United States of America and Gerald T. Culver v. Robert I. White

GEWIN, Circuit Judge:

In this case we must decide whether the constitutional privilege against compulsory self-incrimination may be invoked in behalf of a taxpayer by his attorney to prevent the production of income tax workpapers in his attorney’s possession. Pursuant to 26 U.S.C. §§ 7402(b) and 7604(a),1 the government petitioned the United States District Court for the Southern District of Texas for enforcement of an internal revenue summons issued on December 7, 1970 in connection with an investigation of the tax liability of Louis D. and Carolyn R. Roberts for the years 1966 through 1969 inclusive. The summons was addressed to Appellant White, taxpayers’ attorney, and directed him to produce workpapers and other documents which had been prepared by taxpayers’ accountant and which were then in White’s possession. In the enforcement proceeding White asserted his clients’ fifth amendment privilege as a bar to the compelled production of the documents in his possession. The district court, 326 F.Supp. 459, D.C., held that taxpayers had no fifth amendment rights with respect to the papers in their attorney’s possession and ordered White to obey the summons. From this order White appeals.2 We affirm.

From 1962 through 1968 taxpayers’ income tax returns were prepared by Stanley H. Voelkel, a certified public accountant. Voelkel was not taxpayers’ personal employee but rather was an independent contractor with his own office and numerous other clients. Using the information supplied to him by taxpayers, Voelkel would compile workpapers and other documents which summarized the data pertinent to the preparation of an income tax return; the information contained in the workpapers would then be used to complete each year’s return. After filing a return Voelkel retained his workpapers in his files.

In 1967 taxpayers found it necessary to draft and submit to the Internal Revenue Service an offer in compromise of their tax liability for the years 1962 through 1965.3 Voelkel assisted them in its preparation, compiling more workpapers in the process. Upon receipt of taxpayers’ offer in compromise, the Internal Revenue Service assigned a reve*760nue officer to examine it and to make a recommendation as to its acceptability. The revenue officer apparently found indications that taxpayers did not adequately disclose their assets in making the settlement offer. His discoveries were eventually reported to the Intelligence Division of the Internal Revenue Service which in 1969 assigned a special agent to join him in a thorough investigation of the offer in compromise. Undoubtedly one purpose of this investigation was to determine whether taxpayers had committed criminal violations in making the settlement offer.

When they learned that a special investigation was underway, taxpayers turned to White for counsel; he was officially appointed their attorney and representative-in-fact on a government power of attorney form filed with the Internal Revenue Service. White immediately contacted Voelkel and by November of 1969 had obtained from him not only the workpapers he used in preparing the offer in compromise but also all workpapers used in preparing taxpayers’ income tax returns for the years 1962 through 1968. It was agreed that White could keep Voelkel’s papers indefinitely but that he would return them upon completion of his representation of taxpayers.

In 1970 taxpayers withdrew their offer in compromise. Shortly thereafter the Internal Revenue Service expanded the scope of its investigation into taxpayers’ affairs to include a review of their tax returns for the years 1966 through 1969 in order to determine among other things their correct tax liability for those years. In connection with this expanded investigation the summons in question was issued and-served on White.4 Although the Internal Revenue Service initially sought all of the workpapers in White’s possession, it subsequently modified its demands to encompass only those workpapers used by Voelkel in preparing taxpayers’ income tax returns for the years 1966 through 1968. When White refused to produce these workpapers, the government petitioned the district court for enforcement of the summons. At the time enforcement was requested, there had been no recommendation to prosecute either with respect to the tax returns under investigation or with respect to the offer in compromise.

