United States v. Fisher

OPINION OF THE COURT

ALDISERT, Circuit Judge.

Couch v. United States, 409 U.S. 322, 93 S.Ct. 611, 34 L.Ed.2d 548 (1973), held that where a taxpayer had effectively surrendered possession of her business records to her accountant and the accountant was served with an Internal Revenue Service summons, the taxpayer could[ not successfully assert the Fifth Amendment privilege against compelled incrimination. The question presented by this taxpayers’ appeal from a district court order enforcing a summons issued pursuant to 26 U.S.C. § 7602 is a spin off of the Couch issue: where work papers owned by the accountant and prepared by him for tax purposes at the taxpayers’ request are transferred from the accountant to the taxpayers and thence by them to their attorney, are the papers immunized from a summons directed against the attorney ?

Most of the narrative or historical facts are not in dispute. In the summer of 1971, Feldman was employed as a Special Agent of the Intelligence Division of the Internal Revenue Service and was assigned to investigate the tax liability of the Goldsmiths for years 1969 and 1970. No employee of the Audit Division of the Sei’vice was then participating in the investigation. In late July of that year, Feldman spoke with Mr. Goldsmith and made an appointment with him to discuss Mr. Goldsmith’s tax liability. On August 3, 1971, Morris and Sally Goldsmith retained Fisher to represent them, and Fisher called Feld-man to advise him that Mr. Goldsmith would not appear for the appointment.

In early August of 1971,¹ the Goldsmiths obtained from their accountant, Harold Berson, certain records which constituted “the balance” of records concerning the Goldsmiths which Berson then had in his possession. Some dated as far back as 1959. On August 17, 1971, the Goldsmiths turned these records over to Fisher. A stipulation of the parties, as articulated by Fisher, was as follows:

[O]n August 17, 1971 Morris Goldsmith and Sally Goldsmith turned over to me certain records which I now have in my possession. Such records were turned over to me for my use in representing them, furnishing them with legal advice, and from the time those records were turned over to me to the present time I have been using them for that purpose.

These records included the “analyses” which the government seeks to inspect. These “analyses,” designated “analysis of receipts and disbursements,” are essentially lists of income and expenses compiled by Berson from cancelled checks and deposit receipts supplied by the Goldsmiths, but do not include the checks and deposit receipts themselves.

On October 22, 1971, Feldman served a summons on Berson seeking documents which related to the tax liability of Morris Goldsmith. Berson told Feldman at the time of service that he had no documents of this character and that all documents which he had previously possessed had been turned over to Mr. Goldsmith. Feldman nevertheless put a return date of November 3rd on the summons because Berson indicated he would try to get the papers back.² Berson testified that he “contacted Mr. Goldsmith and told him that . . . [he, Ber-son,] would like to get the papers back, that . . . [he] was requested by the Government to bring them to their offices.” Berson appeared on November 3rd to report that he did not have the documents sought.

On December 1, 1971, the summons which the government now seeks to enforce was served upon Fisher, directing him to appear “to give testimony relating to the tax liability or the collection of the tax liability” of Morris Goldsmith and to bring with him, among other things, an “Analysis of Receipts and Disbursements for Morris Goldsmith for 1969 and 1970” and an “Analysis of the Receipts and Disbursements of Sally Goldsmith for 1969 and 1970.” Fisher appeared with the records in response to the summons, but refused to permit their inspection. This enforcement action was then commenced. The Goldsmiths were permitted to intervene and, together with Fisher, defended on the grounds (1) that the summons was invalid and (2) that production would violate the Goldsmiths’ rights under the Fifth Amendment to the United States Constitution.

After a hearing, the district court found as a fact that “no recommendation for criminal prosecution [had] been instituted by the I.R.S.” during the relevant period and that the summons was issued in good faith. It also found that “[t]he purpose of the summons is merely to examine the possible tax liability of the Goldsmiths.” Considering Donaldson v. United States, 400 U.S. 517, 91 S.Ct. 534, 27 L.Ed.2d 580 (1971), as controlling, the court held that the summons was issued for a valid purpose. The court further found that the records sought were owned by Ber-son, rejected the constitutional argument and ordered production.³

Appellants here renew their dual attack on the summons. We address both contentions.

