United States of America and Robert H. Cluberton, Internal Revenue Agent,
Internal Revenue Service, Petitioners
v.
Church of Scientology of California and Henning Heldt, Vice President,
Respondents.
No. 73-2100-HP
United States District Court; C.D. California.
11/15/73
PREGERSON, District Judge.
Findings of Fact and Conclusions of Law
Statement of Proceedings
*1 On September 5, 1973, petitioners filed their petition to enforce an
Internal Revenue Service summons with the supporting affidavit of Robert H.
Cluberton, Internal Revenue Agent.
On September 5, 1973, this Court issued an Order to Show Cause ordering that
the respondents show cause why they should not be required to obey the Internal
Revenue Service summons served upon the respondents on February 9, 1973.
On September 19, 1973, the respondents filed a notice to take the depositions
of Regional Commissioner of Internal Revenue, Homer Croasmun; Internal Revenue
Service Group Manager, James Argue, and Internal Revenue Agent, Robert H.
Cluberton, also requesting that these deponents produce at these depositions
certain records and documents, as more particularly described in the notice.
On September 25, 1973, the petitioners filed a motion to quash the notice to
take the depositions of Messrs. Croasmun, Argue and Cluberton, and to produce
the documents requested.
On October 9, 1973, the respondents filed their memorandum of points and
authorities in opposition to the petition to enforce the Internal Revenue
Service summons at issue, to which the petitioners filed a reply on October 26,
1973.
On November 1, 1973, the respondents filed their memorandum of points and
authorities in opposition to petitioners' motion to quash, to which the
petitioners thereafter filed a reply.
On November 5, 1973, the petitioners' motion to quash and this Court's Order
to Show Cause came on regularly for hearing before this Court. Appearing for
the petitioners was Assistant United States Attorney, Arthur M. Greenwald and
on behalf of the respondents, James Q. Fisher, a member of the law firm of
Karno, Rudnick & Fisher, a professional corporation. No witnesses or
documentary evidence were offered during the course of this hearing. Counsel
for the parties presented oral arguments as to both the motion to quash and
order to show cause.
This Court having considered all of the pleadings, memoranda, exhibits
attached thereto, affidavits and arguments of counsel and thereafter on
November 9, 1973, having ruled that petitioners' motion to quash the notice to
take the depositions of Messrs. Croasmun, Argue and Cluberton, and the
production of documents thereto and the petition to enforce the Internal
Revenue Service summons are granted;
This Court now makes the following FINDINGS OF FACT AND CONCLUSIONS OF LAW:
I Findings of Fact
1. The petitioner, Robert H. Cluberton, is a duly commissioned Internal
Revenue Agent of the Audit Division of the Internal Revenue Service with post
of duty in Los Angeles, California, performing his duties under the District
Director of Internal Revenue, Los Angeles, California.
2. In his capacity as an Internal Revenue Agent, he was assigned to
investigate and ascertain the correct tax liabilities of the respondent, Church
of Scientology of California, (hereafter referred to as the respondent, Church)
for each of the taxable years 1968 and 1969.
*2 3. Pursuant to this assignment and in accordance with Sections 7602
and 7603 of Title 26, United States Code, an Internal Revenue Service
summons, Treasury Form 2039, was served on February 9, 1973 upon the
respondents.
4. This summons called for the respondents to produce certain books and
records in the possession and/or control of the respondents, as more
particularly described in the summons, which were then and are now necessary to
the determination of the correct tax liability of the respondent, Church, for
each of the taxable years 1968 and 1969.
5. The issuance of this summons was the culmination of almost two years of
negotiations between the respondent, Henning Heldt (hereafter referred to as
the respondent, Heldt) and representatives of the Internal Revenue Service,
wherein the Internal Revenue Service attempted to secure the respondent's
cooperation in commencing the examination of the respondent. Church's taxable
years 1968 and 1969, and in this regard, have an opportunity to audit the books
and records described in the summons.
6. As required by the summons, the respondent, Heldt, appeared on February
20, 1973, before the petitioner, Internal Revenue Agent, Robert H. Cluberton,
(hereafter referred to as the petitioner, Cluberton). He advised the
petitioner, Cluberton, that on February 16, 1973, he, the respondent, Heldt,
had resigned as a director and Vice President of the respondent, Church, and as
he did not have possession or control of the records sought in the summons
because of his resignation, he could not produce the records sought.
7. At no time during the course of the negotiations between the respondent,
Heldt, and representatives of the Internal Revenue Service (including a
conference held on the date the summons was issued) did the respondent, Heldt,
state to representatives of the Internal Revenue Service that he contemplated
resigning as a director and Vice President or that, as respondent, Church's
representative, he, on the date called for in the summons for the production of
the books and records requested, i.e., February 20, 1973, would not have
possession or control of the requested books and records.
8. The respondent, Heldt, during the period of negotiations consistently held
himself out to be the representative of the respondent, Church, who either had
control of the books and records requested or was in a position to effect their
production.
9. To date, the respondents have failed to produce the books and records
described in the summons. No testimony has been taken from the respondent,
Heldt, or any other representative of the respondent, Church, relative to the
determination of the respondent, Church's tax liabilities for 1968 and 1969.
10. Any conclusion of law deemed as or properly constituting a finding of
fact is hereby adopted as a finding of fact.
II Conclusions of Law
1. This Court has jurisdiction to enforce judicially an Internal Revenue
Service summons in accordance with Sections 7402(b) and 7604(a) of Title
26, United States Code.