Resolution of this case begins with White’s contention that the summons served upon him pursuant to 26 U.S.C. § 7602 is unenforceable because the Service’s sole objective in issuing it was to obtain evidence for use in a criminal prosecution of his clients. In Donaldson v. United States5 the Supreme Court refused to hold that a § 7602. internal revenue summons is invalid if issued in aid of a tax investigation which might result in a recommendation that a crimi*761nal prosecution be instituted against the taxpayer. The Court rejected a contention similar to White’s with these observations :

“Congress clearly has authorized the use of the summons in investigating what may prove to be criminal conduct .... There is no statutory suggestion for any meaningful line of distinction, for civil as compared with criminal purposes, at the point of a special agent’s appearance. . To draw a line where a special agent appears would require the Service, in a situation of suspected but undetermined fraud, to forego either the use of the summons or the potentiality of an ultimate recommendation for prosecution. We refuse to draw that line and thus to stultify enforcement of federal law. . .
We hold that under § 7602 an internal revenue summons may be issued in aid of an investigation if it is issued in good faith and prior to a recommendation for criminal prosecution.” 6

In view of Donaldson it can hardly be disputed that § 7602 permits an internal revenue summons to be issued and enforced in aid of a tax investigation in which civil and criminal purposes are intertwined; the Court cautioned only that the summons must be issued in good faith and prior to a recommendation for criminal prosecution. The record in this case plainly reveals that the summons addressed to White was issued in connection with an investigation the purpose of which, at least in part, was to ascertain the correct income tax liability of taxpayers for the years 1966 through 1969. The trial court conducted an in camera examination of the Service’s motives which substantiated the evidence presented in open court. Although the investigation definitely carried with it the possibility of criminal consequences, no recommendation for criminal prosecution had been made either at the time the summons was issued or at the time enforcement was sought. In these circumstances the issuance of the summons was authorized by § 7602.

More substantial problems are raised by appellant’s contention that his clients’ constitutional privilege against compulsory self-incrimination would be violated if he were compelled to produce the workpapers in his possession. Since taxpayers were denied permission to intervene in the enforcement proceeding, they were unable personally to assert their fifth amendment privilege. Instead White as their attorney asserted it in their behalf. A threshold question, then, is whether attorneys have standing in internal revenue proceedings to assert the privilege in behalf of their clients. This question has been considered by several lower federal courts, and, as is so often the case, conflicting decisions have resulted.

On one hand there is the traditional view that the fifth amendment privilege is purely personal; it does not permit a witness to plead the fact that another party might be incriminated by his testimony even though he is that party’s agent or attorney.7 On the other hand some courts have taken the position that too heavy a burden in terms of time and money would be imposed on taxpayers if they were required to be present personally at internal revenue hearings and enforcement proceedings in order to exercise their constitutional rights.8 Under this view an attorney does have standing to invoke the privilege in his client’s behalf in response to an internal revenue summons that seeks the production of incriminat*762ing documents. Assuming, without deciding, that the latter view is correct and therefore that White has standing to assert his clients’ privilege, a second question necessarily arises — whether the fifth amendment shields his clients from the compelled production of workpapers owned and prepared by their accountant and held in their attorney’s possession. In order for White to be successful on appeal, this question must be answered in the affirmative; for even though he may have standing, it is of no use to him if his clients have no fifth amendment rights with respect to the papers in his possession.9

Like the question of standing, this question has also elicited contradictory responses from the lower federal courts.10 Fortunately the Supreme Court has provided some guidance with its recent opinion in Couch v. United States.11 The issue presented in Couch was whether a taxpayer could successfully invoke her privilege against self-incrimination to prevent the production of incriminating documents in her accountant’s possession. The documents sought by the government were the taxpayer’s business records which over the years had been given to her accountant for the purpose of preparing her income tax returns. The taxpayer retained title to the records in herself. As an intervenor in the enforcement proceeding brought against her accountant, she asserted her privilege against self-incrimination as a bar to production of the records.12

In rejecting the taxpayer’s contention that ownership rather than possession defines the boundaries of the protection afforded by the fifth amendment, the Court once again emphasized the intimate and personal nature of the privilege. The privilege does not prevent the government from discovering incriminating evidence but rather precludes it from extorting such evidence from the accused himself. Without the essential ingredient of personal compulsion against the accused, a fifth amendment claim necessarily founders. When the government seeks papers which might implicate a taxpayer, the Court concluded that the ingredient of personal compulsion, essential to a claim of privilege, is almost invariably missing unless the papers are actually in the taxpayer’s possession. The following remarks are particularly revealing:
“We do indeed believe that actual possession of documents bears the most significant relationship to Fifth Amendment protections against governmental compulsions upon the indi*763vidual accused of crime. Yet situations may well arise where constructive possession is so clear or the relinquishment of possession is so temporary and insignificant as to leave the personal compulsions upon the accused substantially intact. But this is not the case before us.” 13