I.

Appellants contend that the summons served upon Mr. Fisher, pursuant to 26 U.S.C. § 7602,⁴ is unenforceable because its sole object is to obtain evidence to use in a criminal prosecution. Reisman v. Caplin, 375 U.S. 440, 449, 84 S.Ct. 508, 11 L.Ed.2d 459 (1964). In support of this proposition, appellants emphasize that Special Agent Feldman was the sole government representative engaged in the investigation of the Goldsmiths’ tax liability and that an official statement of the Internal Revenue Service describes the function of the Intelligence Division as an arm of the Service which investigates and enforces criminal violations of various tax laws of the United States.⁵ On this showing alone the appellants would have us reverse the district court’s holding that the summons was issued for a valid purpose. This we decline to do.

It is now well settled that the possibility that criminal prosecution as well as civil liabilities may arise from a tax investigation is not a sufficient ground for refusing to enforce a summons issued under Section 7602 in good faith and prior to a recommendation for prosecution. Donaldson v. United States, supra. In Donaldson the Supreme Court, in rejecting a contention similar to that here made, said:

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 the 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

It is also well established that the burden of showing an improper purpose is on the taxpayer. Donaldson v. United States, supra, 400 U.S. at 527; United States v. Powell, 379 U.S. 48, 58, 85 S.Ct. 248, 13 L.Ed.2d 112 (1964); United States v. Erdner, 422 F.2d 835 (3d Cir. 1970); United States v. De Grosa, 405 F.2d 926 (3d Cir.), cert. denied sub nom., Zudick v. United States, 394 U.S. 973, 89 S.Ct. 1465, 22 L.Ed.2d 753 (1969). The district court found as a fact that “no recommendation for criminal prosecution has been instituted by the I.R.S.” Nor did it find that the summons was issued in other than good faith. Moreover, the court affirmatively found that “the purpose of the summons [was] merely to examine the possible tax liability of the Goldsmiths.” These findings are not clearly erroneous. Krasnov v. Dinan, 465 F.2d 1298, 1302-1303 (3d Cir. 1972).⁷

Thus, taxpayers would have us hold that their burden is met by a mere showing that a Special Agent of the Service’s Intelligence Division was the only person assigned to investigate their tax liability. If we were to accept taxpayers’ argument we would be drawing a line where a special agent appears, a line which the Court in Donaldson expressly refused to draw. Both in De Grosa and Erdner we refused to hold that such evidence, in itself, satisfied the taxpayer’s burden of proof. We reaffirm those holdings today.

II.

Thornier issues are raised by taxpayers’ claim that production of the “analy-ses” in the possession of Fisher would violate their rights against self-incrimination. This contention is based, in

part, upon the assertion that the only permissible inference to be drawn from the record below is that the Goldsmiths owned the records sought. The finding of the district court that the analyses were the property of the accountant is not clearly erroneous, Krasnov v. Dinan, supra.⁸ We accordingly accept that finding.

If ownership vel non were the test of the scope of the Fifth Amendment privilege, our analysis would be at an end. But such is not the test, for the Fifth Amendment privilege focuses on personal compulsion upon the person asserting it. Possession, not ownership, “bears the closest relationship to the personal compulsion forbidden by the Fifth Amendment.” Couch v. United States, supra, 409 U.S. at 331. Thus we are led to Goldsmiths’ argument that, even if Berson is held to own the “analyses,” Goldsmiths’ transitory possession of the records and their subsequent possession by Fisher established that requisite degree of privacy so that it can be said that enforcement of the summons issued to Fisher amounted to that type of personal compulsion against the Goldsmiths which is prohibited by the Fifth Amendment. To be successful with this argument appellants must convince us of the validity of two propositions: First, if the Goldsmiths had not given the “analyses” to Fisher, they could have successfully resisted the summons because the documents sought would have been in a rightful personally privileged possession, and, second, the Goldsmiths should not be held to have lost their privilege solely because they surrendered actual possession to Fisher for the purpose of obtaining legal advice in connection with the investigation. The government disputes these propositions, arguing that the analyses would not have been within the scope of the privilege in the hands of the Goldsmiths and that, in any event, the Goldsmiths are barred from asserting the privilege because, in fact, they had neither ownership nor possession at the time of the service of the summons.

