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Dept. of Revenue v. Olympic Sav. & Loan Ass'n





APPEAL from the Circuit Court of Cook County; the Hon. WALTER B. BIESCHKE, Judge, presiding.


This appeal is from an order of the circuit court of Cook County directing a savings and loan association to comply with an administrative subpoena duces tecum issued by the Illinois Department of Revenue commanding the savings and loan association to produce certain records relating to the financial affairs of one of its customers. The sole issue presented for review is whether the trial court erred in entering an order enforcing the administrative subpoena.

For the reasons hereinafter set forth, we reverse and remand to the circuit court for proceedings not inconsistent with this opinion.

On April 5, 1977, the Illinois Department of Revenue (hereinafter referred to as the Department) issued a subpoena duces tecum commanding Olympic Savings and Loan Association (hereinafter referred to as Olympic) to appear at a hearing in the office of the Department at a specified date with certain books and records of Olympic relating to the State income tax liability of John Kitsos. *fn1

The records described in the subpoena were "[a]ll records in connection with a mortgage on the property at 326 Stafford Way, Bolingbrook, Illinois, dated March 6, 1973, granted to Olympic Savings and Loan Association by Alice and John Kitsos, including but not limited to, the loan application, financial statements, amount of loan, and record of payments." Notice of the issuance of the subpoena and of its service upon Olympic was sent by certified mail to Kitsos. Kitsos, in turn, informed Olympic that its voluntary compliance with the subpoena would be at the risk of a lawsuit brought by him. Olympic thereupon did not voluntarily comply with the subpoena, and the Department filed suit on May 10, 1977, seeking judicial enforcement of its subpoena.

The Department's complaint to compel compliance with the subpoena alleges that Kitsos had a duty to pay State income tax; that because of Kitsos' failure and refusal to file income tax returns setting forth his full income, the Department made a demand upon Kitsos to examine his books, papers and records for the purpose of administering and enforcing the provisions of the Income Tax Act (hereinafter referred to as the Act); that Kitsos refused to comply with the Department's demand and further refused to disclose either his income or the source(s) thereof; that Olympic had in its possession records which would aid the Department in establishing Kitsos' tax liability; that an administrative subpoena duces tecum had been served upon Olympic; that Olympic had not voluntarily complied with the subpoena; and that a judicial order is necessary to enforce the administrative subpoena.

Kitsos and Olympic were joined as defendants. Olympic filed its answer requesting that the court conduct a hearing in which Kitsos would be given an opportunity to contest the issuance of the subpoena. Kitsos filed an answer which can best be characterized as Kitsos himself chose to characterize it in his brief. "[T]he answer consisted of 82 paragraphs and denied each and every allegation of the complaint and generally raised a full scale attack upon the constitutional validity of the federal and state income tax laws, the procedures followed by the defendant [the Department], the deprivation of constitutional rights including the right to be free from self-incrimination and alleged that the Illinois Income Tax Laws are dependent upon the validity of the federal income tax laws and that the federal income tax laws were invalid. * * *" After a trial on the merits, the court denied Kitsos' motion for judgment on the pleadings and ordered Olympic to comply with the subpoena duces tecum.

Kitsos alone prosecutes this appeal. He contends that "the enforcement of the income tax subpoena to further an investigation solely for criminal purposes violates the taxpayer's constitutional and statutory rights." In this attack, Kitsos essentially maintains that "the use of such subpoena in aid of a criminal investigation was bad faith and not permissible." It appears that it has been Olympic's position throughout these proceedings that it will readily comply with the subpoena upon court order and final resolution of this dispute.

On May 11, 1978, after all briefs were filed but prior to oral argument, Kitsos filed motions in the appellate court requesting that the appellate court summarily reverse the judgment of the trial court and quash the subpoena. The Department objected to these motions. The motions and objections allege the following facts which substantially change the posture of the case. On April 13, 1978, criminal proceedings were instituted against Kitsos in the circuit court of Will County wherein Kitsos was charged with the crime of fraudulently failing to file income tax returns for the years 1976, 1977 and 1978. In his motions, Kitsos contends that "the obtaining of said records by the State of Illinois Department of Revenue, Appellee, in this case by subpoena, in any event and irrespective of any issues in this cause, would constitute the use of civil process in aid of a criminal proceeding which would violate the constitutional rights of the Defendant in said criminal proceeding." The Department replies that the "criminal proceedings instituted by the Department are not related to the tax years involved in the instant appeal, with the exception of tax year 1976." Moreover, the Department alleges that "the criminal charges filed April 13, 1979, included 1976, because the Statute of Limitations, Ill. Rev. Stat., (1977), Ch. 120, § 13-301 [sic], would have barred the 1976 claim after April 15, 1979." The Department maintains that "[t]he appeal process may not be used to thwart civil or criminal proceedings against a taxpayer" and that "[u]nder these circumstances, the obtaining of the records by means of the subpoena does not constitute the use of civil process in aid of a criminal proceedings in violation of taxpayer's constitutional rights." On June 26, 1979, we denied Kitsos' motion for summary reversal and motion to quash the subpoena. During oral argument, Kitsos' attorney informed this court that the Department recently assessed Kitsos' tax liability. *fn2


We emphasize initially that what is sought here by the Department from Olympic is the production of Olympic's records and not the records of the taxpayer Kitsos. This is not a case where a subpoena has been issued to the taxpayer himself seeking access to his books and records and information from his own mouth. Neither is it a case where the subpoena is directed at the taxpayer's records in the hands of his attorney or accountant, with the attendant questions of privilege. The subpoena was directed to Olympic to whom no established legal privilege, such as that of attorney and client, exists and concerned records in which Kitsos has no proprietary or custodial interest of any kind, which are owned by Olympic and which relate to Olympic's business transactions with Kitsos. Thus, despite intimations to the contrary, there appears to be no basis for a challenge under either the fourth or fifth amendment to the Constitution by Kitsos to the Department of Revenue subpoena issued pursuant to the Illinois State Income Tax Act and directed to Olympic Savings and Loan Association. *fn3


The instant case appears to be a case of first impression in Illinois and requires us to examine the limits of the good-faith use of a Department of Revenue subpoena issued pursuant to section 916 of the Income Tax Act (Ill. Rev. Stat. 1975, ch. 120, par. 9-916). This section provides in part:

"(a) Subpoenas. The Department or any officer or employee of the Department designated in writing by the Director, shall at its or his own instance, or on the written request of any other party to the proceeding, issue subpoenas requiring the attendance of and the giving of testimony by witnesses, and subpoenas duces tecum requiring the production of books, papers, records or memoranda. All subpoenas and ...

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