FOR PUBLICATION
UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT
UNITED STATES OF AMERICA,
Plaintiff-Appellant,
v. No. 09-35462
MARK RICHEY,
Defendant-Appellee,
D.C. No.
1:08-cv-00452-EJL
ALAN D. PESKY; WENDY PESKY; OPINION
FAWPEAS L.P.,
Defendant-Intervenors-Appellees.
Appeal from the United States District Court
for the District of Idaho
Edward J. Lodge, District Judge, Presiding
Argued and Submitted
October 8, 2010—Seattle, Washington
Filed January 21, 2011
Before: Sidney R. Thomas and Milan D. Smith, Jr.,
Circuit Judges, and Raner C. Collins, District Judge.*
Opinion by Judge Milan D. Smith, Jr.
*The Honorable Raner C. Collins, United States District Judge for the
District of Arizona, sitting by designation.
1247
UNITED STATES v. RICHEY 1251
COUNSEL
Kathleen E. Lyon, Attorney, U.S. Department of Justice, Tax
Division, for plaintiff-appellant United States of America.
Justin C. Jones, Attorney, Portland, Oregon, for the
defendants-appellees.
OPINION
M. SMITH, Circuit Judge:
The Internal Revenue Service (IRS or Government) chal-
lenges the district court’s ruling denying its motion to enforce
a summons against Defendant-Appellant, Mark Richey, seek-
ing production of an appraisal work file. The IRS contends
that the district court erred when it found that the summons
was not issued in good faith, and that the appraisal work file
was protected by the attorney-client privilege and work-
product doctrine.
We hold that the IRS summons was issued in good faith,
and that the district court erred in finding that Richey’s entire
appraisal work file was protected by both the attorney-client
privilege and the work-product doctrine. We therefore reverse
and remand to the district court.
FACTUAL AND PROCEDURAL BACKGROUND
Intervenors-Appellees Alan and Wendy Pesky (the Peskys
or Taxpayers) owned general and limited partnership interests
in FAWPEAS, an Idaho limited partnership. FAWPEAS, in
turn, was the 50% owner of certain real property located in
Ketchum, Idaho (the Property). In January 2002, the Peskys
retained the law firm of Thornton Byron LLP (Thornton) to
provide legal advice to them concerning the granting by
1252 UNITED STATES v. RICHEY
FAWPEAS of a conservation easement on the Property (the
Easement). On March 7, 2002, the Peskys caused FAWPEAS
to execute a conservation deed for the Property in favor of the
Nature Conservancy. On May 7, 2002, Thornton retained
Mark Richey, an MAI-certified appraiser, to provide “valua-
tion services and advice with respect to the conservation ease-
ment.” In response, Richey prepared an appraisal report to be
filed with the Taxpayers’ 2002 federal income tax return, and
a work file concerning the value of the Easement.
Given their partnership interest in FAWPEAS, the Peskys
claimed an approximately $200,000 charitable contribution
deduction on their 2002 federal income tax return, stemming
from their proportionate share of the alleged value of the
Easement. The approximately $1.3 million bulk of the deduc-
tion was carried over on the Peskys’ 2003 and 2004 federal
income tax returns. Richey’s appraisal report was attached to
the Peskys’ 2002 federal income tax return, as required by
Treasury Regulation section 1.170A-13(c)(1). The appraisal
report noted: “[T]his report may not include full discussion of
the data, reasoning, and analyses that were used in the
appraisal process to develop the appraiser’s opinion of value.
Supporting documentation concerning the data, reasoning,
and analyses is retained in the appraiser’s file.”
On July 28, 2008, the IRS mailed a summons to Richey
instructing him to appear before IRS Agent Shane Cole, and
to provide testimony, documents, books, records, and infor-
mation related to the services Richey provided to the Peskys.
Asserting the protections of the attorney-client and work-
product privileges, Thornton directed Richey not to comply
with the summons and Richey followed Thornton’s instruc-
tions. In October 2008, the Government filed a petition to
enforce the summons. Agent Cole attached a declaration to
the petition, stating that he was conducting an investigation of
the Peskys’ 2003 and 2004 federal income tax returns, had
summoned Richey to inquire about the valuation of the Ease-
UNITED STATES v. RICHEY 1253
ment, and did not have the documents needed to determine
the Peskys’ correct tax liability.
