United States v. First Nat. Bank of Mobile

• Decision Date: 23 August 1946
• Docket Number: No. 647.,647.
• Citation: 67 F. Supp. 616
• Parties: UNITED STATES v. FIRST NAT. BANK OF MOBILE et al.
• Court: U.S. District Court — Middle District of Alabama

67 F. Supp. 616

UNITED STATES v. FIRST NAT. BANK OF MOBILE et al.

No. 647.

District Court, S. D. Alabama, Southern Division.

August 23, 1946.

COPYRIGHT MATERIAL OMITTED

Albert J. Tully, U. S. Atty. for the Southern District of Alabama, of Mobile, Ala., for the United States.

Charles C. Hand, and Charles B. Arendall, Jr., (of Smith, Hand & Arendall), all of Mobile, Ala., for respondents.

McDUFFIE, District Judge.

The main issue in this cause is the answer to the following question: Is an agent of the Commissioner of Internal Revenue, acting under Section 3614(a) of the Internal Revenue Code of 1939, 26 U.S.C.A. Int.Rev.Code, § 3614(a), clothed with the authority to examine all the records of a banking institution which relate or pertain to the income tax returns of parties under investigation, when such records contain also the names and financial transactions of other customers of the bank not named in the summons and whose income tax returns are not under investigation?

As to the appropriate method of examination of the records of the bank, the following questions also arise:

(1) In carrying out the purposes of Section 3614(a) of the Internal Revenue Code of 1939, is the agent of the Commissioner of Internal Revenue authorized to see items appearing in a record, book, paper, memorandum, etc., bearing upon the returns under investigation, other than the items in such records carried under the names of the parties under investigation?

(2) Is the official agent of the government, rather than the keeper of the records, authorized and charged with the duty, under said section, to determine what items appearing in the records are related to the tax returns under investigation?

(3) If the name of one or more of the parties under investigation appears on any one or more pages of a record of the bank, is that entire record subject to examination by the tax official of the Government, to ascertain whether or not the names of parties under investigation appear on other pages of said record, and whether there are other items in said record related to the return in question, even though such other items appear under the names of customers of the Bank whose returns are not under investigation?

Section 3614(a) of the Internal Revenue Code of 1939, 26 U.S.C.A. Int.Rev.Code, § 3614(a), reads: "The Commissioner, for the purpose of ascertaining the correctness of any return or for the purpose of making a return where none has been made, is authorized, by any officer or employee of the Bureau of Internal Revenue, including the field service, designated by him for that purpose, to examine any books, papers, records, or memoranda bearing upon the matters required to be included in the return, and may require the attendance of the person rendering the return or of any officer or employee of such person, or the attendance of any other person having knowledge in the premises, and may take his testimony with reference to the matter required by law to be included in such return, with power to administer oaths to such person or persons."

Acting under the foregoing statute, on June 19, 1946, an agent of the Commissioner of the Internal Revenue Bureau of the Government, Mr. R. A. Cox, served upon the First National Bank of Mobile, Alabama, a summons ordering the Bank through its proper officials to appear and produce at a certain time and place "the following books and papers: Any and all records of whatever nature which pertain to or reflect the issuance of cashier's checks, bills of exchange, certificates of deposit, drafts, or checks on other banks, to and for the firm or to and for any of the individuals listed above, irrespective of whether such records also pertain to similar transactions with other persons or firms, during the years indicated," bearing upon the income tax returns for the years 1940 to 1945, inclusive, of the parties named in the summons, viz., Gulf Coast Tobacco Co. and/or Joseph Mitchell, Rebecca F. Mitchell, Samuel J. Ripps and Anne M. Ripps; and to give testimony in the matter of their tax liability.

The Bank refused to obey the summons; whereupon, on June 20, 1946, the Honorable Albert J. Tully, United States Attorney of this Court, filed a petition, duly verified, seeking an order of this Court directing compliance by the Bank with the summons and granting such other or further relief as the Court deemed appropriate.

