U.S. v. Lang

• Decision Date: 04 June 1986
• Docket Number: Nos. 85-1699,s. 85-1699
• Citation: 792 F.2d 1235
• Parties: -5150, 86-1 USTC P 9451, 20 Fed. R. Evid. Serv. 1344 UNITED STATES of America and Revenue Officer Elizabeth C. Camp, Appellees, v. Richard LANG, Appellant. UNITED STATES of America and Revenue Officer Elizabeth C. Camp, Appellees, v. Richard LANG, President, KAL, Inc., and KAL Inc., Appellants. (L), 85-1700.
• Court: U.S. Court of Appeals — Fourth Circuit

Page 1235

792 F.2d 1235

58 A.F.T.R.2d 86-5150, 86-1 USTC P 9451,

20 Fed. R. Evid. Serv. 1344

UNITED STATES of America and Revenue Officer Elizabeth C.

Camp, Appellees, v. Richard LANG, Appellant.

UNITED STATES of America and Revenue Officer Elizabeth C.

Camp, Appellees, v. Richard LANG, President, KAL, Inc., and KAL Inc., Appellants.

Nos. 85-1699(L), 85-1700.

United States Court of Appeals, Fourth Circuit.

Argued Dec. 3, 1985.

Decided June 4, 1986.

David S. Rudolf and Thomas Maher, Beskind and Rudolf, Durham, N.C., for appellant.

Rudolph A. Renfer, U.S. Atty., Raleigh, N.C., for appellees.

Before RUSSELL and CHAPMAN, Circuit Judges, and SWYGERT, Senior Circuit Judge of the United States Court of Appeals for the Seventh Circuit, sitting by designation.

SWYGERT, Senior Circuit Judge.

Taxpayer Richard Lang appeals from a June 13, 1985 order of the United States District Court for the Eastern District of North Carolina, partially enforcing two Internal Revenue Service ("IRS") summonses. Lang requests that this court deny enforcement of the summons served on him in his representative capacity as president of a small, closely-held corporation. He argues that his fifth amendment right protects him from producing the corporation's documents because it would incriminate him. In addition, Lang requests denial of the summons served upon him personally, on the basis that the summons seeks documents containing information already in the possession of the IRS. For the reasons stated below, we hold that the district court's order enforcing the summonses is correct and we affirm.

I

Lang is a fifty percent shareholder and president of KAL, Inc., which operates an Aamco transmission shop in Raleigh, North Carolina. A former employee mailed a letter to the IRS, alleging that Lang may have been removing sums of money from the business. IRS Agent Elizabeth C. Camp was assigned to conduct an investigation during the summer of 1983. The IRS requested, and the taxpayer provided, his personal bank records and statements for his E.F. Hutton brokerage account for 1981. The agent examined the documents, took notes and photocopied portions of the records, and returned them. The initial analysis by Camp was that the records showed Lang to have deposited to his bank account in excess of $20,000 more than he had reported on his 1981 income tax return. The explanation Lang gave for the discrepancy was that much of the money deposited in his personal account was repayment of loans; the explanation was not satisfactory to the IRS.

The agent expanded her audit to include KAL, Inc. in order to determine whether the taxpayer was removing money from the business without reporting it on the corporate tax returns. In response to the agent's request, William Pinna, tax counsel for KAL, Inc., provided certain documents. From her examination, Camp suspected that Lang was voiding repair orders (which would result in the corporation showing "no, or zero, sale" for each voided order) and then depositing the payments from those repair orders into his personal bank account. According to Lang, the agent concluded that the business underreported its gross income by approximately eight percent in 1981 and four percent in 1982.

At this point, Pinna refused to permit Camp further access to the records. The agent thereupon issued the two summonses in question. One summons was issued to the taxpayer individually and required him to produce his cancelled checks and bank statements for his Southern National Bank checking account for 1981-83, and the statements for his E.F. Hutton brokerage account for the same years.

The second summons was addressed to Lang as "President, KAL, Inc." and required him to furnish the corporation's records concerning its checking and savings accounts at Southern National, all deposit slips to any checking account, all repair order tickets, copies of all checks deposited to the KAL, Inc. account, and copies of all loan agreements. Lang refused to produce the summoned documents, and Camp began enforcement proceedings.

Upon taxpayer's refusal to comply with the summonses, the Government petitioned the district court for enforcement. In response to the court's order that he "show cause" why the summonses should not be enforced, Lang filed a response raising a number of arguments. Lang refused to furnish the documents on the grounds that (1) performing the act of production would tend to incriminate himself; (2) the information requested was already in Camp's possession by virtue of her earlier examination; and (3) a referral to the Department of Justice had been made.