In December 2008, the IRS issued a Notice of Deficiency
to the Peskys, which disallowed any charitable deduction
stemming from the Easement for the 2003 and 2004 federal
income tax returns. The Peskys responded to the Notice of
Deficiency by paying the assessment, interest, and penalties
claimed by the IRS. On February 11, 2009, the district court
granted the Peskys’ motion to intervene in the Government’s
summons enforcement action against Richey. The district
court also ordered Richey to show cause why he should not
be compelled to comply with the summons. At the show
cause hearing, the district court ordered the parties to provide
supplemental briefing addressing whether the IRS investiga-
tion had closed as the result of the Peskys’ agreement to pay
the assessment, interest, and penalties claimed by the IRS in
the Notice of Deficiency. On March 6, 2009, the district court
issued a memorandum order quashing the summons. The IRS
appeals the decision of the district court.
STANDARD OF REVIEW AND JURISDICTION
We review the district court’s summons-enforcement deci-
sions for clear error. David H. Tedder & Assocs., Inc. v.
United States, 77 F.3d 1166, 1168 (9th Cir. 1996). The district
court’s conclusion concerning whether “statements are pro-
tected by an individual attorney-client privilege is ‘a mixed
question of law and fact which this court reviews indepen-
dently and without deference to the district court.’ ” United
States v. Graf, 610 F.3d 1148, 1158 (9th Cir. 2010) (quoting
United States v. Ruehle, 583 F.3d 600, 606 (9th Cir. 2009).
We review de novo the district court’s rulings on the scope of
the attorney-client privilege. Id. The district court’s factual
findings are reviewed for clear error. Id. “A finding is clearly
erroneous if it is illogical, implausible, or without support in
the record.” Id. (citing United States v. Hinkson, 585 F.3d
1247, 1261 (9th Cir. 2009) (en banc).
1254 UNITED STATES v. RICHEY
We apply the same standard of review for the work-product
doctrine as for attorney-client privilege. See, e.g., Hernandez
v. Tanninen, 604 F.3d 1095, 1100 (9th Cir. 2010). As such,
whether documents are protected by the work-product doc-
trine is a mixed question of law and fact, reviewed indepen-
dently and without deference to the district court. See, e.g.,
Graf, 610 F.3d at 1158. We review de novo the district court’s
rulings on the scope of the work-product doctrine. See id. The
district court’s factual findings for work-product privilege are
reviewed for clear error. Hernandez, 604 F.3d at 1100.
We have jurisdiction pursuant to 28 U.S.C. § 1291 and 26
U.S.C. § 7609(h)(1).
DISCUSSION
A. Good Faith and the Summons
[1] The IRS is authorized by statute to inquire into tax lia-
bilities. 26 U.S.C. § 7601. In order to ascertain “the correct-
ness of any return,” the IRS may issue a summons for records
and documents from third parties in connection with a tax lia-
bility investigation. 26 U.S.C. § 7602(a). Summonses issued
under Section 7602 must be served personally or left at the
person’s last and usual place of abode. 26 U.S.C. § 7603(a).
[2] To obtain enforcement of a summons, the Government
has the initial burden of establishing a prima facie case show-
ing that: (1) the investigation will be conducted for a legiti-
mate purpose, (2) the inquiry is relevant to the purpose, (3)
the information sought is not already within the IRS’s posses-
sion, and (4) the administrative steps required by the IRS
Code have been followed. United States v. Powell, 379 U.S.
48, 57-58 (1964); Ponsford v. United States, 771 F.2d 1305,
1307 (9th Cir. 1985). “The government’s burden is a slight
one, and may be satisfied by a declaration from the investigat-
ing agent that the Powell requirements have been met.”
UNITED STATES v. RICHEY 1255
United States v. Dynavac, Inc., 6 F.3d 1407, 1414 (9th Cir.
1993).
[3] Once the government establishes a prima facie case, a
party challenging the summons must show that the govern-
ment is not entitled to use the court’s process to enforce the
summons. Powell, 379 U.S. at 58. A court will not enforce a
summons if “an abuse would take place if the summons [was]
issued for an improper purpose, such as to harass the taxpayer
or to put pressure on him to settle a collateral dispute, or for
any other purpose reflecting on the good faith of the particular
investigation.” Id. It is a “heavy” burden to show an abuse of
process or lack of good faith. Fortney v. United States, 59
F.3d 117, 120 (9th Cir. 1995).
The validity of a summons is normally tested as of the date
of its issuance. United States v. Cromer, 483 F.2d 99, 101 (9th
Cir. 1973). However, the court may inquire as to the reasons
for the summons and may not permit its process to be abused
in enforcing the summons. Powell, 379 U.S. at 58.
