U.S. v. Tratner

• Decision Date: 18 February 1975
• Docket Number: Nos. 74--1166,74--1167,s. 74--1166
• Citation: 511 F.2d 248
• Parties: 75-1 USTC P 9259 UNITED STATES of America and James M. Sinda, Revenue Agent, Internal Revenue Service, Petitioners-Appellees, v. Marvin L. TRATNER, Respondent-Appellant. UNITED STATES of America and James M. Sinda, Revenue Agent, Internal Revenue Service, Petitioners-Cross-Appellants, v. Marvin L. TRATNER, Respondent-Appellee.
• Court: U.S. Court of Appeals — Seventh Circuit

Page 248

511 F.2d 248

75-1 USTC P 9259

UNITED STATES of America and James M. Sinda, Revenue Agent, Internal Revenue Service, Petitioners-Appellees, v. Marvin L. TRATNER, Respondent-Appellant.

UNITED STATES of America and James M. Sinda, Revenue Agent, Internal Revenue Service, Petitioners-Cross-Appellants, v. Marvin L. TRATNER, Respondent-Appellee.

Nos. 74--1166, 74--1167.

United States Court of Appeals Seventh Circuit.

Argued Nov. 14, 1974.

Decided Feb. 18, 1975.

Ernest J. Brown, Acting Chief, and William A. Whitledge, Atty., Tax Div., Dept. of Justice, Washington, D.C., James R. Thompson, U.S. Atty., and Gary L. Starkman, Asst. U.S. Atty., Chicago, Ill., for United States.

Wayne B. Giampietro and Elmer Gertz, Chicago, Ill., for Tratner.

Before FAIRCHILD, Chief Judge, HASTINGS, Senior Circuit Judge, and SWYGERT, Circuit Judge.

HASTINGS, Senior Circuit Judge.

The United States and the taxpayer, Marvin L. Tratner, both appeal from the decision of the district court granting in part and denying in part the government's petition to enforce an Internal Revenue summons brought pursuant to Title 26, U.S.C., Sections 7402(b) and 7602.

On February 18, 1971, taxpayer, an attorney, made a $10,000 cash deposit to his checking account numbered 428 619 1 at the Harris Trust and Savings Bank and on February 22, 1971, he wrote a $10,000 check on that account. The account is an escrow account of the kind commonly maintained by attorneys in order to segregate clients' funds from their own. The bank reported the cash transaction to the Internal Revenue Service as required by 31 U.S.C. § 1081. Subsequently, Internal Revenue Agent James Sinda was assigned to audit taxpayer's 1971 tax return as a result of the bank report. Agent Sinda conducted an audit of records provided to him by the taxpayer and was satisfied with all aspects of the audit except the escrow account. Taxpayer showed Sinda the $10,000 check drawn on the escrow account, but he covered the line indicating the name of the payee. Taxpayer refused to provide any further information about the escrow account on the ground that the account was protected by the attorney-client privilege.

On July 5, 1973, Agent Sinda issued taxpayer an Internal Revenue summons requiring production of the following items:

1. All checking accounts including checking account No. 428 619 1

2. Copies of cancelled checks for above checking accounts

3. Copies of deposit slips for above checking accounts

4. All savings accounts

5. All information regarding a deposit to checking account No. 428 619 1 in the amount of $10,000 on February 18, 1971 and all information regarding any other deposit made to checking account 428 619 1 during 1971

6. All information regarding a check written on checking account number 428 619 1 in the amount of $10,000 on February 22, 1971 and all information regarding any other check written on account 428 619 1 during 1971

7. Any other records necessary to determine the correct tax liability for 1971

Taxpayer had no savings account and has provided information about his personal checking account. Upon taxpayer's refusal to provide the remaining materials sought by the summons, the United States instituted this proceeding for enforcement of the summons in the district court. The taxpayer, in his response to the government's petition, claimed that the escrow account was protected from disclosure by the attorney-client privilege.

The district court, upon the government's motion ordered Tratner to show cause why he should not comply with the summons. On October 31, 1973, an evidentiary hearing was held at which Agent Sinda and Tratner testified. Following the hearing, the taxpayer supplied to the district court for in camera inspection all of the files in his possession pertaining to the $10,000 transaction and the identity of the client involved. There is no indication in the record that the district court examined these materials. The materials were never filed in the district court or introduced into evidence. They are not included in the district On December 5, 1973, the court issued its decision. It ordered taxpayer to produce the records required in items 1, 2 and 3 of the summons, that is, the checking account, cancelled checks and deposit slips for the escrow account. The court held that disclosure of these items would not violate the attorney-client privilege. The court declined to enforce the summons as to items 5, 6 and 7 which had requested 'all information' regarding all deposits made to and all checks written on the escrow account, including those relating to the $10,000 transaction, as well as any other records necessary to determine the correct tax liability for 1971. The court held that these requests were overbroad.

court record, nor do they appear in the record on appeal. The district court's order and findings of fact and conclusions of law do not indicate whether the court considered the in camera materials in making its decision.

