Appeals from the United States District Court for the Northern District of Illinois, Eastern Division - No. 73 C 2364 William J. Bauer, Judge.
Fairchild, Chief Judge, Hastings, Senior Circuit Judge, and Swygert, Circuit Judge.
HASTINGS, Senior Circuit Judge.
The United States and the taxpayer, Marvin L. Tratner, both appeal from the decision of the district court granting in part and denying in part the government's petition to enforce an Internal Revenue summons brought pursuant to Title 26, U.S.C., Sections 7402(b) and 7602.
On February 18, 1971, taxpayer, an attorney, made a $10,000 cash deposit to his checking account numbered 428 619 1 at the Harris Trust and Savings Bank and on February 22, 1971, he wrote a $10,000 check on that account. The account is an escrow account of the kind commonly maintained by attorneys in order to segregate clients' funds from their own. The bank reported the cash transaction to the Internal Revenue Service as required by 31 U.S.C. § 1081. Subsequently, Internal Revenue Agent James Sinda was assigned to audit taxpayer's 1971 tax return as a result of the bank report. Agent Sinda conducted an audit of records provided to him by the taxpayer and was satisfied with all aspects of the audit except the escrow account. Taxpayer showed Sinda the $10,000 check drawn on the escrow account, but he covered the line indicating the name of the payee. Taxpayer refused to provide any further information about the escrow account on the ground that the account was protected by the attorney-client privilege.
On July 5, 1973, Agent Sinda issued taxpayer an Internal Revenue summons requiring production of the following items:
1. All checking accounts including checking account No. 428 619 1
2. Copies of cancelled checks for above checking accounts
3. Copies of deposit slips for above checking accounts
5. All information regarding a deposit to checking account No. 428 619 1 in the amount of $10,000 on February 18, 1971 and all information regarding any other deposit made to checking account 428 619 1 during 1971
6. All information regarding a check written on checking account number 428 619 1 in the amount of $10,000 on February 22, 1971 and all information regarding any other check written on account 428 619 1 during 1971
7. Any other records necessary to determine the correct tax liability for 1971
Taxpayer had no savings account and has provided information about his personal checking account. Upon taxpayer's refusal to provide the remaining materials sought by the summons, the United States instituted this proceeding for enforcement of the summons in the district court. The taxpayer, in his response to the government's petition, claimed that the escrow account was protected from disclosure by the attorney-client privilege.
The district court, upon the government's motion, ordered Tratner to show cause why he should not comply with the summons. On October 31, 1973, an evidentiary hearing was held at which Agent Sinda and Tratner testified. Following the hearing, the taxpayer supplied to the district court for in camera inspection all of the files in his possession pertaining to the $10,000 transaction and the identity of the client involved. There is no indication in the record that the district court examined these materials. The materials were never filed in the district court or introduced into evidence. They are not included in the district court record, nor do they appear in the record on appeal. The district court's order and findings of fact and conclusions of law do not indicate whether the court considered the in camera materials in making its decision.
On December 5, 1973, the court issued its decision. It ordered taxpayer to produce the records required in items 1, 2 and 3 of the summons, that is, the checking account, cancelled checks and deposit slips for the escrow account. The court held that disclosure of these items would not violate the attorney-client privilege. The court declined to enforce the summons as to items 5, 6 and 7 which had requested "all information" regarding all deposits made to and all checks written on the escrow account, including those relating to the $10,000 transaction, as well as any other records necessary to determine the correct tax liability for 1971. The court held that these requests were overbroad.
Tratner appeals from the court's order enforcing the summons as to items 1, 2 and 3. The United States cross-appeals from the denial of enforcement of items 5 and 6. No appeal is taken from the denial of enforcement of item 7. The district court stayed its December ...