity as the custodian of the corporation's records could unfairly prejudice his defense. Accordingly, the respondent argues that the March 28, 1996, IRS summons should not be enforced. However, should the court order the respondent to honor the summons and produce the summoned documents, the respondent submits that Mr. Maxey should be entitled to an order from this court directing the United States of America not to use his act of production for any purpose.

The court conducted a telephonic conference with respect to this petition on February 14, 1997, in which Mr. Maxey, with counsel, appeared on behalf of the respondent. This memorandum will follow up on the proceedings held in the telephonic proceeding held on February 14, 1997, and deal with the issues that were there presented.

II. STANDARDS OF REVIEW

This petition for enforcement of IRS summons has been filed pursuant to §§ 7402(b) and 7604(a) of Title 26 of the United States Code. Section 7402(b) grants this court jurisdiction to enforce a summons served by the IRS:

If any person is summoned under the internal revenue laws to appear, to testify, or to produce books, papers, or other data, the district court of the United States for the district in which such person resides or may be found shall have jurisdiction by appropriate process to compel such attendance, testimony, or production of books, papers, or other data.

See 26 U.S.C. § 7402(b). In this case, the Government asserts that Special Agent Robertson was authorized under 26 U.S.C. § 7602 to serve the summons upon the respondent, Maxey & Company, in this case. Because the respondent, or its agent, failed to appear in response to said IRS summons, the Government now seeks enforcement of said summons under 26 U.S.C. § 7604(b), which provides as follows:

Whenever any person summoned under section 6420(e)(2), 6421(g)(2), 6427(j)(2), or 7602 neglects or refuses to obey such summons, or to produce books, papers, records, or other data, or to give testimony, as required, the Secretary may apply to the judge of the district court or to a United States commissioner for the district within which the person so summoned resides or is found for an attachment against him as for a contempt. It shall be the duty of the judge or commissioner to hear the application, and, if satisfactory proof is made, to issue an attachment, directed to some proper officer, for the arrest of such person, and upon his being brought before him to proceed to a hearing of the case; and upon such hearing the judge or the United States commissioner shall have power to make such order as he shall deem proper, not inconsistent with the law for the punishment of contempts, to enforce obedience to the requirements of the summons and to punish such person for his default or disobedience.

See 26 U.S.C. § 7604(b).³

To obtain enforcement of an IRS administrative summons, the United States of America need only present the prima facie case for enforcement set forth by the Supreme Court of the United States in United States v. Powell, 379 U.S. 48, 85 S.Ct. 248, 13 L.Ed.2d 112 (1964). In Powell, the Supreme Court held that to present a prima facie case, the Government must show: (1) that the summons was issued for a legitimate purpose, (2) that the information sought is relevant to that purpose; (3) that the summoned information is not already within the possession of the IRS; and (4) that the appropriate administrative steps have been followed. 379 U.S. at 57-58, 85 S.Ct. at 254-55. In a summons enforcement proceeding under § 7604, the Government may prove its prima facie case merely by presenting the sworn affidavit of the agent who issued the summons at the time it files the petition for enforcement. See United States v. Kis, 658 F.2d 526, 535-37 (7th Cir.1981), cert. denied, 455 U.S. 1018, 102 S.Ct. 1712, 72 L.Ed.2d 135 (1982) (holding that Government need only present affidavit of agent involved in investigation to satisfy prima facie case); see also, Conner v. United States, 947 F.Supp. 1267, 1270 (N.D.Ind.1996) (Judge Lee addressing merits of IRS summons under 26 U.S.C. § 7609(b)).

Once the Government makes such the requisite prima facie showing, the burden then shifts to the taxpayer to disprove one of the four criteria or to demonstrate that judicial enforcement should be denied on ground that it would be an abuse of the court's process. Id. at 58, 85 S.Ct. at 255; see also, Kis, 658 F.2d at 535-37. With the above standards in place, the court will now address the merits of the Government's petition for enforcement of the IRS summons and the arguments against enforcement raised by the respondent in its response to this court's order to show cause.

III. DISCUSSION

In this petition for enforcement of IRS summons, there exist two fundamental issues. First, the court must determine whether Mr. Michael Maxey, the sole shareholder, employee and agent of the respondent corporation, is entitled to...