COUPLE IN CONTEMPT FOR FAILURE TO PRODUCE BANK RECORDS.

[1] On September 30, 2003, this Court held art evidentiary hearing on the Order to Show Cause (Doc. 8) entered on August 18, 2003. The Respondents Lawrence A. Hall and Annette C. Hall were to show cause why they should not be held in contempt for failing to comply with an Order (Doc. 4) entered on May 13, 2003, enforcing three Internal Revenue Service summonses and ordering the Respondents to execute a consent directive.

I. Procedural History

[2] On March 13, 2003, the Government filed a Motion to Enforce Internal Revenue Service Summonses and for Order to Execute Consent Directives (Doc. 1). In the Motion, the Government asserted that Revenue Agent Rovnak was investigating the Halls, and issued three IRS administrative summonses, two on June 20, 2002, and one on September 10, 2002. (Motion, p. 2-3, Doc. 1) Each summons was drafted for the Halls to appear, give testimony and produce documents. (Motion, p. 3, Doc. 1) The Halls failed to appear in response to the summonses. (Motion, p. 3, Doc. 1) The Motion also contained the language that no Justice Department referral is in effect for the Halls for the years Revenue Agent Rovnak is investigating. (Motion, p. 4, Doc. 1) On May 14, 2003, an Order to Show Cause (Doc. 2) was entered by this Court requiring the Respondents to file any objections to the summons that were served on them within a certain time period, and a response to the Petition. The Order (Doc. 2) instructed the Respondents that if they had objections they were required to appear for a hearing, but if no objections were filed, then the Respondents did not need to appear for a hearing. On May 7,2003, the Government filed a Motion for Entry of Order Enforcing Three Internal Revenue Service Summons and Ordering Respondents to Execute Consent Directives (Doc. 3). In this Motion, the Government stated that the Respondents had not filed any objections to the summons or to the consent directives. On May 13, 2003, the Honorable John E. Steele, United States District Judge entered an Order (Doc. 4) which granted the Petition to Enforce Three Internal Revenue Service Summonses and for Order to Execute Consent Directives. Judge Steele found that the Government had satisfied its burden pursuant to United States v. Powell, 379 U.S. 48, 57-8 (1964). Judge Steele also found that the consent directives submitted as Exhibits 3 and 4 to the Motion (Doc. 1) were proper. This Order required the Halls to comply with the IRS summonses by attending and testifying before a revenue agent and required them to produce documents pursuant to the summonses. The Order also required the following: "That the respondents, Lawrence A. Hall and Annette C. Hall, shall each sign consent directives authorizing foreign financial institutions to disclose information and documents to the IRS, copies of which were attached as Exhibits 3 and 4 to the Petition, (Dkt. 1) and submit signed originals to Revenue Agent Rovnak with copies to counsel for the petitioner."

[3] The Government filed another Motion for Issuance of Order to Show Cause (Doc. 6) which stated that the Halls did not comply with the District Court's Order of May 13, 2003. On August 18, 2003, this Court entered an Order to Show Cause (Doc. 8) which scheduled an evidentiary hearing for September 30, 2003.

II. Evidentiary Hearing of September 30, 2003

[4] At the hearing, counsel for the Respondents argued that they had complied with the previous court orders. Counsel asserted that the Respondents appeared for their statements, testified, had no documents that were responsive to the summons in their custody, and executed the consent directives as ordered by the District Court in its May 13,2003 Order (Doc. 4). The Government responded that the Respondents did appear before the revenue officer, however, they invoked their Fifth Amendment rights during their testimony, failed to produce documents that were responsive to the summons, and did not properly sip the consent directives as ordered by the District Court. The Halls signed the Consent Directives under the signature line and inserted the following language: "Signed pursuant to court order only, and under duress, all rights reserved." The Government argued that the Respondents had waived their objections to the summons by not responding to the first Order to Show Cause (Doc. 2) dated March 14,2003. Counsel for the Respondents asserted again that there are no documents in the Halls custody or control responsive to the subpoena. At the hearing, the Court required the Government to produce evidence of the existence of documents that are in the custody or control of the Respondents that they failed to produce.