Tratner appeals from the court's order enforcing the summons as to items 1, 2 and 3. The United States cross-appeals from the denial of enforcement of items 5 and 6. No appeal is taken from the denial of enforcement of item 7. The district court stayed its December 5, 1973, order pending appeal to prevent the issue from becoming moot.

THE ATTORNEY-CLIENT PRIVILEGE

The taxpayer's appeal raises only one issue: whether the attorney-client privilege is, under the facts of this case, a defense to an Internal Revenue summons to produce records of an attorney's escrow checking account.

The Supreme Court has held that an Internal Revenue summons may be challenged on the ground of attorney-client privilege. Reisman v. Caplin,375 U.S. 440, 449, 84 S.Ct. 508, 11 L.Ed.2d 459 (1964). The burden is on the taxpayer to prove that the information requested falls within the attorney-client privilege. United States v. Johnson, 5 Cir., 465 F.2d 793, 795 (1972); Bouschor v. United States, 8 Cir., 316 F.2d 451, 456 (1963).

The circuits are divided on the question of whether the issue of privilege in a federal tax proceeding is to be resolved as a matter of state or federal law. Compare Colton v. United States, 2 Cir., 306 F.2d 633, 636 (1962), cert. denied, 371 U.S. 951, 83 S.Ct. 505, 9 L.Ed.2d 499 (1963), and Falsone v. United States, 5 Cir., 205 F.2d 734, 739--742, cert. denied, 346 U.S. 864, 74 S.Ct. 103, 98 L.Ed. 375 (1953) (federal law) with Baird v. Koerner, 9 Cir., 279 F.2d 623, 627--629 (1960) (state law). Other courts, including our own, have found it unnecessary to determine whether state or federal law is to be applied where the result would be the same under either standard. Tillotson v. Boughner, 7 Cir., 350 F.2d 663, 666 (1965); Bouschor v. United States, 8 Cir., 316 F.2d 451, 456 (1963).

Here, as in Tillotson, we need not reach that question since 'Illinois, which has no statute with respect to attorney-client privilege, looks to the common law as do the federal authorities.' Tillotson, supra, 350 F.2d at 666. ¹

In Radiant Burners, Inc. v. American Gas Association, 7 Cir., 320 F.2d 314, cert. denied, 375 U.S. 929, 84 S.Ct. 330, 11 L.Ed.2d 262 (1963), this court, sitting en banc, reviewed the common law history of the attorney-client privilege and cited with approval Dean Wigmore's summary of the factors essential to existence of the privilege:

(1) Where legal advice of any kind is sought (2) from a professional legal adviser in his capacity as such, (3) the communications relating to that purpose, (4) made in confidence (5) by the client, (6) are at his instance permanently protected (7) from disclosure by himself or by the legal advisor, (8) except the protection be waived. 8 J. Wigmore, Evidence § 2292 (McNaughton rev. 1961).

The identical test has been adopted in Illinois. In re Estate of Busse, 332 Ill.App. 258, 262, 75 N.E.2d 36, 38 (1947).

The question here is whether the taxpayer has borne his burden of proving the existence of these factors. Taxpayer argued in the district court and on appeal that all transactions in an attorney escrow account are per se privileged. All of taxpayer's evidence introduced at the hearing, however, concerned the $10,000 transaction and not the account generally. Taxpayer clearly has failed to sustained his burden with respect to the account as a whole. The question remains whether he has proved that the elements required for the privilege were present in the $10,000 transaction so as to protect from disclosure the identity of the client to whom the $10,000 check was written.

Normally, the identity of a client is not considered a privileged communication. United States v. Ponder, 5 Cir., 475 F.2d 37, 39 (1973); Tillotson v. Boughner, 7 Cir., 350 F.2d 663, 666 (1965); Colton v. United States, 2 Cir., 306 F.2d 633, 637 (1962), cert. denied, 371 U.S. 951, 83 S.Ct. 505, 9 L.Ed.2d 499 (1963). But, '(t)o the general rule is an exception, firmly bedded as the rule itself. The privilege may be recognized when so much of the actual communication has already been disclosed that identification of the client amounts to disclosure of a confidential communication. (Citing cases.)' NLRB v. Harvey, 4 Cir., 349 F.2d 900, 905 (1965). See also, Tillotson, supra; Colton, supra; Baird v. Koerner, 9 Cir., 279 F.2d 623 (1960); Comment, Assertion of the Attorney-Client Privilege to Protect the Client's Identity, 28 U.Chi.L.Rev. 533 (1961).

The identity of the client is only to be privileged if it is a confidential communication which otherwise meets the requirements of the attorney-client privilege. Thus, for example, in Tillotson v. Boughner, 7 Cir., 350 F.2d 663 (1965), this court followed Baird v. Koerner, 9 Cir.,279 F.2d 623 (1960), in holding that an attorney cannot be compelled to divulge the name of a client who employs him to voluntarily mail sums of money to the Internal Revenue Service in payment of undetermined income taxes, unsued upon, and as to which no government audit or...