United States v. Held

• Decision Date: 10 June 1970
• Docket Number: Civ. A. No. 5783.
• Citation: 315 F. Supp. 352
• Parties: UNITED STATES of America and Joe M. Wilson, Special Agent, Internal Revenue Service v. William V. HELD, Etowah Industries, Inc., Brainerd, Ltd., Inc., Decatur Mfg. Co., Decherd Factory To You Store, Inc., East Tennessee Construction Co., Inc., 5770 Corporation, Moby Dick Sportswear, Inc. (Madisonville, Tenn.), Moby Dick Sportswear, Inc. (New York), Quality Apparel Corp., Robinhood Industries, Inc., Tellico Mfg. Co., Inc., Wayne Industries, Inc., Hercules Sportswear, Inc., Winchester Sportswear Co., Inc., Continental Sportswear, Inc., and Wilmart Associates, Inc.
• Court: U.S. District Court — Eastern District of Tennessee

315 F. Supp. 352

UNITED STATES of America and Joe M. Wilson, Special Agent, Internal Revenue Service v. William V. HELD, Etowah Industries, Inc., Brainerd, Ltd., Inc., Decatur Mfg. Co., Decherd Factory To You Store, Inc., East Tennessee Construction Co., Inc., 5770 Corporation, Moby Dick Sportswear, Inc. (Madisonville, Tenn.), Moby Dick Sportswear, Inc. (New York), Quality Apparel Corp., Robinhood Industries, Inc., Tellico Mfg. Co., Inc., Wayne Industries, Inc., Hercules Sportswear, Inc., Winchester Sportswear Co., Inc., Continental Sportswear, Inc., and Wilmart Associates, Inc.

Civ. A. No. 5783.

United States District Court, E. D. Tennessee, S. D.

June 10, 1970.

John L. Bowers, Jr., U. S. Atty., Jerry Foster, Asst. U. S. Atty., Chattanooga, Tenn., John M. Dowd, Tax Div., Dept. of Justice, Washington, D. C., for plaintiffs.

Arvin Reingold, John T. Henniss, Chattanooga, Tenn., Tom Mitchell, Jr., Memphis, Tenn., for defendants.

FINDINGS OF FACT AND CONCLUSIONS OF LAW

FRANK W. WILSON, Chief Judge.

This is an action seeking judicial enforcement of a summons issued by a special agent of the Internal Revenue Service in furtherance of an income tax investigation. The lawsuit was initiated by the United States and Internal Revenue Service Special Agent Joe M. Wilson against the defendants, William V. Held and 16 named corporations. After the case had proceeded to issue, the Government filed a motion for summary judgment. The Court reserved a ruling upon the Government's motion for summary judgment and ordered the case to proceed to trial when it appeared that the defendants would not have an adequate opportunity to respond to the issues raised in the motion for summary judgment prior to the scheduled date of the trial. The case came on for trial before the Court sitting without a jury upon March 13, 1970. The Court now enters the following findings of fact and conclusions of law on the basis of the full record in the case.

Findings of Fact

(1) During the year 1967 the income tax return filed by William V. Held and wife for 1964, together with the corporation income tax return filed by Wilmart Associates, Inc., a corporation in which the defendant Held was a principal, were assigned to a revenue agent (Esslinger) for audit. It appears that the audit was undertaken in the normal course of such matters. In the course of the investigation made in connection with the audit, the investigation broadened to include the additional corporate defendants herein and in which it appeared that the defendant Held may have been an officer, director or principal, including Etowah Industries, Inc. On the basis of the information developed in the course of the audit of the tax returns of the defendant corporation, Etowah Industries, Inc., the revenue agent came across matters which caused him to submit a referral report to appropriate authorities within the Internal Revenue Service recommending further investigation of possible fraud by the Intelligence Division of the Internal Revenue Service. The referral was made accordingly and further investigation was then assigned unto Special Agent Joe M. Wilson, the petitioning agent herein.

