United States v. Schmidt, 71-398 Civil.

• Decision Date: 28 April 1972
• Docket Number: No. 71-398 Civil.,71-398 Civil.
• Citation: 343 F. Supp. 444
• Parties: UNITED STATES of America and James W. Meade, Jr., Special Agent of the Internal Revenue Service, Petitioners, v. J. Donald SCHMIDT, Empire Office Center, Camp Hill, Pennsylvania, et al., Respondents.
• Court: U.S. District Court — Middle District of Pennsylvania

343 F. Supp. 444

UNITED STATES of America and James W. Meade, Jr., Special Agent of the Internal Revenue Service, Petitioners, v. J. Donald SCHMIDT, Empire Office Center, Camp Hill, Pennsylvania, et al., Respondents.

No. 71-398 Civil.

United States District Court, M. D. Pennsylvania.

March 22, 1972.

As Amended April 28, 1972.

S. John Cottone, U. S. Atty., James W. Walker, Asst. U. S. Atty., Scranton, Pa., for petitioners.

John G. Williams, Keith A. Clark, Shumaker, Williams & Placey, Harrisburg, Pa., for respondents.

SHERIDAN, Chief Judge.

This is an action in which petitioners, the United States of America and James W. Meade, Jr., Special Agent of the Internal Revenue Service, seek judicial enforcement of an Internal Revenue summons pursuant to 26 U.S.C.A. §§ 7402(b) and 7604(a).

On April 1, 1971, Special Agent James W. Meade, Jr., of the Internal Revenue Service, issued an Internal Revenue summons requiring respondent, J. Donald Schmidt, a Certified Public Accountant, to appear and to testify concerning the tax liabilities of Vincent C. McCue for the taxable years 1966, 1967, 1968 and 1969, and with respect to the preparation of the joint tax return of Vincent C. McCue and Elizabeth A. McCue for the taxable year 1969. Respondent, J. Donald Schmidt, refused to answer certain questions propounded to him by Special Agent Meade; he has continued to refuse to answer, asserting both the attorney-client privilege and the privilege against self-incrimination. Petitioners moved the court for enforcement of the summons. This court granted a rule to show cause why Schmidt should not be required to offer testimony in response to the questions submitted to him. A hearing was held at which testimony was taken, briefs were filed, and oral argument was made. Vincent C. McCue and Elizabeth A. McCue, and Shumaker, Williams & Placey, have been permitted to intervene as respondents.

The sole question to which the court presently addresses itself is the applicability of the attorney-client privilege. On the record before the court, the uncontroverted facts are as follows: respondent-taxpayers, Vincent C. McCue and Elizabeth A. McCue, retained respondent-attorneys, Shumaker, Williams & Placey, in August 1969; Shumaker, Williams & Placey employed J. Donald Schmidt, a Certified Public Accountant, on April 1, 1970, subsequent to the establishment of the attorney-client relationship; an agreement was entered into between said attorneys and accountant on April 1, 1970, setting forth the terms and conditions of Schmidt's employment. Pursuant to the aforementioned agreement, all accountant's services were to be performed at the written request of counsel; it was made explicit that Vincent and Elizabeth McCue were the clients of the law firm, and not of the accountant; it was stated that Schmidt's services were required to facilitate an accurate and complete legal consultation between the law firm and its taxpayer-clients in the interest of allowing counsel to furnish informed legal advice; all bookkeeping and accounting records, work papers, schedules and reports relating to the taxpayers were made the exclusive property of the law firm, even if they had been prepared by the accountant and even if they were in the accountant's possession; all billings for accounting services were to be made to the law firm; all information obtained by the accountant while performing accounting services was to be confidential, and the accountant was prohibited from disclosing same without the prior written consent of the law firm or an order of court, the only exception to the confidentiality requirement being the information which actually appeared on the tax return.

It is respondents' contention that the establishment of the foregoing is sufficient in itself to bring the subject matter of the questions propounded to Schmidt within the scope of the attorney-client privilege. Petitioners, on the other hand, argue that the existence of the asserted privilege is contingent upon the introduction of evidence by respondents tending to show that each specific question which Schmidt refused to answer involves an attempt by petitioners to procure information which has been communicated in confidence between taxpayers, attorney and accountant for the purpose of obtaining legal advice.

In a federal income tax investigation in which a Special Agent of the Internal Revenue Service seeks to enforce a summons in federal court, the question of privilege is a question of federal law. United States v. Finley, 5 Cir. 1970, 434 F.2d 596; Colton v. United States, 2 Cir. 1962, 306 F.2d 633; cf. United States v. Jaskiewicz, E.D.Pa. 1968, 278 F.Supp. 525; United States v. Bowman, M.D.Pa.1964, 236 F.Supp. 548. There is no accountant-client privilege in the federal system. United States v. Bowman, supra. However, there are circumstances in which an accountant may be brought within the...