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United States v. First National State Bank of New Jersey

argued: March 25, 1976.

UNITED STATES OF AMERICA AND CARL E. REICHELT, SPECIAL AGENT OF INTERNAL REVENUE SERVICE, PETITIONERS-APPELLEES
v.
FIRST NATIONAL STATE BANK OF NEW JERSEY, RESPONDENT V. HERBERT M. GANNET, INTERVENOR-APPELLANT



ON APPEAL FROM ORDER OF THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF NEW JERSEY (D.C. Civil No. 76-124).

Seitz, Chief Judge, Rosenn and Garth, Circuit Judges. Seitz, Chief Judge, dissenting.

Author: Garth

Opinion OF THE COURT

GARTH, Circuit Judge.

This case presents us with the question of whether an intervening party in an administrative summons enforcement proceeding may be held in civil contempt for refusing to answer questions which range beyond the scope of the proceeding. We hold that the Internal Revenue Service (IRS), the administrative agency involved, lacked the statutory power to require answers to questions which were unrelated to the enforcement of the summons and that therefore the district court erred in imposing a civil contempt sanction.

I.

In November, 1974 the Internal Revenue Service Center in Holtsville, New York received a cashier's check issued by the National Newark & Essex Bank from Herbert L. Zuckerman, an attorney. As the accompanying letter explained, Zuckerman forwarded this check in the amount of $142,497.81 to the Internal Revenue Service on behalf of a taxpayer whose name was unknown to him but who owed taxes and interest for prior years. Zuckerman wrote that the taxpayer was paying these moneys on the recommendation of counsel.

Upon receipt of this check and letter the IRS commenced an investigation to determine the identity of the unnamed taxpayer. See United States v. Bisceglia, 420 U.S. 141, 43 L. Ed. 2d 88, 95 S. Ct. 915 (1975). The first stage of the inquiry resulted in information that the source of the funds for the cashier's check was a check drawn on the Herbert M. Gannet Trust Account at First National State Bank of N.J. (Bank) payable to Zuckerman in the amount of $142,497.81. Thereafter, on October 3, 1975, pursuant to 26 U.S.C. ยง 7602,*fn1 the IRS served a summons on the Bank seeking information concerning the Herbert M. Gannet Trust Account. This summons sought all negotiable instruments and deposit slips relating to the source of funds used for the issuance of the $142,497.81 check as well as monthly bank statements for this trust account.

Apparently, appellant Gannet, an attorney, had been consulted by the unnamed taxpayer about a potential tax liability for past years. Legal advice had evidently been imparted to the taxpayer-client, and based upon that advice, a decision was made to pay the tax deficiencies plus interest in a manner which was designed to protect the taxpayer's identity. We can further assume that Zuckerman, who wrote to IRS and forwarded the cashier's check, was engaged to assist in this endeavor of shielding the taxpayer's identity from disclosure.

In response to the summons the Bank furnished the IRS with two cashier's checks that had been deposited in the Gannet Trust Account. These checks had been purchased at the Bank's Port Newark branch office on October 31, 1974 in the amounts of $65,182.66 and $77,315.15 (totalling $142,497.81).

The Bank then informed Gannet that it had furnished the above information to the IRS in compliance with the summons. Gannet served written notice on the Bank directing it not to provide any further information concerning his Trust Account.

As the IRS investigation continued a second IRS summons was served on the Bank on November 19, 1975. This summons required the Bank to:

Furnish information as set forth below which pertains to the purchase of cashier's checks numbered 39649 and 39651 in the respective amounts of $65,182.66 and $77,315.15 dated October 31, 1974 which were purchased at the Port Newark Office:

1. Name, address and social security number of the purchaser of the above-described cashier's checks.

2. All documentation relative to the source of funds used to purchase the above-described checks.

After the Bank notified Gannet of this second attempt to obtain information, Gannet commenced Civil Action No. 75-2028 in which he sought to enjoin the Bank from complying with the November 19, 1975 summons. This application ...


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