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IN RE SJC MFG. CORP.

September 11, 1979

In the Matter of the Application of SJC MANUFACTURING CORP., Applicant. for an Order Quashing the Summons Issued by Respondent INTERNAL REVENUE SERVICE to Respondent NASSAU COUNTY POLICE DEPARTMENT or (Representatives) thereof and Restraining Respondents NASSAU COUNTY POLICE DEPARTMENT and DENIS DILLON, District Attorney for the County of Nassau, and all Their Agents and Representatives, from Complying with that Summons.


The opinion of the court was delivered by: PLATT

MEMORANDUM AND ORDER

The above matters arose out of the issuance and service on July 25, 1978, of an Internal Revenue Service ("IRS") summons on the above named respondent. The summons directed respondent to give testimony concerning the tax liability of SJC Manufacturing Corporation ("SJC") and to produce certain SJC corporate books and records which were allegedly in respondent's possession, for the fiscal years ending July 31, 1976 and July 31, 1977. By an order to show cause, SJC moved to quash the summons.

 The IRS moved (in 78 C 1637) for an order dismissing SJC's application to quash on the grounds that (i) this Court lacked jurisdiction, (ii) sovereign immunity bars the motion and (iii) the proper procedure for contesting the enforcement of an IRS summons is the statutory procedure established by Congress set forth in 26 U.S.C. §§ 7402, and 7604.

 Simultaneously, the IRS filed, obtained and served on the respondent an order to show cause (in 78 C 1703) why respondent should not be compelled to comply with the IRS summons and why, pending determination by this Court, respondent should not be enjoined from returning or permitting the return to SJC of the books and records sought.

 Thereafter, SJC and Irving Wildman moved for (i) an order pursuant to Rule 24 of the Federal Rules of Civil Procedure ("FRCP") permitting SJC and Irving Wildman to intervene as respondents in 78 C 1703 and, for (ii) an order pursuant to Rule 30, F.R.C.P., permitting SJC and Irving Wildman to take the depositions of the appropriate IRS agents or, requiring a hearing at which SJC and Irving Wildman can cross examine such agents.

 This Court held several hearings on these applications and at one point was under the impression that the parties had resolved their differences and/or that criminal prosecution of one or both of the proposed intervenors might result in the issuance of a grand jury subpoena calling for the production of the very same corporate books and records. On July 20, 1979, however, counsel for the Government and for the intervenors assured the Court that such was not the case and requested a determination of the question whether the Internal Revenue summons issued by Commissioner Rozzi should be quashed based on the submissions theretofore made to the Court.

 Special Agent Nass has filed an affidavit with this Court in which he states, Inter alia, that in his capacity as a Special Agent he is "conducting, together with a Revenue Agent of the Audit Division, an investigation, one purpose of which is to ascertain the correctness of the tax returns filed by SJC Manufacturing Corp. for the fiscal years ended July 31, 1976 and July 31, 1977 . . . . This is a joint investigation conducted by the Examination and Criminal Investigation Divisions. The investigation is continuing. No recommendation for criminal prosecution has been made by the Internal Revenue Service to the Department of Justice with respect to the matters under investigation . . . (and he has) not yet made, and (is) not yet in a position to make any recommendation one way or the other to his supervisor pending further investigation . . . . As part of this investigation . . . (he) caused to be issued" the summons in question. (Affidavit of George Nass, August 4, 1978).

 Counsel for the moving intervenors contends that (i) the Internal Revenue Service summons was not issued in good faith in that it failed to comply with the requirements of 26 U.S.C. § 7605(b) because the IRS failed to give the required written notice to SJC of the issuance of the summons; (ii) the IRS summons was otherwise issued in bad faith in that (a) the IRS already has the requested information in its possession and (b) the summons was issued in connection with an investigation of Irving Wildman against whom the IRS has already recommended criminal prosecution and was issued to pressure Wildman to settle that dispute; (iii) the IRS summons seeks the production of books and records seized from SJC by the Nassau County Police Department in violation of SCJ's constitutional rights; (iv) the IRS summons requires the production of evidence before a grand jury which is secret and may not be revealed except by order of the State Court in charge of the grand jury.

 Counsel for the moving intervenors admits that Irving Wildman is not an officer of SJC but claims that "he is actively associated with SJC and is responsible for running the operations of SJC." (Hershenson Affidavit, August 29, 1978).

 In essence, SJC argues that the Internal Revenue Service summons was not issued in good faith because (i) the IRS has already recommended the criminal prosecution of Irving Wildman; (ii) the IRS summons constituted a request for a second inspection without written notice and (iii) because the IRS already has the requested information in its possession.

 The short answer to the proposed intervenors' first argument is that SJC and Irving Wildman are two separate entities and that the IRS is indisputably conducting separate investigations of SJC by both its Examination and Criminal Investigation Divisions and to date no recommendation for criminal prosecution has been made by the IRS to the Department of Justice with respect to its investigation of SJC. Under the authorities, issuance, service and enforcement of Internal Revenue summonses under such circumstances is perfectly proper. United States v. LaSalle National Bank, 437 U.S. 298, 98 S. Ct. 2357, 57 L. Ed. 2d 221 (1978); United States v. Chemical Bank, 593 F.2d 451 (2d Cir. 1979); United States v. Morgan Guaranty Trust Co. & Keech, 572 F.2d 36 (2d Cir.), Cert. denied, 439 U.S. 822, 99 S. Ct. 89, 58 L. Ed. 2d 114 (1978). Under the facts presented here, the fact that the IRS has been investigating Mr. Wildman's personal tax returns and has recommended his criminal prosecution is irrelevant.

 26 U.S.C. § 7605(b) provides that

 
"No taxpayer shall be subjected to unnecessary examination or investigations, and only one inspection of a taxpayer's books of account shall be made for each taxable year unless the taxpayer requests otherwise or unless the Secretary or his delegate, after investigation, notifies the taxpayer in writing that an additional inspection is necessary."

 Section 4023 Et seq. *fn1" of the Internal Revenue Service Manual treats the notice requirement in the above section of the Code as applying only when a case has been closed and there ...


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