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UNITED STATES v. FIRST NAT. BANK OF FORT SMITH

June 2, 1959

UNITED STATES OF AMERICA, PLAINTIFF,
v.
FIRST NATIONAL BANK OF FORT SMITH, ARKANSAS, A CORPORATION, AND NEIL SIMS, DEFENDANTS.



The opinion of the court was delivered by: John E. Miller, Chief Judge.

This is an action by the Government to require compliance with an "administrative summons" directed to the defendants pursuant to 26 U.S.C.A. § 7602. The summons in question was duly issued and served on April 21, 1959, and commanded the appearance of the defendant Neil Sims as Vice President of the defendant bank, and the production of certain specified bank records. On the day commanded, Mr. Sims presented himself to testify, but did not produce the records required by the summons. Instead, he delivered a letter to Special Agent Merle Little, who issued the summons, in which he and the bank refused to produce the records called for on the ground that the summons was too indefinite to permit literal compliance, and on the further ground that compliance would constitute an unlawful and extremely onerous burden on the bank.

Thereafter the Government filed the complaint herein, in which it alleged the above facts and that the Internal Revenue Service was and had been in the process of investigating income tax returns of Harry N. Pollock; Helen U. Pollock; Pollock Stores Company, Inc.; Pollock Stores Company of Tulsa; H. Newton Pollock and Arlene Pollock; Arcade's Men's Store; and Harry Newton Company, Inc.; that the investigation had uncovered large amounts of unreported income which fact caused the agents to believe that the income tax returns of the above named persons may be fraudulent. The complaint then alleged the issuance of the summons, a copy of which was attached, and the refusal of the bank to comply with the same. A copy of the defendant's letter of refusal in which its reasons therefor were set out was attached to the complaint as Exhibit B.

The complaint prayed an order directing defendants to appear and show cause why they should not be adjudged in contempt. Such an order was issued on May 8, 1959, and pursuant thereto a hearing was held on May 14, 1959. No formal response was filed by the defendants, but they requested at the hearing that their letter of refusal, Exhibit B to the complaint, be treated as their response. This request was granted.

There is little dispute about the facts. For several months revenue agents have been investigating possible tax liability and possible tax fraud on the part of the persons above named. In the course of that investigation they found it necessary or desirable to inspect many bank records including a great number belonging to the defendant bank. For some time Agents Merle Little and A.L. McNew inspected records at the defendant bank without incident. Eventually, however, a bank officer requested the agents to serve the bank with a "courtesy summons" as a protection to the bank, since it did not wish to voluntarily relinquish records on its depositors. Such a summons was issued and the work continued until the bank, after further conversations with Mr. Harry N. Pollock, concluded that cooperation even under the courtesy summons should end. Thereafter the present summons, dated April 21, 1959, was issued and served. It commanded the testimony of the defendant Sims and the production at the same time of the following bank records for the years 1955, 1956, and 1957:

    "Signature cards, ledger sheets, deposit
  tickets, microfilm records of checks, on all
  individual and corporate accounts, including
  checking, savings, special, trust or otherwise,
  in the names of H.N. or Harry N. Pollock, Helen
  Pollock, H. Newton Pollock, Arlene Pollock, or in
  which each or either has an interest or controls,
  under whatsoever designation entered, excepting
  records previously furnished."

The summons called for Mr. Sims' presence and production at a room in the Post Office Building in Fort Smith, Arkansas. Mr. Sims duly appeared and refused to furnish the records as above stated.

The defendants' proof was primarily directed to the contention that the summons would impose an unconscionable burden on the bank, even if the records were produced and examined in the bank itself. The primary difficulty in this regard is that the bank has no way of knowing in what accounts any of the named persons under investigation "has an interest or controls." The bank may be able to ascertain this fact, but to do so would require a search of each bank document for the years in question. It would, for example, have to search 17,000 active and 50,000 inactive signature cards, 147,000 ledger sheets, and thousands of microfilm records. Tests were conducted by the bank to determine at what rate employees could make the necessary examination. It was concluded that an impressive total of man-hours would be required, and the bank president estimated that the cost to the bank would exceed $30,000.00.

Much, if not all, of this expense could be eliminated if the agents were allowed to inspect the records themselves, which they are willing to do, without supervision by bank employees. When they first began their work at the bank, the agents proceeded in this manner. However, the bank's attorney concluded that for protection of the integrity of the file system and in order to fulfill its duty to its other depositors, the bank should have an employee present at all times when revenue agents were inspecting records. Thereafter an employee was usually present while agents inspected bank records.

While a considerable amount of time would be required of the bank to comply with the summons, no officer testified that additional employees would have to be hired. Mr. McCloud Sicard, President of the bank, did testify, however, that overtime had been necessary for some employees while the bank was cooperating with the revenue agents. Thus, while the precise cost to the bank of complying with the summons here cannot be estimated, it is patently substantial.

The summons here was issued under the authority of 26 U.S.C.A. § 7602, which provides:

    "For the purpose of ascertaining the
  correctness of any return, making a return where
  none has been made, determining the liability of
  any person for any internal revenue tax or the
  liability at law or in equity of any transferee
  or fiduciary of any person in respect of any
  internal revenue tax, or collecting any such
  liability, the Secretary or his delegate is
  authorized —
    "(1) To examine any books, papers, records, or
  other data which may be relevant or material to
  such inquiry;
    "(3) To take such testimony of the person
  concerned, under oath, as may be relevant or
  ...

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