The opinion of the court was delivered by: DUMBAULD
The instant proceeding involves as application to quash an internal revenue summons issued on August 16, 1962, pursuant to 26 U.S.C. § 7602(2). The summons is addressed to John A. Howard, President of a corporation known as Langley Howard, Inc. and purports to be issued in connection with investigation of the tax liability of applicant and his wife Margaret L. Howard for the years 1956, 1957, 1958, and 1959.
This summons was accompanied by a letter to the taxpayers dated August 15, 1962, stating that a reinvestigation for the years 1956 and 1957 was 'deemed necessary'.
In that respect the summons differed from one previously quashed by this Court under 26 U.S.C. § 7605(b).
The Government's motion to dismiss for lack of jurisdiction also brought before the Court an affidavit by Special Agent William W. Ankrom of the Intelligence Division.
After argument, this Court made its order of September 24, 1962, quashing the new summons as to the years 1956, 1957, and 1958. This order adhered to the views taken with respect to the prior order quashing the earlier summons.
Those views were based upon cases cited by applicant's counsel at the hearing on the earlier summons, which appeared to be in point and which the Court accepted as authoritative. This opinion is now written to explain the Court's reasoning in sufficient detail to permit adequate appellate review.
We rejected the Government's contention that this Court had no jurisdiction to quash an internal revenue summons, as being an unconsented to suit against the United States, upon the authority of Application of Colton, 291 F.2d 487 (C.A.2, 1961). There being no decisions of this District, of the Third Circuit or of the Supreme Court available, we accepted the Second Circuit case as authoritative and well-reasoned; all the more so inasmuch as one of the panel happened to be the late esteemed Judge Goodrich of the Third Circuit, and inasmuch as the opinion was written by the eminent Judge Henry Friendly whose learning we have respected since law school days and who is reputed to have earned the highest grade ever attained in the Law School since Mr. Justice Brandeis. Chief Judge Lumbard is also a noted graduate of the same Law School. We candidly confess that we relied upon this case in making our order here involved, as well as the one relating to the earlier summons.
We also accepted the case of Zimmerman v. Wilson, 105 F.2d 583, 586 (C.C.A. 3, 1939), cited by applicant, to the effect that when a reinvestigation is made under 26 U.S.C. 7605(b), of a tax year as to which the statute of limitations has run except with respect to fraud violations, the mere ipse dixit of the internal revenue official that re-examination is 'deemed necessary' is not conclusive; but that the Government must set forth facts (not mere conclusions or opinions) sufficient to convince the Court that reasonable ground exists to suspect fraud. In our judgment the affidavit of Ankrom did not meet this test, but was merely a statement of conclusions. Inasmuch as no sufficient facts were alleged, it was not appropriate to take any testimony to establish the allegations set forth.
These are the reasons which led to the order of September 24, 1962, insofar as it quashed the summons as to the years 1956, 1957, and 1958. It remains to consider why it was not quashed as to the year 1959.
It was the Court's opinion that with respect to a tax year as to which the statute of limitations had not yet run it was not proper for a judicial tribunal to interfere with the collection of taxes. Omnia praesumuntur rite esse acta. U.S. v. Chemical Foundation, 272 U.S. 1, 14-15, 47 S. Ct. 1, 71 L. Ed. 131 (1926).
This situation we believed, was quite different from that with respect to a year where the possibility of collection was extinct and the internal revenue agents were obviously merely seeking to build up a criminal case on grounds of fraud.
Since making the order of September 24, 1962, we have had occasion to consider the subject more attentively in connection with another similar case, Application of Joseph Barletta, Misc. No. 3031, and have re-examined the allegations made by applicant Howard.
In Barletta's case, there was no allegation such as Howard makes that he was the only person having pecuniary interest in the corporation. We therefore concluded that Barletta had no constitutional standing to object to production of corporate records. U.S. v. White, 322 U.S. 694, 698-699, 64 S. Ct. 1248, 88 L. Ed. 1542 (1944). We shall assume arguendo that Howard can overcome this hurdle, and that, as he alleges, the records involved are his own personal papers.
We then confront the chief issue applicant is interested in raising, to wit, whether a summons issued under 26 U.S.C. § 7602(2) may be used in a criminal case or is limited to ...