United States v. Troupe, 18277-4.

• Decision Date: 03 September 1970
• Docket Number: No. 18277-4.,18277-4.
• Citation: 317 F. Supp. 416
• Parties: UNITED STATES of America et al., Petitioners, v. William J. TROUPE et al., Respondents.
• Court: U.S. District Court — Western District of Missouri

317 F. Supp. 416

UNITED STATES of America et al., Petitioners, v. William J. TROUPE et al., Respondents.

No. 18277-4.

United States District Court, W. D. Missouri, W. D.

August 14, 1970.

On Motion to Vacate Order and for New Trial, September 3, 1970.

Jeffrey D. Snow, Tax Div., U. S. Dept. of Justice, Washington, D. C., Bert C. Hurn, Neosho, Mo., for petitioners.

Merrill R. Talpers, Fallon, Olsen, Talpers & Thompson, Robert W. Brown, Kansas City, Mo., for respondents.

MEMORANDUM AND ORDER DIRECTING COMPLIANCE WITH INTERNAL REVENUE SUMMONS

ELMO B. HUNTER, District Judge.

This is an action brought pursuant to the provisions of 26 U.S.C. §§ 7402(b) and 7604(a) to enforce a summons issued by petitioner Ryan, a Special Agent of the Internal Revenue Service, which directs respondent Troupe to produce for examination certain accounting records and information relating to the tax liabilities of the B & C Meat Company, Inc. Petitioners seek an order of the Court directing respondent Troupe to comply with the terms of the summons which was issued on November 21, 1969. Respondent Troupe is a partner in the accounting firm which performs accounting services for the B & C Meat Company, Inc. On June 5, 1970, the Court granted the B & C Meat Company, Inc., the corporate taxpayer; Carl Civella, a shareholder and employee of the taxpayer; and Albert G. Brandmeyer, a shareholder and officer-director of the taxpayer, leave to intervene as party respondents.

On November 21, 1969, petitioner Ryan issued a summons, Treasury Form 2039, directing respondent Troupe to appear on December 2, 1969, and to testify and produce for examination certain records regarding the income tax liabilities of the corporate taxpayer. On the date specified in the summons, William Mangold did appear in response to that summons but he refused to testify or produce the records described in the summons. Petitioners subsequently filed this action to compel compliance with the terms of the summons. The summons issued by petitioner Ryan directs the production for examination the following records and documents with respect to the tax years 1965-1968:

"All of you (sic) firm's records relating to accounting work done for B & C Meat Company, Inc. including all work papers and correspondence."

"All records of B & C Meat Company, Inc., that are presently in your possession, including all books of account, workpapers, records, and memoranda."

In his answer to the present petition, respondent Troupe sets forth the following allegations: (1) "that the Internal Revenue Summons issued in this case violates respondent's rights under the fourth amendment to the United States Constitution in that the summons is vague, excessively broad and indefinite and requires the production of matters clearly irrelevant to this case," and (2) "that the Internal Revenue Summons issued in this case calls for the respondent to violate the accountant-client privilege granted by § 326.151 of the Revised Statutes of Missouri (1959) as amended in 1967, by the disclosure of communications of the client (both oral as well as those made through the media of books) without the consent of the client." The intervenor-respondents also set forth those particular defenses to the enforcement of the summons in issue. Additionally, however, the intervenor-respondents Civella and Brandmeyer contend that the summons constitutes an attempt to obtain information "for unlawful purposes not cognizable by Section 7602 of the Internal Revenue Code of 1954" in that it is designed to aid in the preparation of a criminal case against them; that the summons is being used for harassment; and that it constitutes "an unwarranted and unconscionable `fishing expedition' to seek evidence for a criminal action."

On July 13, 1970, this case was set for hearing upon the various motions of the respondents for certain pretrial discovery. During that proceeding respondents were allowed to orally depose petitioner Ryan as to matters relevant to this proceeding. Additionally, respondents were given answers to the interrogatories which respondents propounded on June 26, 1970. Shortly thereafter, on July 22, 1970, as ordered by the Court in the earlier discovery proceeding, a full evidentiary hearing was held to consider all of the issues raised herein. Counsel for both sides stipulated that the testimony and evidence adduced at the earlier proceeding would be reintroduced as evidence. Thus, the Court will give full consideration to the evidence and testimony adduced at both hearings.

