BECKER Et Al. v. UNITED STATES Et Al.

Background

Two taxpayers owned videotapes they used in their business and claimed tax benefits for them, including depreciation and investment credits. The IRS issued summonses to inspect the videotapes. The taxpayers allowed the agent to examine, play, and inspect the tapes only in their presence and refused to leave the tapes with the IRS. A federal district court ordered them to turn the tapes over. The taxpayers appealed and asked for a temporary stay while posting a bond; both the district court and the Court of Appeals denied the stay, and the applicants then sought relief from the Circuit Justice, who granted a temporary stay and asked for the Government’s response.

Reasoning

The main question was whether the IRS may force a taxpayer to give up possession of items that are themselves income-producing property or only require access to records or testimony. The Justice examined whether ordinary Federal Rules about stays apply to IRS summons enforcement, and whether summary enforcement is justified when the Government seeks what looks like property rather than mere evidence. He noted the relevant tax statutes allowing examination of books and objects, and compared cases where the material was purely records on a tape rather than the taxpayer’s asset itself. Balancing the harms, he found the taxpayers might suffer irreparable loss if forced to relinquish tapes used for promotion, while the Government’s injury appeared minimal because the taxpayers had already let the Service inspect the tapes and extended the statute of limitations.

Real world impact

The continuation of the stay keeps the tapes in the taxpayers’ possession while the appeal proceeds, subject to posting an approved bond. This is a temporary, not final, ruling and the full Court may review the legal question later.