United States v. Mobil Corp.

• Decision Date: 18 December 1981
• Docket Number: Civ. A. No. CA-3-80-0438-G.
• Citation: 543 F. Supp. 507
• Parties: UNITED STATES of America, Petitioner, v. MOBIL CORPORATION and Mobil Oil Corporation, Respondents.
• Court: U.S. District Court — Northern District of Texas

543 F. Supp. 507

UNITED STATES of America, Petitioner, v. MOBIL CORPORATION and Mobil Oil Corporation, Respondents.

Civ. A. No. CA-3-80-0438-G.

United States District Court, N. D. Texas, Dallas Division.

December 18, 1981.

Kenneth J. Mighell, U. S. Atty., Martha Joe Stroud, Asst. U. S. Atty., Dallas, Tex., Michael E. Greene, Tax Division, Dallas, Tex., for petitioner.

Chas. R. Haworth, R. Hunter Summers, Hewett, Johnson, Swanson & Barbee, Dallas, Tex., for respondents.

MEMORANDUM ORDER

PATRICK E. HIGGINBOTHAM, District Judge.

The United States of America ("USA") seeks a permanent injunction compelling Mobil Corporation and Mobil Oil Corporation (collectively "Mobil") to allow inspection of certain records by the Internal Revenue Service ("IRS").¹ USA claims its right to inspect is conferred by Section 6001 of the Internal Revenue Code of 1954, as amended, 26 U.S.C. Section 1 et seq. (the "Code"). Both Mobil and IRS have moved for summary judgment.

The dispute leading to this suit began during an IRS audit of Mobil. The IRS requested information from Mobil concerning the number of exemptions claimed by Mobil's employees on their tax withholding forms. Mobil resisted the request, insisting upon a summons. The IRS has declined to issue and seek enforcement of a summons. It seeks instead to obtain an inspection of certain records under 26 U.S.C. § 6001. That is, IRS seeks a judicial declaration of its right to demand inspection without resort to the procedures for issuance of a summons. See 26 U.S.C. § 7602-7610.

The following facts are undisputed:

1. The identity of the records which the IRS is presently seeking is not in dispute.²

2. The specific records which the IRS wishes to inspect are microfiche copies of salary checks and stubs for each payment of compensation and Forms W-4 for each employee.³

3. The IRS has not identified specific Mobil employees whose tax liability is being investigated.

4. The IRS has not sought, and declines to seek, to acquire these records with an administrative summons as authorized in Sections 7602-10 of the Code.

This request puts in issue the authority of IRS under Section 6001 of the Code to inspect the designated records, with the subsidiary question of whether reading Section 6001 to allow IRS to inspect without a warrant or its equivalent is constitutionally permissible.

I. Authorization for Inspection of Records Under Section 6001.

The IRS claims that Section 6001 and its implementing Treas.Reg. Section 31.6001-1(3) grant to it the right to inspect the designated records. I will examine this claim by reviewing the language of the statute and the regulations enacted pursuant to it, the authority construing Section 6001, and the relationship of Section 6001 to other Code provisions.

A. The Language of Section 6001.

Section 6001 of the Code provides as follows:

Notice or regulations requiring records, statements and special returns.

Every person liable for any tax imposed by this title, or for the collection thereof, shall keep such records, render such statements, make such returns, and comply with such rules and regulations as the Secretary may from time to time prescribe. Whenever in the judgment of the Secretary it is necessary, he may require any person, by notice served upon such person or by regulations, to make such returns, render such statements, or keep such records, as the Secretary deems sufficient to show whether or not such person is liable for tax under this title. The only records which an employer shall be required to keep under this section in connection with charged tips shall be charge receipts and copies of statements furnished by employees under section 6053(a). (emphasis supplied). 26 U.S.C. Section 6001.

The regulation provides in relevant part:

Records in general. —

(a) Form of records. The records required by the regulations in this part shall be kept accurately, but no particular form is required for keeping the records. Such forms and systems of accounting shall be used as will enable the district director to ascertain whether liability for tax is incurred and, if so, the amount thereof.

(b) Copies of returns, schedules, and statements.

Every person who is required, by the regulations in this part or by instructions applicable to any form prescribed thereunder, to keep any copy of any return, schedule, statement, or other document, shall keep such copy as a part of his records.

* * * * * *

(e) Place and period for keeping records.

(1) All records required by the regulations in this part shall be kept, by the person required to keep them, at one or more convenient and safe locations accessible to internal revenue officers, and shall at all times be available for inspection by such officers.

