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UNITED STATES v. WHEATON

May 12, 1992

UNITED STATES OF AMERICA; JOSEPH CLARENCE WEST, Revenue Agent of the Internal Revenue Service, Petitioners,
v.
FRANK H. WHEATON, JR., Respondent.



The opinion of the court was delivered by: STANLEY S. BROTMAN

 BROTMAN, District Judge.

 An evidentiary hearing was held on March 31, 1991 and April 10, 1991 in this Internal Revenue Service ("IRS") summons enforcement matter. Petitioners, the United States and Joseph West, Revenue Agent of the IRS are investigating whether respondent, Frank Wheaton, Jr. ("Wheaton") has any federal income tax liabilities for the years 1981 through 1986 arising from his alleged control and/or ownership of three foreign corporations known as Tartan Investments, Inc., a Panamanian corporation ("Tartan"), Caribe Bahamas, Ltd., a Bahamian corporation ("Caribe Bahamas"), and Commonwealth Chemical Company, a Bahamian Corporation ("Commonwealth Chemical").

 I. FACTS AND PROCEDURE

 On June 1, 1989, Wheaton was served with three separate IRS summonses directing him, as the custodian of records for Tartan, Caribe Bahamas and Commonwealth Chemical, to produce various documents of each of the three corporations. *fn1" On June 20, 1989, Wheaton appeared at the time and place required by the summonses but did not provide any of the documents sought on the grounds that he was not in control or possession of the documents.

 On November 19, 1991 petitioners filed the present action to enforce the three IRS summonses. An Order to Show Cause hearing was scheduled for March 31, 1992 at which time Wheaton presented two affidavits establishing a material fact issue as to whether he controlled or possessed the documents sought.

 In one affidavit, I.E. Collie, Trust Manager at the Royal Bank of Scotland ("Royal Bank") located in Nassau, Bahamas states that the bank possesses an unspecified number of Tartan's and Caribe Bahamas' books and financial records. He states that although Wheaton requested copies of the books and financial records from the Royal Bank, the Royal Bank did not disclose any such information since Wheaton is not the present owner of the record of these corporations.

 In the other affidavit, Raymond Rogers, a former owner of Commonwealth Chemical, states that he started the company with his brother, Andrew Rogers. He states that he and his brother owned half of all the corporate shares of Commonwealth Chemical and that Carbide Bahamas owned the other half of the corporate shares. Moreover, Rogers maintains that Wheaton was not a shareholders in Commonwealth Chemical and had no access to any of its financial records.

 Based on these affidavits, the court ordered that an evidentiary hearing be held for determining whether the three IRS summonses should be enforced against Wheaton.

 II. DISCUSSION

 The court has jurisdiction to enforce an IRS summons pursuant to 26 U.S.C. ยง 7402(b). Summons enforcement proceedings are summary in nature and "their sole purpose is to ensure that the IRS has issued the summons for a proper purpose and in good faith." United States v. Rockwell International, 897 F.2d 1255, 1261 (3d Cir. 1990).

 Petitioners must meet the standards of good faith set out by the Supreme Court in United States v. Powell, 85 S. Ct. 248 (1964) in order to enforce an IRS summons. That is, "that the investigation will be conducted pursuant to a legitimate purpose, that the inquiry may be relevant to the purpose, that the information sought is not already within the [IRS] Commissioner's possession and that the administrative steps required by the [IRS] code have been followed." Powell at 255; United States v. McCoy, 954 F.2d 1000, 1004 (5th Cir. 1992); Rockwell at 1262; United States v. Lawn Builders of New England, Inc., 856 F.2d 388, 391 (1st Cir. 1988); United States v. Sancetta, 788 F.2d 67, 71 (2d Cir. 1986) United states v. Huckaby, 776 F.2d 564, 567 (5th Cir. 1985); United States v. Garden State National Bank, 607 F.2d 61, 67-68 (3d Cir. 1979); see also PAA Management, Ltd. v. United States, 1992 WL 82450 at *3 (2d Cir. April 27, 1992); United States v. Abrahams, 905 F.2d 1276 (9th Cir. 1990). Assertions by affidavit of the investigative agent who is seeking enforcement that the Powell requirements are satisfied are sufficient to establish a prima facie case. Rockwell at 1262; Lawn Builders at 392; Garden State at 68.

 Petitioners have established a prima facie case. West testified that he is a IRS Revenue Agent assigned to investigating Wheaton's federal income tax liabilities for the years ending December 31, 1981 through December 31, 1986. West declared under penalty of perjury that since the IRS"s investigation of Wheaton revealed that he operated Tartan, Caribe and Commonwealth Chemical from his place of business in New Jersey, the information sought by the three IRS summonses is relevant to the IRS investigation of Wheaton in that it may shed light on his correct tax liabilities for the year 1981 through 1986 inclusive. See United States v. Saunders, 621 F.Supp. 745 (D.C.Ga. 1985) (test for determining summoned documents are relevant to ongoing tax investigation is whether summons seeks information which might throw light upon correctness of taxpayer's return); accord Rockwell at 1263; Spine v. United States, 670 F.Supp. 217 (S.D.Ohio 1987). In addition, West also testified that the information sought by each summons is not already in the possession of the IRS, except for one financial sheet for 1984 for Commonwealth Chemical and one bank deposit slip for Tartan, and that all procedural steps required by the Internal Revenue Code have been followed. *fn2"

 Once the Powell factors have been met, the burden shifts to the taxpayer to demonstrate that he lacked possession and control of the summoned documents and that enforcement of the summonses would represent an abuse of the court's process. Powell at 255; Rockwell at 1262; United States v. Millstone Enterprises, Inc., 864 F.2d 21, 23 (3d Cir. 1988); United States v. Barth, 745 F.2d 184, 187 (2d Cir. 1984); see also Callahan v. Schultz, 783 F.2d 1543 (11th Cir. 1986). "The party resisting enforcement bears the burden of producing credible evidence that he does not possess or control the documents sought." ...


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