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United States v. Friedman

argued: January 13, 1976.

UNITED STATES OF AMERICA AND WILLIAM L. BEERMAN, SPECIAL AGENT, INTERNAL REVENUE SERVICE
v.
PAUL FRIEDMAN AND MORRIS KIRSHENBAUM AND JOY KIRSHENBAUM, INTERVENORS IN DISTRICT COURT MORRIS KIRSHENBAUM AND JOY KIRSHENBAUM, INTERVENORS IN DISTRICT COURT, APPELLANTS (D.C. CIVIL ACTION NO. 74-195) UNITED STATES OF AMERICA AND WILLIAM L. BEERMAN, SPECIAL AGENT, INTERNAL REVENUE SERVICE V. PITTSBURGH NATIONAL BANK, MELLON BANK, N.A. AND EQUIBANK AND MORRIS KIRSHENBAUM AND JOY KIRSHENBAUM, INTERVENORS IN D.C. (D.C. CIVIL ACTION NO. 74-346) UNITED STATES OF AMERICA AND WILLIAM L. BEERMAN, SPECIAL AGENT, INTERNAL REVENUE SERVICE V. IVY SCHOOL OF PROFESSIONAL ART, INC. AND MORRIS B. KIRSHENBAUM, AS PRESIDENT OF IVY SCHOOL OF PROFESSIONAL ART, INC. (D.C. CIVIL ACTION NO. 74-557) MORRIS KIRSHENBAUM AND JOY KIRSHENBAUM, INTERVENORS IN D.C., AND IVY SCHOOL OF PROFESSIONAL ART, INC., AND MORRIS B. KIRSHENBAUM, AS PRESIDENT OF IVY SCHOOL OF PROFESSIONAL ART, INC., APPELLANTS UNITED STATES OF AMERICA AND WILLIAM L. BEERMAN, SPECIAL AGENT, INTERNAL REVENUE SERVICE, APPELLANTS, V. PITTSBURGH NATIONAL BANK, MELLON BANK, N.A. AND EQUIBANK MORRIS KIRSHENBAUM AND JOY KIRSHENBAUM, INTERVENORS IN D.C. (D.C. CIVIL ACTION NO. 74-346)



APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE WESTERN DISTRICT OF PENNSYLVANIA.

Hastie, Gibbons and Rosenn, Circuit Judges. Rosenn, Circuit Judge, concurring and Dissenting.

Author: Gibbons

GIBBONS, Circuit Judge

These appeals grow out of three separate proceedings in the district court for the enforcement, pursuant to 26 U.S.C. § 7604(b), of Internal Revenue Service (hereinafter IRS) summonses issued by Special Agent William L. Beerman in connection with an examination into the tax liabilities of Morris and Joy Kirshenbaum (hereinafter taxpayers) and the Ivy School of Professional Art, Inc. for the years 1969 through 1972. In one enforcement proceeding the respondents are three banks - Pittsburgh National Bank, Mellon Bank, N.A., and Equibank, N.A. In another the respondent is Paul Friedman, taxpayers' accountant. In the third the respondent is Ivy School of Professional Art, Inc. (hereinafter Ivy School) and Morris Kirshenbaum, its president.

Each bank summons, as amended,*fn1 seeks the following records pertaining to the taxpayers:

1. Ledger sheets of savings and checking accounts, open or closed, and signature cards of each account.

2. Original deposit tickets and cancelled checks.

3. Account ledger sheets of loans and mortgages together with loan and mortgage applications and financial statements submitted by or on behalf of the taxpayers.

4. Safe deposit box applications, signature cards, and entry records.

5. Cashier's checks.

6. Trust agreements, purchase and sale of stocks and/or bonds, and related documents.

7. Records of certificates of deposit.

8. Records of savings certificates.*fn2

Each of these summonses also advised that the IRS was willing to provide the personnel needed to search the banks' records and to supply its own copying equipment. Alternatively, each of the bank summonses noted that if the banks preferred to use their own personnel to search the records, the IRS would not require that all records be produced at the same time. Instead, the Service would first examine records in categories 1, 3 and 4 of the above list in an attempt to limit the scope of its examination of records in categories 2 and 5. Thereafter, the IRS would attempt to identify specifically those items in categories 6, 7 and 8 it wished to examine.*fn3 The banks, however, did not comply voluntarily with these amended summonses.

The summons issued to Paul Friedman requested, in addition to his testimony, all books, records, memoranda, correspondence and working papers relating to the tax liabilities of Morris and Joy Kirshenbaum as well as Ivy School for the period 1969-1972.*fn4 The summons issued to Ivy School and Morris Kirshenbaum as its president directed them to produce the following documents:

(1) Bank statements (ledger sheets), cancelled checks, deposit slips and bank memoranda for all bank accounts maintained by IVY SCHOOL OF PROFESSIONAL ART INCORPORATED for the years 1969, 1970, 1971 and 1972.

(2) All records of income, receipts and expenses, including but not limited to general journals, general ledgers, subsidiary journals and ledgers, cash receipts books, disbursements books, payroll records and all supporting documents, including invoices, billings, copies of wage and tax statements (Form W-2), copies of U.S. Information Forms (1099), correspondence, and employee expense account documentation.

(3) Corporate by-laws, stock books, and Minutes of Board of Directors' Meetings.

(4) All copies of Employer's Quarterly Federal Tax Returns (Forms 941) filed for the years 1969, 1970, 1971 and 1972.*fn5

Kirshenbaum's testimony regarding his and his wife's tax liability for the years in question was also requested by the Ivy School summons. Neither Friedman nor Kirshenbaum, however, voluntarily complied with their summonses and Special Agent Beerman initiated § 7604(b) enforcement proceedings in district court.

The taxpayers were permitted by the district court to intervene in the enforcement proceedings, and they attempted to resist enforcement on the ground that each summons sought evidence for a criminal prosecution. The banks resisted enforcement on two grounds: first, because the summonses were overbroad and burdensome; and second, because they could not lawfully be required to undertake, without compensation, the extensive search of records that compliance with the summonses would entail. The district court ordered that the summons against Friedman and against Ivy School be enforced in full, and that the summonses against the banks be enforced in full except for the request for records of entry into taxpayers' safe deposit boxes (see Category 4 above). The district court also ordered the government to reimburse the banks for the cost of the record search.*fn6

The taxpayer intervenors appeal from the enforcement order in each proceeding. The IRS appeals both from the order requiring the reimbursement of the banks for the cost of the record search and from the refusal to enforce the portion of the summonses requesting the records of entry into safe deposit boxes. On appeal both the taxpayer intervenors ...


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