THE FIFTH AMENDMENT PRIVILEGE AGAINST SELF-INCRIMINATION
Hl TAX INVESTI GA TI ONS
GALE MICHAEL FJETLAND
THE FIFTH AMENDMENT PRIVILEGE AGAINST SELF-INCRIMINATION IN TAX INVESTIGATIONS
Since the income tax was first enacted on a permanent basis in 1913t our
system of tax laws has become increasingly complex.
As these laws have become
more difficult to comprehend, laymen have found it necessary to rely more and
more upon expe.rt tax advice, including that of accountants a nd lawyers.
Also,
because of the increasing complexity of the tax laws, the Internal Revenue Service
has acquired the skilled personnel necessary to interpret, apply, and enforce
these laws.
Proper enforcement of tax law is dependent upon the acquisition
of information through an efficient system of tax investigation.
Many times, '
this information is readily determined by an examination of a taxpayer's books,
records, and miscellaneous papers.
Attempts by the government to acquire these documents have resulted in a
clash between the taxpayer's · constitutional rights and the government's need
for information regarding potential tax liability.2 The taxpayer' s constitutional
rights are based, in part, upon the fifth amendment privilege against selfincrimination and the fourth amendment guarantee of the right of privacy.
These
rights, however, have been impaired , because of the taxpayer's dependence upon
expert tax advice.
The taxpayer is protected by the fifth amendment privilege
from surrendering these papers when the taxpayer himself has possession of the
documents? These rights are imp~ired, however, when the taxpayer, because of
the complexity of the tax laws, entrusts these documents to an independent third
party, such as a tax specialist.
A third party cannot assert the taxpayer's
privilege against self-incrimination in this situation because the taxpayer is
under no
person~l
compulsion to . incriminate himself.
Although the tax specialist
Page 2
will use the documents for the same purpose as the taxpayer himself,
ra"t ion of tax returns, the taxpayer has
los~
~e
prep a-
his right to claim the fifth amendment
privilege against self-incrimination.
Consequently, the taxpayer's reliance on tax advice has created an unfor; !
tunate dilemma.
That dilemma is the choice of prote cting onets constitutional
rights at the expense. of foregoing the expertise of the tax specialist.
Should
the taxpayer be penalized by foregoing his constitutional r ights when he relies
on
the necessary, professional assistance of a tax specialist?
The purpose of
this oomment is to examine this conflict and review recent cases that r e flect
on the qUestion.
The solution to this quandary requires an inquiry into the
taxpayer's privilege against" self-incrimination and his constitutional right
to privacy.
I.
THE HISTORY AND PURPOSES OF THE FIFTH AMENDMENT
PRIVILEGE AGAINST SELF-INCRIMINATION
The fifth amendment to the Constitution of the United States reads in pertinent "part:
"No person .
a
.
'
shall be compelled in any criminal case to
be a witness against himself • • . " 4
The purpose of the privilege was explained in United Sta tes v. Whit e ,San
early Supreme Court decision.
The Court stated that the privilege against self-
incrimination is essentially a personsl one. applying only to natural persons .
not business entities. 6
stated by the Court:
Th~ historical basis of the privilege was succinctly
Page 3
{The privilege against self-incrimination] is designed
to prevent the use of legal process to force from the
lips of the accused in~ividual the evidence necessary
to convict, him or to ' force him to produce and authenticate any personal documents or effects that might in-
criminate him . . . The prosecutors are forced to search
for independent evidence instead of relying upon proof
extracted from individuals by force of law . . . 7
The Court further emphasized that the evil of self-disclosure overrides
any difficulties that the exercise of the privilege may impose upon society in
detecting criminal activity. 8 Th.erefore, the individual cannot be compelled to
produce damaging ev.idence for the government's benefit.
When the evidence is
reduced to writing, . the papers are protected i f they are the private property
of the accused or held by that person in a purely personal capacity. 9 The pri-
--
vi lege does not apply to incriminating evidence elicited from another; it-applies
only to evidence extracted by personal compulsion from the accused himself.
In essence, the fifth amendment is concerned with the element of personal
compulsion exercised against the accused.
This principle was expressed in
Murphy v. Waterfront Commission~otn which the Supreme Court stated:
It reflects many of our fundamental values . . . our unwillingness to subject those suspected of crime to the cruel
trilemma of self-accusation, perjury or contempt; our preference for an accusatorial rather than an inquisitorial
system of criminal justice; our fear that self-incriminating
statements will be elicited by inhumane treatment and abuses;
our sense of fair play which dictates a "fair state-individual
balance by requiring the government • . . in its contest
with the individual to shoulder . the entire load; our respect
for the • . • right of each .individual" to a private enclave
where he may lead a private life. 11
Murphy pointed out that when the government takes action against an individual, a proper balance of each party's interests can be achieved only by
Page 4
requiring the government to bear the entire burden of procuring evidence
against · the accused.
The fifth amendment requires that "prosecutors . •
search for independent evtdence . instead of relying upon proof extracted from
individuals .by force of law."12
These principles are equally important in the area to tax investigations.
The interest of the · 1ndividual taxpayer 1s that of protecting his books and
records from government scrutiny. The government, on the other hand, has an
interest in acquiring information to regulate its taxing system.
The extent
to which these interests
can be
come before the ·co.u rts.
The results of these cases have raised as many questions
reconciled under the Constitution has recently
as ·they have answered.
II. :~ RECENT DEVELOPMENTS CONCERNING THE PRIVILEGE
. IN THE AREA OF TAX INVESTIGATIONS
The fifth amendment privilege recently has been asserted in several cases
involving tax investigations by the Internal Revenue Service.
The general issue
raised by these cases is the extent to which a taxpayer may prevent disclosure
I
·of information · that will incriminate him.
The facts in these cases are similar in that a taxpayer turns records over
to an accountant for the purpose of assisting the taxpayer in the preparation
of hili tax return:
Subsequent to transfer of these records, the Internal Revenue
Service commences an investigation to determine whether a .civil or criminal tax
. .
'
,
violation ~as been committed by the taxpayer.
The records are then attached
Page 5
by the Internal Revenue Service while the records are in the possession of a
person other than the taxpayer • .To protect himself against disclosure, the
taxpayer asserts the privilege against
self~incrimination.
The difficult question raised by these cases is the extent to which the
taxpayer's rights are p'r otected ' when he delivers personal documents to a third
party for the purpose of tax assistance.
The decisions in this area have left
as many questions unsnswered as they have resolved.
A.
The Third-Party Summons
Each of the cases to be dis'c ussed refer to the use by the Internal Revenue
Service of a
third~party
summons.
To comprehend the cases fully, it is neces-
sary to understand how the . third-party summons operat es and its effect on the
taxpayer.
When the Internal Revenue Service (IRS) desires information from
books and records that it cannot obtain voluntarily from the taxpayer, it will
issue a third-Party summons. 13T?e summons is served on the taxpayer's ~ccountant,
lawyer, or other third party who' lias possession of records and documents belonging
!
to the taxpayer.
This 'procedure 6as given rise to the question of whether the
taxpayer may claim his fifth amendment privilege when these records are sought
by the IRS from a third party.
The cases apparently have applied the same general principles of .law, but
have' reached different results because of slight, but important, factual differences.
The Fifth and Third Circuits, however, recently reached contrary
decisions based on virtually
i~entical
facts. l 4rhe United States Supreme Court
Page 6
,has granted certiorari on both of these appellate decisions and it should resolve
the conflict.
Its decision likely will be influenced greatly by its prior ruling
in Couch v. United States. lS
B.
The Supreme Court - The Significance of Ownership and Possession
Of Documents Under the Fifth Amendment Privilege
The first of s series of recent opinions that relate to the privilege
against self-incrimination was decided by the United States Supreme Court in
Couch v. United States. l6In that case the taxpayer had turned over her business
records "to her accountant for the purpose of having her income tax re turns pre-
pared.
The accountant was an independent contractor and not an employee of the
taxpayer. l7While the records were in the accountant's possession, the IRS served
I
' a third-party summons upon him 'to produce the taxpayer's records. I.Brhe next day.
the accountant, "t the taxpayer's request, transferred the records to the tax' payer's attorney.l9rhe IRS then sought to compel the attorney to produce the
taxpayer's records.