1. The Government’s Prima Facie Case
Generally, submitting “a declaration from the investigating
agent that the Powell requirements have been met” is suffi-
cient to establish a prima facie case. Dynavac, 6 F.3d at 1414.
Here, IRS Agent Cole submitted a declaration that he was
investigating the Peskys’ tax liabilities, that he did not have
the relevant appraisal work file, and that the administrative
process was followed.
[4] Agent Cole’s declaration was not wholly accurate. The
administrative process was not completely followed because
Richey was served by certified mail rather than by personal
service. See 26 U.S.C. § 7603(a). Nonetheless, as the district
court found, Richey had actual notice of the summons, there
was no prejudice to the Taxpayers who timely intervened, and
the Government acted in good faith when it tried to effect ser-
1256 UNITED STATES v. RICHEY
vice by certified mail. We agree with the reasoning of the
Eighth and Fifth Circuits that substantial compliance with 26
U.S.C. § 7603(a)’s service requirements is sufficient if the
IRS acted in good faith and there is no prejudice to the taxpayer.1
[5] In this case, the IRS’s service error was clearly harm-
less. The minor service error was properly excused by the dis-
trict court, and the Government satisfied its initial burden to
establish a prima facie case in October 2008, with Agent
Cole’s declaration. Thereafter, the burden shifted to Richey
and the Peskys to show that the Government acted in bad
faith.
2. Further Enforcement Actions
[6] The parties do not dispute that the summons was issued
in good faith in October 2008. What changed, according to
Richey and the Peskys, is that the Peskys agreed to the Notice
of Deficiency in December 2008, and paid the required
assessment, interest, and penalties. They buttress their claim
on section 4.8.9 of an internal IRS manual, which provides
that when a taxpayer agrees to an assessment and collection
of the entire deficiency, “[u]pon receipt of a signed waiver or
agreement, the following actions must be taken: . . . . Close
the case agreed to Centralized Case Processing for assessment
of the deficiency.” Internal Revenue Manual § 4.8.9.19.3.2,
available at http://www.irs.gov/irm/part4/irm_04-008-009-
cont02.html (last accessed Nov. 22, 2010). Thus, they reason,
since the audit was closed, the Government’s continued
efforts to enforce the summons were necessarily in bad faith.
1
See Mimick v. United States, 952 F.2d 230, 232 (8th Cir. 1991) (requir-
ing courts “to evaluate the seriousness of the violation under all the cir-
cumstances including the government’s good faith and the degree of harm
imposed by the unlawful conduct”); United States v. Payne, 648 F.2d 361,
363 (5th Cir. 1981) (holding that summons was valid even though there
was a technical service violation because summons was not personally
served); see also Sylvestre v. United States, 978 F.2d 25, 27-28 (1st Cir.
1992) (declining to bar enforcement of summons issued two days late).
UNITED STATES v. RICHEY 1257
The district court sided with Richey and the Peskys,
explaining:
[I]t seems any discovery to clarify the appraisal at
this stage is no longer in good faith since the notice
of deficiency has issued and the taxpayers have paid
the taxes and penalties assessed. While the prima
facie case for enforcement of the summons under
United States v. Powell et al[.], 379 U.S. 48
(1964)[,] is minimal, the IRS still has to provide
some explanation of why the final appraisal report
alone is insufficient to explain the appraiser’s con-
clusion and why the IRS has an interest after the tax-
payers have consented to the assessment which
disallows the deduction calculated by the appraisal.
[7] We have not previously ruled whether an IRS sum-
mons initially issued in good faith can transmogrify into one
issued in bad faith upon the taxpayer’s consenting to a defi-
ciency assessment. However, other circuits considering the
issue have held in similar circumstances that there can be no
showing of bad faith by the IRS in such circumstances unless
there has been a predicate “final, irrevocable determination of
the taxpayer’s liability.”2 We are persuaded by the reasoning
of the Second and Seventh Circuits, and we hold that under
the facts of this case, continued enforcement of an IRS sum-
mons is proper where the Taxpayers’ liability has not been
finally determined and there is no other evidence in the record
that the summons was issued for an improper purpose, such
as to harass the Taxpayers. See, e.g., Powell, 379 U.S. at 58.
Here, the Peskys’ tax liabilities had not been finally deter-
2
PAA Mgmt., Ltd. v. United States, 962 F.2d 212, 217-18 (2d Cir. 1992)
(adopting the reasoning in Gimbel in the context of partnership tax liabil-
ity and holding that IRS still had investigative powers until final determi-
nation of tax liability); United States v. Gimbel, 782 F.2d 89, 93 (7th Cir.
