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UNITED STATES v. BROWN
September 11, 1972
UNITED STATES OF AMERICA AND WALLACE S. OSHIRO, SPECIAL AGENT, INTERNAL REVENUE SERVICE, PETITIONERS,
EARL BROWN, AS PARTNER OF ARTHUR ANDERSEN & COMPANY, RESPONDENT, AND DELBERT W. COLEMAN, INTERVENOR.
The opinion of the court was delivered by: Austin, District Judge.
ORDER AND MEMORANDUM OPINION
On March 5, 1970, pursuant to 26 U.S.C. § 7602 (1964), an
Internal Revenue Service summons was served on the accounting
firm of Arthur Andersen & Company (hereinafter referred to as
"Andersen") demanding the accountant's records pertaining to the
IRS investigation of taxpayer Delbert W. Coleman (hereinafter
referred to as "Coleman"). Fewer records than requested were
turned over to the IRS and Andersen failed to indicate that some
documents covered by the subpoena were withheld. In response to a
second subpoena on May 26, 1971 Andersen objected to the
disclosure of certain documents. On June 7, Andersen filed
objections to the IRS summons. At a hearing on October 20, 1971
this court approved a stipulation entered into by the parties by
which taxpayer Coleman was permitted to intervene, agreeing to
restrict his defenses to that of attorney-client privilege and
attorney's work product doctrine. Mr. Earl Brown of Andersen then
waived all objections to production of the documents which were
in his possession at the time the summons was served upon him.
Coleman is therefore the only party presently challenging the
In the stipulation, Coleman agreed to examine all documents in
the possession of Andersen relating to Coleman and to turn over
to the IRS those documents as to which no objections would be
raised. This was subsequently done and most of the documents
originally objected to were delivered to IRS during November,
1971. The remaining five documents at issue here are numbered 4,
7, 8, 10 and 11.
On April 3, 1972 a hearing was held with regard to these
remaining documents and thereafter post-hearing briefs were
In substance, Coleman argues that each of the five documents is
covered by both the attorney-client privilege and the work
The Supreme Court has never expressed its view of the scope of
the attorney-client privilege in tax fraud investigations, or
more specifically, to what extent the privilege will protect the
workpapers and reports prepared by an accountant at the
attorney's direction. The issue was before the Court in Reisman
v. Caplin, 375 U.S. 440, 84 S.Ct. 508, 11 L.Ed.2d 459 (1964) but
was not decided, since the case was disposed of on procedural
No accountant-client privilege is recognized by either the
common law or the federal courts in tax investigation
proceedings. United States v. Balistrieri, 403 F.2d 472, 481 (7th
Cir. 1968). Therefore, if communications to an accountant or his
reports and workpapers are to be protected, they must be brought
within the scope of other categories of privilege, specifically
the attorney-client privilege.
Dean Wigmore has stated the attorney-client privilege as
(1) Where legal advice of any kind is sought, (2)
from a professional legal adviser in his capacity as
such, (3) the communications relating to that
purpose, (4) made in confidence (5) by the client,
(6) are at his instance permanently protected (7)
from disclosure by himself or by the legal adviser,
(8) except the protection be waived. 8 J. Wigmore,
Evidence, Sec. 2292 at 554.
There appear to be two key factors in determining whether the
attorney-client privilege is applicable to the workpapers of an
accountant. First, has the attorney been retained by the taxpayer
prior to the preparation of the workpapers and reports by the
accountant? Second, have the workpapers and reports been prepared
by the accountant at the direction of the attorney?
Following the rationale of the attorney-client privilege, there
is no protection for workpapers prepared prior to the retention
of the attorney since there is no communication between client
and attorney to be protected and the accountant is not directed
by the attorney as his agent. The leading case upholding this
view is Bouschor v. United States, 316 F.2d 451 (8th Cir. 1963).
The transfer of possession of the workpapers to an attorney who
was subsequently retained would not bring them within the
privilege under the Bouschor reasoning, but United States v.
Kovel, 296 F.2d 918, 922 n. 4. (2nd Cir. 1961) left the question
open. Whether these documents could be protected under the
privilege against self-incrimination need not be considered here.
Coleman has expressly limited his objections to the
attorney-client privilege and work product doctrine, thereby
waiving other grounds for objection.
Where the accountant is employed directly by the attorney the
cases appear to extend the protection of the privilege. The
earliest case to consider this issue is Himmelfarb v. United
States, 175 F.2d 924
(9th Cir.) cert. denied, 338 U.S. 860, 70 S.Ct. 103, 94 L.Ed. 527
(1949) which narrowly construed the attorney-client privilege to
exclude the accountant as not essential to an attorney's
provision of effective legal representation in a tax fraud case,
and therefore found that an accountant's communications with the
attorney or client were not privileged. Himmelfarb was approved
in Gariepy v. United States, 189 F.2d 459 (6th Cir. 1951).