The attorney refused to do so and asserted the taxpayer's
claim that the records were protected under the fifth amendment privilege against
self-incrimination~O The IRS brought suit to compel the attorney to produce the
requested records.
The issue raised was whether the taxpayer could assert this
' privilege to prevent the production of business and tax records possessed by
her accountant. 2l
The Court prefaced its decision by recognizing the long-standing rule that
each party's rights arid obligations in the records sought become fixed when the
summons is serve'll.22 Therefore, ,a subsequent transfer of possession of these
Page 7
records to the taxpayer's attorney could not alter these obligations .
Under
this rule it is necessary to determine the taxpayer's rights ·when records are
summoned while in the hands of the accountant.
The extent of these rights is
dependent upon the protection offered by the privilege against s elf-incrimination.
With regard to the privilege, the Court ruled that it is personal; it adheres
to the person and not to ' the information that may incriminate him. 23Further,
the privilege does not proscribe incriminating statements elicited from another
person, even though that person possesses documents belonging "to the one incrimi-
n~ted.2~inally, and most importantly, the Court held that the privilege is
dependent upon possession of the documents, not ownership. 25bnder this rule,
the taxpayer must either be in actual or constructive possession of the docu,
26
ments to claim the privilege.
One of the questions presented to the Court was whether the taxpayer's proprietary interest in her business records enabled her to as sert the privilege
against self-incrimination despite the fact that the records were no longer in
her possession.27 The Court refused to tie the privilege to a concept of ownership.
To do so, it reasoned, "would be to draw a meaningless line.,,28Instead,
the Court believed ' that actual possession of documents "bears the most significant relationship to the fifth amendment protections against governmental compulSions.,,29Signific'a ntly, howev~r, the Court stated that situations may 'aris'ein which constructive possession is so clear or relinquishment of possession
is so temporary and irisignificant that the privilege would still apply.
30
The
purpose of the privilege is to prohibit the extraction of evidence from the
accused by physical or morsl compulsion.
The Court reasoned, therefore, that
under the constructive possession theory, the personal compulsions remain substantially the same ss if that p,erson still possessed the documents himself. 31
Page 8
The taxpayer also argued that the meaning of the privilege would be los t
if the IRS were able to reach a taxpayer's records the instant they were delivered to a third party for tax assistance. 32 The Court ignored the fact that the
taxpayer is compelled to rely on expert tax advice because of the comp l exity
of the tax laws.
Instead, it held that because the taxpayer did not personally
possess the documents at the "time they were attached, no constructive possession
could arise. 3 3rhe accountant's possession was neither actual nor constructive
possession by the taxpayer.
He was an independent contractor, not an employee;
. therefore, his activities were not subject to the taxpayer's control. 34
The Court's holding ignored ·the quandsry faced by the taxpayer .
Once he
seeks the professional assistance of a tax expert, the taxpayer loses his constitutional protection under the privilege against self-incrimination.
The
taxpayer in Couch attempted to overcome this predicament by arguing that despite
delivery of the records to the accountant, they nevertheless f e ll within the
protection of her individual right to privacy. 35ghe contended that a taxpayer
has a legitimate expectation of privacy based upon the confidential relationship between the accountant and taxpayer. 3 6rbe Court rejected this argument.
It reasoned that there can be little expectation of privacy when records are
given to an accountant.
The taxpayer knows that much of the information in
those records is subject to mandatory disclosure on the income tax return. 3~he
accountant, not the taxpayer, has discretion as to what information will not
be disclosed,38 Th.erefore, according to the Court, the taxpayer's fourth amendment claim of privacy could not stand.
The Couch decision left many questions unanswered.
One of these ques tions
is whether the fif'th amendment privilege would exist i f the records were trans -
Page 9
ferred from the accountant to the taxpayer's attorney prior to issuance of the
third-party summons.
That
questio~
was reached in a subsequent Fifth Circuit
opinion.
C.
The Fifth Circuit - The Technicalities of the Possession Issue
Become a Matter of Form Rather than Substance.
Subsequent to the Couch decision,. the Fifth Circuit decided two cases involving the question of the fifth amendment privilege.
distinguishable from each other and from Couch.
These cases are factually
The first of these cases was
United States v. White. 39 In White the taxpayers, as in Couch, had employed an
accountant to 'prepare their income tax returns.
The accountant was an indepen-
dent contractor and did not perform his services in the taxpayers' home or office. 40
Also, the accountant retained his workpapers after preparing the return~l When
the taxpayers learned of an IRS investigation into their tax matters, they re'tained an attorney. · The attorney contacted the accountant who transferred to
the attorney possession of his workpapers and other material relating to the
. taxpayers. 42The taxpayers did not take possession at any time.
an ·IRS summons was served on the attorney_
Subsequently,
He refused to produce the documents.
The attorney based his refusal on the taxpayers' fifth amendment privilege against
self-incrimination.
As in Couch the issue was whether the fifth amendment shields
the taxpayer from the compelled production of workpapers prepared by the account-
,
ant and held by the taxpayers' attorney~3
The Fifth Circuit relied extensively on the Couch ruling that actual or
constructive possession of the documents, not ownership, is necessary before
Page 10
the privilege applies. 44 The court said that it is possible for the attorney's
possession of the workpapers to be constructive possession by the taxpayers.
·Constructive possession, however, can arise only after the taxpayer has personally had actual possession.
Because the taxpayers were not in actual possession,
the delivery of the records to the attorney could not give rise to constructive
possessiOn of the documents by the taxpayers. 45
These same issues subsequently arose in the second Fifth Circuit case of
United States v. Kasmir. 46 The facts, however, were distinguishable from those
in White.
IRS.
In Kasmir the taxpayer was approached by two special agents of the
They informed him that his prior tax returns were under investiga tion.
He immediately called his accountant.
was hired by the taxpayer.
taxpayer's office.
The accountant contacted an attorney who
The taxpayer, accountant, and attorney met at the
The accountant handed all tax-related records and documents
to the taxpayer, relinquishing "the rightful, indefinite, and legitimate possession of the materials.,,47Minutes later, the taxpayer turned the materials
over to the attorney as his counsel.
The following day, the IRS summonses were
served on the accountant and the attorney.
the order to relinquish the records.
The at"torney refused to comply with
Instead, he asserted the taxpayer's fifth
amendment privilege agains't self-incrimination~8 The IRS then' sought judicial
enforcement of the summonses.
Counsel for the taxpayer argued that possession
b}i the attorney in this case was constructive possession by the taxpayer because
the taxpayer had come into actual possession of the documents before turning
them over to his attorney. 49Therefore, the fifth amendment privilege against
self-incrimination, it was argued, would be applicable.
The government argued
that the taxpayer never had "rightf'ul possession'"of the records because of the
short time he held them, and because they actually belonged to the accountant. 50
Page 11
The Fifth Circuit relied extensively, as it had in White, on the Couch
decision.
In particular, it ' analyzed the Couch language relating to possession
as the foundation of the privilege against self-incrimination.
In so doing,
it reiterated the rule that actual possession rather than ownership "bears the
most significant relationship to the fifth amendment protections • • . "5lFurther,
it noted that the Supreme Court was careful to say that actual possession is not
absolutely essential for successful assertion of the fifth amendment privilege.
In other words, mere constructive possession may be sufficient. 52 The court quoted
from the Couch opinion:
yet situations may well arise where constructive possession
is so clear or the relinquishment of possession is so temporary and insignificant as to leave the personal compulsions
upon the accused subsequently intact • • .53
The importance of the quoted language is apparent when it is observed that the
taxpayer in Kasmir took actual possession of the documents before the summons
was issued and before transferring them to the attorney.
"
Because the taxpayer had had actual possession, the issue became whether
the taxpayer retained constructive possess,ion after the transfer.
the privilege was available.
I f he did,
In its consideration of this issue, the Fifth
Circuit first looked to the taxpayer's expectation of privacy when the documents
were turned over to a third party.