The Bank then filed, on June 27, 1946, its verified answer, in which the authority of the Commissioner's agent to issue the summons was denied and the petition was further resisted on the grounds:

(a) That the exercise of the authority sought by the Tax Agent would violate the Fourth Amendment to the Constitution.

(b) That the investigation sought to be made was unnecessary and unreasonable because of the unusual length of time, inconvenience, and expense incident thereto.

(c) That the Bank owed those of its customers whose tax returns were not alleged to be under investigation the duty to resist such an examination of its records as here demanded by the official of the Government, in order to protect the accounts and financial transactions of such customers from a perusal and inspection by the official of the Government, and thereby prevent a breach of the fiduciary relationship (italics supplied) existing between the Bank and such customers.

The verified petition of the Government and the answer of the Bank were considered as the evidence in the cause in accordance with a stipulation between the attorneys in the case.

The Bank contends:

(1) That it has many thousands of customers; that its check and draft register during the period 1940-1945, inclusive, contains more than 220,000 items; that during said period its Recordak or photographic records of out-of-town checks include more than 6,000,000 items; that it maintains separate check and ledger accounts with respect to each customer, but that all cashier's checks, bills of exchange, etc., recorded for each day, are commingled and contain the records of all such instruments with respect to any and all customers transacted on each day; that its photographic or Recordak records are made each day of the out-of-town checks handled by the Bank for its thousands of customers, and such transactions for all customers are included in the same records. (Italics supplied.)

(2) That in all books, records, memoranda, papers, etc., where the transactions of the parties under investigation appear, the Bank is willing to point out and disclose any and all specific items showing transactions of the parties under investigation, but will cover or withhold from the eye of the official of the Government all other items or transactions of its customers who are not under investigation. The Bank further states that the parties under investigation have authorized said Bank and its officials to show to the Internal Revenue agents any and all of their transactions appearing on the records of the Bank, but the Bank is unwilling to have the agents see the records of and transactions by other customers which may appear in the same volumes, books, papers, etc., in which the names of the parties under investigation are to be found.

(3) That the Bank is willing to search its own records, even though much time, effort and expense would be incurred, and select from its records those items which in the opinion of the Bank's officials are relevant or pertinent to the income tax returns of the parties under investigation. (Italics supplied.)

(4) That the summons and petition here involved seek to give the tax agent the right to enter upon a "fishing expedition", which would mean the exercise of authority that is so broad and sweeping as to constitute an unnecessary and unreasonable search of its books, records, papers, etc.; and that no such authority was granted by the Congress in the enactment of Section 3614(a), above quoted

The contention of the Government is as follows:

(1) That while it recognizes a fiduciary relationship between the Bank and its customers, neither the Bank itself nor those customers whose returns are not under investigation can suffer an injury from such an examination, because the agent of the Government is authorized to select from the records of the Bank only such items and accounts as pertain or are related to or connected with the income tax returns under investigation.

(2) That the examining agents are not permitted to disclose, under a heavy penalty of the law, the banking transactions of any customer whose tax return is not under investigation and not related to those returns being investigated.

(3) That the fact the Government official may see accounts in the course of his investigation other than those of the parties named in the summons does not and should not preclude the Government from making its own search of the records and having its agent, rather than the Bank officials, determine which records of the Bank or items therein are related to or bear upon the income tax returns under investigation. (Italics supplied.)

(4) That to permit the officers of the Bank to withhold from inspection any of the Bank's records or items therein which they deem unrelated or to be records which the official eye of the Government agent should not peruse, would destroy the very purposes of the section of the Internal Revenue Code above quoted by preventing a full and complete examination of such records, books, papers, etc., of the Bank, demanded in the summons.

(5) That a search for escaped taxes is both necessary and lawful, and while such an investigation as here sought is a "fishing expedition", it is not one that is unreasonable, unnecessary or unlawful; that a third party (the Bank in this case), the owner and keeper of the records of the business acts and doings of a taxpayer under investigation, cannot claim the protection provided in the Fourth Amendment to the Constitution; that even the private papers, disclosing the...