United States v. Brigham Young University

• Decision Date: 11 March 1980
• Docket Number: Civ. No. C-79-0753.
• Citation: 485 F. Supp. 534
• Parties: UNITED STATES of America and James Oys, an Officer of the Internal Revenue Service, Petitioners, v. BRIGHAM YOUNG UNIVERSITY and Dallin H. Oaks, President of Brigham Young University, Respondents.
• Court: U.S. District Court — District of Utah

485 F. Supp. 534

UNITED STATES of America and James Oys, an Officer of the Internal Revenue Service, Petitioners, v. BRIGHAM YOUNG UNIVERSITY and Dallin H. Oaks, President of Brigham Young University, Respondents.

Civ. No. C-79-0753.

United States District Court, D. Utah, C. D.

March 11, 1980.

Ronald L. Rencher, U. S. Atty., for the District of Utah, Salt Lake City, Utah, Robert S. Horwitz, Tax Div., Dept. of Justice, Washington, D. C., for petitioners.

H. Hal Visick, Provo, Utah, for respondents.

WINDER, District Judge.

On November 5, 1979, the government filed a petition for leave to serve a third party John Doe summons in File No. C-79-0647. Thereafter, this court signed an order allowing the IRS to serve a John Doe summons upon Brigham Young University (BYU), in the matter of the tax liability of donors of charitable contributions in kind, excluding securities, to BYU during the years 1976, 1977, and 1978. The summons was served on BYU, who refused to produce the information requested. On December 21, 1979, the government filed a petition to enforce the IRS summons, File No. C-79-0753.

The matter was referred to the magistrate, pursuant to 28 U.S.C. § 636(b)(3), with directions to conduct such hearings as necessary. An order to show cause why the respondents (BYU) should not be compelled to obey the IRS summons was also issued. A hearing was held before the magistrate, after which and on February 5, 1980, the magistrate filed his Report and Recommendation. He recommended that this court order BYU to comply with the summons to produce the requested information. BYU has objected to the magistrate's report and the government has filed its response to BYU's objections. The matter is now before this court for the purpose of determining whether the magistrate's report should be adopted or rejected.

The pertinent facts are not seriously in dispute. BYU is a private institution of higher education located in Provo, Utah. As such, it is exempt from income taxation under 26 U.S.C. § 501(c)(3). Under § 170, gifts to BYU are charitable contributions that are deductible from the donor's income. A taxpayer who makes a charitable contribution in kind to BYU may deduct from income in the year of the gift the fair market value of the property contributed as of the time of the contribution, subject to the limitations set forth in § 170.

The IRS has audited some 162 federal income tax returns of persons who made charitable contributions in kind to BYU. Eighty-five of these returns were for taxable years ending before January 1, 1976. The remainder were for taxable years ending after December 31, 1975. The IRS has proposed deficiencies for all the returns for years ending before January 1, 1976, and has proposed or expects to propose deficiencies for all the returns for the years ending after December 31, 1975. The proposed deficiency in each case results from a determination by the IRS that the actual fair market value of the property contributed is substantially less than the amount claimed on the return. Because of these overvaluations, the IRS has commenced an investigation of the correct tax liability of all persons who made gifts in kind, excluding securities, to BYU during the years 1976, 1977, and 1978. By these proceedings it is seeking to obtain from BYU the names and addresses of all such donors. BYU has acknowledged their number totals approximately 300.

Of the overvaluations which the IRS has determined so far, all but fourteen deal with one group of donors of art objects and another group of donors of silver mining claims. BYU has offered to provide the IRS with the names and addresses of the individuals in these two groups. The members of each of these groups had certain common characteristics. The donors of the art objects participated in a transaction devised by an art dealer or dealers, part of which involved the dealer or dealers appraising the art objects for purposes of valuation. Similarly with the silver mining claims, one mining engineer had appraised all of the mining claims of that group of donors. There was no such common characteristic relating to the fourteen other donors investigated by the IRS and not within the art objects or silver mining claim groups. So far as the record discloses, these fourteen donors made their overvaluated gifts under circumstances where no relationship has been demonstrated between their gifts and that of any other gift in this group except, of course, that all made a gift in kind to BYU.

Both parties agree that the requirements of 26 U.S.C. § 7609(f) govern the result in this case. That section states:

Additional requirement in the case of a John Doe summons. — Any summons described in subsection (c) which does not identify the person with respect to whose liability the summons is issued may be served only after a court proceeding in which the Secretary establishes that —

(1) the summons relates to the investigation of a particular person or ascertainable group or class of persons,

(2) there is a reasonable basis for believing that such person or group or class of persons may fail or may have failed to comply with any provision of any internal revenue law, and

(3) the information sought to be obtained from the examination of the records (and the identity of the person or persons with respect to whose liability the summons is issued) is not readily available from other sources.

BYU argues that there is no ongoing investigation and that the requirements of subsection (1) of § 7609(f) have not been met by the IRS. It is clear from the record, however, that the summons does relate to an investigation of a class of persons within the meaning of § 7609(f)(1). Likewise, the court rejects BYU's objection that because the IRS already has technical possession of the records it seeks it therefore has not met the requirements of subsection (3). Several recent cases have held that the mere technical possession of records by the IRS where there is no method of practical retrieval does not defeat the subsection (3) requirement of § 7609(f). United States v. First National State Bank, 616 F.2d 668 (3d Cir. 1980); United States v. Reprints, Inc., 79-1 U.S.T.C. ¶ 9108 (N.D. Ga. 1978). See also United States v. Berkowitz, 488 F.2d 1235 (3d Cir. 1973); United States v. Theodore, 479 F.2d 749 (4th Cir. 1973). It would be most impractical and also unnecessary, under this subsection, to require the IRS to manually search through thousands or hundreds of thousands of tax returns for the three years in question to determine the identity of each donor in kind to BYU. That this would have to be done satisfies the court that such information is "not readily available."

Before discussing the requirements of subsection (2) of § 7609(f) there are two other issues that can be briefly resolved. Both the IRS and BYU agree that BYU is not a third-party recordkeeper pursuant to § 7609(a)(3). BYU argues that a John Doe summons may only be issued to third-party recordkeepers as enumerated in § 7609(a)(3). It appears clear from the language of § 7609 and the legislative history that such an interpretation is not correct. It also appears that the only court to rule on the issue did not restrict the issuance of John Doe summons to only the third parties enumerated in § 7609(a)(3). United States v. Reprints, Inc., supra. This court holds therefore that this summons would be properly issuable to BYU under these circumstances if the other requirements of § 7609(f) were met.

BYU's claim that the information demanded by the IRS may interfere with the donors' freedom of association under the First Amendment is also without merit. NAACP v. Alabama, 357 U.S. 449, 78 S.Ct. 1163, 2 L.Ed.2d 1488 (1958) and United States v. Citizens State Bank, 612 F.2d 1091 (8th Cir. 1980) do not compel this court to refuse enforcement of the summons and the information requested. Even assuming that the IRS received the information on the donors and the flow of gifts in kind to BYU was thereafter reduced, there would still not be a violation of the...