A. Testimony of Revenue Agent Kallenberg

[5] Internal Revenue Agent Barbara Kallenberg testified that she investigates taxpayers to determine tax liability. Specifically, she has been concentrating her investigation on taxpayers with offshore credit cards. This investigation is called the Offshore Credit Card Project. Revenue Agent Kallenberg testified that taxpayers obtain offshore credit cards from tax haven countries. Generally, these taxpayers place money in an offshore account, and then obtain a credit card. The taxpayers use this credit card to repatriate the money from their offshore account. The offshore credit card looks like a regular credit card. Revenue Agent Kallenberg's investigation led her to MasterCard International Credit Card which provided her a list of names of individuals who have MasterCard credit cards from foreign banks. One of the banks that issues MasterCard credit cards is Leadenhall Trust Company LTD ("Leadenhall")¹ which is located in the Bahamas. According to Revenue Agent Kallenberg, Leadenhall will issue a MasterCard credit card to those individuals that have at least one secured account with Leadenhall. The individual may have more than one secured account. The credit limit for the MasterCard is dependent upon the amount in the secured account or accounts.

[6] Revenue Agent Kallenberg has investigated other taxpayers with credit cards from Leadenhall. Revenue Agent Kallenberg learned from the taxpayers that cooperated with her investigation that the taxpayers have control over their records from Leadenhall. Specifically, all account statements and credit card statements are sent wherever the taxpayer chooses, or are held in the Bahamas. The cooperating taxpayers obtained their secured account statements and credit card statements by contacting Leadenhall either by telephone or facsimile and the records were produced to the taxpayer.

[7] On cross-examination, Revenue Agent Kallenberg testified that she had not audited the Halls' accounts. She also testified that Leadenhall may not honor the Consent Directive signed by the Halls. She only knew that Leadenhall honors direct requests from taxpayers for their statements. She had no knowledge if the Halls had any documents in their possession.

B. Revenue Agent Rovnak

[8] Revenue Agent Michael Rovnak is investigating Lawrence Hall for the tax years 1999, 2000, and 2001, and is investigating Annette Hall for the tax years 1999 and 2000. From the Offshore Credit Card Project, Revenue Agent Rovnak teamed from MasterCard International that the Halls used a MasterCard from Leadenhall. The Halls were served with summonses, but failed to produce any documents. From the Offshore Credit Card Project, Revenue Agent Rovnak also learned that documents exist for Leadenhall MasterCards as well as for the account or accounts securing the MasterCard. Further, Revenue Agent Rovnak teamed that the taxpayers have access to these statements should they choose to obtain them. The Government introduced exhibits showing the Halls' use of their MasterCard. (See, Gov. Exh. 2, 4, 5, 7, and 8) Revenue Rovnak obtained two checks written by Annette Hall from domestic banks to Leadenhall. (Gov. Exh. 9 and 10) From the documents produced to him by sources other than the Halls, Revenue Agent Rovnak learned that the Halls spent thousands of dollars using their MasterCard here, but show no sources for the payments of these charges. Revenue Agent Rovnak admitted that he had no personal knowledge of any documents from the Halls' MasterCard or secured account.

III. Analysis

[9] The Government argues that the Halls should be held in contempt for failing to comply with the District Court's Order (Doc. 8) entered August 18, 2003. Specifically, the Government argues that the Halls failed to produce any documents requested, failed to testify by invoking their Fourth² and Fifth Amendment rights, and failed to properly sign the consent directives as ordered by the District Court.