A.

The facts in this case must be compared with those in Couch. Here, ownership was found to be in the accountant; there, ownership was in the taxpayer. Here, possession was in the lawyer, the subject of the summons; there, possession was in the accountant, also the subject of the summons. Here, the taxpayers, as in Couch, had to be aware that at least summaries of the information furnished the accountant from which he fashioned his records had to be disclosed in certain tax returns. But that which distinguishes this case from Couch is the additional question of the reasonable likelihood of privacy and freedom from compulsion expected by the taxpayers at the time they delivered the accountant’s records to their lawyer.

In Couch, as previously noted, the Supreme Court rejected the thesis that the Fifth Amendment privilege was equated with ownership. The Court said: “The criterion for Fifth Amendment immunity remains not ownership of property, but the ‘physical or moral compulsion exerted.’ * * * We hold today that no Fourth or Fifth Amendment claim can prevail where, as in this case, there exists no legitimate expectation of privacy and nó semblance of governmental compulsion against the person of the accused.” 409 U.S. at 336 (footnote omitted). It emphasized that “actual possession of documents bears the most significant relationship to Fifth Amendment protections . . . ” 409 U.S. at 333, acknowledged the possibility of constructive possession in certain cases and refrained from deciding “what qualifies as rightful possession enabling the possessor to assert the privilege.” 409 U.S. at 330 n. 12.

Because concepts of “ownership” and “possession” and “expectations of privacy” dominate the text of the cases, it becomes important to remind ourselves that these are organons of the decisional process only. Although effective as jurisprudential tools, these concepts are not, in and of themselves, controlling. This “is a constitution we are expounding.” ⁹ We must never wander from the principle that what the Fifth Amendment prohibits is compelled incrimination.

Supporting the notion that there may not be compelled production of “a man’s private books and papers” is the 1886 case of Boyd v. United States, 116 U.S. 616, 633, 6 S.Ct. 524, 534, 29 L.Ed. 746, whose vital signs are still given formal recognition, Bellis v. United States, 417 U.S. 85, 94 S.Ct. 2179, 40 L.Ed.2d 678 (1974), Couch v. United States, supra, 409 U.S. at 330, but whose vigor has been seriously sapped by subsequent analyses by the Supreme Court. The ratio decidendi of Boyd was premised on the notion that court-ordered production of a person’s “private papers” to be used as evidence to convict him of crime violated the Fourth as well as the Fifth Amendment. Fourth Amendment considerations do not detain us; such an argument has not been presented in this appeal.¹⁰

Boyd’s Fifth Amendment premise was based on the twin concepts of ownership and possession. Although addressing property notions in the context of the Fourth Amendment, Warden v. Hayden, 387 U.S. 294, 304, 87 S.Ct. 1642, 1648, 18 L.Ed.2d 782 (1967), emphasized:

The premise that property interests control the right of the Government to search and seize has been discredited. Searches and seizures may be “unreasonable” within the Fourth Amendment even though the Government asserts a superior property interest at common law. We have recognized that the principal object of the Fourth Amendment is the protection of privacy rather than property, and have increasingly discarded fictional and procedural barriers rested on property concepts. See Jones v. United States, 362 U.S. 257, 266, 80 S.Ct. 725, 4 L.Ed.2d 697; Silverman v. United States, 365 U.S. 505, 511, 81 S.Ct. 679, 5 L.Ed.2d 734. This shift in emphasis from property to privacy has come about through a subtle interplay of substantive and procedural reform.

We detect the same “shift in emphasis from property to privacy” in the Court’s treatment of the Fifth Amendment in compelled production of documents. “The criterion for Fifth Amendment immunity remains not the ownership of property. . . . ”, Couch v. United States, supra, 409 U.S. at 336;¹¹ “the papers and effects which the privilege protects must be the private property of the person claiming the privilege, or at least in his possession in a purely personal capacity.” United States v. White, supra, 322 U.S. at 699.

