United States v. Hankins
| Decision Date | 15 July 1976 |
| Docket Number | No. WC 75-107-S—WC 75-110-S.,WC 75-107-S—WC 75-110-S. |
| Citation | 424 F. Supp. 606 |
| Parties | UNITED STATES of America et al., Petitioners, v. A. Burton HANKINS et al., Respondents, v. Robert Lewis SMITH, Intervenor. UNITED STATES of America et al., Petitioners, v. HANKINS LUMBER CO. et al., Respondents, v. Robert Lewis SMITH, Intervenor. UNITED STATES of America et al., Petitioners, v. HANKINS LUMBER CO., INC., et al., Respondents. UNITED STATES of America et al., Petitioners, v. A. Burton HANKINS et al., Respondents. |
| Court | U.S. District Court — Northern District of Mississippi |
COPYRIGHT MATERIAL OMITTED
H. M. Ray, U. S. Atty., William M. Dye, Jr., Asst. U. S. Atty., Oxford, Miss., for petitioners.
Hugh C. Montgomery, Jr., Dossett, Magruder & Montgomery, Jackson, Miss., J. N. Raines, Memphis, Tenn., Tommy M. McWilliams, Townsend, McWilliams & Holladay, Drew, Miss., Paul P. Lipton, Lipton & Petrie, Milwaukee, Wis., for respondents.
These related matters came on for a consolidated hearing before the court on March 1, 1976, pursuant to the court's orders to show cause; the parties were present by counsel; evidence was presented and the parties were heard. Due consideration having been had, the court enters the following findings of fact and conclusions of law.
1. The petitioner Robert E. Grant is a special agent of the Intelligence Division of the Internal Revenue Service, United States Treasury Department, with post of duty in Jackson, Mississippi.
2. In his capacity as a special agent Grant was assigned to conduct an investigation of the federal income tax returns and liabilities of A. Burton Hankins of Grenada, Mississippi, for the years 1971, 1972, and 1973. The investigation also included the 1973 federal income tax return and liability of Hankins Lumber Company, Inc., Grenada, Mississippi, a Mississippi corporation of which A. Burton Hankins is the president and majority shareholder.
3. Special Agent Grant's investigation is a joint investigation being conducted in coordination with the Audit Division of the Internal Revenue Service. The Audit Division representative assigned to the investigation is Revenue Agent John Ervin.
4. The investigation is directed toward the 1971, 1972 and 1973 tax years of A. Burton Hankins and 1973 for the corporation. However, because of the complicated financial history of the taxpayers, the agents also need to determine Hankins' correct tax liabilities for the years 1969 and 1970.
5. From approximately 1957 until November 19, 1971, A. Burton Hankins and his brother, Bewel A. Hankins, operated a jointly owned partnership, the Hankins Lumber Company, which engaged in the planer mill and lumber business in Grenada County, Mississippi. In 1971, the partnership had 98 employees, assets of about $1 million, gross receipts of more than $3 million, and a payroll of almost one-half million dollars. The company purchased an average of more than 30 tracts of timber a year and during 1971, produced around 27 million feet of lumber.
6. In connection with their lumber operation, the Hankins brothers were also joint owners of two Mississippi corporations, Hankins Lumber Sales, Inc., which was incorporated on February 21, 1964, and Logging Industries, Inc., which was incorporated in April, 1966. As of April 26, 1972, the net assets of these corporations were appraised at $202,358.69, for Hankins Lumber Sales, Inc., and $52,698.32, for Logging Industries, Inc.
7. The partnership maintained various business ledgers, journals and books of account. These records, which are the subject of Civil Action No. WC 75-108-S, are in the possession of A. Burton Hankins to whom the summons at issue there is directed.
8. On November 19, 1971, Bewel A. Hankins died at the age of 43. His last will and testament, which named his brother A. Burton Hankins as executor of the estate, was contested on November 23, 1971, by his widow, Frances Hankins. In re Estate of Bewel A. Hankins, No. 12,200 . Mrs. Hankins was represented in that matter by the respondent, Attorney Tommy M. McWilliams of Drew, Mississippi.
9. On January 11, 1972, Mrs. Hankins petitioned the Grenada County Chancery Court for appointment as temporary administratrix of the Estate of Bewel A. Hankins. On January 21, 1972, the Chancery Court ordered the will admitted to probate and appointed A. Burton Hankins Executor of the Estate of Bewel A. Hankins.
10. On February 11, 1972, Frances Hankins renounced the will and elected to receive a one-fourth share of the net estate.