[10] The Government asserts that the Halls waived their objections to compliance with the summonses by failing to object to the Motion to Enforce Internal Revenue Service Summonses and For Order to Execute Consent Directives which was filed on March 13, 2003, citing the case of United States v. Rylander, 460 U.S. 752 (1983). In Rylander, the IRS issued a summons to Rylander which ordered him to appear. Id. at 754. Rylander failed to comply with the summons, and the District Court issued an order to show cause why the summons should not be enforced. Id. Rylander evaded service but eventually was served with an order to show cause. Id. Rylander did not file any response to the order to show cause and did not appear at the hearing. Id. The District Court entered an order enforcing the IRS summons and ordered Rylander to appear before the IRS agent and produce records. Id. Rylander did not seek reconsideration of the order nor did he file an appeal from it. Id. Rylander appeared before the agent but he failed to produce the required records. Id. The District Court then issued an order to show cause as to why Rylander should not be held in contempt. Id. Rylander evaded service of this order to show cause, and the Court issued a bench warrant for his arrest. Id. Two contempt hearings were held. Id. Rylander took the witness stand and testified that he did not possess the records requested and he asserted his Fifth Amendment rights against compulsory self-incrimination. Id. at 756-757. The Supreme Court found that "[b]ecause a proceeding to enforce an IRS summons is an adversary proceeding in which the defendant may contest the summons 'on any appropriate ground,' [citation omitted], and because lack of possession or control of records is surely such a ground, the issue may not be raised for the first time in a contempt proceeding." Id. at 757, citations omitted. At a civil contempt proceeding, a taxpayer may assert a "recent inability to comply with the order in question." Id. A court may consider whether compliance with the enforcement order is factually impossible. Id. The respondent has the burden of production. Id. If Rylander chose to defend on his present inability to produce the records then he was required to come forward with evidence in support of his theory. Id. at 760. The Supreme Court found that the District Court acted property in incarcerating Rylander until he provided evidence of his inability to produce the documents or produced the documents. Id. at 761.

[11] In the instant case, the Government argues that the Halls have the same choices as the respondent in Rylander, supra, to either provide the documents requested or answer questions as to the present location of the documents. The instant case differs from Rylander in that although the Court entered an Order (Doc. 4) enforcing the three summons, the Halls asserted their Fifth Amendment rights and their defense that they did not possess the records at the enforcement meeting which was prior to the contempt hearing. In Rylander, the respondent asserted his Fifth Amendment rights for the first time at the contempt hearing.

[12] "If the Fifth Amendment privilege were to be raised at all in this summons enforcement action, the prescribed exchange must occur at the latest, at the meeting seeking compliance with the enforcement order." United States v. Kowalik, 809 F. Supp. 1571, 1577 (S.D. Fla. 1992), aff'd, 12 F.3d 218 (11th Cir. 1993) In the instant case, the Halls raised their Fifth Amendment privilege at the meeting where the revenue agents were seeking compliance of the enforcement order. A taxpayer that seeks the protection of the Fifth Amendment must not assert a blanket refusal to testify, but rather must present himself and as to each question elect to assert the privilege or not. Id. at 1577, citing United States v. Argomaniz, 925 F.2d 1349, 1353 (11th Cir.1991) Upon review of the transcript of the Halls testimony, it is clear that they asserted their Fifth Amendment privilege as to individual questions. The Court finds that the Halls were not in contempt of court when they appeared and gave testimony in response to the Order (Doc. 4) enforcing the IRS summons.³

[13] Mr. and Mrs. Hall responded to various questions regarding their records that they had no records which were responsive to the summons. (See, Exh. A to Doc. 7, pp. 14-18, 102) Again the Halls did raise the defense that the records did not exist at the time of the enforcement meeting. The party petitioning for a civil contempt finding must establish by clear and convincing evidence that the respondents violated the court's order. United States v. Roberts, 858 F.2d 698, 700 (11th Cir, 1988) Once the prima facie showing is made, the burden shifts to the other party to produce evidence explaining why he cannot comply with the order. Id at 701. The burden of production is not satisfied by a mere assertion of an unavailability to comply. Id. "Rather, in this circuit, a party subject to a court's order demonstrates inability to comply only by showing that he has made 'in good faith all reasonable efforts to comply.'" Id., (citing United States v. Rizzo, 539 F.2d 458, 465 (5th Cir. 1976)), (citing United States v. Ryan, 402 U.S. 530, 534 (1981)