Valid Purpose

Perhaps the most basic issue raised by the respondents in this proceeding is whether the summons sought to be enforced herein was issued by governmental authorities for a "valid purpose" within the meaning of Title 26, U.S.C., Section 7602. As stated by the Ninth Circuit Court of Appeals in Wild v. United States, 362 F.2d 206 (9th Cir. 1966) at page 209:

"In order to prevail in a proceeding of this kind under 26 U.S.C. §§ 7402 & 7604 one seeking enforcement must show that the investigation will be conducted pursuant to a legitimate purpose. United States v. Powell, 379 U.S. 48 85 S.Ct. 248, 13 L.Ed.2d 112. If the sole objective of an investigation is to obtain evidence for use in a criminal prosecution, the purpose is not proper and enforcement should be denied. See Reisman v. Caplin, 375 U.S. 440 84 S.Ct. 508, 11 L. Ed.2d 459 (emphasis added).

"If, however, the objective to the investigation is to obtain information which may be utilized in determining whether there is a civil liability for a tax or a tax plus penalty, then the summons may be enforced notwithstanding the fact that the information might also be used in a criminal prosecution. See Boren v. Tucker, 9 Cir., 239 F.2d 767, 772-773; Sanford v.

United States, 5 Cir., 358 F.2d 685; In re Magnus, Mabee & Raynard, Inc., 2 Cir., 311 F.2d 12, 16." See also: United States v. Giordano, 419 F.2d 564, 568 (8th Cir. 1969); United States v. Hayes, 408 F.2d 932, 936 (7th Cir. 1969); United States v. Mercurio, 418 F.2d 1213 (5th Cir. 1969); United States v. Michigan Bell Telephone Co., 415 F.2d 1284, 1286 (6th Cir. 1969); and Howfield, Inc. v. United States Ahmanson v. United States, 409 F.2d 694 (9th Cir. 1969).

Thus, as evidenced by the authorities above, it is well-established that a tax summons seeking information to determine civil tax liabilities is proper and should be enforced, even though the information might later be used in criminal proceedings.

In the hearing of July 13, 1970, petitioner Ryan testified that he was directed into his present investigation of the corporate taxpayer through a previous assignment in investigating the tax liabilities of intervenor-respondent Civella; that he determined that respondent Civella was associated with the corporate taxpayer as a principal officer during that period of time; that upon examination of respondent Civella's tax returns he discovered a "miscellaneous income" entry which did not specify the precise source of such income; that, in view of that income entry and the possibility that such income had been generated by the corporate taxpayer, it was necessary to accumulate information to authenticate the tax returns of the corporation; that in order to secure such information petitioner Ryan issued the summons presently in issue; that the information sought is currently in the possession of respondent Troupe; and that even though a representative of the respondent appeared at the time and place specified in the summons, he refused to testify or produce the information described in the summons.

Although there is some indication in this record that intervenor-respondent Civella has been previously investigated by certain agencies of the United States Government, there is not substantive showing which would indicate that the disputed summons was issued for the sole and primary purpose of gathering information for a criminal prosecution by those authorities, or, for that matter, that any criminal prosecution is presently contemplated by officials of the Internal Revenue Service. Rather, it is abundantly clear from the record that the purpose of the petitioners in issuing the summons was to obtain information in order to ascertain the civil tax liabilities of the corporate taxpayer and to check the accuracy of its tax returns. Such action falls directly within the scope of 26 U.S.C. § 7602, and is, therefore, a proper use of the summons power granted under that statutory section.

The Fourth Amendment

As previously stated, respondents contend herein that the summons in issue is "vague, excessively broad and indefinite and requires the production of matters clearly irrelevant to this case" and that it therefore violated their Fourth Amendment rights under the United States Constitution. The testimony and evidence in this case reveal that the materials sought are clearly relevant to the purpose for which the summons was originally issued; namely, for securing information as to the accuracy of the corporate taxpayer's tax returns and as to any potential civil tax liability.

In a case very similar to this action, involving similar materials and substantially corresponding tax years, the Eighth Circuit Court of Appeals stated:

"The taxpayer contends that the summons is invalid because it is overly broad in that it seeks all of the taxpayer's reports and records pertaining to the tax years involved. The short answer to this is that the uncontradicted evidence established that every document demanded would relate to the tax liability for the years involved and, of course, the Government has the statutory right to this information." United States v. Giordano, 419 F.2d 564, 569 (8th Cir. 1969).^*

Furthermore, so long as the material sought is relevant, broadness alone is not sufficient justification to refuse enforcement of the summons. Adams v. Federal Trade Commission, 296 F.2d 861, 864 (8th Cir. 1961); United States v....