Since it was the taxpayer’s accountant rather than taxpayer herself who was actually in possession of the documents sought by the government, she could not legitimately claim that enforcement of the summons would compel her to incriminate herself.14

The lesson to be drawn from Couch, then, is that unless the taxpayer is actually in possession of documents sought by the government — or clearly has constructive possession — he will be unable to seek the shelter of the fifth amendment because he will not be the object of any impermissible governmental compulsion. White’s clients, allegedly the object of impermissible governmental compulsion, do not own the work-papers sought by the government, nor have they ever been in possession of these documents. It is White their attorney who is forced to respond to the governmental summons. The essence of White’s complaint is that potentially incriminating information will be divulged to the government, not that it is being acquired by subjecting the taxpayers to the cruel dilemma of self-accusation, perjury, or contempt. The fifth amendment, however, protects not against the production of such information but only against its extraction from the accused himself.

Appellant’s best argument is that taxpayers are in constructive possession of the workpapers because White, the actual possessor, obtained them only in his capacity as taxpayers’ attorney and retained them only for the sake of convenience in representing them. In Couch, the Court acknowledged the possibility that in a case of constructive possession there might be sufficient governmental compulsion exerted upon the taxpayer to legitimatize a claim of privilege. As possible examples of such a case the Court cited Schwimmer v. United States 15 and United States v. Guterma.16 In both of these cases a claim of privilege was successfully asserted to prevent the government from obtaining documents the parties had temporarily stored on the premises of corporations. The reference to these cases in Couch indicates that a claim of privilege might be valid on the constructive possession theory if the taxpayer has placed papers in the hands of another person or entity for custodial safekeeping, thereby, retaining the right to immediate possession though not having actual possession.17

But this conception of constructive possession cannot be extended to fit the situation in which White’s clients find themselves. For it is undisputed that they have never for an instant been in possession of the papers sought by the government. White himself obtained these documents from their accountant. Although not of controlling importance, there is no evidence in the record that he did so upon their instructions or that they even knew that he had *764secured them. At the time the workpapers were demanded by the government, they had been in his possession for over a year. In these circumstances the necessary ingredient of personal compulsion against White’s clients is totally lacking, and in its absence the fifth amendment does not prohibit the government from obtaining information vital to the enforcement of its laws and the collection of its revenues. The district court correctly ordered enforcement of the summons directed to White insofar as it required him to produce all of the accountant’s papers in his possession that pertain to his clients’ income tax returns for the years 1966 through 1969.18 Its judgment is affirmed.

Affirmed.

. § 7402. Jurisdiction of district courts.

(b) to enforce summons. — If any person is summoned under the internal revenue laws to appear, to testify, or to produce books, papers, or other data, the district court of the United States for the district in which such person resides or may be found shall have jurisdiction by appropriate process to compel such attendance, testimony, or production of books, papers, or other data.

§ 7604. Enforcement of summons.

(a) Jurisdiction of district court. — If any person is summoned under the internal revenue laws to appear, to testify, or to produce books, papers, records, or other data, the United States district court for the district in which such person resides or is found shall have jurisdiction by appropriate process to compel such attendance, testimony, or production of books, papers, records, or other data.

. The district court also denied the taxpayers’ request to intervene in the enforcement proceeding in order to protect their interests. Although this ruling may have been erroneous, compare Donaldson v. United States, 400 U.S. 517, 91 S.Ct. 534, 27 L.Ed.2d 580 (1970) with Reisman v. Caplin, 375 U.S. 440, 84 S.Ct. 508, 11 L.Ed.2d 459 (1964), we do not consider it because taxpayers have not appealed.

. 26 U.S.C. § 7122 (1964 ed.) permits the Internal Revenue Service to accept a settlement in compromise of the tax liability of any taxpayer. Its purpose is to facilitate the settlement of tax liabilities without litigation.