(2) The petitioner, Joe M. Wilson, is a duly commissioned special agent of the Intelligence Division of the Internal Revenue Service assigned to the Nashville, Tennessee, office of that service. As a special agent Mr. Wilson is empowered to issue summonses as a delegate of the Secretary of the Treasury under authority of § 7602 of the Internal Revenue Code of 1954.

(3) Supervision of the tax investigation here involved was first undertaken by Special Agent Wilson in July of 1968. Thereafter the investigation proceeded as a joint investigation, under the supervision of Special Agent Wilson, but participated in by three revenue agents, Esslinger, Dickey and Swafford. The investigation continued to broaden over the next year until by August of 1969 the investigation involved each of the 16 defendant corporations named as parties defendant to this lawsuit. The investigation had further revealed by this time that the defendant, William V. Held, was the custodian or had supervision over the books and records of each of the 16 defendant corporations. By August of 1969, an extensive investigation had been made in the course of the ever broadening joint tax investigation here involved. However, the investigation had not been completed as to any of the corporate defendants by that time.

(4) On August 22, 1969, as a part of the investigation, Special Agent Wilson issued and served an Internal Revenue summons upon the defendant, William V. Held, as custodian of the books and records of the 16 defendant corporations, directing that he produce all corporate records of each of the 16 defendant corporations for designated tax years between 1965 and 1968 and further describing the specific corporate records desired for each defendant corporation. Only corporate records were sought. No tax records of the defendant Held were sought by the summons. The summons directed the defendant Held to appear before the special agent on September 23, 1969, at 10:00 A.M. with the corporate records designated in the summons and prepared to testify in regard thereto. For the full details of the summons reference is made to a copy of the summons filed as an exhibit to the original petition herein and filed as Exhibit No. 2 upon the trial. By request of the defendant Held the return date of the summons was delayed until September 30, 1969. Upon that date the defendant appeared but refused to testify or produce the records called for in the summons, stating as reasons for his refusal the following matters which now also constitute the defenses in this lawsuit:

(a) The summons was issued in furtherance of a criminal investigation and not in furtherance of a civil tax investigation and therefore was not within any permissible purpose authorized under § 7602 of the Internal Revenue Code of 1954, the statute under which the summons purported to have been issued.

(b) The defendant Held is not the authorized custodian of the books and records of the corporate defendants. Certain of the defendant corporations are no longer in existence. Not being in possession and control of the books and records of all of the corporate defendants, Held would be unable to produce some of the records requested.

(c) The summons constituted a violation of the rights of the defendant Held to be free from unlawful searches and seizures under the Fourth Amendment and his right not to be required to incriminate himself under the Fifth Amendment.

(d) The summons was so burdensome as to constitute a violation of the defendant corporations' right to be free from unreasonable searches under the Fourth Amendment.

(e) The summons constituted an unnecessary second examination of the defendants' books and records, contrary to the provisions of § 7605(b) of the Internal Revenue Code of 1954.

(5) It is clear that the purpose for which the books, records and testimony was sought in the summons which is the subject of this lawsuit is at least in part in furtherance of an audit of the records of each corporate defendant to ascertain the correctness of the tax returns of that corporation and to determine the correct tax liability of that corporation. At the time the summons was issued and at the present time there is no criminal tax prosecution pending against either the defendant Held individually or against any corporate defendant. Whether there will ever be such a criminal prosecution is entirely problematical at this stage of the investigation. The ultimate result of the investigation may turn out to be solely a matter of civil tax in significance. Although it is clear that the principal function and duties of the special agent issuing the summons is to investigate fraud and enforce the criminal provisions of the tax laws, his investigations are not irrelevant to a determination of the civil tax liability. Furthermore, the record clearly indicates that the investigation here is a joint investigation, participated in by both the special agent and three revenue agents, the function of the revenue agents being to determine the correctness of the tax returns and the extent of the civil tax liability of each defendant.

(6) Although it is...