1986) (enforcing summons where IRS issued notice of deficiency and tax-
payer filed petition in Tax Court).
1258 UNITED STATES v. RICHEY
mined. The time period for the Peskys to file a petition with
the Tax Court had not expired when the IRS sought enforce-
ment of the summons. The Peskys further indicated that they
would likely challenge the Notice of Deficiency and seek a
refund. Moreover, even though the Peskys consented to the
assessment, the IRS still had the ability to adjust the tax liabil-
ity later, as noted on the assessment form the Peskys signed.
[8] Because the Peskys’ tax liability could still change,
even though the IRS’s investigation had ostensibly concluded,
the IRS had a legitimate reason to seek documentation essen-
tial to establishing the Peskys’ tax liabilities. Thus, as long as
the amount the Peskys allegedly owed to the IRS was subject
to change, the IRS had a good-faith interest in obtaining the
appraisal work file pursuant to the summons. We therefore
conclude that Richey and the Peskys have not met their
“heavy” burden of showing bad faith by the IRS, Fortney, 49
F.3d at 120, and that the summons is enforceable in accor-
dance with its terms, which includes Richey’s appearance
before the IRS, unless other defenses are available to Richey
and the Taxpayers.
B. Attorney-Client Privilege
[9] The attorney-client privilege protects confidential com-
munications between attorneys and clients, which are made
for the purpose of giving legal advice. Upjohn Co. v. United
States, 449 U.S. 383, 389 (1981). The party asserting the
attorney-client privilege has the burden of establishing the
relationship and privileged nature of the communication.
United States v. Bauer, 132 F.3d 504, 507 (9th Cir. 1997).
The attorney-client privilege exists where: “(1) [ ] legal
advice of any kind is sought (2) from a professional legal
adviser in his capacity as such, (3) the communications relat-
ing to that purpose, (4) made in confidence (5) by the client,
(6) are at his instance permanently protected (7) from disclo-
sure by himself or by the legal adviser, (8) unless the protec-
tion be waived.” Graf, 610 F.3d at 1156. Voluntary disclosure
UNITED STATES v. RICHEY 1259
of privileged communications constitutes waiver of the privi-
lege for all other communications on the same subject. Weil
v. Inv./Indicators, Research & Mgmt., Inc., 647 F.2d 18, 24
(9th Cir. 1981). The attorney-client privilege may extend to
communications with third parties who have been engaged to
assist the attorney in providing legal advice.3 If the advice
sought is not legal advice, but, for example, accounting advice
from an accountant, then the privilege does not exist. Id.
Here, Thornton hired Richey, at least in part, “to provide
valuation services” in the form of an appraisal for the Ease-
ment. The IRS regulations require that the taxpayer provide
a qualified appraisal for charitable deductions. 26 C.F.R.
§ 1.170A-13(c)(2)(A). The appraisal must include the method
of valuation used to determine fair market value of the prop-
erty and the “specific basis for the valuation, such as specific
comparable sales transactions or statistical sampling . . . .” Id.
at § 1.170A-13(c)(3)(ii)(I)-(K). Additionally, the appraisal
must state that it was prepared for income tax purposes. Id. at
§ 1.170A-13(c)(3)(ii)(G).
Richey prepared the appraisal as required by Treasury Reg-
ulation section 1.170A-13(c)(1), so that the Peskys could
claim the charitable deduction sought for the value of the
Easement. Id. § 1.170A-13. The appraisal was attached to the
Peskys’ 2002 federal income tax return. The appraisal states
that it is in compliance “with the substantiation requirements”
under section 1.170A-13(c)(2). Appraisals conforming to IRS
regulations are required to be based on the objective use of
valuation information, such as the fair market value of other
properties. See id. at § 1.170A-13(c)(3)(ii)(I)-(K). Richey cer-
3
See Smith v. McCormick, 914 F.2d 1153, 1159-60 (9th Cir. 1990) (con-
cluding that defendant’s communication with her psychiatrist was pro-
tected up to the point of testimonial use of that communication). “ ‘What
is vital to the privilege is that the communication be made in confidence
for the purpose of obtaining legal advice from the lawyer.’ ” United States
v. Gurtner, 474 F.2d 297, 299 (9th Cir. 1973) (emphasis in original) (quot-
ing United States v. Kovel, 296 F.2d 918, 922 (2d Cir. 1961).
