United States v. Willis

• Decision Date: 13 May 1983
• Docket Number: Civ. No. 81-511-C.
• Citation: 565 F. Supp. 1186
• Parties: UNITED STATES of America, and Russell G. Talbot, Special Agent of the Internal Revenue Service, Petitioners, v. Ned WILLIS, Respondent, and William M. Siglin and Virginia J. Siglin, Intervenors.
• Court: U.S. District Court — Southern District of Iowa

565 F. Supp. 1186

UNITED STATES of America, and Russell G. Talbot, Special Agent of the Internal Revenue Service, Petitioners, v. Ned WILLIS, Respondent and William M. Siglin and Virginia J. Siglin, Intervenors.

Civ. No. 81-511-C.

United States District Court, S.D. Iowa, C.D.

May 13, 1983.

COPYRIGHT MATERIAL OMITTED

Marshall I. Whitley, Tax Div., Dept. of Justice, Washington, D.C., and Richard Turner, Des Moines, Iowa, Helen L. Duncan, Trial Atty., Tax Div., Dept. of Justice, Washington, D.C., for petitioners.

Bruce B. Graves, Jill Thompson Hansen, Harold N. Schneebeck, Jr., Des Moines, Iowa, for movant intervenors W. & V. Siglin.

William Sidney Smith, Smith, Schneider & Stiles, P.C., Des Moines, Iowa, for respondent Ned Willis.

Thomas W. Carpenter, Chairman, Tax Committee, Des Moines, Iowa, for amicus curiae.

RULING AND ORDER

STUART, Chief Judge.

The Court has before it the parties' objections to Magistrate Longstaff's July 26, 1982 Report and Recommendation (hereinafter Report). A copy of the Report is hereto attached as Appendix A. The procedural history of this action is set forth at the outset of the Report and will not be repeated herein.

The parties have not objected to the analysis and conclusions contained in Divisions I and II of the Report. The Court has reviewed these well-reasoned divisions and hereby adopts them in their entirety.

Petitioners' Objections to Division III of Report

Petitioners object to Magistrate Long-staff's decision to permit the Siglins to describe some of the listed documents in more detail in an attempt to cure some of the list's currently deficient descriptions. Petitioners argue that the burden upon the Siglins was clear from the outset and that any curable deficiencies in the documents' descriptions resulted from the Siglins' own tactical decision to withhold the necessary detail from descriptions contained in the January 5, 1982 list.

Although the Court is not unsympathetic to the concerns voiced by the IRS in opposition to supplementation, the Court believes that the Siglins should be afforded an opportunity to supplement their descriptions in all of the recommended instances, as well as in other instances noted below. This is not a case where claims of privilege were asserted in blanket fashion. Too detailed descriptions, if disclosed to the IRS, might well reveal information truly entitled to privileged protection against disclosure. The party resisting disclosure is forced to unilaterally strike the difficult balance between too little and too much detail in describing the documents claimed to be privileged. Where, as here, a good faith effort by that party errs on the side of too little detail, supplementation furnishes an appropriate mechanism by which the balance may be refined. Thus, petitioners' general objection to supplementation is hereby overruled.

Petitioners also object to the Report's conclusion that Willis was acting as a professional legal adviser in preparing tax returns for the Siglins.

Both the Magistrate and the parties have employed the following definition of the attorney-client privilege:

Where legal advice of any kind is sought from a professional legal adviser in his capacity as such, the communications relating to that purpose, made in confidence by the client, are at his instance permanently protected from disclosure by himself or by the legal adviser, except the protection be waived.

8 J. Wigmore, Evidence § 2292, at 554 (McNaughton rev. 1961).

This summons enforcement proceeding raises a difficult and serious question: When a client communicates to his or her attorney for the purpose of securing the attorney's tax return preparation services, has the client sought "legal advice", within the meaning of the privilege? The parties and Magistrate Longstaff have exhaustively analyzed the many facets of this question and have ably canvassed the pertinent caselaw.

The Court is well aware of the need for clear guidelines designed to foster reasonable expectations on the part of both lawyers and their clients. Lawyers and clients are entitled to adequate forewarning as to whether information communicated by the latter to the former will be protected against unwanted, compelled disclosure at some future time.

