United States v. Peoples Deposit Bank & Trust Co.

• Decision Date: 05 June 1953
• Docket Number: No. 1006.,1006.
• Citation: 112 F. Supp. 720
• Parties: UNITED STATES v. PEOPLES DEPOSIT BANK & TRUST CO.
• Court: U.S. District Court — Eastern District of Kentucky

112 F. Supp. 720

UNITED STATES v. PEOPLES DEPOSIT BANK & TRUST CO.

No. 1006.

United States District Court E. D. Kentucky, Lexington.

June 5, 1953.

Claude P. Stephens, U. S. Atty., Lexington, Ky., George W. Ledbetter, Enforcement Counsel for Bureau of Internal Revenue, Louisville, Ky., for plaintiff.

Victor A. Bradley, Georgetown, Ky., William Blanton, Paris, Ky., Bradley & Blanton, Paris, Ky., Richard L. Shook, Washington, D. C., and Shook, Lax & Olson, Washington, D. C., for defendant.

FORD, Chief Judge.

By this proceeding jurisdiction of the court is invoked, 26 U.S.C.A. § 3633, to enforce obedience to a summons issued under the authority conferred by § 3614 of the Internal Revenue Code, 26 U.S.C.A. § 3614, requiring the defendant bank, by its cashier, to appear at a stated time and place before Edward E. Ruby, Special Agent of the Bureau of Internal Revenue, and there to produce for the examination and inspection of the Revenue Agent certain specified books, records, papers and memoranda of the bank evidencing transactions in the years 1944 to 1951, inclusive, bearing upon the tax liability of E. F. Prichard, Sr., his wife Allene Power Prichard, E. F. Prichard, Jr., and his wife Lucy Prichard, and to give testimony in respect thereto.

Upon the filing of the complaint, a rule to show cause was served upon the defendant. It promptly responded stating its reasons for not producing certain of its records. It disclaimed any purpose or intention to impede or delay a lawful examination of its records and asked judgment of the court declaring its rights and duties under the facts and circumstances disclosed.

The only evidence presented was the testimony of Edward E. Ruby, the Special Agent at whose instance the proceeding was instituted. His testimony may be briefly summarized as follows: For quite a while prior to January 21, 1953, Mr. Ruby and Revenue Agent Tom Porter were engaged in investigating public records of deeds and various other sources of information relative to income tax liability of E. F. Prichard, Sr. Upon consideration of the information received from these various sources, these agents reached the conclusion that a substantial amount of Mr. Prichard's income had been unreported and that in order to secure more complete and accurate information as to this unreported income, it was necessary to examine the records of the defendant bank where Mr. Prichard had transacted his banking business for a number of years. On January 21, 1953, Mr. Ruby and his assistant went to the bank, conferred with the cashier and upon being assured that the desired records covering the years 1944-1951, inclusive, were available, he testified: "We then completed our subpoena and served it on the cashier". With the apparent concurrence of the cashier, they proceeded with their examination, and by the time they had inspected a considerable number of the 1949, 1950 and 1951 records and a portion of the ledger sheets for the year 1944, Mr. Prichard, accompanied by his accountant, appeared at the bank and objected to the examination of the records relating to his transactions prior to the year 1949 on the ground that a statute of limitation precluded examination of the records of such prior years. The bank then refused to comply with the summons relative to the records for the years 1944, 1945, 1946, 1947 and 1948.

Defendant has since withdrawn its objection to the examination of the records of E. F. Prichard, Sr., for the years 1947 and 1948, thus leaving in issue, in respect to his records, only those relating to transactions occurring in the years 1944, 1945 and 1946.

Mr. Ruby, carefully endeavoring to avoid disclosure of facts or details within the inhibitions imposed upon him by regulations or the statute, 26 U.S.C.A. § 55(f), said that from all the sources available, "we were able to make up a net worth statement or an accounting of his net worth at the end of various years, even in the absence of seeing all the bank records, and that has disclosed a substantial shortage, which indicates to us that there is a strong suspicion of fraud." As to the necessity of examining the bank records of E. F. Prichard, Jr., the testimony of Mr. Ruby is to the effect that E. F. Prichard, Jr., had many transactions with his father and it was considered necessary to examine his records "in order to get the correct tax liability of E. F. Prichard, Sr."

Pertinent statutory provisions set out in the Internal Revenue Code, Title 26 United States Code Annotated, are as follows:

"§ 3614. Examination of books and witnesses

"(a) To determine liability of the taxpayer. The Commissioner, for the purpose of ascertaining the correctness of any return or for the purpose of making a return where none has been made, is authorized, by any officer or employee of the Bureau of Internal Revenue, including the field service, designated by him for that purpose, to examine any books, papers, records, or memoranda bearing upon the matters required to be included in the return, and may require the attendance of the person rendering the return or of any officer or employee of such person, or the attendance of any other person having knowledge in the premises, and may take his testimony with reference to the matter required by law to be included in such return, with power to administer oaths to such person or persons."

"§ 3631. Restrictions on examination of taxpayers

"No taxpayer shall be subjected to unnecessary examinations or investigations, and only one inspection of a taxpayer's books of account shall be made for each taxable year unless the taxpayer requests otherwise or unless the Commissioner, after investigation, notifies the taxpayer in writing that an additional inspection is necessary. 53 Stat. 441."

"§ 3633. Jurisdiction of district courts

"(a) To enforce summons. If any person is summoned under the internal revenue laws to appear, to testify, or to produce books, papers, or other data, the district court of the United States for the district in which such person resides shall have jurisdiction by appropriate process to compel such attendance, testimony, or production of books, papers, or other data."

"§ 275. Period of limitation upon assessment and collection

"Except as provided in section 276—

"(a) General rule. The amount of income taxes imposed by this chapter shall be assessed within three years after the return was filed, and no proceeding in court without assessment for the collection of such taxes shall be begun after the expiration of such period.

* * * * * *

"(c) Omission from gross income. If the taxpayer omits from gross income an amount properly includible therein which is in excess of 25 per centum of the amount of gross income stated in the return, the tax may be assessed, or a proceeding in court for the collection of such tax may be begun without assessment, at any time within 5 years after the return was filed."

"§ 276. Same—Exceptions

"(a) False return or no return. In the case of a false or fraudulent return with intent to evade tax or of a failure to file a return the tax may be assessed, or a proceeding in court for the collection of such tax may be begun without assessment, at any time."

The defendant contends that "in the absence of a showing to the court of reasonable grounds to suspect that the taxpayer, E. F. Prichard, Sr., filed a fraudulent return for any particular taxable year otherwise barred by the statute of limitations, the defendant is not required to make available its records for any such taxable years", and that "the evidence does not support a finding that there are reasonable grounds to suspect that the...