Opinion ID: 1922352
Heading Depth: 1
Heading Rank: 1

Heading: Did the Department of Revenue establish it had a legitimate and relevant purpose in subpoenaing the corporation's records?

Text: A. Standard of showing required for subpoena of corporation's records. In the first Neu's Supply Line Case [2] this court declared: The issuing of the subpoena under the facts of this case should depend upon the determination by the department, in the exercise of its prudent judgment, that it had a legitimate and relevant purpose in so doing. This was the rule followed by the Supreme Court of the United States in United States v. Powell, [3] a case virtually identical to the present appeal, decided upon the appropriate federal statutes relating to the power of the Internal Revenue Service to subpoena business records. This rule has been adopted by Davis in his treatise on administrative law. [4] It is thus clear that on remand the department was called upon to make a showing before the commission (1) that the investigation was pursuant to a legitimate purpose, and (2) that the documents were relevant to that purpose. B. Procedure to be utilized in proving lawful purpose and relevancy. In the first appeal in this case, this court said that the determination of whether the subpoena should be quashed raised a question of law. [5] Appellant contends that because the issue has been designated a question of law, the subpoena itself [must] on its face nakedly satisfy [the requirement]. It is therefore its position that the evidence and testimony beyond that on the face of the subpoena were improperly considered by the commission and by the circuit court and are irrelevant. We find no authority for this position. Appellant's interpretation of what constitutes a question of law is too restrictive. While relevancy is to be considered when issuing a subpoena duces tecum, that relevancy need not appear on the face of the subpoena. [6] Where there is a factual dispute, the only means available to settle the dispute is the presentation of evidence. [7] It was entirely proper for the commission to take evidence even though it was at the time deciding a question of law. In arguing that the subpoena must show on its face the factual basis for its issuance, appellant would thus deprive itself of the right to confront and cross examine those giving evidence against it, and it would favor the department issuing a naked subpoena asserting alleged evidence. The procedure utilized in this case required the department to produce its evidence and afford the taxpayer the right of cross-examination. We think this procedure proper and protective of both the responsibilities of the department and the rights of the taxpayer. C. Did the department sustain its burden? 1. As to legitimacy of purpose. The legislature has seen fit to give broad powers to the Department of Revenue to regulate the payment of state income taxes. Secs. 71.11 and 73.03, Stats., consist of more than 70 subsections enumerating authority given the department over virtually every aspect of income tax collection. Secs. 71.11 (9) and 71.11 (20) give the department the power to require the taxpayer to produce records in order to verify his tax return. The broad scope of the statutory grant and the specific provisions of secs. 71.11 (9) and 71.11 (20) leave no doubt but that the department was proceeding pursuant to a lawful and legitimate purpose in issuing the challenged subpoena. 2. As to relevancy. In the present action the department is barred by sec. 71.11 (21) (bm), Stats., from making any additional assessments against either Roman Neu or the corporate taxpayer, except, pursuant to sec. 71.11 (21) (c), if the department can prove intent to defeat or evade the income tax. Thus the only viable action against either the individual or corporate taxpayer that the investigating department can take would ultimately require a showing of intent to defeat or evade the tax. Appellant argues that because of this limitation the department must show such intent at the time the subpoena is issued. No such intent has been shown in this case. Indeed, there is no proof that the corporate taxpayer has understated its tax liability, intentionally or otherwise. But appellant has understated the department's authority to investigate. While it is true that ultimately the department will have to prove intent to evade or defeat the income tax, at the present stage in the proceedings all the department must do is show that the requested documents may be relevant to that ultimate issue. Both the commission and the circuit court found the requested records to be relevant to an investigation for possible tax evasion. This conclusion is amply supported by both the record and by common sense. Whatever other element must be shown, the department would certainly have to establish that the taxpayer had understated its tax liability for the period in question. The requested documents would not only be relevant, they would be essential, to prove such understatement. The issuance of the subpoena was entirely proper.