It recognized the Couch determination that
a taxpayer has no expectation of privacy when he turns records over to an accountant for the purpose of preparing a tax return. 54rhe court reasoned, however,
that when the taxpayer obtains actual possession of the records, he would be in
a position to assert his' fifth amendment privilege if the summons is served on
him at that time. 55rh~ court reasoned further that if the taxpayer, as in this
~ase, subsequently transfers the records to his attorney, pursuant to the attorney-
Page. 12
client relationship, the taxpayer retains a legitimate expectation of privacy
w!th respect to his records. 56According to the court, the taxpayer's actual
possession and subsequent transfer pursuant to his expectation of privacy was
sufficient to constitute constructive possession. 57
In allowing the taxpayer to assert his fifth amendment privilege, the court
recognized that the privilege had become a matter of form, rather than substance. 58
It discussed the inherent quandary presented by this situation:
If we hold that no fifth amendment privilege is now available,
then the taxpayer's rights have been effectively decreased by
his transfer. In a sense, the taxpayer is better off without
an attorney to study the records than with him. Indeed, we
make it almost appear as though the taxpayer must now closet
himself with his myriad tax data drawn up around him • . •
lest some future and surreptitious agent . . . swoop down
with a summons while the attorney is fingering the treasure.
On the other hand, if we hold that the fifth amendment privilege is available here, then we make it appear as if the
applicability of privilege is more . a matter of the form of
the transfer than the substance behind the privilege since
the most important difference between this case and White
is the taxpayer's fleeting actual possession between that
of the accountant and that of the attorney. 59
The court reconciled this dilemma in favor of allowing the privilege.
saw no other way to
reso~ve
It
the "apparent dilemma in a manner which is consistent
with the privilege against self-incrimination and in furtherance of the interests
it was designed to protect.,,60Further, it justified the decision on the ground
that the taxpayer merely retained the privilege by his transfer after actual
posse~~ion.
In the court's view, mere retention of the privilege is distinguishable
from creating the
~rivilege
when the taxpayer never has come into possession before
the transfer to the attorney. 61
Page 13
D.
The Third Circuit - A Contrary View
.A recent ~ bane decision by the Third Circuit on essentially the same
facts as Kasmir resulted in a contrary holding.
In United States v. Fisher,62
the taxpayers, after learning of an IRS investigation, obtained from their accountant all papers relating to the taxpayers' tax 1iabi1ity.63Several days
later, the taxpayers turned those documents over to their attorney for his use
in representing the taxpayers.
An IRS summons was served on the attorney about
a month later. 64 The issue raised was whether workpapers owned and prepared by
the accountant are protected from compulsory production.
As in the cases pre-
viously discussed, · the attorney claimed the taxpayers' documents were protected
under the fifth amendment privilege against self-incriminationP5
In its consideration of the fifth amendment contention, the Third Circuit
relied extensiveiy", as the Fifth Circuit had, on the Couch decision' s analysis,
with possession as the determining element.6~dditiona11Y, it referred to the
Couch statement that "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 itl a . purely personal capacity.,,67
The rationale of the court's opinion is unclear, at best.
First,
it con-
sidered the issue of constructive possession because the taxpayer had transferred
the records prior to service of the summons. 68It stated that in Couch the sununons
was issued while the documents were held by the accountant.
In Fisher,
was issued while the documents were in the possession of the attorney.
the summons
Because
both the attorney and the accOuntant are third parties, the court concluded that
Page 14
the privilege would not apply'because there is no personal compulsion when the
.
records are held by a third party.69Second,
the court relied on the Supreme
,
Court , decision in Boyd v. United States. 7Drhe Boyd decision stated that the
government may not compel production of tla man's private books and records." 71
The Fisher court .ignored the Couch ·statement that mere possession alone is suf-
ficient to assert the privilege.
It said that before actual possession by the
taxpayer could generate a subsequent claim of constructive possession, the actual
possession had to be of IIsufficient intensity to elevate those records into the
required categoty of • • • private books and papers." 72
, The court's decision emphasized ownership of the documents rather than the
Couch requirement of possession 1n a purely personal capacity.
The taxpayer's
actual possession for approximately 12 days was considered to be "temporary and
,insignificant." 7{,nce the court found the taxpayer's actual possession insuf-
ficient to fall within the protection of the privilege, it turned to the question
of whether these documents were protected by the attorney-client relationship.
The act of delivery to the attorney was considered to be of little consequence.
The opinion stated that "papers not otherwise endowed with the fifth amendment
privilege ' cannot be transmit,ted into a privile'ged status merely because of the
act of delivery to a lawyer. 'J 7'This statement suggests that the court believed
that the privilege would not have been available even if the taxpayer personally
held them at the time they were summoned.
The effect of the court's ruling is
that the taxpayer's possession alone i& not sufficient to raise the status of
the documents to that of private papers that are protected by the privilege ,ownership is also required.1 5 In the court's view, the accountant, not the taxpayer, owned the documents.
Therefore, the taxpayer could not claim the privilege.
Page 15
The inconsistencies of the majority opinion were skillfully set out by
Justice Hunter, the lone dissenter.: The dissent did agree with the majority
that the Couch ruling was controlling. 76He believed, however, that the majority
failed to apply properly the principles expressed in Couch.
was the "majority's disposition of the possession issue.
The first mist ake
In Couch the Supreme
Court held that a person may divest himself of actual possession and yet retain
constructive possession sufficient to prevent compelled production of his re-
cords. 77These personal compulsions, the dissent argued, are not dissipated when
actual possession has been brief.
It is the quality of possession, not the length
of possession that is significant. 78 The quality of possession refers to rightful
possession in a purely personal capacity.79The dissent also took issue with the
majority's disposition of the possession question .
The majority held that the
taxpayer's actual possession was insufficient because it was Itfleeting, tempo-
rary, and insignific~nt."80Justice Hunter pointed out that Couch had used those
terms in reference to constructive, not actual, possession. 8 1Couch established
'that once a taxpayer actually possesses documents, he may retain constructive
possession if the divestment of custody is merely fleeting, temporary, and in. significant. 82
Another area of disagreement was the majority's requirement that the papers
and records be the private property of the taxpayer before the fifth amendment
privilege would apply.
The dissent quoted from the Supreme Court decision in
United States v. White, which was cited with approval in Couch:
The papers and effects which the privilege protects must be
the private property of the person claiming the privilege
or ~ least in his possession in .!!. purely personal capacity.83
Page 16
Justice Hunter stated· that thi.s language shows that the majority was wrong in
requiring the documents to be the private property of the taxpayer - mere pos,
.
session was sufficient to claim the privilege.
Because personal possession is sufficient to assert the fifth amendment
privilege, the dissent turned to the problem of whether a transfer from the taxpayer to his attorney would be constructive possession. 84First, the dissent
reasoned that these documents were surrendered temporarily to the attorney for
the limited purpose of acquiring legal advice.
an expectation of privacy in the records.
85
Therefore, the taxpayer retains
Contrary to the situation in which
records are transferred to an accountant, the taxpayer surrendering his documents to an attorney does so with a view toward consultation, not public dis-
closure. 8EFurther, the dissent argued that the taxpayer should not be penali zed
for retaining legal counsel.
He pointed out that under United States v . Judson, .
the ' .taxpayer clearly would be protected from disclosing these records i f they
were subpoenaed while in his custody.88 Therefore. the taxpayer s hould not lose
his constitutional rights when he relies upon the professional advice of an
attorney.
To support this argument, the dissent stated:
The very nature of the tax laws requires the taxpayer to
rely on attorneys and requires attorneys to rely, in turn,
upon documentary indicia of their clients financial affairs.
In light of the realities, a very real danger would be created
1f we were to sustain~he government's position [that these
documents were no longer protected when transferred to an
attorneYl.!!9
.
In closing, the dissent reflected upon the governmental coercion that the
privilege against self-incrimination is designed to prevent:
Page 17
The Supreme Court has recognized the need to obtain information in connection with tax investigations, but within
limits.
Once the government attempts to extract this in-
formation from the accused, the fifth amendment protections
are violated . • . We must never wander from the principle
that what the fifth amendment prohibits is compelled incrimination90
III.
ANALYSIS AND RECENT DECISIONS
The decisions in Couch, White, Kasmir, and Fisher indicate that a tortuous
procedure must be observed before the fifth amendment privilege may be claimed
by a taxpayer.
This procedure involves basically two steps.
First, assuming
that the records are presently held by the accountant, there must be a proper
-.•.- .
transfer of the taxpay~r's records between the accountant, taxpayer, and attorney.
The transfer must be from tbe accountant to the taxpayer and then from the taxpayer to his
attorn~y.
The records are not protected, under the Couch decision,
by the taxpayer's fifth amendment privilege while held by the accountant because
the accountant is usually an independent contractor. 9l In addition, no accountantclient privilege is recognized.
