United States v. First Am. Bank, P-Misc. 80-26.

• Decision Date: 22 August 1980
• Docket Number: No. P-Misc. 80-26.,P-Misc. 80-26.
• Citation: 504 F. Supp. 90
• Parties: UNITED STATES of America and M. L. Bankester, Revenue Agent, Internal Revenue Service, Petitioners, v. FIRST AMERICAN BANK, Respondent, and Victor E. Lockman and Jean M. Lockman, Intervenors.
• Court: U.S. District Court — Northern District of Florida

504 F. Supp. 90

UNITED STATES of America and M. L. Bankester, Revenue Agent, Internal Revenue Service, Petitioners, v. FIRST AMERICAN BANK, Respondent, and Victor E. Lockman and Jean M. Lockman, Intervenors.

No. P-Misc. 80-26.

United States District Court, N. D. Florida, Pensacola Division.

July 14, 1980.

On Petition for Enforcement August 22, 1980.

Nicholas P. Geeker, U. S. Atty., Thomas R. Santurri, Asst. U. S. Atty., Pensacola, Fla., for petitioners.

No appearance for defendant First American Bank.

Victor E. Lockman and Jean M. Lockman, pro se.

ORDER

ARNOW, Chief Judge.

In this proceeding the petitioners seek to enforce an Internal Revenue Service summons served on the respondent. The taxpayers whom the IRS is investigating have asserted their right to intervene and have ordered the respondent not to comply with the summons. See Title 26 U.S.C. § 7609(b)(1) and (2) (right to intervene and to stay compliance with summons). A hearing to show cause why the summons should not be enforced is scheduled for August 7, 1980. At the hearing the burden is on the intervenors "to disprove the actual existence of a valid civil tax determination or collection purpose by the Service." United States v. LaSalle National Bank, 437 U.S. 298, 316, 98 S.Ct. 2357, 2367, 57 L.Ed.2d 221 (1978). Intervenors have propounded interrogatories to various officials of the Internal Revenue Service for the purpose of acquiring information necessary to meet this burden. The petitioners have responded with motions for a protective order and to quash interrogatories.

The burden on those opposing enforcement of a summons is a heavy one. United States v. LaSalle National Bank, 437 U.S. 298, 316, 98 S.Ct. 2357, 2367, 57 L.Ed.2d 221 (1978). To negate a proper purpose in issuing the summons, the intervenors in this case must establish that the Internal Revenue Service had no basis to inquire into their civil tax liability. In United States v. Roundtree, 420 F.2d 845, 852 (5th Cir. 1969), the court held that where a taxpayer has questioned the purpose of an IRS summons, it is proper to permit the taxpayer to investigate further whether the IRS is, indeed, conducting an inquiry into civil tax liability. In a later case, however, the Court of Appeals for the Fifth Circuit recognized that discovery by a taxpayer in a summons enforcement proceeding should be restricted because of the paucity of relevant issues and the potential of overburdening the IRS in civil investigations. United States v. Garrett, 571 F.2d 1323, 1326-27 (5th Cir. 1978).

In order to reconcile the conflicting interests of the taxpayer and the IRS, the Garrett court stated that a solution would be for:

"the district court to proceed directly to a hearing at which, if desired, the summonee could examine the agent who issued the summons, concerning his purpose. The court could then, by observation and, where necessary, its own questioning of the agent, make its own determination of whether exploration, as by discovery, seemed to be in order."

Id. at 1327 (quoting United States v. Wright Motor, Inc., 536 F.2d 1090, 1095 (5th Cir. 1976)); see United States v. Ladd, 471 F.Supp, 1150, 1153-54 n.3 (N.D.Tex.1979) and United States v. Combank/Casselberry, 79-1 U.S.T.C. par. 9200 at 86,354 (M.D.Fla. 1979) (adopting approach recommended in Garrett and Wright Motor.)

This court believes that the proper approach is the one noted above. At the hearing on August 7, 1980 the intervenors will have full opportunity to question the IRS agents as to the service's purposes in conducting its investigation. In this manner the court will be able to determine whether there is a need for further discovery. Until that time, however, discovery must be suspended.

The court notes that the intervenors have also requested the petitioners to produce documents on the fifth day after the request was served upon petitioners. As the petitioner points out, such a request is not in accordance with Rule 34(b) of the Federal Rules of Civil Procedure which permits a party requested to produce documents 30 days to respond. In addition, the petitioners contend that the request for production of documents is burdensome and unreasonable. The proper procedural vehicle to obtain production of documents is Rule 34. When an objection to such a request is made, a party may move for an order compelling discovery under F.R.Civ.P. 37(a)(2). As no motion has been filed, the request, in its present status, presents no justiciable issue to be decided. Furthermore, it is the view of the court that there is no need for discovery by the intervenor until the hearing when it shall be decided whether discovery is necessary.

In light of the preceding discussion, it is ORDERED that petitioners' motions for a protective order and to quash interrogatories are granted. Such order is without prejudice to the intervenors to conduct discovery if it should be determined at the hearing that discovery is warranted.

ON PETITION FOR ENFORCEMENT

Here the petitioners seeks an enforcement of an IRS summons to a bank to appear and give testimony and produce designated records in a tax inquiry into taxpayers' liability for the years 1977, 1978 and 1979. The taxpayers have intervened and object.

This court, by its order of July 14, 1980, following what it believes to be appropriate procedure under United States v. Garrett, 571 F.2d 1323 (5th Cir. 1978); United States v. Wright Motor Company, Inc., 536 F.2d 1090 (5th Cir. 1976), and other cases, scheduled a hearing for the purpose of allowing the summonee to examine the agent who issued the summons concerning his purpose and for the court, by observation and, where necessary, its own questioning of the agent, to make its own determination of whether further exploration, by way of discovery, seemed in order. That hearing has been held.

The respondent did not appear and has not objected. However, the intervenors have appeared, objected and were heard at the hearing.

Under United States v. LaSalle, 437 U.S. 298, 98 S.Ct. 2357, 57 L.Ed.2d 221 (1978), an IRS summons may be used for the purpose of determining the liability for any internal revenue tax, including its use for examination of suspected tax fraud, and the 50% civil penalty. It may not be used solely to aid criminal investigation and it must be used in good faith.

Under United States v. Powell, 379 U.S. 48, 85 S.Ct. 248, 13 L.Ed.2d 112 (1964), the IRS, in a case where there has been no referral to the Department of Justice for possible criminal prosecution, establishes a prima facie case of good faith when it shows that the investigation was for and will be conducted in pursuit of a legitimate purpose, that the inquiry may be relevant to that purpose, that the IRS is not currently in possession of the information sought, and all the administrative steps required by the Code have been followed. Once the IRS establishes a prima facie case for enforcement, the burden shifts to the taxpayer to show that enforcement will be an abuse of the court's process.

Here the IRS has made its showing. The agent in charge, primarily involved in civil investigation, has not even made any recommendation about criminal prosecution. The IRS itself has not recommended criminal prosecution to the Department of Justice. To the contrary, at the present time at least, the IRS has rejected the making of a criminal prosecution recommendation.

It did so based on some religious policy, apparently because the records of some religious organizations are sought in connection with this inquiry. It is not clear to this court exactly what kind of policy that may be, but it is clear that, for whatever reasons there were, IRS has, at the present time at least, rejected the idea of recommending criminal prosecution against the intervenors.

On the record here the IRS summons was issued to obtain documents in connection with the agent's civil tax liability investigation and was issued in pursuit...