United States v. Schoeberlein
| Decision Date | 10 December 1971 |
| Docket Number | Misc. No. 709. |
| Citation | 335 F. Supp. 1048 |
| Parties | UNITED STATES of America and Jerome I. Gulack, Special Agent, Internal Revenue Service, Petitioners, v. William E. SCHOEBERLEIN, Respondent, and J. Stewart Brinsfield, Jr., and Evelyn Brinsfield, his wife, Intervening Respondents. |
| Court | U.S. District Court — District of Maryland |
COPYRIGHT MATERIAL OMITTED
COPYRIGHT MATERIAL OMITTED
George Beall, U. S. Atty., Leonard M. Linton, Jr., Asst. U. S. Atty., Baltimore, Md., and John Mullenholz, Trial Atty., Tax Division, Department of Justice, Washington, D. C., for petitioners.
H. Thomas Howell, Baltimore, Md., for respondent.
Marvin J. Garbis, Baltimore, Md., for intervening respondents.
This is a proceeding brought by the United States and a Special Agent of the Internal Revenue Service (IRS) under §§ 7402(b) and 7604(a), I.R.C. 1954,1 to compel compliance with an administrative summons issued to William E. Schoeberlein, the attorney-accountant for taxpayers, J. Stewart Brinsfield and his wife, demanding the production of certain financial records and work papers in Schoeberlein's possession on the date of service of the summons and alleged to be necessary to a determination of the Brinsfields' tax liabilities for the years 1965, 1966, 1967 and 1968. The government also seeks to punish Schoeberlein for contempt under § 7604(b). The Brinsfields have been allowed to intervene and participate in the hearings which have been held.
Schoeberlein and the Brinsfields have raised the following questions: (1) Whether enforcement of the summons would violate taxpayers' Fifth Amendment rights against self-incrimination? (2) Whether the summoned documents are protected from disclosure by the attorney-client privilege? (3) Whether the summons was issued for the improper purpose of obtaining evidence for a criminal prosecution? (4) Whether enforcement of the summons would violate taxpayers' Fourth Amendment rights to be secure from unreasonable searches and seizures? (5) Whether the summoned documents are protected from disclosure as the work product of an attorney? (6) Whether the government is precluded from obtaining access to the summoned documents because of its failure to allege and prove that it did not already possess the information contained in said documents? Schoeberlein has also moved for the production of certain IRS documents, or, in the alternative, to strike the testimony of Special Agent Jerome I. Gulack and to dismiss the action.
On February 5, 1968, an informant telephoned the IRS office and asked to discuss matters concerning the Brinsfields. In accordance with standard IRS procedures, the informant was directed to the Intelligence Division, and was interviewed three times by Special Agent Jerome I. Gulack. The informant submitted to Gulack some documents concerning the taxpayers. Gulack concluded that no evidence of criminal fraud had been produced; consequently, he prepared an "information item disposition" referring the matter to the Audit Division.
In November 1968 Revenue Agent Thomas Lewald was assigned the task of auditing the Brinsfields' return for the years 1965, 1966 and 1967. Lewald contacted Brinsfield, advised him of the audit, and asked to see his financial records relating to the tax years in question. Brinsfield suggested that Lewald discuss the matter with Schoeberlein, whom he characterized as his "accountant".2 Lewald did not request that Brinsfield send the pertinent records to Schoeberlein for purposes of the audit. Lewald later discussed the audit with Schoeberlein by telephone, and a meeting was arranged. During the telephone conversation, Lewald requested that certain of the Brinsfields' financial records for the years in question be made available to him for examination. Schoeberlein telephoned Brinsfield and arranged to have the requested documents transferred to his office for Lewald's use in conducting the civil audit.
On January 20, 1969, Lewald met with Schoeberlein in the latter's office at Ellicott City, Maryland. Before showing Lewald any of the taxpayers' records, Schoeberlein inquired whether the investigation was civil or criminal in nature and was correctly told that only civil tax liability was in question. Lewald was granted access to (1) taxpayers' cancelled checks, check stubs, bank statements and deposit slips pertaining to the years 1965, 1966 and 1967; (2) an accounting worksheet or sheets containing a "cash disbursement spread"—a listing of checks in numerical order and a separate listing of checks by various categories of expenses and deductions—prepared by Schoeberlein; (3) a "spread" of deposits prepared by Schoeberlein, which showed the dates and amounts of deposits by the Brinsfields during the three years under examination; and (4) miscellaneous accountant's workpapers. Lewald examined these records in the Bar Library at the Ellicott City Court House, across the street from Schoeberlein's office. During that examination, Lewald compiled a summary of cash disbursements by listing and adding the monthly totals for the years in question as those figures appeared on the check spread prepared by Schoeberlein. Lewald then returned the documents to Schoeberlein and gave him a list of additional information to be furnished at a later time.
