United States v. Bank of Monte Vista, Civ.A. No. 78-W-458.

• Decision Date: 15 June 1978
• Docket Number: Civ.A. No. 78-W-458.
• Parties: UNITED STATES of America and Thomas L. Kautz, Revenue Agent of the Internal Revenue Service, Petitioners, v. BANK OF MONTE VISTA and John Jackson, Vice President, Respondent.
• Court: U.S. District Court — District of Colorado

451 F. Supp. 945

UNITED STATES of America and Thomas L. Kautz, Revenue Agent of the Internal Revenue Service, Petitioners, v. BANK OF MONTE VISTA and John Jackson, Vice President, Respondent.

Civ.A. No. 78-W-458.

United States District Court, D. Colorado.

June 15, 1978.

Joseph F. Dolan, U. S. Atty., Lena A. Wilson, Asst. U. S. Atty., Denver, Colo., for petitioners.

Bruce Buell, Denver, Colo., for Colorado Bankers Association.

Richard Slivka, Denver, Colo., for Colorado Bar Association.

Gordon H. Rowe, Jr., Monte Vista, Colo., for respondent.

MEMORANDUM OPINION

WINNER, Chief Judge.

In its wisdom, in 1976, Congress enacted 26 U.S.C. § 7609, and the new statute has spawned troubles galore for banks, credit agencies, credit unions, brokers, accountants and lawyers. Congress says that they are "third party record keepers" falling within the ambit of the statute, and, incongruously, they get hauled into court because they have obeyed the law. Worse yet, the government tenders an order requiring them to appear in person just because that most inconvenient method of meeting the statute's requirements is a little more expedient from the standpoint of the IRS. I have been told that these IRS procedures are those which have been used throughout the country, but, speaking for all judges on this court, we in Colorado just can't go along with these inconsiderate methods.

The facts of this case highlight the problem. It appears that the IRS is looking into the affairs of one Horace W. Huggins. He is a customer of the Bank of Monte Vista, and the IRS served an administrative summons on the bank and one of its officers to produce in Pueblo, Colorado, a year's records of Huggins' dealings with the bank. Leaving for later comment the command of the IRS summons that the records be produced in Pueblo, the bank has not the slightest objection to the production of the records at a reasonable time and place, but, because of the 1976 amendment to the statute, the law prohibits the bank from doing what the IRS wants and what the bank is willing to do. This grotesque situation comes about because of the 1976 amendment of the statute. The statute defines third-party record keepers, and says that when an IRS summons is served on one of them, the IRS has to give notice of the summons to the person under investigation. How the notice has to be given and the allowable time within which the taxpayer must act are all spelled out in subparagraph (a) of § 7609. Subparagraph (a) gives no trouble, but the problems come up under subparagraph (b). That subparagraph says:

"(b) Right to intervene; right to stay compliance.—

"(1) Intervention. — Notwithstanding any other law or rule of law, any person who is entitled to notice of a summons under subsection (a) shall have the right to intervene in any proceeding with respect to the enforcement of such summons under section 7604.

"(2) Right to stay compliance. — Notwithstanding any other law or rule of law, any person who is entitled to notice of a summons under subsection (a) shall have the right to stay compliance with the summons if, not later than the 14th day after the day such notice is given in the manner provided in subsection (a)(2) —

"(A) notice in writing is given to the person summoned not to comply with the summons, and

"(B) a copy of such notice not to comply with the summons is mailed by registered or certified mail to such person and to such office as the Secretary may direct in the notice referred to in subsection (a)(1)."

Huggins gave the bank timely notice not to comply with the summons, and it obeyed the law. Respondents refused to show up in Pueblo in accordance with Huggins' instructions. The bank's reward for obeying the law is this lawsuit brought against it by the IRS, and, to rub salt in the wound, the IRS says that standard procedure would require that Mr. Jackson appear personally "to show cause why respondent should not be compelled to testify and produce the records demanded in the Internal Revenue Service Summons." Insofar as the statutory right to intervene is concerned, the IRS wants the court to order that the intervention has to be accomplished within 10 days after service, and that the intervention motion has to be supported by affidavits. The IRS boilerplate order winds up:

"Only those issues raised by motion or brought into controversy by the responsive pleadings and supported by affidavit(s) will be considered at the return of this order and any uncontested allegation in the petition will be considered admitted."

Congress has created a statutory intervention of right, and I don't think that in good faith the government can say that an intervention of right must be accomplished within 10 days to be "timely" within the meaning of Rule 24. See, 7A Wright and Miller, Federal Practice and Procedure, § 1916. No more do I think that the allowable times spelled out in Rule 12 can be cut down to 10 days, and I don't think that giving respondents 20 days to answer is prejudicial to plaintiffs. After all, the record in this case shows that the administrative summons was served December 1, 1977, and Huggins stayed compliance by letter of December 7, 1977. Yet, it took the government until May 2, 1978, to file this case. If the government needs three months, it doesn't strike me as unreasonable to give the bank three weeks.

Some pleadings under Rule 65 have to be verified, but I doubt that the government can insist that a response to one of its petitions must be under oath. This would be something new under the Federal Rules of Civil Procedure which abolished code pleading requirements of verified pleadings. To limit the issues to those raised in the pleadings filed within 10 days (as the boilerplate order is phrased) would prohibit amendments and the limitation wouldn't hold up under Rule 15 and the many cases decided under it. See, 6A Wright and Miller, Federal Practice and Procedure, § 1488. I suspect that an amendment could even deny something as to which denial was inadvertently overlooked, but this would be emphatically prohibited under the government's proposed ex parte order. It would be most convenient to the government to disregard many of the commands of the Federal Rules of Civil Procedure, but the...