United States v. Shivlock, Civ. A. No. 78-W-903 to 78-W-905.
Citation | 459 F. Supp. 1383 |
Decision Date | 16 November 1978 |
Docket Number | Civ. A. No. 78-W-903 to 78-W-905. |
Parties | UNITED STATES of America and Nick DiFalco, Special Agent of the Internal Revenue Service, Petitioners, v. Robert G. SHIVLOCK, Vice President, First Denver Mortgage Co., Respondents, and Donald U. West, Intervenor. UNITED STATES of America and Nick DiFalco, Special Agent of the Internal Revenue Service, Petitioners, v. INCOME REALTY AND MORTGAGE, INC. and William Riley, Respondents. UNITED STATES of America and Nick DiFalco, Special Agent of the Internal Revenue Service, Petitioners, v. ARAPAHOE BANK AND TRUST and David F. Clark, Assistant Vice President, Respondents, and Donald U. West, Intervenor. |
Court | United States District Courts. 10th Circuit. United States District Court of Colorado |
Joseph F. Dolan, U. S. Atty., Donald M. Hoerl, Asst. U. S. Atty., Denver, Colo., for petitioners.
Roger P. Barrick, Boulder, Colo., for intervenor.
These three consolidated cases are a part of the continuing saga of the headaches stemming from the enactment of the so-called third party record keepers statute, 26 U.S.C. § 7609. See, United States v. Bank of Monte Vista, (D.C.) 451 F.Supp. 945, and United States v. Mackety (unreported) No. 78-W-974, in this court. All three of the present cases have to do with the same taxpayer, Donald U. West, and in two of them, United States v. Shivlock, No. 78-W-903, and United States v. Arapahoe Bank and Trust, 78-W-905, the IRS recognizes that the named respondents are third party record keepers as defined in 26 U.S.C. § 7609. That being so, notice of service of summons on those two respondents was given to Mr. West in accordance with the requirements of 26 U.S.C. § 7609(a), and he utilized the provisions of 26 U.S.C. § 7609(b) to stay compliance on the part of the named respondents with the command of the third party summons. In accordance with the procedure set up in United States v. Bank of Monte Vista, supra, the persons summoned notified the court that their refusal to produce the requested records rested totally upon the direction given to them by the taxpayer in accordance with the provisions of the statute. The statute says that once the notice is given, the third party record keeper can't produce the records, and at that instant the innocent third party becomes the target of a lawsuit. That's why we have developed the procedure spelled out in United States v. Bank of Monte Vista, and it has worked well.
In the third case, United States v. Income Realty and Mortgage, Inc. No. 78-W-904, the IRS says that the respondent is not a third party record keeper, and, additionally, it says that even if it is a third party record keeper for some purposes, the statute is inapplicable to the records sought. For that reason, the notice required by § 7609(a) was not given to Mr. West in conjunction with the summons served on Income Realty and Mortgage, and the IRS issued a summons directed to it under the provisions of 26 U.S.C. § 7602. Enforcement was sought under 26 U.S.C. § 7604, but § 7609 was deemed to be inapplicable.
Donald U. West asks to intervene in all three cases, and, in my judgment, he can intervene as a matter of right where it is agreed respondents are third party record keepers. 26 U.S.C. § 7609 says that "notwithstanding any other law or rule of law, any person who is entitled to notice of a summons under subsection (a) shall have the right to intervene in any proceeding with respect to the enforcement of such summons under § 7604." Rule 24(a) says that "upon timely application anyone shall be permitted to intervene in an action: (1) when a statute of the United States confers an unconditional right to intervene." § 7609 confers an unconditional right to intervene in cases where summons enforcement is sought against a third party record keeper who has refused compliance because of the taxpayer's notice served in accordance with § 7609(b)(2). Accordingly, taxpayer's motions to intervene in1 78-W-903 and 78-W-905 are granted as interventions of right.
