Grand Jury Investigation, In re

• Decision Date: 20 May 1987
• Docket Number: No. 86-3664,86-3664
• Citation: 842 F.2d 1223
• Parties: -1091, 88-1 USTC P 9368, 10 Fed.R.Serv.3d 409, 24 Fed. R. Evid. Serv. 1067 In re GRAND JURY INVESTIGATION. Appeal of Glen J. SCHROEDER, Jr.
• Court: U.S. Court of Appeals — Eleventh Circuit

Page 1223

842 F.2d 1223

61 A.F.T.R.2d 88-1091, 88-1 USTC P 9368,

10 Fed.R.Serv.3d 409,

24 Fed. R. Evid. Serv. 1067

In re GRAND JURY INVESTIGATION Appeal of Glen J. SCHROEDER, Jr.

No. 86-3664.

United States Court of Appeals Eleventh Circuit.

May 20, 1987.

Elizabeth L. White, Sheppard and White, P.A., William J. Sheppard, Jacksonville, Fla., for appellant.

Paul J. Moriarty, Asst. U.S. Atty., Orlando, Fla., for appellee.

Appeal from the United States District Court for the Middle District of Florida.

Before JOHNSON and CLARK, Circuit Judges, and MORGAN, Senior Circuit Judge.

JOHNSON, Circuit Judge:

This case concerns an appeal from an order by the district court compelling testimony pursuant to a grand jury subpoena. We affirm.

Glen Schroeder is the target of a grand jury investigation into charges of tax evasion. Todd Kliston, an accountant and an attorney, prepared Schroeder's income tax returns for several of the years under investigation. Consequently, the grand jury subpoenaed Kliston to testify and produce documents relating to the preparation of Schroeder's income tax returns for those years. Schroeder intervened and moved for a protective order on the grounds of attorney-client privilege and the attorney work product doctrine. Kliston moved for a protective order on the same grounds or, in the alternative, for a motion to compel testimony. The government opposed both motions on the grounds of the crime-fraud exception to both the attorney-client privilege and the attorney work product doctrine. The court, after hearing argument, ordered that Kliston:

(1) answer questions regarding preparation of tax returns as set forth in the subpoena;

(2) respond to any questions regarding disclosure of source of income told to him by Glenn Schroeder;

(3) is not required to answer questions as to advice provided to Glenn Schroeder or any other matter within the attorney-client privilege except the source of income; and

(4) to [sic] submit to the Court for in camera review any documents as to which witness Kliston is uncertain must be disclosed pursuant to this Order.

Schroeder now appeals that order.

We observe initially that Schroeder does not challenge the district court's order insofar as it compels Kliston to answer questions regarding the preparation of his tax returns. Nor can he. The attorney-client privilege attaches only to communications made in confidence to an attorney by that attorney's client for the purposes of securing legal advice or assistance. United States v. White, 617 F.2d 1131, 1135 (5th Cir.1980); United States v. Kelly, 569 F.2d 928, 938 (5th Cir.), cert. denied, 439 U.S. 829, 99 S.Ct. 105, 58 L.Ed.2d 123 (1978). Courts generally have held that the preparation of tax returns does not constitute legal advice within the scope of that privilege. United States v. Lawless 709 F.2d 485, 487-88 (7th Cir.1983); United States v. El Paso, 682 F.2d 530, 539 (5th Cir.1982), cert. denied, 466 U.S. 944, 104 S.Ct. 1927, 80 L.Ed.2d 473 (1984); United States v. Davis, 636 F.2d 1028, 1043-44 (5th Cir. Unit A), cert. denied, 454 U.S. 862, 102 S.Ct. 320, 70 L.Ed.2d 162 (1981); United States v. Gurtner, 474 F.2d 297, 298-99 (9th Cir.1973); Canaday v. United States, 354 F.2d 849, 857 (8th Cir.1966). But see Colton v. United States, 306 F.2d 633, 637 (2d Cir.1962), cert. denied, 371 U.S. 951, 83 S.Ct. 505, 9 L.Ed.2d 499 (1963) ("There can, of course, be no question that the giving of tax advice and the preparation of tax returns ... are basically matters sufficiently within the professional competence of an attorney to make them prima facie subject to the attorney-client privilege."). We agree with the majority rule. Admittedly, the preparation of a tax return requires some knowledge of the law, and the manner in which a tax return is prepared can be viewed as an implicit interpretation of that law. Nevertheless, the preparation of a tax return should not be viewed as legal advice. If a professional accountant prepares a tax return, his client cannot invoke any privilege, for there is no accountant-client privilege under federal law. Couch v. United States, 409 U.S. 322, 335, 93 S.Ct. 611, 619, 34 L.Ed.2d 548 (1973). A taxpayer should not be able to invoke a privilege simply because he hires an attorney to prepare his tax returns. Davis, 636 F.2d at 1043. Thus, any information Schroeder transmitted to Kliston for the purpose of preparing his tax returns, including the sources of his income, is not privileged information.