[14] The Halls failed to show their present inability to comply with the summons regarding the account records. The Government produced evidence that the owners of charge accounts originating from Leadenhall have at least one other secured account at that bank. Further, the Government witnesses testified that the account holders had access to the statements for the charge accounts as well as the secured account or accounts. The Halls produced no evidence showing that they had no ability to obtain the records from Leadenhall Bank for their account or accounts. Further, the Halls must use "'all reasonable efforts'" to obtain their account statements. Roberts, 858 F.2d at 702. All reasonable efforts would include faxing or telephoning Leadenhall Bank to obtain these account statements. The mere assertion by the Halls that they were or are not in possession of the records of their accounts in foreign banks is not sufficient to comply with the Order (Doc. 4). Therefore, the Court finds that the Halls are in contempt of court for failing to use all reasonable efforts to obtain account statements from foreign banks.

[15] A separate issue is the Halls' refusal to properly sign the Consent Directives. The Order (Doc. 4) required Mr. and Mrs. Hall to sign the Consent Directives which were attached as Exhibits 3 and 4 to the Petition. The Halls both signed under the signature line and added the following language: "Signed pursuant to court order only, and under duress, all rights reserved." In this case, the Order (Doc. 4) compelled the Halls to sign the Consent Directives. Although the Order had language that the consent directives authorized "foreign financial institutions to disclose information," it also directed the Halls to sign Exhibits 3 and 4. A part of these Exhibits did authorize financial institutions to disclose information. The Halls did not raise any Fifth Amendment privilege to the signing of these documents, and "the signing of a waiver authorizing the release of foreign bank records is not necessarily a 'testimonial communication' that is protected by the Fifth Amendment privilege." United States v. Hunerlach, 197 F.3d 1059, 1066 (11th Cir. 1999). The execution of a waiver is similar to the production of a handwriting sample and therefore has no testimonial significance because it does not relate a factual assertion or disclose information. Id. The Halls were directed to sign the Consent Directives and they failed to properly comply with the Court's Order. Therefore, the Court finds that the Halls are in contempt as to failing to sign the Consent Directives properly.

IV. Conclusion

[16] The Court finds that the Halls have not waived their right to assert their Fifth Amendment privilege against self incrimination at the enforcement proceeding. Further, the Halls are not in contempt of court for responding to the questions asked by invoking their Fifth Amendment privilege against self incrimination. The Court finds that the Halls are in contempt of court for failing to use all reasonable effort to obtain statements from accounts that they have in foreign banks and for signing the Consent Directives as they did.

[17] It is respectfuly recommended that the Halls be held in contempt of court for failing to use all reasonable effort to obtain statements from accounts that they have in foreign banks, and for failing to sign the consent directives properly. The Court recommends the following:

[18] 1) The Halls be given eleven (11) days to return to the office of Revenue Agent Rovnak sign their names on the signature line of the Consent Directives without any additional verbiage added.

[19] 2) The Halls be given eleven (11) days to provide Revenue Agent Rovnak confirmation that they have contacted Leadenhall Trust Company LTD and requested that the records of their accounts be provided to Revenue Agent Rovnak.

[20] 3) The Halls be given thirty (30) days to provide their account statements from Leadenhall Trust Company LTD to Revenue Agent Rovnak.

[21] Failure to file written objections to the proposed findings and recommendations contained in this report within ten (10) days from the date of its filing shall bar an aggrieved party from attacking the factual findings on appeal.

[22] Respectfully recommended in Chambers in Ft. Myers, Florida this 15th day of December, 2003.

²The enforcement of an IRS summons does not violate the Fourth Amendment as long as the summonses comply with the Powell, supra, requirements. United States v. Reis, 765 F.2d 1094, 1096 (11th Cir. 1985) The District Court in its Order (Doc. 4) found that the Government had complied with the Powell requirements, therefore, the Halls' Fourth Amendment rights were not violated.

³The Government has not asserted that the Halls improperly invoked their Fifth Amendment Rights when they gave testimony, therefore, the Court will not reach this issue.