*3 2. Petitioners issued the summons for a lawful and proper purpose,
i.e., to determine the correct tax liabilities of the respondent, Church, for
the years 1968 and 1969. Section 7602 of Title 26, United States Code.
United States v. Powell [64-2 USTC P 9858], 379 U. S. 48 (1964);
Boren v. Tucker [57-1 USTC P 9246], 239 F. 2d 767 (9th Cir. 1969);
United States v. Salter [70-2 USTC P 9648], 432 F. 2d 697 (1st Cir.
1970).
3. The administrative steps required by the Code have been met by the
petitioners. United States v. Powell, supra. The resignation of the
respondent, Heldt, does not constitute adequate grounds for the respondent,
Church, to refuse to turn over the books and records requested. On the date
the summons was served, the respondent, Heldt, was a Vice President of the
respondent, Church, having held himself out as a representative of the
respondent, Church, who either had control of or was in a position to effect
the production of the books and records requested.
4. The information sought in the summons is relevant to the determination of
the respondent, Church's tax liabilities for each of the years 1968 and 1969.
United States v. Powell, supra.
5. The information sought in the summons is not already within the
petitioners' possession. United States v. Powell, supra.
6. The respondents have failed to meet their burden of showing good cause for
the allowance of the discovery requested; their allegation of harassment is
not supported by the record. (HP) Petitioners' motion to quash the notice to
take the depositions of Messrs. Croasmun, Argue and Cluberton, and production
of documents thereto is granted. Kevin L. Donaldson, et al. v. United
States, et al. [71-1 USTC P 9173], 400 U. S. 517 (1971); United States
v. National State Bank [72-1 USTC P 9168], 454 F. 2d 1249 (7th Cir. 1972);
United States v. Ruggerio [70-1 USTC P 9381], 425 F. 2d 1069 (9th Cir.
1970); United States v. Ahmanson [69-2 USTC P 9572], 415 F. 2d 785 (9th
Cir. 1969); United States v. Salter, supra.
7. Respondents have failed to meet their burden of showing good cause for not
enforcing the Internal Revenue Service summons issued by the petitioners. The
petition to enforce the summons is granted. United States v. Powell, supra.
8. Any finding of fact deemed as or properly constituting a conclusion of law
is hereby adopted as a conclusion of law.
Order for the Enforcement of Internal Revenue Service Summons
In accordance with this Court's Findings of Fact and Conclusions of Law:
IT IS HEREBY ORDERED that the respondent, Church of Scientology of California,
by and through its authorized representative, shall appear before the
petitioner, Robert H. Cluberton, Internal Revenue Agent and/or any other
authorized representative of the petitioner, United States of America, at the
offices of respondent, Church of Scientology of California, located at 5930
Franklin Avenue, Los Angeles, California, on December 17, 1973, at 10:00 A. M.
and produce for examination and/or copying by any means of reproduction the
following records in the matter of the tax liability of the respondent, Church
of Scientology of California, for each of the years 1968 and 1969. Said
records shall be made available from day-to-day until the examination is
completed:
*4 1. All bank statements and cancelled checks in the possession and/or
control of the respondent, Church of Scientology of California, which reflect
all transactions in all checking accounts of the respondent, Church of
Scientology of California and/or any and all of its divisions located at the
Crocker National Bank, Wilshire-Westlake Branch, Los Angeles, California, for
each of the calendar years 1968 and 1969.
2. All documents and records in the possession and/or control of the
respondent, Church of Scientology of California, necessary to the determination
of the correct Federal income tax liabilities of the respondent, Church of
Scientology of California, for each of the taxable years 1968 and 1969.
3. All documents and records in the possession and/or control of the
respondent, Church of Scientology of California, necessary to the determination
of the correct employer's annual Federal unemployment tax liability for each of
the calendar years 1968 and 1969.
4. All documents and records in the possession and/or control of the
respondent, Church of Scientology of California, necessary to the determination
of the employer's quarterly Federal employment tax liabilities (consisting of
income and F. I. C. A. taxes withheld from employees' wages, as well as the
employer's liability, applicable to taxable F. I. C. A. wages paid) for the
four quarters applicable to each of the calendar years 1968 and 1969.
IT IS FURTHER ORDERED that the respondent, Henning Heldt, and any other person
or persons who may be designated by the respondent, Church of Scientology of
California, appear before the petitioner, Robert H. Cluberton, Internal Revenue
Agent and/or any other authorized representative of the petitioner, United
States of America, at a time and place agreed upon mutually for the purpose of
giving testimony concerning the Federal tax liabilities described in paragraphs
2, 3, and 4 of this Order, reserving their right to assert any constitutional
privilege with respect to any question propounded.
In the event agreement cannot be reached upon a time and place, the
respondent, Henning Heldt, and any other person who may be designated by the
respondent, Church of Scientology of California, shall appear before the
petitioner, Robert H. Cluberton, Internal Revenue Agent, or any other
authorized representative of the petitioner, United States of America, at a
time and place designated by the petitioner, Robert H. Cluberton, Internal
Revenue Agent, or any other authorized representative of the petitioner, United
States of America. Notice of said time and place shall be given to the
respondent, Henning Heldt, and any other person who may be designated by the
respondent, Church of Scientology of California, by means of a letter sent by
certified mail to the respondents, Henning Heldt and Church of Scientology of
California at their last known addresses at least ten (10) days prior to the
date set by the petitioner, Robert H. Cluberton, Internal Revenue Agent, or any
other authorized representative of the petitioner, United States of America.