Magistrate Wallace Dixon conducted an evidentiary hearing at which Camp and Pinna testified. Camp testified that she made notes during her earlier examination of the KAL, Inc. records and photocopied portions which she thought were necessary. Counsel for Lang requested that the notes be produced so that he could cross-examine Camp concerning the information she had in her possession and which might be included in the summonses. The court sustained the Government's objection to discovery from the notes and declined to review the material in camera.

Following that hearing, the magistrate filed a memorandum in which he recommended that the summonses be enforced in part. With respect to the summons issued to Lang individually, the magistrate recommended that it be quashed with the exception of the 1981 records concerning his bank and brokerage accounts which had previously been furnished the agent. With respect to the summons issued to Lang as president of KAL, Inc., the magistrate recommended that it be enforced except in regard to checks deposited into the corporate bank account because neither Lang nor the corporation kept such records--the IRS would therefore be required to summon the bank for that information.

In analyzing the taxpayer's claim of fifth amendment privilege, the magistrate distinguished between the effect of the privilege on the summons addressed to Lang in his individual capacity and on the summons addressed to Lang in his representative capacity. As to the individual summons, he found that Lang could refuse to perform the act of producing personal and financial documents when the production itself would incriminate him. Under this rationale, Lang's being forced to furnish records not previously viewed by Camp would provide the Government information of which it was previously unaware and require Lang to admit its existence and his possession of those records in violation of his fifth amendment privilege against self-incrimination. On the contrary, Lang's production of records which Camp had already viewed could not rise to the level of a testimonial act and would not violate any privilege. As to the summons issued to Lang in his representative capacity, the magistrate found that Lang had no fifth amendment right to refuse to produce the records of KAL, Inc.

On June 13, 1985 the district court, having conducted a de novo review of the record, concluded that the magistrate had correctly ruled on all points and adopted the magistrate's recommendation as its own. The court ordered the summonses enforced in accordance with the magistrate's recommendations. The taxpayer appeals.

II

The first issue this case raises, and the most significant, is whether an individual holding corporate documents in a representative capacity may assert a fifth amendment privilege against producing those documents in response to a subpoena. Circuits addressing the question have split over the answer. Some confusion exists in the wake of recent Supreme Court decisions on the relationship of the fifth amendment to business-related documents.

Traditionally, the fifth amendment privilege could be claimed to shield production of private documents belonging to a natural person, Boyd v. United States, 116 U.S. 616, 6 S.Ct. 524, 29 L.Ed. 746 (1886), but could not be claimed by an organized entity like a corporation, Hale v. Henkle, 201 U.S. 43, 26 S.Ct. 370, 50 L.Ed. 652 (1906). Corporate officials seeking to claim an individual fifth amendment privilege were denied protection because of the policy that a custodian should not be able to shield the collective entity (which has no fifth amendment privilege) from governmental scrutiny by asserting a personal right. United States v. White, 322 U.S. 694, 699, 64 S.Ct. 1248, 1251, 88 L.Ed. 1542 (1944); Wilson v. United States, 221 U.S. 361, 378-79, 31 S.Ct. 538, 543, 55 L.Ed. 771 (1911). Under this rule custodians assume the rights, duties, and privileges of the artificial entity of which they are agents or officers and they are bound by its obligations. The official records and documents that are held by them in a representative rather than personal capacity can not be the subject of the personal privilege against self-incrimination, even though production of the papers might tend to incriminate them personally. White, 322 U.S. at 699, 64 S.Ct. at 1251.

This traditional refusal to grant a fifth amendment privilege to individuals holding documents in a representative capacity reflected the importance courts attached to the notion of a privacy interest in the contents of certain papers. Under this analysis, documents held in a representative capacity reflected no privacy expectation on the part of the representative, unlike personal records. Bellis v. United States, 417 U.S. 85, 91-92, 94 S.Ct. 2179, 2184-85, 40 L.Ed.2d 678 (1974). However, this clear division between production of papers with personal content and corporate content has been blurred by recent court decisions shifting the focus away from the privacy interest of an individual in his personal papers and toward protection against testimonial self-incrimination. United States v. Nobles, 422 U.S. 225, 233 n. 7, 95 S.Ct. 2160, 2167 n. 7, 45 L.Ed.2d 141 (1975); Fisher v. United States, 425 U.S. 391, 401, 96 S.Ct. 1569, 1576, 48 L.Ed.2d 39 (1976); United States v. Doe,...