Bellis v. United States, supra, 417 U.S. 85 at 91, 94 S.Ct. 2179, at 2184, 40 L.Ed.2d 678, reaffirms this shift in emphasis :

The Court’s decisions holding the privilege inapplicable to the records of a collective entity also reflect a second, though obviously interrelated policy underlying the privilege, the protection of an individual’s right to a “private enclave where he may lead a private life.” Murphy v. Waterfront Comm’n, 378 U.S. 52, 55, 84 S.Ct. 1594, 12 L.Ed.2d 678 (1964). We have recognized that the Fifth Amendment “respects a private inner sanctum of individual feeling and thought” — an inner sanctum which necessarily includes an individual’s papers and effects to the extent that the privilege bars their compulsory production and authentication — and “proscribes state intrusion to extract self-condemnation.” Couch v. United States, supra, at 327. See also Griswold v. Connecticut, 381 U.S. 479, 484, 85 S.Ct. 1678, 1681, 14 L.Ed.2d 510 (1965). Protection of individual privacy was the major theme running through the Court’s decision in Boyd.

United States v. Egenberg, 443 F.2d 512 (3d Cir. 1971), emphasizes these basic principles.

Couch does not undercut Egenberg. Couch simply articulates that ownership of papers per se does not carry with it a vesting of the privilege against self-incrimination, that actual possession of documents bears the most significant relationship to Fifth Amendment protections against state compulsions upon the individual accused of crime, and that there may be examples where constructive possession is so clear or relinquishment of possession is so temporary and insignificant as to leave the personal compulsions upon the accused substantially intact.

The case sub judice presents a factual array of ownership of the records in the accountant, a shift in their possession from the accountant to the taxpayers at the taxpayers’ request upon advice of Fisher only a day or two after Fisher began his representation and broke Morris Goldsmith’s appointment with agent Feldman, a “temporary and insignificant” history of actual possession in the taxpayers and actual possession in a third party at the time of the issuance of the summons. We fail to see how this factual complex gives rise to that element of personal compulsion upon the taxpayers which is the hallmark of the right against compulsory self-incrimination. Thus, we have no difficulty in concluding that, unless the attorney-cli-' ent relationship intervenes, this case is squarely controlled by Couch.

In this appeal the taxpayers do not rely on the attorney-client privilege qua privilege. Thus, the attorney-client relationship is relevant to our Fifth Amendment inquiry only as an indicia of the degree of privacy or freedom from compulsion to be expected by the taxpayers when they transferred the records to their attorney. Stated otherwise, the relationship is relevant only to a determination of whether these records, owned by the accountant, have the capacity of coming within the penumbra of the Boyd rule.

Papers otherwise not endowed with Fifth Amendment protection cannot be transmuted into a privileged status merely because of the act of delivery to a lawyer. People have constitutional rights, papers do not. Thus, the claim to the Fifth Amendment privilege must emanate from the taxpayers’ rights. And in the attorney-client relationship, the rights must flow upward from the taxpayer; not downward from the attorney.

Judge Friendly has reminded us:

Certain basic principles, however, are well-established. The privilege finds its justification in the need to allow a client to place in his lawyer the “unrestricted and unbounded confidence”, United States v. Kovel, supra, 296 F.2d 918 at 921 (2d Cir. 1961), that is viewed as essential to the protection of his legal rights. But the privilege stands in derogation of the public’s “right to every man’s evidence”, 8 Wigmore, supra, § 2192, at 70, and as “an obstacle to the investigation of the truth,” id., § 2291, at 554; thus, as Wigmore has said, “It ought to be strictly confined within the narrowest possible limits consistent with the logic of its principle.” Id. It must be emphasized that it is vital to a claim of privilege that the communications between client and attorney were made in confidence and have been maintained- in confidence.

In re Horowitz, supra, 482 F.2d 72, at 81-82.

Here, the analyses of cash receipts and disbursements were prepared by the accountant, not the taxpayers. They were prepared by him for the purpose of forwarding to appropriate tax authorities a declaration of the taxpayers’ taxable status.¹² The analyses were not prepared by the client-taxpayers or by the accountant for some personal, private, and confidential purpose for disclosure to the taxpayers’ lawyer only. The taxpayers enjoyed no history of extended actual possession of the analyses. Their actual possession was fleeting and transitory, limited to the act of delivery from the accountant’s office to the office of their lawyer at his request. Thus, if the taxpayers are to succeed in their effort, they must prove that their brief experience of actual possession for a limited purpose coupled with turning their accountant’s records over to their attorney has the legal capacity to generate a subsequent right of constructive possession of sufficient intensity to elevate those records into the required category of their “private books and papers.” We are unwilling to attribute a Fifth Amendment protection to the accountant’s work product based on such a limited possession by his client.