It is possible for the taxpayer himself to
assert the privilege ' at the time he takes delivery of the records. 92 Adequate
representation by a tax attorney, however, usually necessitates a further trans-
fer from the taxp'a yer to the attorney to provide the attorney with the pertinent
information.
A transfer directly from the accountant to the taxpayer's attorney
" ,
is fatal to the successful assertion of the privilege. 93 The privilege is unavailable because
th~
taxpayer must ,actually possess the documents, under
th~
Couch
-~
retionale, before he may claim th'e privilege. 94AIso, possession by the attorney
must constitute constructive possession by the taxpayer.
Constructive possesion
arises from, and is dependent upon, prior personal possession. 95 Consequently,
Page 18
without actual possession, no constructive possession exists as a basi s for
claiming the privilege. 96 Without the protection of the privilege, the records
are subject to being summoned by the IRS while in the hands of the attorney.
The failure to transfer properly the records effectively reduces the status of
the attorney to that of a mere third party.
As a result, the attorney's pos-
session is no more privileged than was the accountant's prior possession. 97
The second step in the transfer p'rocedure is crucial.
the time of the transfer.
This step involves
The established rule is that service of the summons
fixes the rights and obligations of the parties at that time, and a subsequent
transfer cannot alter these rights. 9 8under this rule, the transfer must be prior
to the service of the summons to be effective.
If the summons is served while
the records are in the accountant's possession, the taxpayer has lost his right
to assert the privilege?9 On the other hand, if the documents are summoned after
they have been delivered to the taxpayer, he can assert his fifth amendment
·privilege based upon the possession rationale of Couch.
Also, under the Kasmir
doctrine, the taxpayer can claim the privilege if he transfers the records to
. his attorney, and they are summoned while in the custody of the attorney.
The
Kasmir court would hold that possession by the attorney is constructive possession
by the taxpayer. 100
The Fisher court would take a slightly different approach.
Under the Fisher
rationale, the taxpayer could claim the priv{lege against self-incrimination
only if his possession was sufficient to convert the documents into his private
books and papers.
Once the documents had acquired the status o.f private papers,
the court presumably would hold ' that a transfer to the attorney would give rise
.
101
to constructive possession by the taxpayer.
Page 19
The decisions in Couch, White, 'and Fisher were uniform in their failure
to examine the burden imposed upon the individual who seeks professional tax
assistance;O~e burden arises from forcing the individual to waive his privilege against self-incrimination if he chooses to rely upon expert tax assistance.
Because under Couch his records are subject to government scrutiny if they are
~
held by the accountant, the taxpayer must forego the aid of the accountant . to
protect himself.
He is forced to prepare haphazardly his own tax return to
re ~
tain his constitutional privilege against self-incrimination.
The Supreme Court in Couch indicated that a person would be protected if
he retained a professional as an employee to prepare his tax statements;O~e
also would be protected if the professional tax specialist performed his duties
in the taxpayer's home or office.
Under these circumstances, the professional
is no longer an independent "contractor, but is an employee under the taxpayer's
dominion and control~04rhe taxpayer would be protected by the privilege against
self-incrimination in this situation, but this is an impractical solution to the
problem.
Few, i f any, individuals can af.ford the luxury of r etaining a tax
expert as an employee.
Also, it is unrealistic to believe that an accountan t
or other tax specialist would perform his services in the taxpayer's home or
office.
Efficiency, time restraints, and the nature of the account ant 's work
necessitate that individual taxpayers bring their records to the accountant's
office.
One would not expect an attorney to make house calls to perform his
professional services.
When the taxpayer takes records to his attorney, however,
they are protected from governmental scrutiny~050n the other hand, if these same
records were taken by the individual to his accountant, they are not protected
from a governmental summons~06
Page 20
This situation poses an obvious dilemma for the t axpayerl 0 7 This quandary
is the choice betwe'en expert tax assistance and the retent ion by a taxpayer
of his constitutional rights.
be required to make.
able manner possible.
The choice is one that an individual should not
The Fifth Circuit solved this dilemma in the most equitIt followed the Couch doctrine that the privilege is
dependent upon possession.
The court then held that when a
transfers these records, he retains that privilege.
taxpayer ~ subsequent ly
On the other h and, the
ruling in Fisher resulted in the determination that no privilege is available
to the taxpayer who lacks actual ownership of the records.
In fact, the opinion
implied that even if the taxpayer himself had retained the documents, he still
would not be protected by the fifth amendment privilege.
implied from the court's statement that
This conclusion is
the taxpayer's actual possession was
not of sufficient intensity to elevate those records into the required category
of private books and records protected by the privilege~08Because actual possession was
80
limited, a subsequent transfer' to the attorney was insufficient
to raise constructive
posseBs~on
in the taxpayer.
Therefore, because these
books and records failed to meet· the court's test of private documents, implicitly, the taxpayer himself could not claim they were subject to the privilege
against self-incrimination. 109
These issues may seen be resolved by the United States Supreme Court~IOIts
decision may be premised on Couch and upon another recent Supreme Court decision
concerning a taxpayer's right of privacy and the fifth amendment in tax investigations.
That case was California Bankers · Association v. Shultz~llnd the issue
was the constitutionality of the Bank Secrecy Act~12The Shultz decision will
significantly affect the taxpayer's rights in future tax investigations regarding
bank transactions .
Page 21
IV.
THE RIGHT TO , PRIVACY AND THE BANK SECRECY ACT OF 1970
The Bank Secrecy Act represents another attempt by the government to pry
additional tax-related information from the individual.
This attempt poses a
serious threat to , the rights of the individual taxpayer.
Actually, the title "Bank Secrecy Act" is a misnomer.
It should be en-
titled the ' ''Bank Disclosu~e and Reporting Act of 1970" since its purpose is to
provide the government with information not previously in existence~l3this information is available to all government agencies including the Internal Revenue
Service~l~ost importantly, the information is acquired at the expense of the
individual's constitutional right to privacy and his privilege against selfincrimination. 115
A.
~istory and Purposes of the Bank Secrecy Act.
After extensive hearings and much debate, the Congres s passed the Bank
Secrecy Act of 1970.
The legislative concern was the unavailahility of foreign
and domestic bank records of customers thought to be engaged in illegal activities~l6rhe Act was designed to elicit financial information having a high degree
,
117
of 'usefulness in criminal tax or regulatory investigation proceedings.
The Bank Secrecy Act is not self-executing; it authorizes the Secretary of
the Treasury to prescribe regulations to implement its general provisionsf l8 The
Secretary is authorized to issue these regulations whenever he determines, in
his sole discretion, that maintenance of particular records would aid in t ax and
Page 22
criminal investigation s ~19The · Act i s divided into two t i tles .
Ti t l e I of t he
Act requires banks or othe r financia l institutions t o ma in ta i n r ecords of cus-
torner identities and microfilm copies of checks, dr aft s , and o t her negotiable
instruments~2Dritle
is concerned with
I I of the Act is divid ed into two
~eporting · of
foreign financi a l
pa rt s ~2 ~he fi r st part
transac t ions ~ 2 2Th e
requires the reporting of certain domestic currency
second part
transac t ions ~2 3Unde r t h i s
second part and the regulations issued purs uant to it, a fi nan c ial i n s t itution
is required to file a r e port wi th the governme nt of e ach depos it, withdrawa l of
124
exchange of currency involving an amount of 10,000 doll a r s or mor e .
Congress has given the Secretary of the Treasury unlimite d discr e ti on t o
require that all instruments be microfilmed and r eported to the governmen t~2 5A t
2
present, however, only instruments in excess of 100 dollar s ar e mi c r o filmed : Bnd
only cu~rency transactions exceeding 10,000 dollarsllie r e quired to be r ep orted
to the government.
req'u ests them.
These reports are availab'l e to any gove rnmenta l agency tha t
The Act insures that t!ansactions are recorded and reporte d so
that the government will have access to information tha t previously did not exist~28
The Bank Secrecy Act opened the door f or a broad gove rnment a l intrus ion i nt o
the files of the taxpayer via his bank record s .
Becaus e these r e c o rd s c ons t i tut e
the very core of an individual's priva te tax r e cords ) lt~ was only a mat t e r o f
time before it was challenged on constitutional gr ounds .
The
~ hall e n ge
to t h e
Bank Secrecy Ac t c ame to the Supreme Court in Ca li f orni a Banke r s Association v .
