United States v. Bisceglia – Oral Argument – November 11, 1974

Media for United States v. Bisceglia

Audio Transcription for Oral Argument – November 12, 1974 in United States v. Bisceglia

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Warren E. Burger:

We’ll hear arguments hear arguments next in 73-1245, United States against Bisceglia.

Mr. Smith, you may proceed whenever you’re ready.

Stuart A. Smith:

Mr. Chief Justice and may it please the Court.

This case comes here on the Government’s petitioner for a writ of certiorari to the United States Court of Appeals for the Sixth Circuit.

It arises from the issuance of an internal revenue summons in the course of an investigation by the Internal Revenue Service into a series of unusual currency transactions.

Specifically, the question, a statutory one, is whether the Internal Revenue Service has power to issue a summons in order to discover the identity of a person who maybe liable for unpaid taxes.

The bank involved, where the unusual currency transactions occurred, is the Commercial Bank of Middlesboro, Kentucky of which respondent Bisceglia is a Vice President.

The facts are basically simple and undisputed.

In November 1970, the Commercial Bank deposited on two separate occasions, $20,000.00 in $100.00 bills with the Federal Reserve Bank in Cincinnati which was a branch of the Federal Reserve Bank of Cleveland.

These bills as the testimony characterized them in the District Court were tissue paper thin which suggested a long period of storage, and perhaps in an unusual place.

On the regular Federal Reserve procedures, the matter was reported by the Federal Reserve Bank of Cincinnati to the Internal Revenue Service.

The deposit of such a large amount of cash was unusual in this context and it was especially unusual for the bills to be badly worn.

For example, the testimony developed that during the first 10 months of this year in 1970, the Commercial Bank of Middlesboro had only deposited with the Federal Reserve Bank of Cincinnati, 218 $100.00 bills.

And here within a two week period in November 1970, it deposited an additional 400 of them.

This —

Harry A. Blackmun:

Are you implying then that the situation might be different had this been New York City and one of the major banks there?

Stuart A. Smith:

Well, I’m suggesting that in the context of this case, such a large amount of cash was unusual and perhaps I think the Internal Revenue Service might not have been alerted in the context of a large commercial center such as New York.

But I don’t think that the facts, the fact that this case might arise in New York would limit the statutory power of the Internal Revenue Service.

Harry A. Blackmun:

Incidentally, there were other bills on the hundreds, weren’t there, or others?

Stuart A. Smith:

I think there are only 4 — my impression is there were only 400 $100.00 bills, a total of $40,000.00 but these were the — this was the —

Harry A. Blackmun:

[Inaudible] the regulation because there —

Stuart A. Smith:

Exactly, these were regulations that the Federal Reserve maintained prior to the enactment of the Bank Secrecy Act which the Court considered last term in the California Bankers Association case.

But the Federal Reserve procedures were to report this to the Internal Revenue Service.

Now from the Internal Revenue Service’s point of view, this event suggested that substantial transactions had occurred outside normal financial channels.

In fact, the Supervisor of the Currency Section of the Federal Reserve Bank in Cincinnati testified that it was his recollection, the only comparable situation where bills were so badly worn is to be tissue paper thin that the sizing of the paper had completely disintegrated, were difficult to count, had occurred in the situation where a cash hoard had been stored in milk cans which in turn had been buried in concrete.

Now, this kind of situation suggested to the Internal Revenue Service that the recipient of this cash hoard may well have received it in a manner and not pay — and had not satisfied a tax liability on it.

Now the possibilities are numerous.

It could be an amount of money that was received and hidden away for which income tax was not paid on.

It could have been hoard of someone who died and estate taxes may not have been paid upon it.

It could have been a gift to someone in which case, the donor may not have paid the gift tax on it.

Stuart A. Smith:

Because of these possibilities which are — we believe reasonable to the Internal Revenue Service, the Internal Revenue Service commenced an investigation.

And in the course of that investigation, it issued the summons to the Commercial Banks of Middlesboro and to Mr. Bisceglia specifically to produce all records in connection with the deposit of this matter that may shed some light on the deposit of the matter.

Now because the tax — because the identity of the taxpayer was unknown in this instance, the IRS summons was drawn “in the matter of the tax liability of John Doe.”

But it was fully contemplated that once the identity of John Doe were established to the service to the satisfaction that the service would then commence an order of the taxpayer or the depositor’s or transferor’s tax returns and inquire as to the means of acquisition of this cash hoard and to determine whether all tax liabilities have been satisfied on it.

And the bank refused to comply with the summons, so the United States commenced this action which was on a petition for enforcement of the summons under Section 7604 of the Internal Revenue Code.

And the — after holding —

Potter Stewart:

Why was the action brought against this individual, Mr. Bisceglia, whatever his name?

Stuart A. Smith:

He was an officer of the bank who supervised —

Potter Stewart:

He’s a trust officer, wasn’t he?

Stuart A. Smith:

He’s a trust officer of the bank but he had supervisory power over the records.

Potter Stewart:

And he — it’s in the record —

Stuart A. Smith:

He had —

Potter Stewart:

He says he didn’t know anything about this.

Stuart A. Smith:

Well, he personally may — didn’t have any knowledge of the — the respondent argues that —

Potter Stewart:

My real question is why don’t you bring it against the bank, why did you bring — single out this individual, this trust officer here?

Stuart A. Smith:

Well, my impression was that this officer of the bank was singled out as someone who had the supervisory power over the records who could produce that.

The summons asked for two things.

It asked for production of records which Mr. Bisceglia I think indisputably had the power to direct the Internal Revenue service to the examination and it also asked the testimony.

Now the respondents make a point of the fact and Mr. Bisceglia could not have testified as to the — as to the circumstances, but we think that the production of the records is key here.

Warren E. Burger:

We’ll resume there in the morning.