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UNITED STATES v. MELLON BANK

March 11, 1976

UNITED STATES of America and Joseph A. Hopper, Special Agent, Internal Revenue Service, Petitioners,
v.
MELLON BANK, N. A. and James C. Karras, Vice President, Respondents (two cases)



The opinion of the court was delivered by: ROSENBERG

 This matter is before me on two petitions presented by the United States and Joseph A. Hopper, Special Agent for the Internal Revenue Service, to enforce compliance with two summonses directing the respondents, Mellon Bank, N. A. and James C. Karras, Vice President, to appear and produce desired financial information in its possession of two taxpayers, Gurrentz International Corporation and Illinois Beef L. & W. S., Inc. At the hearing for the enforcement of the summonses, the two petitions were consolidated. Both summonses, Treasury Forms 2039, dated August 21, 1975, are identical except for the names of the taxpayers, and they request the following:

 
2. All files relating to financial transactions between you and (taxpayer) and/or its related trade names and/or affiliated corporations, listed on Attachment A, from May 1, 1970 through April 30, 1973, including correspondence, intra and inter office memorandums, and memorandums to file, and workpapers.
 
3. A list by names, account number or other descriptive identification or savings accounts, checking accounts, loan accounts, lines of credit, certificates of deposit, and safe deposit boxes in the name of (taxpayer) and/or its related trade names and/or affiliated corporations, listed on Attachment A, from May 1, 1970 through April 30 1970.
 
4. All financial statements filed during the period May 1, 1970 through April 31, 1973 by shareholders and/or officers of (taxpayer) in connection with loan or credit activity of (taxpayer) and/or its related trade names and/or affiliated corporations, listed on Attachment A, from May 1, 1970 through April 30, 1973. This includes financial statements filed by Henry Gurrentz, Joel Berg, Glenn Olbum, Morton Gurrentz, and Harry Gurrentz and N. J. Weisman."

 The respondents assert that the petitioners are not entitled to the records in their possession and allege that the petitioners: (1) have not sustained their burden of proof under 26 U.S.C. ยง 7602; (2) have not established the relevance to a determination of tax liability of an examination of entries by the taxpayers into safety deposit boxes located at their banks; and (3) have not agreed to compensate them for the service of locating, assimilating and producing the required records.

 In United States v. McCarthy, 514 F.2d 368, C.A.3, 1975, it was held that in order for the government to establish a prima facie case for the enforceability of a summons a three prong test must be met. The petitioners must plead: (1) that the investigation is legitimate and that the records demanded are relevant to it; (2) that the information they do seek is not within their possession; and (3) that the petitioners have followed the requisite steps of the Internal Revenue Service. United States v. McCarthy, supra, at page 373; United States v. Powell, 379 U.S. 48, 85 S. Ct. 248, 13 L. Ed. 2d 112 (1964).

 The petitioners have shown by way of affidavit and at the hearing for enforcement that their investigation does have a legitimate purpose and that the records sought are relevant to that investigation. It is quite clear that an investigation may lead to both civil or criminal penalties and that a summons is enforceable if issued in good faith and prior to a recommendation for criminal prosecution. Couch v. United States, 409 U.S. 322, 93 S. Ct. 611, 34 L. Ed. 2d 548 (1973); Donaldson v. United States, 400 U.S. 517, 91 S. Ct. 534, 27 L. Ed. 2d 580 (1970). The petitioner, Agent Hopper, testified at the enforcement hearing that no such recommendation was made and the respondents who have the burden to prove an abuse of process did not bring forward any evidence to the contrary. United States v. Powell, supra.

 Of more importance is that the Supreme Court on several occasions has held that an Internal Revenue summons directed to a third party was not a violation of the Fourth Amendment rights of the bank or the taxpayer. California Bankers Association v. Shultz, 416 U.S. 21, 94 S. Ct. 1494, 39 L. Ed. 2d 812 (1974); Donaldson v. United States, supra; First National Bank v. United States, 267 U.S. 576, 45 S. Ct. 231, 69 L. Ed. 796 (1925). Also, the Supreme Court has held that a bank being a corporation cannot invoke the constitutional privilege against compulsory self-incrimination by virtue of the Fifth Amendment. California Bankers Association v. Shultz, supra; Hale v. Henkel, 201 U.S. 43, 26 S. Ct. 370, 50 L. Ed. 652 (1906).

 The respondents claim that the records of entry in safe deposit boxes are not relevant to the petitioners' investigation. Records sought by the IRS to determine correct tax liability are relevant if shown that their production "might throw some light upon the correctness of the taxpayer's return." United States v. Egenberg, 443 F.2d 512, C.A.3, 1971; United States v. Shlom, 420 F.2d 263, C.A.2, 1969; United States v. Harrington, 388 F.2d 520, C.A.2, 1969.

 Indeed, the testimony of Agent Hopper shows that production of the list of entries into safe deposit boxes might shed light on the correctness of the taxpayers' liability. (Tr. p. 24, lines 9-18, direct examination of Agent Hopper by Attorney Tjaden, for petitioners.)

 
"Q. Have you determined that the books, or the documents and information that you are seeking in the summonses are relevant to your investigation into the tax liabilities of Gurrentz ...

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