Shultz~3Dthe case was decided in April, 1974 .
Th e Court h e l d th e Ac t to be con-
stitutional; however, many issues concerning the Act r e ma in unresolve d.
Page 23
B.
California Bankers Assoc iation v. Sh ultz - The
Constitutionality of the Bank Secrecy Ac t is Uph eld.
The plaintiff in California Bankers Association v. Shul t z was t he Californ,ia Bankers Association (bank plaintiffs), which sued on behalf of its memb e r
banks, the American Civil Liberties Union (ACLU), and certain bank depos itor s .
The bank plaintiffs asserted that the recordkeeping provis ions of Ti t l e I
violated due process and the right to privacy~31They argue d th at t h ese pr ovisions
violate the due ·process clause of the fifth amendment because th ere i s no r a tiona l
relationship between the objectives of the Act and the r ecordkee pi ng r equi r e d. 132
Also, the banks challenged the Act on the ground tha t it inf r i nged on t he fi r s t
amendment right of privacy and anonymity of the bank' s customers P3Furth e r, th e
bank plaintiffs argued that the Act made them agents for the gov e rnment for the
purpose of government surveillance of its citizens. 134
The ACLU challenged both the recordkeeping requirement o f Ti tle I and th e
reporting requirements of Title II of the Act.
grounds:
They we r e ch allenged on three
1) that " they constituted an unreasonable s e a r c h an d seizure i n viola-
tion of t he fourth amendment; 2) that the requireme nts c o nstit ut ed a coe r ced
retention of documents in violation of the fifth ame ndment pr i v i l ege agains t
self incrimination; and 3) that the requirements violate th e f irs t ame ndmen t
right of free speech and association . 135
The Court set aside each of these cl a ims either as unme ritorious or pr emature.
In response to the bank's argument that the recordkeeping r eq ui r emen t s
Page 24
bore no rational relationship to the objectives of the Act, the Court replied:
[There is] a s ufficient relation between the activity sought to
be regulated and the, public concern so that the gove rnment can
constantly require the keeping of particular r ecords, subject to
inspection •• . 136
The Court was " referring to the constitutionality of recordkeeping requirements of businesses themselves.
In this case, however, records are kept o n t he
depositor and not the business itself~37The Court ignored the fact that the purpose of the Act was to keep records on the individual deposi'tors rather than the
bank.
It skirted this question by reasoning that the bank is not a bystand er
to depositor transactions; instead, it considered the bank a party to any nego-
tiable instrument passing through i t facilities~3Srherefore , the Court concluded
that the recordkeeping requirements imposed on the banks were appropriate.
The banks also argued that the recordkeeping requirement s undermine the
depositor's right to challenge 'effectively a third-party summons issued by the
IRS~3~he Court held that this claim was premature until a summons actually wa s
issued.
Subsequent statements by the Court, however, implied that a depositor would
not be able to challenge a third-party summons.
The inference arises from t he
Court's response to the individual depositors ' arguments that lithe dominant purpose of the Act is the creation, preservation and collection of evi dence of
crime • • • " .14q,urthermore, the depositors contended that the Act makes the bank
an agent of the government and this operates as a "seizure" of the records of
the bank's customers~4~e Court replied that the recordkeeping requirements do
not violate the fourth or fifth amendment rights of the bank or th e depositors.
Page 25
The mere maintenance of records without any requirement that they be di s closed
to the government does not constitute an unlawful search and seizure~42The bank
was under compulsion to make the records hut that in itself wa s not a prohibi-
ted search or seizure under th e fourth amendmentf 43Also, a summons iss ued to a
third party by the IRS does not violate the fourth amendment right of the person
under investigation.
The Court held that a "depositor incr iminated by evid ence
produced by a third party experiences no violation of his fifth amendment rights~44
The Court stated that a depositor's rights are prote cted because the micro-
filmed records can be acquired only by existing lega l proce ss l~dch as an IRS
summons.
In its r easoning the Court ignored the fact
th~ r
the records did not
even exist prior to there having been created by the government for that very
purpose.
In effe ct , the Court eliminated the taxpayer's right to his fifth
amendment privilege against self-incrimination.
The privi lege i s unavailable
because the records are produced by and in the possession of a thi rd party
rather than the taxpayer.
Because they are in the po ssession of a third party,
the depositor sustains no violation of his fifth amendment rights ~4~he fact that
the government create d those records in the hands of a third party und er threat
of civil and criminal penalty was not considered by the Court. 147
The Supreme Court had no di ff iculty in upholding the constitutionality of
the Title II reporting requirements.
Title II authorizes the Secretary to re-
quire reporting of foreign and domestic transactions~48rhese reports are made
by the financial institution direc'tly to the government.
The regulations pro-
mulgated by the Secretary pursuant to this section require reports only if the
currency transactions exceed ' 10,000 dollars~49rhe Secretary, however, has the
power to require reports of all currency tral}sactions regardless of amoL1nt~50
Page 26
In its determination of the constitutionality of the domestic reportin g
requirements, the Court examined the implementing regulati ons themselves rather
than the broadly-written act.
Because the regulations only require reports of
transactions exceeding 10,000 dollars, the Court found the requirements reason-
able~51The Court rationalized that since corporate tax returns could be constitutionally required, these reporting requirements were not per se viol ations of
the fourth amendment prohibition of unreasonable searches and
seizures~52It cited
Hale v. Henkel, which stated that "neither incorporated nor unincorporated associations can plead an unqualified right to conduct their affairs in secre t.,,15 3
The plaintiffs had contended that the reports were the equivilent of a general
warrant to search, which has been condemned in other fourth amendment cases. 154
The Court disagreed, stating simply that the Secretary's requirements do not
authorize "indiscriminate rununaging among the records of the plaintiffs.,,155
The regulations governing the reporting of domestic currency transactions
require information regarding the personal and business id e ntity of the person
conducting the tra'nsaction as well as a description of the nature of the transaction.l5 6rhe Court, however, dismissed the bank I S argument against those require. ments on the basis that "neither incorporated nor unincorporated associations can
plead an unqualified right to conduct their affairs in secret." l¥n response to
the depositors' challenge of the reporting requirements, the Court held that
they lacked standing to challenge those provisions because they could show no
actual injury.
The Court also refused to consider the depositors' fifth amend-
ment attack on the reporting requireme nts because it had been brought prematurely.
The constitutionality of the Bank Secrecy Act was questioned severely by
the dissent.
The dissenting Justices looked at th e broad purposes of the Act
Page 27
and its effect on the individual depositor, rather than the effect on the bank
itself.
In his dissent Justice Douglas observed that "bank customers have a
constitutionally justifiable expectation of privacy in the documentary details
of the financial transactions reflected in their bank accounts.
not impregnable.
That walJ is
Our constitution provides the procedures wher eby the confideni-
ality of one's financial affairs may be disclosed."l5¥his confidentiality has
"been seriously broached by government espionage.
Justice Douglas observed that,
by examining one's bank records, the investigator would become familiar with the
depositor's activities, opinions, and beliefs as fully as if the government had
taped that person's telephone conversations~59He pointed out that such broad
government surveillance was condemned by the Supreme Court in United States v .
United States District Courtf 60Consequently, it should not be permitted in connection with a person's bank account.
Prior to the Bank Secrecy Act, compulsory recordkeeping had been r equired
only to monitor the recordkeeper or his businessf 6 lThose records had basically
a public rather than private purpose and arose from the regulatory area of inquiry~62rhese requ1rements, in Justice Dou glas' opinion, are not satisfied in
this case.
To condemn the domestic surveillance en t ailed by th e reportin g re-
quirement, Douglas relied on Katz v. United States~63-rhe Supreme Court in Katz
emphasized the rights of the individual to privacy, even in a public place:
What a person knowingly expo ses to th e public even in his
own home or office is not a subject of fourth amendment
protection. But what he seeks to preserve as priva te,
even in an area accessible to the public, may be constitutionally protectedf 64 Constitutional protection under the
fourth amendment is determined by inquiry into one's
"expe~tation of privacy" in the absence of a warrant. 165
Douglas also argued that:
Page 28
A search and seizure without a warrant i s ~ se unreasonab l e
subject only to narrow exceptions. These e xceptions do no t
include the Secretary's discretionary finding th a t c ert ai n
information will be ,highly useful in criminal tax inves ti ga-
tions. l66
In his dissent, Justice Marshall generally agreed with Douglas .
