Edwin A. EBERHART, Special Agent of the Intelligence Division of the Internal Revenue Service of the United States, Plaintiff-Appellee, v. BROADROCK DEVELOPMENT CORPORATION, Defendant-Appellant; Edwin A. EBERHART, Special Agent of the Intelligence Division of the Internal Revenue Service of the United States, Plaintiff-Appellee, v. STEEL EQUIPMENT COMPANY, Defendant-Appellant

United States Court of Appeals for the Sixth Circuit1961-12-14No. Nos. 14562, 14563

296 F.2d 685

Summary · law.co

Holding. The District Court's orders requiring the corporations to obey the IRS summons and produce their books and records are affirmed. The examination of multiple tax years was authorized because fraud allegations extended beyond the explicitly investigated years, and the statute of limitations does not bar examination of fraudulent returns.

The Internal Revenue Service sought to compel two corporations to produce their books and records pursuant to a lawful summons issued by a special agent investigating suspected tax fraud. The special agent suspected that the principal officer and shareholder had engaged in transactions generating taxable income that was fraudulently concealed on 1956 and 1957 tax returns. The District Court held a hearing with testimony from both sides and determined there was sufficient reason to suspect fraud concerning travel expenses, ordering the corporations to comply with the summons.

Broadrock Development Corporation had never been examined before. Steel Equipment Company argued that a previous examination of its records and the expiration of the statute of limitations barred further inspection. The court rejected this argument, finding that because the statute of limitations does not apply to fraudulent returns, and because testimony indicated a pattern of unsupported travel expense deductions extending to earlier years, the examination of records from multiple years was justified. The corporations also claimed the investigation violated the Fourth and Fifth Amendments, but the court found no constitutional infirmity.

Summary generated by law.co from the public-domain opinion. The opinion text itself is public domain.

Key issues

Authority of IRS to compel production of corporate books and records based on suspicion of fraud
Application of statute of limitations to fraudulent tax returns
Whether previous examination of corporate records precludes subsequent examination
Fourth and Fifth Amendment protections in IRS investigatory summonses

Procedural posture

The appeals are from District Court orders granting the IRS's motion to compel compliance with summonses issued during fraud investigations into two corporations.

Authorities cited

No cited authorities resolved to law.co cases yet.

Opinion · public domain

majority opinion

PER CURIAM.

These appeals are from orders of the District Court requiring appellants to obey summons issued by a special agent of the Intelligence Division of the Internal Revenue Service pursuant to 26 U.S.C. 1958 ed. § 6501 which required the appearance and production of corporate books and records.

The special agent filed affidavits indicating his belief that the principal officer and stockholder of the corporations had transactions with them which resulted in taxable income to him which was fraudulently omitted from his 1956 and 1957 income tax returns.

A hearing was conducted by the District Judge at which testimony was taken in behalf of the Government and the defendants. At the conclusion of the hearing the District Judge found that special agent had reason to suspect that there was fraud in the handling of travel expenses and he entered the orders from which these appeals have been taken.

No previous examination had been made of the books and records of the Development Corporation.

In the Steel Equipment case, it is contended that the examination was unnecessary because the corporation’s books had previously been examined and that the statute of limitations had run with respect to the year 1955 and previous years. 26 U.S.C. 1958 ed. § 7605; 26 U.S.C. 1958 ed. § 6501. The Secretary or his delegate had served a letter notifying the corporation that an additional inspection of the records was necessary This letter was sufficient under the statute to authorize the examination with respect to the years 1956 and 1957. The question remains whether inspection of records for the years allegedly barred by the statute of limitations was necessary. The statute of limitations does not apply to fraudulent returns. 26 U.S.C. § 6501 (c).

While the evidence with respect to the fraudulent travel expenses concerned the tax years 1956 and 1957, there was also some testimony as to lack of records to support the deductions claimed for travel expenses in previous years. The District Judge did not limit the investigation to the later years as there was at least an inference that fraud extended into some of the previous years. In our judgment, this was sufficient to authorize the examinations. Foster v. United States, 265 F.2d 183 (C.A.2); Corbin Deposit Bank of Corbin v. United States, 244 F.2d 177 (C.A.6); Peoples Deposit Bank & Trust Co. v. United States, 212 F.2d 86 (C.A.6). The findings of fact of the District Judge as well as inferences drawn therefrom are binding on us unless clearly erroneous. Commissioner of Internal Revenue v. Duberstein, 363 U.S. 278, 80 S.Ct. 1190, 4 L.Ed.2d 1218. We do not find them clearly erroneous,

- There is no merit in the contention that the Fourth and Fifth Amendments to the Constitution were violated. United States v. Wallace & Tiernan Co., 336 U.S. 793, 69 S.Ct. 824, 93 L.Ed. 1042; Oklahoma Press Publishing Co. v. Walling, 327 U.S. 186, 66 S.Ct. 494, 90 L.Ed. 614; United States v. White, 322 U.S. 694, 64 S.Ct. 1248, 88 L.Ed. 1542; Goldberg v. Truck Drivers Local Union No. 299, etc., 293 F.2d 807 (C.A.6).

The orders of the District Court are affirmed.