Because Schoeberlein was busy during the tax season, the next meeting did not take place until June 10, 1969, when Lewald again visited Schoeberlein's office and was given the information he had requested, and was again shown the documents he had seen before. During the course of this inspection, Lewald made a summary of the Brinsfields' deposits for the three years.
Upon completing his second examination Lewald became aware of the possibility of criminal fraud. After conferring with his supervisor, he suspended his work and referred the matter to the Intelligence Division.3
The Intelligence Division assigned the case to Special Agent Robert H. Caplan. On July 18, 1969, Caplan and another agent visited Schoeberlein's office and inquired whether Schoeberlein still had in his possession the records that had been seen by Revenue Agent Lewald. Schoeberlein replied that he did, but that he could not relinquish them to Caplan without first consulting his own lawyer. Caplan then served upon Schoeberlein an administrative summons demanding production of specified documents4 in connection with an investigation to determine the tax liability of the taxpayers for the years 1965, 1966, 1967 and 1968. Caplan instructed Schoeberlein not to dispossess himself of any of the summoned documents prior to the return date, August 4, 1969. On that date, Schoeberlein appeared at Caplan's office and surrendered certain corporate tax records in his possession, but stated that, on the advice of his counsel, he refused to produce the Brinsfields' personal records, including cancelled checks, check stubs and deposit slips, as well as some accountant's workpapers prepared by Schoeberlein on the ground that such production would violate the Brinsfields' privilege against self-incrimination under the Fifth Amendment. In fact, Schoeberlein had returned all of these documents to the Brinsfields between the service date and the return date of the summons.5
The records in controversy have been placed in the custody of the Court by stipulation of the parties pending determination of the enforceability of the summons.6
Schoeberlein had used the bank statements and the check stubs for the years 1965, 1966 and 1967 in the preparation of the taxpayers' returns for those years and had returned the statements and the stubs to them before the commencement of the audit by Revenue Agent Lewald. Until that audit began he had never had possession of the deposit slips. The check stubs for 1968 were in his possession at the time of the service of the summons because he had used them in preparing the taxpayers' return for 1968.7 Special Agent Caplan never saw any of the records in controversy.
Shortly after the return of the summons, Special Agent Caplan left the employ of the Service, and the case was reassigned to Special Agent Gulack, who is a petitioner herein.8
Both during and after the hearings, Schoeberlein moved for production of certain IRS documents listed in the margin;9 or, in the alternative, if production of the materials requested by items (a), (b) and (f) be not forthcoming, that the testimony of Special Agent Gulack be stricken from the record and this proceeding be dismissed. The government objected, and the Court denied production of items (a), (c) and (f), but has made an in camera inspection of items (b), (d) and (e). After inspecting items (b), (d) and (e), the Court is satisfied that respondents are not entitled to examine those documents at this time, but the Court has considered their contents in ruling on the points raised by respondents.10 The Court's denial of Schoeberlein's motion is without prejudice to any right the Brinsfields may have to seek discovery of or use such documents in any criminal proceeding which may be brought against them or either of them. Respondent's alternative motions to strike the testimony of Special Agent Gulack and to dismiss the action will also be denied.
Those rulings are supported by Donaldson v. United States, 400 U.S. 517, at 528, 529, 91 S.Ct. 534, 27 L.Ed.2d 580 (1971). See also Venn v. United States, 400 F.2d 207, 212, n. 12 (1968); United States v. Roundtree, 420 F.2d 845, 851-852 (5 Cir. 1969); United States v. Howard, 360 F.2d 373, 381 (3 Cir. 1966); United States v. Moriarty, 278 F.Supp. 187 (E.D.Wis.1967); Dunn v. Ross, 356 F.2d 664, 667-668 (5 Cir. 1966); McGarry's Inc. v. Rose, 344 F.2d 416, 418 (1 Cir. 1965); United States v. Ruggeiro, 300 F.Supp. 968, 972 (C.D.Cal.1969), aff'd per curiam, 425 F.2d 1069, 1071 (9 Cir. 1970).
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