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UNITED STATES v. MOSELEY

June 16, 1993

UNITED STATES OF AMERICA, Petitioner,
v.
ROY MOSELEY, Custodian of Records and MOSELEY CONSTRUCTION, INC., Respondent.



The opinion of the court was delivered by: DAVID G. LARIMER

 This is a proceeding brought pursuant to Internal Revenue Code ยงยง 7402(b) and 7604(a) to enforce an Internal Revenue Service ("the IRS") summons. The summons was issued on October 7, 1992 as part of a joint investigation by both the Examination Division and Criminal Investigation Division of the IRS. The purpose of this investigation was to determine the correctness of respondent, Roy Moseley's ("Moseley") individual income tax returns for the years 1987-1989.

 The summons directed Moseley, as custodian of records ("custodian") for Moseley Construction, Inc. ("MCI"), to appear and produce for examination the books, records and other papers of MCI at the IRS offices in Rochester, New York. Moseley refused to comply with the summons and this petition followed.

 For the reasons that follow, the petition for enforcement of the summons is granted. It will be enforced, however, only as to those original documents copies of which are not currently in the possession of the IRS in a complete and legible state.

 DISCUSSION

 Moseley has refused to comply with the IRS summons for three reasons: 1) as the sole owner, officer, director and employee of MCI, he argues that compliance with the summons would violate his individual Fifth Amendment right against self-incrimination; 2) he maintains that the IRS already has in its possession the information sought; and 3) he contends that the summons is vague and overbroad.

 A) Act of Production and Fifth Amendment Privilege

 Moseley maintains that he is entitled to resist the IRS summons on the grounds that his act of production will be personally incriminating. He contends that the corporate documents sought by the IRS, to the extent that they exist, might provide evidence of a tax violation against him personally. According to Moseley, such forced disclosure violates his Fifth Amendment privilege.

 Moseley's claim that he has a Fifth Amendment privilege which excuses MCI from producing the requested corporate documents is without merit. It is well established that corporations do not have a Fifth Amendment privilege. Hale v. Henkel, 201 U.S. 43, 74-75, 50 L. Ed. 652, 26 S. Ct. 370 (1906); Bellis v. United States, 417 U.S. 85, 88, 40 L. Ed. 2d 678, 94 S. Ct. 2179 (1974); Braswell v. United States, 487 U.S. 99, 107, 101 L. Ed. 2d 98, 108 S. Ct. 2284 (1988).

 Since a corporation can only act through its agents, it follows that a corporate agent, when acting in that capacity, cannot refuse to comply with an IRS summons based on his own perceived Fifth Amendment privilege. "Any claim of Fifth Amendment privilege asserted by the agent would be tantamount to a claim of privilege by the corporation- which possesses no such privilege." Braswell, 487 U.S. at 110. The agent's act of production is, therefore, deemed to be an act of the corporation and not a personal act of the individual.

 Moseley concedes these general principles but claims that as the sole owner, director, officer and employee of MCI, his claim is unique and fits within what he believes to be an "exception" to these general rules. Moseley claims that footnote 11 of the Braswell decision creates this "exception." In Braswell, the Supreme Court explicitly left open the question "whether the agency rationale supports compelling a custodian to produce corporate records when the custodian is able to establish, by showing . . . that he is the sole employee and officer of the corporation, that the jury would inevitably conclude that he produced the records." Braswell, 487 U.S. at 118, n.11.

 For several reasons, I believe Moseley's contentions are without merit. First of all, Moseley reads the Supreme Court's decision in Braswell too broadly. The Supreme Court did not create the exception relied upon here by Moseley. In fact, the Supreme Court explicitly held that the Fifth Amendment is never implicated when the custodian is compelled to produce corporate records "regardless of how small the corporation may be." Id. at 108.

 In my view, the issue suggested by Braswell in footnote 11 was rejected by the Second Circuit in the case of In re Grand Jury Subpoenas Dated October 22, 1991 and November 1, 1991, 959 F.2d 1158 (2d Cir. 1992). In that case, the Second Circuit considered facts almost identical to the facts here, that is, the recipient of the subpoena duces tecum for corporate records (Doe) was the president and sole stockholder of the target corporation. In part, Doe declined to comply with the subpoena of corporate records because he claimed that the act of production would incriminate him as president and sole stockholder. Relying on the Supreme Court's decisions in Braswell and Bellis, the Second Circuit rejected the argument. The Second Circuit cited Braswell for the proposition that the custodian has no privilege even if he is the corporation's sole stockholder and cited Bellis for the proposition that the custodian cannot claim the privilege regardless of how small a corporation may be.

 The Second Circuit did not discuss directly footnote 11 in Braswell, but it seems clear that the court rejected the argument that Moseley makes here based on that footnote.

 The Second Circuit stated that the custodian has no privilege because he is not acting in a personal capacity but a representative one. Because of this, his act of production cannot be used against him directly. In re Grand Jury Subpoenas, 959 F.2d at 1164 (citing Braswell, 487 U.S. at 118). But, the Second Circuit noted that the jury could draw permissible inferences of knowledge based on "[an individual's] position in the corporation." However, the jury could not draw any adverse inferences "from his role as custodian or his act of production." Id.

 In my view, this decision by the Second Circuit closes any possible window of privilege left open by footnote 11 in Braswell.

 The Fourth Circuit recently has also rejected the argument made here by Moseley. In United States v. Stone, 976 F.2d 909 (1992), cert. denied, 123 L. Ed. 2d 467, 113 S. Ct. 1843 (1993) the court was faced with the precise issue raised by Moseley ...


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