11. On August 11, 1972, Mrs. Hankins filed a petition to terminate her interest in the Estate of Bewel A. Hankins which reflected the sale of her one-fourth interest in Hankins Lumber Company to A. Burton Hankins, the surviving partner. On August 12, 1972, the Chancery Court granted this petition.
12. On October 18, 1972, the Chancery Court granted a petition by A. Burton Hankins to purchase the remaining portion of the Estate's interest in the Hankins Lumber Company partnership.
13. In his capacity as Executor of the Estate of Bewel A. Hankins, A. Burton Hankins created or caused to be created and maintained various books, records, and papers pertaining to the administration, probate and settlement of the Estate. These records include the papers relating to preparation and filing of the Federal and Mississippi estate tax returns, appraisal of the assets of the estate, payment of creditors, settlement of the will contest, and closing out the Estate. These records, which are the subject of Civil Action No. WC 75-110-S, are in the possession of Robert Lewis Smith and A. Burton Hankins, to whom the summonses at issue therein are directed.
14. During the pendency of the will contest, Attorney McWilliams, on behalf of Frances Hankins, caused an audit of the partnership books and records to be performed by Certified Public Accountant William S. Boswell, Drew, Mississippi. This audit resulted in the creation of reports, schedules, memoranda, correspondence, and other writings by Certified Public Accountant Boswell. In connection with the will litigation, Attorney McWilliams and his law firm also prepared or caused to be prepared certain documents, reports, correspondence, files, etc.
15. Although the will litigation between Mrs. Hankins and A. Burton Hankins, Executor and surviving partner, was concluded by agreement in about August, 1972, Certified Public Accountant Boswell continued to retain his audit papers until about June 26, 1974, and the papers of the widow's lawyers (McWilliams and his law firm) were retained by them until July 2, 1974.
16. On October 27, 1972, the Hankins Lumber Company was incorporated as a Mississippi corporation with A. Burton Hankins as president and majority shareholder. This implemented a decision which had been made prior to September 15, 1972.
17. The respondent, Robert Lewis Smith, is a Certified Public Accountant in Grenada, Mississippi. He prepared and signed the 1971 Hankins Lumber Company federal partnership return as well as the 1971 and 1972 personal federal income tax returns of A. Burton and Juanita Hankins. He also prepared and signed the federal estate tax return for the Estate of Bewel A. Hankins and the 1973 federal corporate income tax return for Hankins Lumber Company, Inc.
18. The evidence reflects that prior to October, 1973, Smith was in the private practice of accountancy with an office in Grenada, Mississippi. However, on or about October 1, 1973, Smith sold his accounting practice and moved his books, records, and workpapers and the corporate books and records of Hankins Lumber Company, Inc., to an office in the offices of Hankins Lumber Co., Inc., in Elliott, Mississippi.
19. In performing the various accounting services described above, Smith created and retained various accounting workpapers, books, and records. These workpapers and records, which are the subject of Civil Action Nos. WC 75-109-S and WC 75-110-S, are in the possession of Robert Lewis Smith, to whom one of the summonses at issue therein was directed.
20. In November of 1973, Revenue Agent Ervin began an audit of the 1971 partnership of Hankins Lumber Company and the individual returns of the two partners which would reflect the distribution of the partnership income from that year. In addition he undertook an audit of the returns of three closely held Hankins corporations with fiscal years ending March 31, 1972. Revenue Agent Ervin conducted the audits with the assistance of CPA Smith, who represented Hankins and the companies. In January, 1974, Revenue Agent Ervin advised CPA Smith that he needed to examine the subsequent year records (1972) of the lumber company. Smith advised Revenue Agent Ervin that Attorney Hugh Montgomery had the 1972 records in Jackson, Mississippi, and was making an analysis of them which would be helpful to Ervin and facilitate his audit. Ervin was able to work around this delay by conducting the audits of the closely held corporations. However, by May, 1974, he had completed the collateral audits and continued to request the 1972 lumber company records.
21. In late March or early April of 1974, the taxpayer, A. Burton Hankins, requested Attorney Tommy M. McWilliams to turn over to the taxpayer all books, records, and papers relating to the Boswell audit of the partnership and the will contest. This was ostensibly in furtherance of the settlement of the Estate reached in 1972.
22. On May 7, 1974, A. Burton Hankins petitioned the Chancery Court for approval of the final accounting of the Estate of Bewel A. Hankins and for his discharge as Executor of the Estate.
23. On May 8, 1974, the Chancellor of the Grenada County Chancery Court entered an order approving the final accounting and disbursements of assets and ordering the Estate of Bewel A. Hankins closed and the Executor, A. Burton Hankins, released and discharged.
24. On June...
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