United States v. White

• Decision Date: 10 July 1973
• Docket Number: No. 71-2381.,71-2381.
• Citation: 477 F.2d 757
• Parties: UNITED STATES of America and Gerald T. Culver, Plaintiffs-Appellees, v. Robert I. WHITE, Defendant-Appellant.
• Court: U.S. Court of Appeals — Fifth Circuit

477 F.2d 757 (1973)

UNITED STATES of America and Gerald T. Culver, Plaintiffs-Appellees, v. Robert I. WHITE, Defendant-Appellant.

No. 71-2381.

United States Court of Appeals, Fifth Circuit.

April 17, 1973.

Rehearing Granted July 10, 1973.

COPYRIGHT MATERIAL OMITTED

George A. Hrdlicka, Houston, Tex., for defendant-appellant.

Anthony J. P. Farris, U. S. Atty., Houston, Tex., Scott P. Crampton, Asst. Atty. Gen., Meyer Rothwacks, Atty., Carleton D. Powell, Dept. of Justice, Tax Div., Washington, D. C., for plaintiffs-appellees.

Before GEWIN, AINSWORTH and SIMPSON, Circuit Judges.

Rehearing En Banc Granted July 10, 1973.

GEWIN, Circuit Judge:

In this case we must decide whether the constitutional privilege against compulsory self-incrimination may be invoked in behalf of a taxpayer by his attorney to prevent the production of income tax workpapers in his attorney's possession. Pursuant to 26 U.S.C. §§ 7402(b) and 7604(a),¹ the government petitioned the United States District Court for the Southern District of Texas for enforcement of an internal revenue summons issued on December 7, 1970 in connection with an investigation of the tax liability of Louis D. and Carolyn R. Roberts for the years 1966 through 1969 inclusive. The summons was addressed to Appellant White, taxpayers' attorney, and directed him to produce workpapers and other documents which had been prepared by taxpayers' accountant and which were then in White's possession. In the enforcement proceeding White asserted his clients' fifth amendment privilege as a bar to the compelled production of the documents in his possession. The district court, 326 F.Supp. 459, D.C., held that taxpayers had no fifth amendment rights with respect to the papers in their attorney's possession and ordered White to obey the summons. From this order White appeals.² We affirm.

From 1962 through 1968 taxpayers' income tax returns were prepared by Stanley H. Voelkel, a certified public accountant. Voelkel was not taxpayers' personal employee but rather was an independent contractor with his own office and numerous other clients. Using the information supplied to him by taxpayers, Voelkel would compile workpapers and other documents which summarized the data pertinent to the preparation of an income tax return; the information contained in the workpapers would then be used to complete each year's return. After filing a return Voelkel retained his workpapers in his files.

In 1967 taxpayers found it necessary to draft and submit to the Internal Revenue Service an offer in compromise of their tax liability for the years 1962 through 1965.³ Voelkel assisted them in its preparation, compiling more workpapers in the process. Upon receipt of taxpayers' offer in compromise, the Internal Revenue Service assigned a revenue officer to examine it and to make a recommendation as to its acceptability. The revenue officer apparently found indications that taxpayers did not adequately disclose their assets in making the settlement offer. His discoveries were eventually reported to the Intelligence Division of the Internal Revenue Service which in 1969 assigned a special agent to join him in a thorough investigation of the offer in compromise. Undoubtedly one purpose of this investigation was to determine whether taxpayers had committed criminal violations in making the settlement offer.

When they learned that a special investigation was underway, taxpayers turned to White for counsel; he was officially appointed their attorney and representative-in-fact on a government power of attorney form filed with the Internal Revenue Service. White immediately contacted Voelkel and by November of 1969 had obtained from him not only the workpapers he used in preparing the offer in compromise but also all workpapers used in preparing taxpayers' income tax returns for the years 1962 through 1968. It was agreed that White could keep Voelkel's papers indefinitely but that he would return them upon completion of his representation of taxpayers.