The judgment of the district court will be affirmed.

1 . Berson could not remember the exact date, but estimated it to be “[t]he 4th or 5th of August. . . .”

2 . Feldman testified that Berson “said that he would contact Mr. Fisher and ask for return of his records in compliance with the summons.” Berson testified that he said he “would speak to Mr. Goldsmith and find out whether he could return the records to me.” (I. e., Berson.)

3 . The district court reasoned :

The taxpayers, by way of their attorney, assert that, independent of the ownership concepts of the papers, they may raise the privilege against self-incrimination merely because of their rightful and indefinite possession of the papers, relying on United States v. Cohen, . . . [388 F.2d 464 (9th Cir. 1967)]. However, the Third Circuit in United States v. Egenberg, 443 F.2d 512 (3rd Cir. 1971), held, inter alia, that where a third party has a superior right to possession of the papers, the witness cannot withhold them.

* * * * *

The facts in the instant case, as presented before this Court, demonstrate that the papers were and are the property of the accountant. They only left his possession after the taxpayer learned of the investigation. The transfer of the papers seems to indicate that this was an attempt- to thwart the government’s investigation. Of course, there is no attorney-client privilege which would be claimed since the accountant’s transfer of non-privileged papers to the client would not create a privilege when the client turned the papers over to his attorney. See United States v. Kelly, 311 F.Supp. 1216 (E.D.Pa.1969). For the above reasons, the production of the documents in question is hereby ordered.

352 F.Supp. 731, 734-735 (E.D.Pa.1972) (footnote omitted).

4 . Section 7602 of the Internal Revenue Code provides:

For the purpose of ascertaining the correctness of any return, making a return where none has been made, determining the liability of any person for any internal revenue tax or the liability at law or in equity of any transferee or fiduciary of any person in respect of any internal revenue tax, or collecting any such liability, the Secretary or his delegate is authorized

(1) To examine any books, papers, records, or other data which may be relevant or material to such inquiry ;

(2) To summon the person liable for tax or required to perform the act, or any officer or employee of such person, or any person having possession, custody, or care of books of account containing entries relating to the business of the person liable for tax or required to perform the act, or any other person the Secretary or his delegate may deem proper, to appear before the Secretary or his delegate at a time and place named in the summons and to produce such books, papers, records, or other data, and to give such testimony, under oath, as may be relevant or material to such inquiry; and

(3) To take such testimony of the person concerned, under oath, as may be relevant or material to such inquiry.

5 . The statement reads :

The Intelligence Division enforces the criminal statutes applicable to income, estate, gift, employment and excise tax laws (except those relating to alcohol, tobacco, narcotics and certain firearms), by developing information concerning alleged criminal violations thereof, evaluating allegations and indications of such violations to determine investigations to be undertaken, investigating suspected criminal violations of such laws, recommending prosecution when warranted, and measuring effectiveness of the investigation and prosecution processes. The Division assists other Intelligence offices in special inquiries, drives and compliance programs and in the normal enforcement programs, including those combating organized wagering, racketeering and other illegal activity, by providing investigative resources upon regional or National Office request. It also assists U. S. attorneys and Regional Counsel in the processing of Intelligence cases, including the preparation for and trial of cases.

36 Fed.Reg. 887 (1971).

6 . 400 U.S. at 535-536. In Couch v. United States, supra, 409 U.S. at 326 n. 8 (1973), the Supreme Court emphasized that “Donaldson cautioned only that the summons be issued in good faith and prior to a recommendation for criminal prosecution.” On this record, as in Couch, “neither of those conditions is successfully challenged here.”