He a l s o
noted that the maintenance of records is the "initial s t e p in a process wh e r eby
the government seeks to acquire the private financi a l pape r s of the mi llions
of individuals
that maintain accounts in banks and us e negoti ab l e in s tru-
ments such as checks to carry out the financial side o f their day t o day trans actions." 16 Therefore, in his opinion, this attempt to acquire pr i v a te p ape r s
constitutes an unlawful search and seizure prohibited by th e f ourth ame n dment. 16 8
He condemned the Act's recordkeeping provisions because th ey f e ed i nto a sys tem
which allows government agencies easy access to depositor' s re co r u :-> ~ 69 H e found
that such "a compulsory production of a man I s private papers to e s tablish a
criminal charge against him • . • is within the scope of the fourt h amendment
to the Constitution."170
In spite of the ~issenting Justices' reservations, th e Ba nk Se crecy Act was
found to be constitutional by six members of the Court.
The e ffe c t of this de-
cision and the Bank Secrecy Act on individual depositor's rights in future t a x
investigations is still unclear.
It appears, however, that from a carefui r ead-
ing of this decision, those rights are in serious jeopardy .
v.
CONCLUSION
The effect of these cases and the Bank Secrecy Ac t upon th e ri ght s o f t a xpayers is substantial.
Due to the complexity of our t a x l aws , t he taxpaye r i s
Page 29
forced to rely on expert tax advice in preparation of his returns.
requires that he forfeit his constitutional rights as a penalty .
To do so
Additionally,
the taxpayer is forced to incriminate himself for relying upon our b anking system .
Under the Bank Secrecy Act, the individual taxpay e r is once agai n faced with
a difficult decision.
In the cases ·of Couch, White, Kasmir, and Fisher, t he in-
dividual chooses to rely on professional tax assistance, and h e loses the pro-
tection of the fifth amendment privilege against self-incrimination.
The effect
of the Bank Secrecy Act also forces the individual to choose between incriminating
himself by using the banking system or protecting his constitutional rights by
avoiding that system.
The taxpayer is forced to incrimina te himself because
the banks are re'quired to record and report particular transac tions.
ords are then made available for governmental scrutiny.
These rec-
The taxpayer's only
means of protecting himself requires that he abstain from conducting any bank
transactions.
Since our society is totally geared to, and dependent upon , the
banking system, this is hardly a viable alternative.
In th e realm of tax inves-
tigations, the door is now wide open for governmental intrusions on the ri ght of
an individual to privacy.
Also, since the Supreme Court re ferred to th e banks
as third parties, the taxpayer's privilege against self-incrimination is also
threatened.
The privilege is threatened because of the Court's ruling that an
individual incriminated by evidence produced by a third party sustains no violation of his own -fifth amendment rights. 17l
The Shultz decision represents another encroachment upon the individual's
privilege against self-incrimination and right - to privacy.
The individual's bank
records are the very core of his tax records since they represent a cross-
Page 30
section of the taxpayer's business and personal a c tivities .
Wh en th ese r eco r ds
. are personally held by the taxpayer, they are protect e d from comp e lled pr oduct ion
by the privilege against self-incrimination.
The Congres s , howeve r, thro ugh t he
Bank Secrecy Act, has allowed the IRS to obtain indire ctly t h e same i nfo rma t i on
it could not acquire directly from the taxpayer.
This inf ormatio n can now be
easily obtained by summoning the taxpayer's bank records .
The gove rnme nt, in
effect, forces the taxpayer ,to produce eviden ce agains t h i mse l f s imp ly because
the taxpayer engages in currency "transactions under our banking sys tem.
Since
the taxpayer cannot realistically circumvent the banking sys tem in conduc ting
his affairs, the government has effectively nullified the t a xp ayer's cons ti tutional rights.
The t axpayer could preserve these rights by personally ret ai ni ng th ese rec ords, preparing his own tax return and by conducting all curre ncy tran s actions
in cash.
The impracticality of conducting one's business a nd pe r sonal affai r s
in that manner is obvious.
Our tax and monetary syst ems a r e struc t ur e d to c r eate
dependence on third-party assistance in conducting one ' s a f fa irs .
The question,
therefore, is how can the taxpayer protect hims e lf and his co nstiL u tional r ight s
under the present circumstances?
When the documents are held by an accountant, the re i s l ittle pro t ect i on
for the taxpayer.
The problem is that the cases uni fo rmly ag r ee tha t no
accountant-client privilege or any fifth amendment priv ilege is ava ilable when
an individual's records are held by the accountantf 72 0ne pos sib l e s ol ut i on li es
in the possession theory.
By removing possession of thes e document s , in c l udi ng
the accountant ' s workpapers, from the accountant to the taxpayer, th e t axpa ye r
Page 31
is freed from the threat of a third-par~y summons being served on the accountan t.
The taxpayer is therefore in a position to refuse production of those records on
the grounds that he cannot be compelled to produce evidence agains t himse lf under
the fifth amendment.
The accountant could be allowed access to those documents
only when he needed to prepare the required tax returns.
This procedure would
allow the taxpayer the necessary tax advice without the penalty of losing his
constitutional right against self-incrimination.
A difficult situation, however, exists in relation to transactions falling
within the realm of the Bank Secrecy Act.
At present, regulations issued pur-
suant to the Bank Secrecy Act require the microfilming of all checks, drafts,
and other negotiable instruments drawn for 100 dollars or more~7~n addition,
domestic currency transactions of 10,000 dollars or more must be rl.: ported to
the govern~ent~74rhe cons~itutionality of the microfi lming provision has been
upheld.
On the other hand, the constitutionality of the reporting requirements,
as they relate to depositors, remains unclear~7~resentlY, the depo s itor can do
little to protect himself in regard to these provisions since hi s bank r e cords
are subject to an IRS third-party summons.
The bank has no obligation to notify
the depositor of that summon~7~nd under Shultz,
the bank has a duty to comply
with the summons 'without question.
Under the Bank Secrecy Act, the depositor has been judicially stripped of
any expectation of privacy in his financial ' transactions.
The only solution in
the absence of a reversal of Shultz is repeal of the Act.
Neither of these al-
ternatives appears likely.
Even if the Act were repealed, it may be an insuffi-
cient remedy, since its implementation has established the dangerous precedent
of microfilming these transactions.
In the absence of mandatory legislation
Page 32
prohibiting such microfilming, banks might continue th e pra c tice of mi crofilm i ng
instruments on a voluntary basis.
If they did so, the depos itor' s ie~o r ds would
still be subject to IRS summons served on the bank.
The governmental attack on the privacy of the individua l i s no t jus t an
assault upon the criminal element in our society.
Although t h e
le~islatio n
is
aimed at criminal activity, it inevitably strips th e common citiz e n of his bas ic
constitutional rights .
We cannot afford any further emasculation of our right
to be free of unreasonable governmental scrutiny.
Gale M. Fj e tland
FOOTNOTES
1. U. S. Const . amend. XVI.
2.
For a thorough review of the prior cases relating to the government' s
power to obtain tax information from individuals, see Lyon, GOVERNM.ENT
POWER AND CITIZEN RIGHTS IN A TAX INVESTIGATION, 25 THE TAX LAWYER 79
(1971).
3.
United States v . Judson, 322. F.2d 460, 463 (9th Cir . 1963)
4.
U. S. Const. amend . V.
5.
322 U. S. 694 (1944).
6.
Id. at 699 .
7.
Id . a t 698.
8.
Id .
9.
Id . at 699 .
10 .
378 U.S. 52 (1964)
11.
Id . at 55 .
1961) •
12.
United States v . White, 322 U. S. 694, 69 (1944).
13.
The summons is issued p~rsuant to 26U.S . C. s7602 (1967) which provide s
See also 8 Wigmore, Evidence §2251, at 317 (HcNaughton rev.
in pertinent part:
EXAMINATION OF BOOKS AND WITNESSES.
For the pur pose of ascertaining the correctness of
any ret urn . . . the Secretary or his delegate is autho-
ized1.
To examine any books, papers, records, or other data
which may be relevant or material to such inquiry;
2.
To summons 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 r e l a tin g
to the business of the person liable for tax or required to perform the act, or any other person th e
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 testimony, under
oath, as may be relevant or material to such inquiry;
and
3.
