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April 21, 1972


The opinion of the court was delivered by: McLAREN, District Judge.


This action was initiated by the United States by a petition requesting an order to respondent Tsukuno directing him to show cause why he should not comply with an Internal Revenue Service (hereinafter "IRS") summons issued by petitioner Thalman, a Special Agent of IRS, pursuant to 26 U.S.C. § 7402(b) and 7604(a). The order was entered February 22, 1972 with directions to the parties to brief the legal issues.

The summons directed Tsukuno, an accountant, to produce certain records and documents in his possession in connection with an investigation of the tax liabilities of intervenor Ken Eto. The items described in the summons may be generally divided into two categories: (1) workpapers developed and used by Tsukuno in the preparation of Eto's tax returns, and (2) the personal books and records of Eto used by, and still in the possession of, Tsukuno.

Tsukuno and Eto urge two reasons why this Court should not order Tsukuno to comply with the summons — the Illinois statutory accountant-client privilege and the Fifth Amendment privilege against self-incrimination.

The Accountant-Client Privilege

Ill.Rev.Stat. ch. 110½, § 51, provides that:

  "A public accountant shall not be required by any
  court to divulge information or evidence which has
  been obtained by him in his confidential capacity as
  a public accountant."

In United States v. Balistrieri, 403 F.2d 472, 481 (7th Cir.), vacated on other grounds, 395 U.S. 710, 89 S.Ct. 2032, 23 L.Ed.2d 654 (1969), the Court of Appeals for the Seventh Circuit held that in a federal criminal tax prosecution federal law applies, and because there is no accountant-client privilege in the federal system, the Illinois statute is inapplicable. Although the present case merely involves the enforcement of a summons, Balistrieri appears to state the applicable rule. Although state laws creating privileges are substantive and have been followed in diversity cases, Palmer v. Fisher, 228 F.2d 603, 608 (7th Cir. 1955), it is well-settled that questions of privilege in a federal income tax investigation are controlled by federal law. Colton v. United States, 306 F.2d 633, 636 (2d Cir. 1962), cert. denied, 371 U.S. 951, 83 S.Ct. 505, 9 L.Ed.2d 499 (1963); Falsone v. United States, 205 F.2d 734, 742 (5th Cir.), cert. denied, 346 U.S. 864, 74 S.Ct. 703, 98 L.Ed. 375 (1953); United States v. Schoeberlein, 335 F. Supp. 1048, 1057 n. 13 (D.Md. 1971); Dorfman v. Rombs, 218 F. Supp. 905, 907 (N.D.Ill. 1963). Compliance with the Revenue Service summons cannot therefore be withheld on the basis of the Illinois accountant-client privilege.

The Fifth Amendment Privilege Against Self-Incrimination

Although it did not involve the same issue and facts as the instant case, Donaldson v. United States, 400 U.S. 517, 91 S.Ct. 534, 27 L.Ed.2d 580 (1971) is illuminating. In that case, an IRS agent issued summonses to the taxpayer's former employer and its accountant for the production of their records of his compensation. The intervening taxpayer's argument that an IRS summons proceeding may not be utilized in aid of an investigation that has the potentiality of resulting in a recommendation of criminal prosecution was rejected, the Court stating:

  "To draw a line where a special agent appears would
  require the Service, in a situation of suspected but
  undetermined fraud, to forgo 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. [citation omitted]
    "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."

400 U.S. at 535-36, 91 S.Ct. at 545. The Court emphasized in Donaldson that there was no constitutional issue presented by the facts and that each summons was —

  ". . . we repeat, . . . directed to a third person
  with respect to whom no established legal privilege .
  . . exists, and had to do with records in which the
  taxpayer has no proprietary interest of any kind,
  which are owned by the third person, which are in his
  hands, and which ...

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