Amicus Brief — Leaseway Transportation Corp. v. United States

Otfice-Supreme Court, US.

FILED

No. 83-65 SEP 26 1963

Cer OC eee L. STEVAS,

CLERK

IN THE

Supreme Court of the United States

OCTOBER TERM, 1983

LEASEWAY TRANSPORTATION CORP. AND

RAYMOND J. REHOR,

Petitioners,

v.

UNITED STATES OF AMERICA AND JAMES SIMEO,

Respondents.

On Petition for Writ of Certiorari to the

United States Court of Appeals for the Sixth Circuit

BRIEF AMICUS CURIAE OF

WHITE CONSOLIDATED INDUSTRIES, INC.

IN SUPPORT OF PETITIONERS

JAMES P. MURPHY

Counsel of Record

SQUIRE, SANDERS & DEMPSEY

1201 Pennsylvania Ave., N.W.

Washington, D.C. 20004

(202) 626-6600

Counsel for White Consolidated

Industries, Inc., Amicus’ Curiae

WILSON - Epes Printing Co., Inc. - 789-0096 - WASHINGTON. D.C. 20001

TABLE OF CONTENTS

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IN THE

Siyrenw Court of the united States

OCTOBER TERM, 1983

No. 83-65

LEASEWAY TRANSPORTATION CORP. AND

RAYMOND J. REHOR,

. Petitioners,

UNITED STATES OF AMERICA AND JAMES SIMEO,

Respondents.

On Petition for Writ of Certiorari to the

United States Court of Appeals for the Sixth Circuit

BRIEF AMICUS CURIAE OF

WHITE CONSOLIDATED INDUSTRIES, INC.

IN SUPPORT OF PETITIONERS

This brief in support of Petitioners’ petition for a writ

of certiorari is submitted with the written consent of

counsel to all parties, copies of which have been filed with

the Clerk of the Court.

INTEREST OF THE AMICUS CURIAE

White Consolidated Industries, Inc. is, like Leaseway

Transportation Corp., a business concern utilizing Inter-

nal Audit Reports (“IARs”) for purposes of internal

policing. If the government’s position is sustained with-

out some restrictions as to a determination of relevancy

of IARs to the tax return, internal controls will be weak-

ened substantially.

~~

2

SUMMARY OF ARGUMENT

Managements of many business firms utilize IARs for

the purpose of policing their operations to ensure compli-

ance with applicable laws and corporate policy. Making

these IARs subject to discovery by an Internal Revenue

Service (“IRS”) administrative summons without a par-

ticularized showing of relevance would destroy their con-

fidentiality and usefulness and thereby erode the public

interest in promoting voluntary compliance with appli

cable laws and regulations. For this reason, the govern-

ment’s position should be rejected.

ARGUMENT

White Consolidated Industries, Inc., (“White”) is a

Delaware Corporation engaged in the manufacture and

sale of major household electrical appliances and indus-

trial machinery and equipment. These products are man-

ufactured in the United States and sold both domestically

and abroad.

At its forty plants in twenty states, White is subject to

such federal laws as the Clean Air Act, the Clean Water

Act, and the Occupational Safety & Health Act as well as

to various similar state laws. There are many other fed-

eral and state laws affecting not only the operation of

White’s manufacturing facilities but also its relations

with stockholders, customers, and local governments.

This case presents an issue that transcends the mere

right of the IRS to discover IARs by administrative sum-

mons. Under our form of government, individuals and

businesses endeavor to know the law as it applies to a

given situation and, more importantly, to comply volun-

tarily with it. This condition is recognized by the IRS in

its Statement of Procedural Rules, 26 C.F.R. § 601.103

(a), which reads in part: “The federal] tax system is

basically one of self-assessment. In general each taxpayer

. . . is required to file a prescribed form of return which

3

shows the facts upon which tax liability may be deter-

mined and assessed.”

An individual in that capacity knows what he has done.

However, in a corporate business such as White’s, respon-

sibility must be delegated. For example, a directive may

go from the executive office to a plant office requiring the

installation of equipment to eliminate certain pollution.

The IARs report on the progress of the executive direc-

tive and whether the desired objectives have been met.

For this and other related reasons, certain employees

audit the project and make confidential reports to man-

agement for its use in measuring compliance with the

law.

Thus, IARs serve 1. promote the public interest in

ensuring the corporation’s compliance with the various

statutes, rules, and regulations to which it is subject. The

effect of the decision of the United States Court of Ap-

peals for the Sixth Circuit in this case would be to permit

virtually routine access to IARs by the IRS. Such access

would result in a serious erosion of the usefulness of

IARs to corporate management in monitoring corporate

adherence to pertinent laws and regulations and thus

would have a negative impact on the public interest in

promoting voluntary compliance.

The summons authority of the IRS to examine corpo-

rate records is set forth in Section 7602 of the Internal

Revenue Code, which provides in pertinent part:

For the purpose of ascertaining the correctness of

any return, ... the Secretary or his delegate is au-

thorized—

(1) To examine any books, papers, records, or

other data which may be relevant or material to such

inquiry ;

(2) To summon . .. any officer or employee of

{the taxpayer] .. . to appear before the Secretary or

his delegate at a time and place named in the sum-

4

mons and to produce such books, papers, records, or

other data ... as may be relevant or material to

such inquiry.

The Code makes it plain, however, that the IRS summons

power is not without limits. Thus, Section 7605(b) pro-

vides in part that “[n]o taxpayer shall be subjected to

unnecessary examination or investigations.”

The amicus curiae submits that this case requires a

careful balancing of the needs and rights of the IRS to

information relevant to a determination of tax liability

with both (1) the needs and rights of the taxpayer to

have and use confidential IARs in managing its business,

and (2) the paramount public interest in promoting vol-

untary corporate compliance with state and federal laws

and regulations applicable to American businesses. It is

essential to the continuation of our self-assessment tax

system and to voluntary compliance with the laws of the

land that IARs not be subject to routine disclosure to the

IRS pursuant to the summons power but rather that they

be made available only upon a particularized showing of

relevance by the IRS.

CONCLUSION

For the foregoing reasons, the petition for a writ of

certiorari to the United States Court of Appeals for the

Sixth Circuit should be granted.

Respectfully submitted,

JAMES P. MURPHY

Counsel of Record

SQUIRE, SANDERS & DEMPSEY

1201 Pennsylvania Ave., N.W.

Washington, D.C. 20004

\ (202) 626-6600

Counsel for White Consolidated

Industries, Inc., Amicus Curiae

September 16, 1983