However, Schroeder does challenge the district court's order insofar as it compels Kliston to testify as to any source of income disclosed by Schroeder in the course of his providing legal advice to Schroeder. He contends that those disclosures are protected by the attorney-client privilege. ¹ Obviously a lawyer who prepares a tax return can provide legal advice on tax matters unrelated to the preparation of that return. Such advice falls within the scope of the attorney-client privilege. Also the lawyer might provide legal advice on non-tax matters. Such advice falls within the scope of the attorney-client privilege as well.

The government argues that Schroeder failed to prove the existence of such a relationship by failing to put on any evidence that he consulted with Kliston for any purpose other than the preparation of his income tax returns. The person invoking the privilege does bear the burden of proving its existence. In re Grand Jury Subpoena, 788 F.2d 1511, 1511-12 (11th Cir.1986); In re Grand Jury Proceedings in Matter of Freeman, 708 F.2d 1571, 1575 (11th Cir.1983). However, during the hearing on Schroeder's and Kliston's motions, the government conceded the existence of an attorney-client relationship between Schroeder and Kliston. ² Having conceded that such a relationship existed, the government cannot argue now that Schroeder failed to prove the existence of that relationship. Aetna Life Insurance Co. v. Carrillo, 164 F.2d 883, 884 (5th Cir.1947).

The government also suggests that Schroeder waived any privilege that attached to his disclosures. In support of its position, the government argues that the disclosure of information in a tax return waives the privilege not only to the disclosed data but also as to the details underlying that information. Davis, 636 F.2d at 1043 n. 18; United States v. Cote, 456 F.2d 142, 144-45 (8th Cir.1972). See also Lawless, 709 F.2d at 487 (no expectation of confidentiality in information transmitted for use on tax return, regardless of whether information actually disclosed on return). The rule to which the government refers, however, concerns only disclosures made in connection with the preparation of tax returns. Consequently, that rule is inapplicable to any disclosures Schroeder made to Kliston in the course of obtaining legal advice unrelated to the preparation of his tax returns.

Nevertheless, any such disclosures may not be privileged because Schroeder possibly used Kliston's legal advice to effectuate tax evasion. The attorney-client privilege does not protect communications made in furtherance of a crime or fraud. See, e.g., In re Sealed Case, 754 F.2d 395, 399 (D.C.Cir.1985) (Sealed Case II ); United States v. Dyer, 722 F.2d 174, 177 (5th Cir.1983); In re Grand Jury Proceedings (Pavlick), 680 F.2d 1026, 1028 (5th Cir. Unit A 1982) (en banc); United States v. Hodge and Zweig, 548 F.2d 1347, 1354 (9th Cir.1977). In deciding whether the crime-fraud exception applies to a communication between a lawyer and his client, courts apply a two part test. First, there must be a prima facie showing that the client was engaged in criminal or fraudulent conduct when he sought the advice of counsel, that he was planning such conduct when he sought the advice of counsel, or that he committed a crime or fraud subsequent to receiving the benefit of counsel's advice. Second, there must be a showing that the attorney's assistance was obtained in furtherance of the criminal or fraudulent activity or was closely related to it. See, e.g., In re International Systems and Controls Corporation Securities Litigation, 693 F.2d 1235, 1242 (5th Cir.1982); In re Sealed Case, 676 F.2d 793, 814-15 (D.C.Cir.1982) (Sealed Case I ); In re Murphy, 560 F.2d 326, 338 (8th Cir.1977).

The first prong is satisfied by a showing of evidence that, if believed by a trier of fact, would establish the elements of some violation that was ongoing or about to be committed. ³ Sealed Case II, 754 F.2d at 399; In re International Systems, 693 F.2d at 1242; Sealed Case I, 676 F.2d at 815; In re Grand Jury Proceedings in Matter of Fine, 641 F.2d 199, 203 (5th Cir. Unit A 1981); In re Murphy, 560 F.2d at 337. That showing must have some foundation in fact, for mere allegations of criminality are insufficient to warrant application of the exception. Clark v. United States, 289 U.S. 1, 15, 53 S.Ct. 465, 469, 77 L.Ed. 993 (1933); In re International Systems, 693 F.2d at 1242; In re Grand Jury Proceedings, Vargas, 723 F.2d 1461, 1467 (10th Cir.1983), cert. denied, 469 U.S. 819, 105 S.Ct. 90, 83 L.Ed.2d 37 (1984). That is not to say, however, that motions in opposition to grand jury subpoenas should turn into mini-trials. If courts always had to hear testimony and conflicting evidence on such matters, the rationale behind the prima facie standard--the promotion of speed and simplicity at the grand jury stage--would be lost. Thus, a prima facie showing can be established by a good faith statement by the prosecutor as to what evidence is before the grand jury. In re Grand Jury Proceedings, Vargas, 723 F.2d at 1467. See also In re Grand Jury Proceedings (Twist), 689 F.2d 1351, 1352-53 (11th Cir.1982) (denial of stay pending appeal of grand jury subpoena where government's showing based on affidavit of information possessed by grand jury). Furthermore, the district court's determination that the facts set forth by the government establish a prima facie showing of criminal or...