The leading case to expand the scope of the attorney-client
privilege to cover employees or agents of an attorney with more
than menial or ministerial duties is United States v. Kovel,
296 F.2d 918 (2nd Cir. 1961). It was followed by the Ninth Circuit in
United States v. Judson, 322 F.2d 460 (9th Cir. 1963) apparently
overruling sub silentio its earlier decision in Himmelfarb. This
view was followed also in Bauer v. Orser, 258 F. Supp. 338
(D.C.N.D. 1966). The Kovel court stressed the essential criteria
for inclusion within the privilege "that the communication be
made in confidence for the purpose of obtaining legal advice from
the lawyer." 296 F.2d at 922.
A practical consequence of these decisions is the practice that
previously retained accountants insist that an attorney be
retained and accounting services be provided only at the
attorney's direction and to refrain from any communications or
service until the attorney is retained. Peterson,
"Attorney-Client Privilege in Internal Revenue Service
Investigations" 54 Minn.L.Rev. 67 at 91. Further, in order to
avoid any question as to the title to the documents, an
irrelevant factor discussed in Bouschor which confuses the
relevance of title to the availability of the attorney-client
privilege with its relevance to the validity of a fifth amendment
claim of self-incrimination, attorneys will obtain a surrender of
title from the accountant for all reports and workpapers.
Peterson supra at 88.
It appears from the hearing and briefs that Andersen was
employed by Coleman in 1957 or 1958, and that the law firm of
Marshall, Bratter, Green, Allison and Tucker (hereinafter
referred to as "Marshall Bratter") was retained by Coleman during
this same period. There is testimony to indicate that Andersen
was subsequently employed by another law firm which was retained
by Coleman on March 4, 1970 to perform accounting services
related to the IRS examination of Coleman's income tax returns.
This law firm was subsequently replaced by the Marshall Bratter
firm which proceeded to similarly employ Andersen to provide
these same services for the examination of the income tax returns
of Coleman for the taxable years 1964 to 1969. The terms of this
employment are indicated by Intervenor's Exhibits B and C,
letters dated May 11, 1970 and June 10, 1970.
It appears that Document No. 4, a 3-page memorandum, was
prepared on August 2, 1967 by R.W. Ruther, an accountant
associate of Andersen, at the request of Mr. Brown, a partner of
Andersen, for the Andersen files. The document records a summary
of telephone discussions and accounting assistance given by Mr.
Brown to a member of the Marshall Bratter firm and discussions
which he had with Mr. Seiden, an aide of Mr. Coleman, and Mr.
From the discussion of the law relating to the attorney-client
privilege it appears that the privilege does not apply to
Document No. 4. It was not prepared by Coleman's attorney. At
this time Andersen was presumably employed directly by Mr.
Coleman, but not employed by Marshall Bratter. The privilege does
not extend to protect an accountant's papers prepared while
employed by a taxpayer. The fact that the accountant is
subsequently employed by taxpayer's attorney does not cloak all
papers prepared prior to that employment in the attorney-client
privilege. Bouschor v. United States, 316 F.2d 451 (8th Cir.
1963). Further, the document was not requested by Marshall
was requested by Mr. Brown for inclusion in the files of
While intervenor does not raise the point, it appears that
Ruther is both an accountant and an attorney. However, any
argument that the privilege should protect the memorandum of an
accountant-attorney prepared in his capacity as an accountant,
without having been retained as an attorney by a client and
without a confidential communication flowing directly from client
to attorney would be fruitless. In order for communications
between an attorney and client to be privileged, the attorney
must have been acting in his capacity as a professional legal
advisor at the time any disclosures were made. 8 J. Wigmore,
Evidence Sec. 2292 at 554. Peterson supra 91-97.
Document No. 7 is a 3-page memorandum dated October 7, 1968
prepared by David N. Hurwitz, Esq. for the Marshall Bratter file
and a cover letter dated the same day regarding the memorandum
written by Hurwitz addressed to F.N. Gerard, Esq. A copy of
Document No. 7 was subsequently sent to Andersen for its file.
It appears that the memorandum was a summary of notes and legal
judgments made by Hurwitz at an October 2, 1968 meeting attended
by Mr. Seiden, an aide of Mr. Coleman, and Mr. Ruther, an
associate of the Arthur Andersen firm employed by Mr. Coleman.
Andersen was not retained by the Marshall Bratter firm at this
time nor did Mr. Ruther of Andersen attend the meeting at the
request of Mr. Hurwitz of Marshall Bratter.
This privilege does not concern the issue of whether writings
are prepared by counsel in anticipation of litigation. Disclosure
is sought from the taxpayer's accountant and not from the
taxpayer or his attorney. This document falls outside the scope
of the attorney-client privilege. Hickman v. Taylor,
329 U.S. 495, ...