United States v. Baucus

• Decision Date: 17 May 1974
• Docket Number: Civ. No. 2984.
• Parties: UNITED STATES of America and John J. Gilligan, Special Agent of the Internal Revenue Service, Petitioners, v. William G. BAUCUS, Respondent, William L. Kidd, Intervenor.
• Court: U.S. District Court — District of Montana

377 F. Supp. 468

UNITED STATES of America and John J. Gilligan, Special Agent of the Internal Revenue Service, Petitioners, v. William G. BAUCUS, Respondent William L. Kidd, Intervenor.

Civ. No. 2984.

United States District Court, D. Montana, Great Falls Division.

May 17, 1974.

Otis L. Packwood, U. S. Atty., Billings, Mont., and James H. Jeffries, Jr., and John R. Eggleston, Trial Attys., Dept. of Justice, Washington, D. C., for petitioners.

Baucus, Corontzos, Iwen and Walsh, Great Falls, Mont., for respondent.

Alexander, Kuenning, Miller and Ugrin, Great Falls, Mont., for intervenor.

ORDER AND MEMORANDUM OPINION

JAMESON, Senior District Judge.

On February 16, 1971 petitioners filed a petition to enforce an Internal Revenue Service summons to compel respondent Baucus, an attorney and certified public accountant, to appear before petitioner Gilligan to testify and produce for examination all "workpapers in connection with preparation of the income tax returns of William L. Kidd and Mary C. Kidd for the years 1966, 1967 and 1968".¹ In his answer respondent alleged that all work papers in his possession constitute privileged communications "based on an attorney-client relationship".

Taxpayer William L. Kidd moved to intervene and to quash the summons on the grounds that the work papers (1) were protected by the attorney-client privilege, and (2) were in the possession of Baucus as a custodian only and were prepared and owned by taxpayers, and their production would violate taxpayers' Fifth Amendment privilege against self-incrimination.

A hearing was held on March 2, 1971. In an order and memorandum opinion issued July 23, 1971 the taxpayer's motion to intervene was granted and it was held that (1) Kidd could assert his privilege against self-incrimination with respect to the work papers on the ground that he was in "constructive possession" of them; (2) the tax returns in question were prepared by Baucus in his capacity as an attorney; and (3) an attorney-client relationship existed between Baucus and Kidd and protected communications between them which were intended to be confidential.

Noting that some of the material contained in the work papers might not be privileged because it "was intended to be included in Kidd's income tax returns" and thus was "not intended to be confidential", petitioners were granted 20 days to submit appropriate interrogatories "to compel Baucus to disclose the nonconfidential matter".² The order also provided that "If no interrogatories are submitted within 20 days, the motion to quash summons will be granted and the proceeding dismissed * * *."

By order entered August 12, 1971 petitioners were granted an additional 20 days to submit interrogatories. Subsequently the court was advised that petitioners "have concluded that no interrogatories will be submitted". Accordingly the court entered judgment on October 19, 1971, granting the motion to quash the summons, denying the petition to enforce it and dismissing the proceedings. Petitioners filed their notice of appeal on December 15, 1971.

During the pendency of the appeal the Supreme Court on January 9, 1973 decided Couch v. United States, 409 U.S. 322, 93 S.Ct. 611, 34 L.Ed.2d 548 (1973), which involved an Internal Revenue Service summons and the question of "whether the taxpayer may invoke her Fifth Amendment privilege against compulsory self-incrimination to prevent the production of her business and tax records in the possession of her accountant". 409 U.S. at 323, 93 S.Ct. at 613. The Court reiterated its former holdings "that the Fifth Amendment privilege is a personal privilege: it adheres basically to the person, not to information which may incriminate him", Id. at 328, 93 S.Ct. at 616 (emphasis by the Court), and sustained enforcement of the summons.³

In a memorandum entered December 17, 1973 the Court of Appeals for the Ninth Circuit reversed and remanded the "judgment of the District Court for the purpose of having that Court determine whether, in light of Couch, Kidd retained constructive possession of the work papers".