In 1970 taxpayers withdrew their offer in compromise. Shortly thereafter the Internal Revenue Service expanded the scope of its investigation into taxpayers' affairs to include a review of their tax returns for the years 1966 through 1969 in order to determine among other things their correct tax liability for those years. In connection with this expanded investigation the summons in question was issued and served on White.⁴ Although the Internal Revenue Service initially sought all of the workpapers in White's possession, it subsequently modified its demands to encompass only those workpapers used by Voelkel in preparing taxpayers' income tax returns for the years 1966 through 1968. When White refused to produce these workpapers, the government petitioned the district court for enforcement of the summons. At the time enforcement was requested, there had been no recommendation to prosecute either with respect to the tax returns under investigation or with respect to the offer in compromise.

Resolution of this case begins with White's contention that the summons served upon him pursuant to 26 U.S.C. § 7602 is unenforceable because the Service's sole objective in issuing it was to obtain evidence for use in a criminal prosecution of his clients. In Donaldson v. United States⁵ the Supreme Court refused to hold that a § 7602 internal revenue summons is invalid if issued in aid of a tax investigation which might result in a recommendation that a criminal prosecution be instituted against the taxpayer. The Court rejected a contention similar to White's with these observations:

"Congress clearly has authorized the use of the summons in investigating what may prove to be criminal conduct . . . . There is no statutory suggestion for any meaningful line of distinction, for civil as compared with criminal purposes, at the point of a special agent\'s appearance. . . . To draw a line where a special agent appears would require the Service, in a situation of suspected but undetermined fraud, to forego either the use of the summons or the potentiality of an ultimate recommendation for prosecution. We refuse to draw that line and thus to stultify enforcement of federal law. . . .

We hold that under § 7602 an internal revenue summons may be issued in aid of an investigation if it is issued in good faith and prior to a recommendation for criminal prosecution."⁶

In view of Donaldson it can hardly be disputed that § 7602 permits an internal revenue summons to be issued and enforced in aid of a tax investigation in which civil and criminal purposes are intertwined; the Court cautioned only that the summons must be issued in good faith and prior to a recommendation for criminal prosecution. The record in this case plainly reveals that the summons addressed to White was issued in connection with an investigation the purpose of which, at least in part, was to ascertain the correct income tax liability of taxpayers for the years 1966 through 1969. The trial court conducted an in camera examination of the Service's motives which substantiated the evidence presented in open court. Although the investigation definitely carried with it the possibility of criminal consequences, no recommendation for criminal prosecution had been made either at the time the summons was issued or at the time enforcement was sought. In these circumstances the issuance of the summons was authorized by § 7602.

More substantial problems are raised by appellant's contention that his clients' constitutional privilege against compulsory self-incrimination would be violated if he were compelled to produce the workpapers in his possession. Since taxpayers were denied permission to intervene in the enforcement proceeding, they were unable personally to assert their fifth amendment privilege. Instead White as their attorney asserted it in their behalf. A threshold question, then, is whether attorneys have standing in internal revenue proceedings to assert the privilege in behalf of their clients. This question has been considered by several lower federal courts, and, as is so often the case, conflicting decisions have resulted.

On one hand there is the traditional view that the fifth amendment privilege is purely personal; it does not permit a witness to plead the fact that another party might be incriminated by his testimony even though he is that party's agent or attorney.⁷ On the other hand some courts have taken the position that too heavy a burden in terms of time and money would be imposed on taxpayers if they were required to be present personally at internal revenue hearings and enforcement proceedings in order to exercise their constitutional rights.⁸ Under this view an attorney does have standing to invoke the privilege in his client's behalf in response to an internal revenue summons that seeks the production of incriminating documents. Assuming, without deciding, that the latter view is correct and therefore that White has standing to assert his clients' privilege, a second question necessarily arises—whether the fifth amendment shields his clients from the compelled production of workpapers owned and prepared by their accountant and held in their attorney's possession. In order for White to be successful on appeal, this question must be answered in the affirmative; for even though he may have standing, it is of no use to him if his clients have no fifth amendment rights with respect to the papers in his possession.⁹

Like the question of standing. this question has also elicited contradictory responses from the lower federal courts.¹⁰ Fortunately the Supreme Court has provided some guidance with its recent opinion in Couch v. United States.¹¹ The issue presented in Couch was whether a taxpayer could successfully invoke her privilege against self-incrimination to prevent the production of incriminating documents in her accountant's possession. The documents sought by the government were the...