To take such te s timony of the person conce rned, unde r
oath, as may be relevant or material to such inquiry .
14.
See
15.
409 U.S. 322 (1973).
16.
Id.
17.
notes~,
Id. at 324.
46
infra.
This apparently establishes the accountant as bei n g a third
party rather than an employee under the taxpayer's dominion and control.
If he was an employee, presumably his possession would be equivi lent to
possession by the taxpayer himself.
The significance of this was pointed
out by the court ' s reference to the government's oral ar g ument:
"In the Internal Revenue Service practice, so lon g as the
taxpayer has retained possession of the records and th ey
are being used only by his full-time employees or others
on the taxpayer's premises, without th e taxpayer havin g
relinquished p os session and control of the reco r ds , we
(IRS) ordinarily . . . issue the summons to the taxpayer,
because it is the · taxpayer who has the dominion over the
records and the authority to return the summons . And if
the taxpayer chooses to plead the privilege a gainst selfincrimination; that is up to the taxpayer. 409 U.S. 322,
334 n.18 . (1973).
18.
Id. at 325.
19.
Id.
20.
Id.
21.
In this case the taxpayer did own the r ecords which were possessed by t h e
accountant at the time they were summoned . Since s he owned the record s .
the court's inquiry was whether her proprie tary int e r es t in the record s
entitled her to assert the privilege against compulsory self-incrimin at i.o n
despite the fact that she no longer held the records .
22.
409 U.S . at 327 .
See United States v. Zakutansky, 401 F.2d "68 (7th Cir " 1968), ~e rt"
denied, 393 U.S. 1021(1969). Constitutional rights cannot be enlarged
by such action.
The rights and obligations of the parties become fixed
when the summons is served.
23.
409 U.S. at 328;
24.
Id.
25 .
Id. at 331.
26.
Id. at 333.
27.
See note 21 supra.
409 U.S. at 329.n .9.
28 .
409 U.S. at 331.
29.
Id. at 333 .
30.
Id .
31.
Id .
32.
Id .
33,
Id. at 333-35 .
34 .
See note 17 supra .
35.
409 U.S. at 335.
36 .
Id .
37 .
Id.
38 .
Id .
39 .
477 F.2d 757 ' (5th Cir. 1973), aff ' d on rehearing en bane, 487 F.2d 1335
(5th Cir . . 1973)(cert . denied, 43 U. S. L .W. 3212 (1974).
40 .
See note 17 supra.
41.
1177 F . 2d at 759.
42 .
Ed . at 760 .
43.
A collateral issue was raised by the taxpayer's contention that the summons
was unenforceable because the Internal Revenue Servic e ' s sale objective in
issuing it was "to obtain evidence for use in a criminal prosecution of the
taxpayer.
In response, the court held that under Internal Revenue Code
§ 7602 a summons may be issued in aid of an investigation if it is issued
in good faith and prior to a recommendation for criminal prosecution.
477
F.2d at 76-61.
44.
477 F . 2d at 763.
The court also noted that the attorney-client privilege
has been uniformly rejected on the ground that pre-exist in g documents such
as an accountant's workpapers cannot constitute a confidential communication .
between the attorney and his client. Id. at 762n.9. See generally The
Attorney and His Client's Privileges, 74 Yale L.J. 5390965 ) .
45 .
477 F.2d at 763 .
46.
499 F. 2d 444 (5th Cir . 1974), cert. granted, 43 U.S.L.W. 4312 (1975).
47 .
499 F.2d at 446.
48 .
Id. at 447 .
49.
Id.
50.
Id.
51.
Id. at 448.
52.
Id.
53.
Id. See United States v. Cohen, 388 F.2d 464,468 n.9 (9th Cir. 1967),
citing Johnson V. United States, 228 U.S. 457 (1913).
54.
499 F. 2d at 449.
55.
Id. at 451. See Schwimmer v. United States, 232 F.2d 855 (8th Cir. 1956);
Application of House, 144 F.Supp . 95 (N.D. Cal. · 1956).
56.
499 F.2d at 452. See also United States v. Judson, 322 F.2d 460, 466
(9th Cir. 1963) which stated: "The government would have us hold that
the taxpayer walked into his attorney's office unquestionab ly ,hie l ded
with the (fifth) amendmentls protection, and walked out with something
less."
Although the attorney-client privilege is unavailable, the attorney- client
relationship is such that it generates an expectation of privacy. Thi s i s
partly due to the attorney's professional responsibi lit y to r ef r a in from
revealing his client's confidence . ABA Code of Professional Respo ns ibi lity ,
Ethical Consideration 4-4 provides in pertinent part : "The attorney- clien t
privilege is more limited than the ethical obligation of a lawyer to guard
the confidences and secr~ts · of his client. This ethical precept, unlike
the evidentiary privilege, exists without regard to the nature or source
of information or the fact that others share the knowledge."
57.
499 F.2d at 454.
58.
Id. at 451.
59.
Id.
60.
Id. at 453.
61.
Id. at 452-53.
62.
500 F.2d 683 (3rd Cir. 1974). cert. granted,_ _ _ _-"4'-'!3 U.S.L.W. 341 2(1975).
63.
Id. at 685.
64.
Id. at 686.
65.
Ld. at 688.
66.
Id. at 689 . . However, the trial court had found that the workpape rs and the
accountant's analyses were owned by the accountant rather than the taxpaye r.
This finding. was given much weight by the court in its decj sl 0n. rd. at
688-89 n.8.
67 .
500 F. 2d at 690.
68.
ld. at 689.
69 .
ld .
70 .
116
71.
ld. at 633.
72 .
500 F . 2d a t 692 .
73 .
ld . at 691.
74.
ld .
75.
See United States v. Cohen, 388 F . 2d 464, 468 n . 9 whi ch stated that
u.s.
616 ' (1886)
ownership, without possession does not g ive use to the cla im of t he
privilege.
On the contrary, it is possession, not ownership, t ha t is
essential to claim the privilege. ld. at 468. The Coh en case was
cited with approval by the United States Supreme Court in Couch.
Therefore, the Fisher decision appears inconsistent with the rules
set out in Couch.
76 .
500 F.2d at 694 .
77 .
409 U.S . a t 333 .
78 .
500 F.2d at 695 .
79 .
ld . No cour't 'has yet faced the issue of what constitutes "r ightful
possess i on. II
80 .
500 F . 2d at 692.
81.
ld . a t 695 .
82 .
ld .
83.
ld. at 695- 96 . The diss ent also express ed h is view t ha t Couch had e xpress l y approved the Ninth Circuit opinion of United States v . Cohen ,
which held that possession, not ownership, i s the sign i f.icant factor
and that the privilege protects one from having to produce the evi dence, though not from its production. 500 F.2d at 696 .
84.
See note 44 supra.
85., 500 F.2d at 698 .
86 .
ld.
87.
322 F. 2d 460 (9th Cir . 1963) . See a l so Wigmore, Eviden ce §2307 at 592 93 (McNaughton , rev. 1961) which~ate s : " . . . wh en the client himself
would be privileged from produc tion of the doc ume nt s . . . the at t o rney
having possession of the document is not bound t o produce . . . on the
other hand, if the client would be compellable to produce,
. then
the attorney is equally compellable, i f the document i s in his custody,
t o produce under the appropriate pr ocedure. 1I
88 .
500 F.2d at 698 .
89.
Id. a t 699 . '
90 .
Id. a t 701.
91.
Couch v . Uni t ed States, 409 U. s . 322 (1973).
92 .
Uni t ed St ates v . Judson, 322 F.2d 460 (9th Cir. 1963).
~3 .
United St ates v. White, 477 F . 2d 757 (5th Cir. 1973), aff ' d on rehe a r ing
en bane , 48 7 F.2d 1335 (5th Cir . 1973) .
~4 .
409 U. S. at 557 .
95.
United St ates v . Kasmir, 499 F.2d 444, 449 (5th Cir. 1974) .
96 . , See generally, Couch v. United States , 409 U. S. 322, 333 (1973) .
~7 .
Id .
98.
Couch v. Uni t ed States, 409 U.S . 322,329 n.9 (19 73) ; United States v .