Having reviewed the caselaw and the parties' arguments, the Court is of the opinion that, as a general rule, where a client entrusts the task of income tax return preparation to his or her lawyer, the client's communications related to that task are not made for the purpose of seeking "legal advice", within the meaning of the attorney-client privilege.

Income tax preparation can be legally performed by lawyers and nonlawyers, alike. Income tax return preparation undeniably involves the application of the tax laws to each taxpayer's unique financial circumstances. However, although that fact might support a lawyer-nonlawyer distinction in other contexts, the Court does not believe it compels such a distinction in the income tax return preparation context. Unlike most other areas in which statutes impose legal obligations on the citizenry, in the income tax return preparation context the government has researched and interpreted the tax laws for the taxpayer in advance. The results of the government's efforts are manifested in the variety of income tax return preparation instructions and informational publications issued by the government. These instructions and publications are supposedly written in everyday language, to permit a taxpayer to prepare his or her own return. To the extent that the taxpayer cannot understand the instructions or simply does not wish to be subjected to this universally-frustrating task, the taxpayer is free to engage the services of lawyer or nonlawyer tax return preparers, who can also find guidance in the government-issued instructions and pamphlets.

The Court is not unmindful that questions occasionally arise in the income tax preparation context which require research and interpretation of the tax statutes and regulations beyond that manifested in the government-prepared instructions and pamphlets. However, on balance, the differences between lawyer and nonlawyer income tax return preparers are ones in degree, not in kind.

The Siglins and the Report relied upon the following authority in concluding that, in all instances, the Siglins had communicated with Willis for the purpose of seeking legal advice:

It is not easy to frame a definite test for distinguishing legal from nonlegal advice. * * * The most that can be said by way of generalization is that a matter committed to a professional legal adviser is prima facie so committed for the sake of the legal advice which may be more or less desirable for some aspect of the matter and is therefore within the privilege unless it clearly appears to be lacking in aspects requiring legal advice.

Obviously, much depends upon the circumstances of individual transactions.

Diversified Industries, Inc. v. Meredith, 572 F.2d 596, 610 (8th Cir.1977) (en banc), quoting 8 Wigmore, supra, § 2296 (emphasis included).

Although the Court could read the "lacking in aspects requiring legal advice" phrase strictly and hold that income tax preparation does not require legal advice, the Court believes the better approach is to hold the Diversified presumption inapplicable in the income tax return preparation context. The Court believes that in its disinclination to apply the Diversified test in that context is warranted by the Court of Appeals' heavy reliance in Diversified on considerations not implicated by the instant action; to wit:

(1) The Diversified law firm's assignment involved analyzing the facts revealed by its investigation, with an eye toward evaluating the legal propriety of the corporation's actions and recommending possible future courses of action;

(2) The nature of the Diversified law firm's assignment was such that it could not be wholly performed by an accountant and/or a lay investigator;

(3) The public policy favoring corporate self-discipline would be advanced by according the privilege's protections to in-house investigative interviews conducted by necessarily independent professionals.

See Diversified, supra, 572 F.2d at 610.

Moreover, the Court's refusal to apply the Diversified test in the income tax return preparation context is consistent with the Circuit's earlier opinion in Canaday v. United States, 354 F.2d 849, 854 (8th Cir.1966) (attorney-client privilege inapplicable because lawyer who filled out client's tax return "acted not as a lawyer but merely as a scrivener"). See also United States v. Davis, 636 F.2d 1028, 1043 (5th Cir.), cert. denied, 454 U.S. 862, 102 S.Ct. 320, 70 L.Ed.2d 162 (1981) (tax return preparation is "primarily an accounting service").

However, the Court is of the opinion that where tax planning advice is sought from a lawyer, the "legal advice" prong of the Wigmore formula is satisfied. In the Court's opinion, there is a marked distinction between tax planning and income tax return preparation. Tax planning is concerned with current or future tax periods. It entails advising a client on how best to structure contemplated financial transactions, decisions, or occurrences from a tax consequences standpoint; the identification of the various means by which a particular tax objective of the client can be achieved; and other before-the-fact research and advice. The Diversified presumption would be applicable to tax planning.

Income tax return preparation, on the other hand, involves closed tax periods and entails evaluating the tax consequences of previously-consummated transactions and occurrences; compiling the information pertinent to those transactions and events; categorizing, classifying, and otherwise organizing that information in a way which corresponds with the classifications and categories appearing on tax return forms; selecting among the various available tax forms; electing the most...