7 . “It is the responsibility of an appellate court to accept the ultimate factual determination of the fact-finder unless that determination either (1) is completely devoid of minimum evidentiary support displaying some hue of credibility, or (2) bears no rational relationship to the supportive eviden-tiary data. Unless the reviewing court establishes the existence of either of these factors, it may not alter the facts found by the trial court. To hold otherwise would be to permit a substitution by the reviewing court of its finding for that of the trial court, and there is no existing authority for this in the federal judicial system, either by American common law tradition or by rule and statute.”

8 . Berson testified that personnel in his accounting firm prepared the “analyses” under his direction; that they were used, among other things, to prepare various tax returns; and that the records remained in his possession and are usually forwarded to the client every three or four years because the accumulation gets out of hand. (App. at 65-66.) Berson also testified he had an “understanding” for over twenty-five years with the Goldsmiths that the “anlayses” belonged to the client, and he regarded them as “client’s papers.” Goldsmith testified the cash receipts and disbursement records which formed the basis for the “analyses” were regarded as his property. When asked specifically as to the ownership of the “analyses,” his answer was not responsive:

Q. With respect to the cash receipts and cash disbursements records for your business did you regard them as your property or Mr. Berson’s property?

A. I would regard them as my property.

Q. Did you have an understanding or agreement with Mr. Berson that they were your property?

A. I say yes because for the last thirty years that he has been keeping my books they have been returned to me.

Q. And any time you asked for them you were given them?

A. Many times Mr. Berson would ask me to come and please take them because he didn’t have room. * * * *

Q. Mr. Goldsmith, would you tell me what the substance of that agreement between yourself and Mr. Berson is with respect to the cash receipts and disbursements analysis?

A. I submit them to Mr. Berson and from that he determines my tax. I have been doing this for the last twenty-five, thirty years.

Q. I see. And do you have a written agreement with Mr. Berson with respect to whose property these records will be after they are prepared ?

A. No, sir.

(App. at 85-87.)

Special Agent Feldman’s testimony directly contradicted that of Berson. Feldman testified :

Q. And isn’t it also a fact that by the time you got around to serving a summons on Mr. Fisher that you had ascertained from Mr. Berson just what work papers he had prepared?

A. He told me exactly what he had prepared and that is what I put on the summons.

Q. He also told you that they were his work papers, did he not?

A. That’s correct.

(App. at 60-61).

Faced with testimony that an accounting firm prepared the “analyses”; that they usually remained in the possession of the firm for a period of time; that the records were requested by the taxpayer after Feld-man had sought to set up an appointment with Morris Goldsmith; that Berson called Goldsmith after Berson was served with the summons and told him that he would like to get the papers back; and that Feldman’s and Berson’s testimony concerning the ownership of the papers was in direct conflict, the court determined as a fact that the “analyses” were the property of the accountant. This finding is not completely devoid of minimum evidentiary support displaying some hue of credibility; nor does it lack a rational relationship to the supporting evi-dentiary data. Krasnov v. Dinan, supra. Thus, we will not disturb it.

9 . McCulloch v. Maryland, 4 Wheat. 316, 407, 4 L.Ed. 579 (1819).

10 . Moreover, this argument finds little support today. See Judge Friendly’s scholarly treatment in In re Horowitz, 482 F.2d 72, 75-79 (2d Cir.), cert. denied, 414 U.S. 867, 94 S.Ct. 64, 38 L.Ed.2d 86 (1973), and in The Fifth Amendment Tomorrow: The Case for Constitutional Change, 37 U.Cin.L.Rev. 671, 701-703 (1968).

11 . Corporate and union records and records of at least certain partnerships actually possessed by the custodians in a representative rather than a personal capacity cannot be the subject of the personal privilege against self-incrimination. Bellis v. United States, supra; United States v. White, 322 U.S. 694, 699, 64 S.Ct. 1248, 88 L.Ed. 1542 (1944); Wilson v. United States, 221 U.S. 361, 31 S.Ct. 538, 55 L.Ed. 771 (1911). Incorporated banks, like other artificial organizations, have no privilege against compulsory self-incrimination. California Bankers Association v. Shultz, 416 U.S. 21, 94 S.Ct. 1494, 39 L.Ed.2d 812 (1974).

12 . There was also testimony that the “analyses” were used by the Goldsmiths when the bank needed them for loan applications.