. The summons was issued pursuant to 26 U.S.C. § 7602 (1964 ed.), which provides:

Examination of Books and Witnesses.
For the purpose of ascertaining the correctness of any return, making a return where none has been made, determining the liability of any person for any internal revenue tax or the liability at law or in equity of any transferee or fiduciary of any person in respect of any internal' revenue tax, or collecting any such liability, the Secretary or his delegate is authorized—
(1) To examine any books, papers, records or other data which may be relevant or material to such inquiry;
(2) To summon the person liable for tax or required to perform the act, or any officer or employee of such person, or any person having possession, custody, or care of books of account containing entries relating to the business of the person liable for tax or required to perform, the act, or any other person the Secretary or his delegate may deem proper, to appear before the Secretary or his delegate at a time and place named in the summons and to produce such books, papers, records, or other data, and to give such testimony, under oath, as may be relevant or material to such inquiry; and
(3) To take such testimony of the person concerned under oath, as may be relevant or material to such inquiry.

. 400 U.S. 517, 91 S.Ct. 534, 27 L.Ed.2d 580 (1971).

. Id. at 535-536, 91 S.Ct. at 544.

. Bouschor v. United States, 316 F.2d 451, 458 (8th Cir. 1963). Accord In Re Fahey, 300 F.2d 383, 385 (6th Cir. 1961). Both of these eases rely on language in Hale v. Henkel, 201 U.S. 43, 69-70, 26 S.Ct. 370, 50 L.Ed. 652 (1906).

. Application of House, 144 F.Supp. 95, 100 (N.D.Cal.1956). Accord United States v. Judson, 322 F.2d 460 (9th Cir. 1963).

. As an alternative reason for not obeying the summons, White might have argued that the documents were protected by the attorney-client privilege. This argument has been uniformly rejected by the courts on the ground that pre-existing documents such as an accountant’s workpapers cannot constitute a confidential communication between the attorney and his client. See, e. g., United States v. Judson, 322 F.2d 460 (9th Cir. 1963). But see The Attorney and His Client’s Privileges. 74 Yale L.J. 539 (1965).

. Compare Application of House, 144 F.Supp. 95 (N.D.Cal.1956) with Bouschor v. United States, 316 F.2d 451 (8th Cir. 1963). See also United States v. Judson, 322 F.2d 460 (9th Cir. 1963); In re Fahey, 300 F.2d 383 (6th Cir. 1961); and United States v. Boccuto, 175 F.Supp. 886 (D.N.J.) appeal dismissed, 274 F.2d 860 (3d Cir. 1959).

. 409 U.S. 322, 93 S.Ct. 611, 34 L.Ed.2d 548 (1973). The instant case was argued some time ago, but our decision has been delayed awaiting the decision of the Supreme Court in Couch.

. By the time the government sought enforcement of the summons issued to Couch’s accountant, the documents in question had been delivered to Couch’s attorney. Nevertheless the Court treated the case as if the documents had remained in the accountant’s possession because otherwise the command of a summons could be evaded simply by transferring possession before enforcement is sought. Thus the rights and obligations of the parties involved become fixed when the summons is served, and a transfer cannot alter them.

. 409 U.S. 322, 333, 93 S.Ct. 611, 618, 34 L.Ed.2d 548, 557 (1973).

. The Court also held that the Fourth Amendment did not afford the taxpayer any protection against the production of the documents sought by the government.

. 232 F.2d 855 (8th Cir. 1956).

. 272 F.2d 344 (2d Cir. 1959).

. In many respects the taxpayer in Couch was in a better position to claim constructive possession than is the taxpayer here. In Couch the taxpayer herself raised the fifth amendment claim. Furthermore she actually owned the documents sought by the government and had them in her possession at one time. She had relinquished possession of them to her accountant so that lie could assist her in preparing her returns. Nevertheless, the possibility that she was in constructive possession by the documents in question was given scant attention by the Court.

. There has been some confusion as to what papers the government is seeking, confusion that is no doubt exacerbated by the reference in the district court’s order to offer in compromise files. For the sake of clarity we refer to the government’s brief at page 12:

We do not know that the workpapers were created to prepare the tax returns, and I think the summons is clear in that we want the workpapers that pertain to the correctness of the tax returns. We do not seek any information with regard to the offer in compromise.