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
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
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 ...