Zaku t ansky, 401 F . 2d 68, 72 (7th Cir . 1968), ce r t. denied, 393 u . S . 1021
(1969); United St ates v . Kasmir , 499 F.2d 444 (5th Cir . 1974); Uni t ed
States v . Lyons, 442 F . 2d 1144 (1st Cir. 1971).
99 .
Couch v. United Stat es , 409 U.S. 322 (1973).
100 .
499 F.2d a t 453 .
101.
500 F . 2d at 692.
102 .
For other conunentaries r e lating to thi s gene r a l topi c of individua l
rights in tax i nves tiga tions, see FIFTH AMENDMENT RIGHTS OF A CLIENT
REGARDING DOCUMENTS HELD BY HIS ATTORNEY: United States v . White,
1973 Duke L . J . 1080 (1973); THE ATTORNEY AND HIS CLIENT'S PRIVILEGES ,
74 Yale L.J . 539 (1965) ; Mahon, PRIVILEGED COMMUNICATIONS AND SELFINCRIMINATION, 32 N. Y.U. 32d Inst. on Fed . Tax 1251 (1974); Cohen ,
Accountant's Workpapers in Federal Tax Investi gations , 21 Tax L. Rev .
183 (1966); Fahey, Testimonial Privilege of Accountants i n Federal
Tax Fra ud Inve s ti ga tions, 17 Tax L. Rev. 491 (1962); Lyon , Government
Power and Ci tizens Rights in a Tax I nves t igation, 25 THE TAX LAWYlm
79 (1971).
103.
409 U. S. at 324, 334 n . 18 (1973) .
104.
Id .
105.
Thes e records are protected under the theory tha t poss ess ion by th e
attorney is .c onstructive possession by the individual . United States
v. Kasmir, 499 F.2d 444 (5th Cir. 1974).
106.
Couch v. United States, 409 U.S. 322 (1973).
107.
This dilemma was set forth in United States v. Kasmir, 499 F.2d 444,
45 1 (5th Cir. 1974).
108.
500 F.2d at 691.
109.
Id. at 692.
110 .
The Supreme Court has granted certiorari on both Fi she r and Ka srn ir .
See notes ~, g supra.
111.
94 S.Ct. 1494 (1974).
112.
.12 U.S.C. §§ 1730d, 1829b, 1951-59 (Supp 1975); 31 U. S.C. §@ 1051- ll22
(Supp 1975). For a general discussion of teh Bank Secrecy Act, see
also 8 AKRON L. REV. 181 (1974).
113.
This informat ion is obtained by microfilming checks and other negotiable instruments that pass through the bank facilities which mi ght
not otherwise be recorded.
See note
~
infra.
114.
31 U.S.C. § 1061 (Supi. 1975).
115.
See note 112 supra.
116.
12 U.S.C. § 1829b (b) (Supp,. 1975)/
t 17 .
12 U.S.C.
1975) .
118.
12 U.S.C. §§ 1730d, 1829b (Supp. 1975); 31 U.S.C. § 1053 (Supp . 1975) .
119.
31 U. S.C. § 1053 (Supp. 1975).
120.
12 U.S.C.
121.
31 U.S.C. §§ 1051-1122 (Supp. 1975).
122.
31 U.S.C. § 1081 (Supp.
123.
31 U.S.C.
124.
31 C.F.R. §§ 103.22, 103 .25(a) (1973) .
125.
12 U.S.C.~~ 1829b (b), (c), (d), 1953 (Supp. 1975); 31 U.S.C. §§ 1053,
1054(b), 1083 (Supp. 1975).
126.
31 C.F.R.
127.
See note 124 supra .
~
~~
§
§
1829B (a) (1) (Supp. 1975); 31 U.S.C.
1829b,
1951~59
~
U.S . C. 1051 (Supp .
(Supp. ' 1975) .
1975) ~
1121 (Supp. 1975).
103.34 (1973) ·.
128.
Accord i ng to Congressman Patman, author of the Bank Sec recy Ac t, "a
trend was developing in the larger banks away from th e ir tradi tiona l
practices of microfilming all checks drawn on them." Ca lifornia Bankers
Assn. v. Shultz, 94 S.Ct. 1494, 1527 (1974).
129.
See generally California Bankers Assn . v . Shultz, 94 S.Ct. 1494 , 1528- 29
(1974) (Douglas, J., dissenting).
130.
94 S.Ct. 1494 (1974).
131.
94 S.Ct. at 1508.
132.
Id.
133.
Id.
134,
Id. at 1513.
135.
Id. at 1508.
136.
Id. at 1510.
137.
The bank plaintiffs contended that the purpose of th e Bank Sec r ecy Ac t was
to keep records on the depositor and not the banks th emse lves. The Court
replied that legislation ' imposing reporting or recordkeeping by the paying
institution, rather than the individual who receives the payment i s not
unique. Id. at 1510. Therefore, under the Court's reas onin g, it i s immaterial whether the Act was aimed at the bank or the individual de pos i t or.
138.
94 S.Ct. at 1511.
139.
Id. at 1512.
140.
Id . at 1513.
141.
Id.
142.
Id. at 1514.
143.
Id.
144.
Id.
145.
Id. at 1513-14.
146.
Id. at 1514.
147.
Under 12 U.S.C. gg 1955-57; Civil and crimina l penalties a r e assessed f or
"violation of any regulation "issued by the Secretary imple me nting the pro-
' visions of the Bank Secrecy Act.
Under 34 U. S.C.
§
1103 a civil pena lty
is assessed against any person who fails to file any r e quire d re po rt or
who files a report containing a material omission or miss t a tement.
I
148 .
31 U. S.C . §§ 1101- 1105 (Supp.'.1975) and its implementing re gulation,
31 C.F.R. § 103.23 require individuals to report transportation of monetary instruments into or out of the United States, or receipts of s uch
instruments in the United States from places outside the United States,
if the instrumen t . . . has a value in excess of $5 , 000 . The domestic
reporting provisions of the Act, in contrast, apply only to banks and
financial institutions . 31 C. F . R. § 103.22 requires the financial institution to "file
repor t on each deposit, withdrawal, exchange of
currency or o t her payment. or transfer, by, through, or to such financial institu tion, which i nvolves a transac t ion in currency of more than
$10 , 000."
a
1 49 .
See note 148 supra .
150.
31 U. S . C. g 1081 (Supp . ' 1975).
151 .
94 S. Ct. at 15 20.
152 .
rd . at 1517 .
153.
rd. at 1519 .
154 .
rd . at 1517 .
Pl aintiffs argued that the reporting requirements imposed
are so indiscriminate in nature that the regulations are equivalent to
a general warrant which was condemned as obnoxious to the fourth amend-
ment in Sanford v. Texas , 379 U.S. 476 (1965). rd . The Shultz court
also cited Boyd v . Unit ed States,l16 U.S. 616 (1886) as authori ty for
t he proposition that entries required t o be kept in books which are
subject to inspection by officers of the r evenue are excepted from the
category of unreasonable searches and seizures.
94 S.Ct. at 1517 .
155 .
94 S.C t . a t 1518.
156 .
1 2 U. S.C. !l 1829b (Supp . 1975); 31 U.S . C. !l 1121 (Supp. 1975).
15 7.
94 S.C t . a t 1520. ,
158 .
r d. a t 15 27 .
159.
r d. a t 1531-
160 .
rd.
161-
rd. at 1529 .
162 .
rd.
163 .
389 U.S. 347 (
164 .
rd. at 351-52.
165.
United States v. White, 401 U.S . 745, 752 (
166.
94 S.C t. at 1531.
)
.
)
.
167.
Id . at 1533.
168.
Id.
169.
Id. at 1535. He a l s o stated that "by compelling an o t herwise unwilling bank to photocopy ' the checks of it s customers, the government
has as much of a hand in s eiz ing those checks as if it had forced
a priva te person to break into the cus t omer' s home or office and
photocopy the checks there." Id. a t 1533- 34 .
170.
94 S.Ct. at 1533.
171.
California Bankers Assn. v. Shultz, 94 S.Ct. 1494, 15 14 (1974).
172.
Couch v. United States, 409 U.S. 322, 335 (1973).
173., See note 126 supra .
174.
See note 127 s upra . '
175.
The Court h eld that the depositor plai ntiff's challenge to the domestic
reporting require ments were premature and it refused to rule on that
issue.
176.
California Bankers Assn. v. Shultz, 94 S. Ct. 1494,1524 (1974) .
94 S.Ct. at 1521.