1260 UNITED STATES v. RICHEY
tified that the appraisal he prepared was “impartial” and “un-
biased.” Importantly, as part of the explanation for the
methods and specific bases for the appraiser’s opinion of
value, the work file contained “supporting documentation
concerning the data, reasoning, and analyses” for the appraisal
report.
[10] Based on this record, any communication related to
the preparation and drafting of the appraisal for submission to
the IRS was not made for the purpose of providing legal
advice, but, instead, for the purpose of determining the value
of the Easement. Further, to the extent the files contain docu-
ments that were not communications, they are not protected
by the attorney-client privilege. Graf, 610 F.3d at 1156. It is
also significant that Richey and the Peskys did not make a
specific proffer of what communications, if any, exist in the
appraisal work file, that are allegedly the proper subject of the
attorney-client privilege. See, e.g., United States v. Martin,
278 F.3d 988, 1000 (9th Cir. 2002) (“A party claiming the
privilege must identify specific communications and the
grounds supporting the privilege as to each piece of evidence
over which privilege is asserted.” (citing United States v.
Osborn, 561 F.2d 1334, 1339 (9th Cir. 1977))). It was there-
fore clear error for the district court to conclude that the entire
appraisal work file is protected by the attorney-client privi-
lege. In addition, Richey remains obligated to appear before
the IRS to testify about the non-privileged documents con-
tained in the work file, as commanded by the summons.
C. Work-Product Doctrine
[11] The work-product doctrine protects “from discovery
documents and tangible things prepared by a party or his rep-
resentative in anticipation of litigation.” Admiral Ins. Co. v.
U.S. Dist. Ct., 881 F.2d 1486, 1494 (9th Cir. 1989) (citing
Fed. R. Civ. P. 26(b)(3)). The work-product doctrine covers
documents or the compilation of materials prepared by agents
of the attorney in preparation for litigation. United States v.
UNITED STATES v. RICHEY 1261
Nobles, 422 U.S. 225, 238 (1975). The work-product doc-
trine’s protections are waivable. Hernandez, 604 F.3d at 1100.
To qualify for work-product protection, documents must:
(1) be “prepared in anticipation of litigation or for trial” and
(2) be prepared “by or for another party or by or for that other
party’s representative.” In re Grand Jury Subpoena, Mark
Torf/Torf Envtl. Mgmt. (Torf), 357 F.3d 900, 907 (2004). In
circumstances where a document serves a dual purpose, that
is, where it was not prepared exclusively for litigation, then
the “because of” test is used. Id. Dual purpose documents are
deemed prepared because of litigation if “in light of the nature
of the document and the factual situation in the particular
case, the document can be fairly said to have been prepared
or obtained because of the prospect of litigation.” Id. In apply-
ing the “because of” standard, courts must consider the total-
ity of the circumstances and determine whether the
“ ‘document was created because of anticipated litigation, and
would not have been created in substantially similar form but
for the prospect of litigation.’ ” Id. at 908 (quoting United
States v. Adlman, 134 F.3d 1194 (2d Cir. 1998)).
[12] Here, the district court erred by concluding that the
entire work file was prepared in anticipation of litigation.
Richey was hired to provide valuation services, and he pre-
pared the appraisal report that the Peskys attached to their
2002 federal income tax return, as required by law. Had no
appraisal report been attached to the Peskys’ 2002 federal
income tax return, the Taxpayers would have been ipso facto
ineligible for any charitable deduction as a result of the contri-
bution of the Easement. Had the IRS never sought to examine
the Taxpayers’ 2003 and 2004 federal income tax returns, the
Taxpayers would still have been required to attach the
appraisal to their 2002 federal income tax return. Nor is there
evidence in the record that Richey would have prepared the
appraisal work file differently in the absence of prospective
litigation.
1262 UNITED STATES v. RICHEY
[13] Considering the totality of the circumstances, we can-
not properly conclude that the appraisal work file “can be
fairly said to have been prepared or obtained because of the
prospect of litigation.” Torf, 357 F.3d at 907-08. Thus, neither
Richey nor the Taxpayers may properly invoke the work-
product doctrine in protecting the contents of the appraisal
work file.
CONCLUSION
[14] In light of the above, we reverse and remand to the
district court so the court can conduct an in camera examina-
tion of the materials summoned by the IRS in order to deter-
mine which data and materials, if any, are protected from
disclosure by the attorney-client privilege, after applying the
principles and conclusions discussed supra. Any materials not
so protected should be ordered delivered to the IRS forthwith,
in accordance with the terms of the summons. Additionally,
Richey is required to appear personally before the IRS to give
testimony in accordance with the summons.
REVERSED AND REMANDED.