United States v. Giordano

• Decision Date: 07 January 1970
• Docket Number: No. 19862.,19862.
• Citation: 419 F.2d 564
• Parties: UNITED STATES of America and Harold F. McGuire, Special Agent, Internal Revenue Service, Appellees, v. William A. GIORDANO, as President of Banana Distributing Company of St. Louis, Incorporated, Appellant.
• Court: U.S. Court of Appeals — Eighth Circuit

419 F.2d 564 (1969)

UNITED STATES of America and Harold F. McGuire, Special Agent, Internal Revenue Service, Appellees, v. William A. GIORDANO, as President of Banana Distributing Company of St. Louis, Incorporated, Appellant.

No. 19862.

United States Court of Appeals Eighth Circuit.

December 12, 1969.

Rehearing Denied January 5, 1970.

Rehearing Denied January 7, 1970.

Irl B. Baris, Newmark & Baris, St. Louis, Mo., for appellant, Leonard J. Frankel, St. Louis, Mo., with him on the brief.

John P. Burke, Atty., Dept. of Justice, Washington, D. C., for appellees, Johnnie M. Walters, Asst. Atty. Gen., and Lee A. Jackson and Joseph M. Howard, Attys., Dept. of Justice, Washington, D. C., and Daniel Bartlett, Jr., U. S. Atty., and Daniel R. O'Neill, Asst. U. S. Atty., St. Louis, Mo., with him on the brief.

Before BLACKMUN, MEHAFFY and LAY, Circuit Judges.

Rehearing Denied En Banc January 7, 1970.

MEHAFFY, Circuit Judge.

William A. Giordano as President of Banana Distributing Company of St. Louis, Incorporated, sometimes hereafter referred to as taxpayer, appeals from an order of the United States District Court for the Eastern District of Missouri, Eastern Division, directing taxpayer to comply with a summons issued by the Internal Revenue Service pursuant to § 7602 of the Internal Revenue Code of 1954 (26 U.S.C. § 7602). The summons required Giordano to appear and give testimony and to produce the corporate records pertaining to the operation of the company for the period beginning January 1, 1964 and ending December 31, 1966. Giordano appeared pursuant to the summons but refused to testify other than admitting he was president of the company and refused to produce the books and records requested. Following this, a complaint was filed under authority of § 7402(b) and § 7604(a) of the Internal Revenue Code of 1954, as amended, 26 U.S.C. §§ 7402(b) and 7604(a).

The case was tried to the district court sitting without a jury and the menorandum of Chief Judge Roy W. Harper ordering compliance with the summons is reported in 301 F.Supp. 884 (E.D.Mo. 1969). We affirm.

There is little, if any, dispute on the facts. Revenue Agent Jerome B. Marchbein testified that he first attempted to get the books and records around November, 1967 and telephoned Giordano for an appointment. Giordano advised that he would talk to his accountant and let the agent know in a few days. Some two or three weeks later taxpayer's accountant, a Mr. Shelton, called and told Agent Marchbein he knew which books and records were necessary and that he would procure them, and suggested that the examination be made in his office due to the activity and lack of space at the Banana Company office. Shortly thereafter, a Mr. Musser, a CPA in Shelton's office, called Agent Marchbein advising that he had gathered some of the books and records and an appointment was made for examination of them in the accountant's office for January 8, 1968. Agent Marchbein went to the accountant's office at 9:30 on January 8, 1968 for inspection of the books and records there provided. All of the necessary books and records were not there. For example, the accounts receivable ledger and the cash disbursement journal were missing. The accountant said he had forgotten to bring them from the Banana Company. Also, certain underlying records were necessary for a proper audit. The agent gave the CPA a list of the additional records needed to conduct a proper audit. He told the accountant to call him when the records were made available and he would come back and continue the investigation. Agent Marchbein left the accountant's office at 3:30 that afternoon, having been there for a period of approximately six hours. When the accountant did not call the agent, as requested, the agent called him and he was told the matter had been discussed and the agent was to contact Mr. Baris, attorney for the taxpayer. The agent called the attorney three or four times and told him the records he wanted, and the attorney indicated that the taxpayer would not make these records available. When furnishment of these records was refused by taxpayer's attorney, the summons was issued listing a number of the documents required as well as all documents relating to the years involved. There is no evidentiary dispute that the records requested and not furnished were necessary for a proper audit.