Nothing that "in Couch the records were in the actual possession of an accountant, while here Baucus is an attorney", the court "considered whether affirming would be proper in view of the fact that we accept the existence of the attorney-client relationship between Baucus and Kidd", but concluded "that the present state of the record does not permit this action". It was, however, recognized "as a possibility" that the district court might find, "after re-examining its holding regarding constructive possession, that the attorney-client privilege is under the facts sufficient to quash the summons".⁴

Following remand this court by letter dated December 28, 1973 inquired whether counsel wished "to present additional evidence in the light of Couch" or "to file supplemental briefs and possibly present oral argument". Counsel for all parties advised the court that they did not desire to present further testimony. Supplemental briefs were filed and pursuant to petitioners' request the case was set for oral argument on March 25, 1974.

On the morning of March 25, just prior to oral argument, the court learned that on August 7, 1973 Kidd had entered a plea of nolo contendere to one count of a three count indictment which charged Kidd with having filed false and fraudulent income tax returns for the years in question in this case—1966, 1967 and 1968.⁵ At the hearing the court asked counsel whether the criminal proceedings had rendered the case moot. Counsel for both Kidd and petitioners agreed in open court that the issue concerning Kidd's claim of the privilege against self-incrimination through constructive possession of the work papers is now moot, but that because of the possibility of civil penalties there remained for determination the issue of whether the attorney-client privilege is under the facts sufficient to re-affirm the judgment of October 19, 1971.

Since the issue of constructive possession is now moot,⁶ there remains for consideration the single question of whether the "attorney-client privilege is under the facts sufficient to quash the summons". As noted supra, the Court of Appeals accepted "the existence of the attorney-client relationship between Baucus and Kidd". Petitioners accordingly do not contest the finding that the tax returns were prepared by Baucus as an attorney.⁷ Rather they argue that "there is no attorney-client privilege when the attorney merely prepares tax returns".

This court recognized in its initial opinion that material contained in the work papers intended for disclosure in the tax returns would not be subject to the attorney-client privilege since it was "not intended to be confidential". On the other hand, it was recognized also that the work papers may contain information which will not be incorporated in the tax returns and which is protected by the attorney-client privilege. It was concluded accordingly that "as long as adequate means, such as interrogatories, exist to compel Baucus to disclose the non-confidential matter, he should not be required to produce direct communications from the client because of the danger that confidential matter will also be revealed." The opinion noted that Colton v. United States, supra, "set forth certain guidelines concerning the attorney-client privilege in the preparation of income tax returns which may be appropriate here". Petitioners were given an opportunity to submit appropriate interrogatories but declined to do so.⁸

The principles to be followed in determining whether matter is subject to the attorney-client privilege were well summarized by Judge Lumbard in Colton, supra, 306 F.2d at 637-639:

"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. * * * But, although the word `communications' must be broadly interpreted in this context, see 8 Wigmore, Evidence § 2306 (McNaughton rev. 1961), the authorities are clear that the privilege extends essentially only to the substance of matters communicated to an attorney in professional confidence. * * *

"Not all communications between an attorney and his client are privileged. Particularly in the case of an attorney preparing a tax return * * *, a good deal of information transmitted to an attorney by a client is not intended to be confidential, but rather is given for transmittal by the attorney to others—for example, for inclusion in the tax return. Such information is, of course, not privileged. 8 Wigmore, Evidence § 2311 (McNaughton rev. 1961) * * *.

"It is self-evident that individual documents and files may still be withheld insofar as they thus are or report confidential communications between Colton and his clients, the Matters. Documentary evidence of confidential communications is necessarily privileged as much as testimonial evidence. * * *

"Clearly Colton's blanket refusal on the grounds of the attorney-client privilege to produce anything was unjustified. As we have noted, the attorney-client privilege protects only those papers prepared by the client for the purpose of confidential communication to the attorney or by the attorney to record confidential communications, and Colton has not made the necessary showing that the papers he refused to produce are of such nature."

Accepting the rule in Colton that "any communication by the client with the understanding that the information would be inserted in the return must be divulged", the court in United States v. Threlkeld, 241 F.Supp. 324, 326-327 (W.D.Tenn.1965) said in part:

"Information communicated by the client with the direction that it not be inserted in the return or with the direction that it be, or not be, so inserted in the discretion and judgment of respondent need not be

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