(2) * * * Every person required by the regulations in this part to keep records in respect of a tax (whether or not such person incurs liability for such tax) shall maintain such records for at least four years after the due date of such tax for the return period to which the records relate, or the date such tax is paid, whichever is the later. * * * (emphasis supplied). 26 C.F.R. Section 31.6001.

IRS argues that the language of § 6001 directly, or by permissible implementing regulations, necessarily gives to it the right to inspect records of an employee's claimed withholding which are held by an employer. I disagree. Whatever the reach of the "make such returns" language (compare to a taxpayer's return filing obligations in Code Sections 6011-6013, 6031-6037 which employ this term), it does not address inspection of records. Nor does the phrase "render such statements" apply to inspections. The latter is a term of art concerning the obligation of one taxpayer to report to another. (See Sections 6042(c), 6044(e) and 6049(c) of the Code). Finally, the requirement that a taxpayer "keep such records" sheds little light upon the procedural prerequisites to their inspection. For example, the same "at all times available for inspection" language in Treas.Reg. § 31.6001-1(e) is contained in the regulations issued by the Secretary of the Treasury under the Bank Secrecy Act. Compare Treas.Reg. § 31.6001-1(e) and 31 CFR § 103.32 (1980). Access to records required to be maintained under that Act requires resort to the summons provisions. See California Bankers Ass. v. Shultz, 416 U.S. 21, 94 S.Ct. 1494, 39 L.Ed.2d 812 (1974).

There are at least two interpretations of the underlined language of § 6001, both syntactically reasonable: (1) It authorizes the Secretary by regulation to define the procedural prerequisites to an inspection right internal to the statute or (2) it only requires the record holder to retain records (which can be inspected pursuant to other authority) of a type and in a manner defined by the Secretary. The "choice" is illusory. I find no language in Section 6001 which compels a finding that the IRS has authority to force a record keeper to grant access to records with no right to judicial review before that inspection. The choice is dictated by adherence to the principle that any choice between alternative constructions of the statute must both reflect constitutional concerns and fulfill the intent of Congress.

B. Decisions Construing Section 6001.

I have located only one decision in which the question of § 6001 as a direct source of inspection rights has been considered. U. S. v. Ohio Bell Telephone, 475 F.Supp. 697 (N.D.Ohio 1979) arose during an IRS investigation of the excise tax liability of identified subscribers to Ohio Bell's communications services.⁴ The IRS requested access to exemption certificates executed by the subscribers and maintained by Ohio Bell, but Ohio Bell refused to make them available. The court in Ohio Bell decided that the IRS did not need a summons (as provided in Sections 7602-7610 of the Code) to obtain the information, because it had "implicit authority" under Section 6001 to require that the records be made available for inspection without a summons.⁵

I do not find Ohio Bell's reading of Section 6001 persuasive. No precise language in the statute is pointed to for support of the conclusion that the IRS has "implicit authority" to inspect records under Section 6001. There is mention of the language in the regulations that records will be "available for inspection," but whether such language grants any inspection right not granted by § 6001 is not discussed. Nor, of course, is there mention of whether Section 6001 authorized such regulations. More to the point, Ohio Bell does not deal with the Fourth Amendment question posed by its construction.

C. The Relationship of Section 6001 to Other Code Provisions.

Mobil claims that the placement of 6001 in the Code's structure supports its argument that Congress intended that the only means which the IRS can use to inspect records, including those it requires to be kept, is by administrative summons issued under Sections 7602-7610 of the Code.

While "... spatial proximity of two contemporary provisions ..." may be without significance, United States v. Bisceglia, 420 U.S. 141, 155 n.1, 95 S.Ct. 915, 923 n.1, 43 L.Ed.2d 88 (1975), congressional placement in a comprehensive code with a logical organizational structure is at least a clue in the search for congressional intent and purpose. Section 6001 appears in Part I of Subtitle F of the Code. Subtitle F concerns "Procedure and Administration" and Part I of the subtitle deals with "records, statements and special returns." Another part of Subtitle F, Chapter 78, deals with "Discovery of Liability and Enforcement of Title" and Subchapter A of Chapter 78 is entitled "Examination and Inspection." Sections 7602-7610 of Subchapter A outline the procedures for obtaining records by means of administrative summons.⁶ Thus, the structure of the Code is consistent with a conclusion that Section 6001 requires record keeping depending upon its companion provisions found in Sections 7602-7610 for the procedure for...