United States v. Income Realty and Mortgage, 78-W-904, presents a separate problem. § 7609(a)(3) defines third party record keepers.2 § 7609(a)(3)(D) says that "any broker (as defined in section 3(a)(4)) of the Securities Exchange Act of 1934" is a third party record keeper. The referenced section of the Securities Exchange Act of 1934 defines a broker as "any person engaged in the business of effecting transactions in securities for the account of others," and I glean from the record that the Colorado Securities Commission has said that Income Realty and Mortgage is subject to the Colorado Act because the company allegedly sells fractional interests in mortgages. Apparently, the S.E.C. has taken no position, and Income Realty and Mortgage vigorously disagrees with the Securities Division of the State of Colorado. Thus we have the IRS saying that Income Realty and Mortgage is not a broker, and we have Income Realty and Mortgage saying it isn't a broker, but Donald West wants to say that the company is a broker within the meaning of § 7609. If the company is a broker, West says that he can intervene as a matter of right under Rule 24(a), and he takes a secondary position that if Income Realty isn't a broker, he should be allowed discretionary intervention under Rule 24(b).
There is no evidence that Income Realty is a broker. There is a suggestion that the Colorado Department of Securities says that it is a broker, but I find that Income Realty and Mortgage has not been shown to be a broker within the meaning of 26 U.S.C. § 7609,3 and, accordingly, I find that there is no right to intervene under Rule 24(a). I do not think permissive intervention is warranted. Rule 24(b) says that "in exercising its discretion the court shall consider whether the intervention will unduly delay or prejudice the adjudication of the rights of the original parties." The record demonstrates that such intervention would unduly delay the rights of the Internal Revenue Service because, although Congress has permitted intervention in cases involving third party record keepers subject to limitations I shall discuss presently, Congress has not said that intervention should be allowed in every investigation conducted by the Internal Revenue Service, and tax collection would bog down if discretionary intervention were to be allowed just because the taxpayer wants to find out how hot the pursuit of the IRS is.
The Income Realty and Mortgage records the IRS wants to look at are its records concerning West's activities in working for it as a salesman. According to the testimony, the IRS wants to find out about commissions paid to him by Income Realty, and the record shows that West has made no investments with or through Income Realty. Thus, Donaldson v. United States, (1970) 400 U.S. 517, 91 S.Ct. 534, 27 L.Ed.2d 580, governs. There the applicant to intervene was a former employee, and the IRS wanted to examine the employer's records. The Supreme Court first noted that the employee under investigation had no proprietary interest in the records and that examination of them could violate no privilege possessed by him. The Court squarely held that there was no right of intervention under these circumstances which closely parallel those we here face. The Supreme Court did not discuss in any detail a Rule 24(b) intervention, but United States v. Newman, (1971) 5 Cir., 441 F.2d 165, does. The Fifth Circuit said that "Donaldson — upholding a denial of intervention — compels rejection of intervention on discretionary grounds." As the Supreme Court said in Donaldson in explaining the refusal to permit intervention, "Any other holding, of course, would thwart and defeat the appropriate investigatory powers that the Congress has placed in "the Secretary or his delegate." It matters not whether the intervention be of right or permissive, because, as the Fifth Circuit said in Newman, "It is the intervention in such situation, not the technical basis — as of right or permissive — for permitting it which thwarts and defeats." By enacting 26 U.S.C. § 7609, Congress limited the application of the Donaldson rule, but it did so only as to defined third party record keepers under the circumstances contemplated by the statute. I find nothing in § 7609 which modifies the full applicability of Donaldson where the information sought is information of a nature different from that contemplated by § 7609 or when it is possessed by someone not included in the third party record keeper definitions. As was said in Newman, "to permit (intervention under these circumstances) would unwarrantedly cast doubt upon and stultify the Service's every investigatory move." So, I say that permissive intervention should not be and it will not be allowed in this case.
As I have said, I think it clear that Investment Realty and Mortgage is not a third party record keeper under the statutory definitions of that term, and I do not think that West was entitled to notice of the summons served on Investment Realty and Mortgage. Nevertheless assuming arguendo that the company is a "broker" within the meaning of § 7609, I still say that West was entitled to no notice because § 7609 would not be applicable to this particular summons. In so ruling, I candidly admit that I crib from the research done by Judge Murray as reported in United States v. Exxon, (1978) D.C.Md., 450 F.Supp. 472, and I agree with his thorough well reasoned opinion. There was not the slightest doubt that Exxon was within the third party record keeper definition as being a "person extending credit through the use of credit cards." However, the IRS summons wanted to know nothing about any credit card business done by the taxpayer with Exxon, but, instead, inquiry was being made as to rentals paid under a lease between Exxon and the taxpayer. Judge Murray ruled, and I agree with him, that the statute wasn't applicable when the records sought from Exxon were unrelated to...
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