Taxpayer summarizes the assignments of error as follows:

"That the summons should have been preceded by a written notice of a second inspection, that the statute of limitations bars the summons, that the summons was not issued for a proper purpose, and that the summons violated the Fourth and Fifth Amendments to the Constitution of the United States."

The Second Inspection Notice. No second inspection notice was required in this case for the reason that the revenue agent was frustrated in his effort to make even an initial investigation or examination by the refusal of the taxpayer to furnish the necessary books to accomplish this purpose. The statute, § 7602,¹ authorizes the Secretary or his delegate, for the purpose of determining the liability of any person for internal revenue tax, to examine any record which may be relevant or material to such inquiry and to summon such person or officer of such person to appear and produce records and to give testimony as may be relevant or material to the inquiry.²

Section 7605(b) provides that no taxpayer shall be subjected to unnecessary examination or investigation and only one inspection of a taxpayer's books of account shall be made for each taxable year unless the taxpayer is notified in writing that an additional inspection is necessary.³

Taxpayer's argument that failure to provide the taxpayer with a second inspection notice invalidates the summons is without merit. This argument is falsely premised as there is no second inspection or examination involved because at most the Government was merely attempting a continuation of its examination. The record reveals without dispute that a proper audit could not have been made from the books and records furnished; that the time utilized by the revenue agent could not have resulted in a proper audit even if the taxpayer had furnished all necessary books and records; that obviously an examination such as authorized by § 7602 was not possible under the circumstances here; and that under such circumstances § 7605(b) could not possibly and reasonably lend itself to a construction that would preclude the Government from making at least one meaningful examination of the books of account for the years involved.⁴

In Nat'l Plate & Window Glass Co. v. United States, 254 F.2d 92, 93 (2nd Cir. 1958), the court said:

"The cursory examination of the taxpayer\'s records on February 28, 1957 was not shown to have completed the investigation; it did not constitute an `inspection\' within the meaning of this statute."

In Application of Magnus, 299 F.2d 335 (2nd Cir. 1962), the court dealt with summons against third parties, but the language relating to § 7605(b) is equally applicable to the case here. The court said at page 337:

"An investigation, however, often requires a long period of time. There may be many ramifications which lead into many areas. Each new clue investigated is not a new investigation in a Section 7605(b) sense. A taxpayer cannot properly claim that because IRS has summoned six third parties it cannot summon six additional without showing good cause. The investigation continues until completed as one investigation."

In United States v. Crespo, 281 F.Supp. 928, 933 (D.Md.1968), the court said:

"Similarly, the fact that a revenue agent has seen a cash book, journal or ledger once does not mean that he may not need to see it again for a different purpose."

The court there held that when an investigation has not been completed, such examination is not a second inspection within the meaning of the statute requiring written notice.

We hold that this was a continuing investigation, which it necessarily had to be under the circumstances hereinabove recited, and hence no second inspection notice was required and the summons is valid.

The Statute of Limitations. The running of the normal three-year statute of limitations on one or more of the years involved does not terminate the authority of the Government to use the summons in this case.⁵ Such a holding might well seriously impede the Government's right to collect lawfully due taxes solely on account of a taxpayer's refusal to cooperate and his utilization of delaying and hypertechnical tactics. This question, however, has been decided adversely to taxpayer in United States v. Powell, 379 U.S. 48, 85 S.Ct. 248, 13 L. Ed.2d 112 (1964). There, the Supreme Court said at page 58, 85 S.Ct. at page 255:

"The burden of showing an abuse of the court\'s process is on the taxpayer, and is not met by a mere showing, as was made in this case, that the statute of limitations for ordinary deficiencies has run or that the records in question have already been once examined."

The Court further said in n. 15 on page 56, 85 S.Ct. on page 254:

"The present three-year limitation on assessment of ordinary deficiencies relieves the taxpayer of concern for further assessments of that type, but it by no means follows that it limits the right of the Government to investigate with respect to deficiencies for which no statute of limitations is imposed."

Here, a substantial omission of income by the taxpayer in 1964 would be assessable until 1971 under § 6501(e). Additionally, discovery of a false return or a willful attempt to evade the tax would completely remove any limitation on assessment under § 6501(c) (1) and (2).

Taxpayer argues that Powell is not dispositive because in the instant case there is no allegation or evidence of fraud, but such was the situation in United States v. Wozniak, 381 F.2d 764 (6th Cir. 1967), in which that court cited, in addition to Powell, Ryan v....