United States v. Hamilton Fed. Sav. & Loan Ass'n

• Decision Date: 28 June 1983
• Docket Number: No. 82 MISC 0395-82 MISC 0401.,82 MISC 0395-82 MISC 0401.
• Parties: UNITED STATES of America, Petitioner, v. HAMILTON FEDERAL SAVINGS AND LOAN ASSOCIATION, et al., Respondents.
• Court: U.S. District Court — Eastern District of New York

566 F. Supp. 755

UNITED STATES of America, Petitioner, v. HAMILTON FEDERAL SAVINGS AND LOAN ASSOCIATION, et al., Respondents.

Nos. 82 MISC 0395-82 MISC 0401.

United States District Court, E.D. New York.

June 28, 1983.

COPYRIGHT MATERIAL OMITTED

MEMORANDUM AND ORDER

McLAUGHLIN, District Judge.

The United States of America, petitioner, seeks to enforce two sets of Internal Revenue Service ("IRS") third-party summonses. They were issued by the IRS pursuant to Section 7602 of the Internal Revenue Code, 26 U.S.C. § 7602 as part of its investigation of the income tax liability of Harvey Kleinman for the period January 1, 1977 through December 31, 1980. Respondents are seven "third-party record keepers," as defined in 26 U.S.C. § 7609(a)(3). The taxpayer has instructed respondents not to comply with these summonses and has intervened in this proceeding pursuant to 26 U.S.C. § 7609(b). The Court has jurisdiction to enforce the summonses pursuant to 26 U.S.C. §§ 7402 and 7604.

Taxpayer — with a legion of procedural objections suggesting a Stalingrad defense — argues that the summonses should not be enforced for the following reasons: (1) The IRS sent taxpayer's notice of the service of the summonses to 10346 N.E. 5th Ct. when taxpayer, in fact, resides at 10346 N.W. 5th Ct. (2) The thirteen summonses served upon respondents are unspecific and irrelevant. In addition, facial defects appear upon (a) the thirteen summonses; (b) the seven petitions to enforce those summonses; (c) the seven declarations of IRS Special Agent Brozen in support of those petitions to enforce; and (d) the orders to show cause issued by the Court to respondents. (3) A conspiracy against taxpayer exists between Special Agent Brozen and taxpayer's former employer. (4) Special Agent Brozen failed to reveal to the Court in his declaration that respondent Maspeth Federal Savings and Loan Association had already produced documents requested in the original summonses issued to Maspeth.

DISCUSSION

(I) NOTICE TO TAXPAYER

Taxpayer argues that the notification requirements of 26 U.S.C. § 7609 must be enforced strictissimi juris, or else the third-party summonses must be quashed and the Court's Orders to Show Cause vacated. Section 7609 provides in pertinent part:

Sufficiency of notice — Such notice shall be sufficient if ... such notice is served in the manner provided in Section 7603 (relating to service of summons) upon the person entitled to notice, or is mailed by certified or registered mail to the last known address of such person, or, in the absence of a last known address, is left with the person summoned....

26 U.S.C. § 7609(a)(2).

Thus, under the statute, notification to the taxpayer that his records have been summoned from a third-party recordkeeper is sufficient if the notice is served: (1) in accordance with § 7603; or (2) by certified or registered mail to the taxpayer's last known address. In addition, the notice must be accompanied by a copy of the summons which has been served upon the third-party recordkeeper and must contain directions for staying compliance with the summons. 26 U.S.C. § 7609(a)(1).

Section 7603 governs service of the underlying summons upon the third-party recordkeeper. Section 7609 governs service of notification upon the taxpayer that his records have been summoned from the third-party recordkeeper.

The taxpayer alleges that the notice served upon him pursuant to § 7609 was defective because the notification was mailed to the wrong address. Contrary to taxpayer's assertion, however, strict compliance with § 7609 is not required. Taxpayer's reliance on United States v. Myslajek, 568 F.2d 55 (8th Cir.1977), cert. denied, 438 U.S. 905, 98 S.Ct. 3123, 57 L.Ed.2d 1147 (1978); and United States v. Payne, 491 F.Supp. 74 (N.D.Tex.1980), aff'd 648 F.2d 361 (5th Cir.), cert. denied, 454 U.S. 1032, 102 S.Ct. 570, 70 L.Ed.2d 476 (1981), is misplaced. Those cases held that the procedural requirements of § 7603 for serving the person named in the summons itself must be strictly observed. The cases do not deal with the distinct problem of serving the taxpayer (under § 7609) with notice that his records are being sought from a third party.

The sufficiency of the notice to the taxpayer must be judged by different standards since its only purpose is to apprise the noticee¹ of an event that has already occurred. R. Fink, Tax Fraud — Audits Investigations, Prosecutions, Vol. 1, § 7.052 at 7-53 (MB 1981). Here, the notice was mailed in a timely fashion by registered or certified mail, and it contained all the required additional documents. The only defect was that the notices were mailed to 10346 N.E. 5th Ct. when the taxpayer's last known address and residence was 10346 N.W. 5th Ct. Despite this clerical error, the taxpayer noticee received the necessary papers.² He was entitled to no more. See United States v. Bank of Moulton, 614 F.2d 1063 (5th Cir.1980).³

I note, in passing, that the error here is partially attributable to the taxpayer himself. The power of attorney, which was signed and filed with the IRS, indicated that the correct address was "10346 N.E. 5th Ct., Coral Springs, Florida 33065." Surely the IRS should not be penalized for relying upon the taxpayer's own representation as to where he lived.

(II) DEFECTS IN THE SUMMONSES SERVED UPON THE THIRD-PARTY RECORDKEEPERS

The legislative history of § 7609 indicates that Congress intended "that the noticee will be allowed to stand in the shoes of the third-party recordkeeper and assert certain defenses to enforcement which witnesses are traditionally allowed to claim but which may not be available to intervenors (under many court decisions) on the ground of standing." S.Rep. No. 938, 94th Cong., 2d Sess. 370 (1976), reprinted in 1976 U.S.Code Cong. & Ad.News 2897, 3800. Thus, the taxpayer may attack the IRS summonses.

He argues that the summonses, which were served upon the banks pursuant to § 7603, are facially defective because the address of the taxpayer is incorrectly listed. Here again he confuses § 7603 (dealing with the summons) and § 7609 (dealing with notification that a summons has been served). The taxpayer's address does not even appear upon the face of the summonses or upon the certificates of service signed by Special Agent Brozen. The address of the noticees appears only upon the certificate which was completed in compliance with § 7609. The summonses obviously are not facially defective.

The Kleinmans next allege that because two separate summonses were issued to most of the third-party recordkeepers, the Government failed to comply with the specificity requirements of United States v. Powell, 379 U.S. 48, 85 S.Ct. 248, 13 L.Ed.2d 112 (1964), and violated proscriptions of Sections 7609 and 7605 against unnecessary examinations. The Kleinmans allege that "because of duplicity, confusion and defects contained in the summonses they cannot meet the traditional fairness and notice requirements of due process."

I disagree. The first set of summonses called for production of records relating to Harvey or Bonnie Kleinman for the period January 1, 1976 through December 31, 1979. The second set of summonses required the production of records relating to Harvey or Bonnie Kleinman for the period January 1, 1980 through December 31, 1980. After service of the initial set of summonses, Kleinmans' attorney stayed compliance by the banks. The second set of summonses indicated that the materials being sought therein were in addition to the materials previously sought. There can be no doubt or confusion as to which of the banks' records were being sought.

Nor do the second summonses constitute the type of "unnecessary examinations" prohibited by § 7605(b). The statute restricts the IRS to one inspection of a taxpayer's books of accounts for each taxable year. 26 U.S.C. § 7605(b). Apart from the fact that there has been no inspection of records pursuant to the first summonses (the taxpayer's attorney stayed compliance with the initial summonses), it should be noted that "the statutory restriction against second examination applies only to the taxpayer's own records and not to records of third parties like the Bank." United States v. Chemical Bank, 593 F.2d 451, 458 (2d Cir.1979).

I find no defect in the summonses that violates the traditional fairness and notice requirements of due process. Both sets of summonses specify with sufficient particularity the identity of the person whose records are sought, the records sought, and the period of time for which they are sought.

In addition, the requested documents meet the materiality and relevancy requirements imposed by 26 U.S.C. § 7602. That standard requires the Government merely to show that the documents sought "might throw light upon the correctness of the return period." United States v. Harrington, 388 F.2d 520, 523 (2d Cir.1968).

Here, the declaration of Special Agent Brozen of December 7, 1982, states that he was assigned to investigate allegations that Harvey Kleinman failed to report substantial portions of his income on his personal income tax returns filed for 1977-1980; that Bonnie Kleinman is Harvey Kleinman's wife; that the summonses were issued as part of this investigation; that the material sought is not in the possession of the Internal Revenue Service and that the material sought may be relevant to determine the correct tax liability of Harvey Kleinman. Where, as here, the financial records sought from third-party recordkeepers are those of the taxpayer himself and of his wife, the relevancy of the records is readily apparent. See United States v. LaSalle National Bank, 437 U.S. 298, 318, 98 S.Ct. 2357, 2368, 57 L.Ed.2d 221 (1978) (records reasonably expected to reveal information sought).

While the taxpayer's liability for 1976 is not under investigation, the records sought for 1976 are relevant in that they may throw light upon the correctness of his return for the following year, 1977...