The opinion of the court was delivered by: Robson, Senior District Judge.
This cause is before the court on the objections of intervening
taxpayers, Curtis and Willia Betts, to the enforcement of
twelve (12) Internal Revenue Service summons directed to
various banks, and companies. Intervenors further request
additional discovery regarding such objections. For the reasons
hereinafter stated, the objections to enforcement shall be
overruled except as to the question of the enforceability of
summonses concerning Willia Betts and the summons directed to
Caplan, Schwartz, Taub & Levin, 80 C 5722. Intervenors'
requests for discovery shall be quashed. Enforcement of the
remaining summonses shall be ordered as directed below.
The summonses at issue in this cause were issued to banks and
other companies pursuant to an investigation of potential civil
and criminal tax liabilities of Curtis Betts for the years
1974, 1975, 1976, and 1977. The summonses were first issued
during July and August 1979. One, directed to Caplan, Schwartz,
Taub & Levin, an accounting firm, was issued in October, 1979.
The present enforcement actions were filed October, 1980. On
November 13, 1980, on the government's motion, these actions
were consolidated. The court entered a rule to show cause why
the summonses should not be enforced returnable December 4,
1980. On December 4, 1980, Curtis and Willia Betts filed their
appearance and request for leave to intervene. On that same
date, the Betts filed a petition to quash the order to show
cause. They contend that the enforcement of the summonses would
be improper for several reasons. Intervenors also filed
discovery requests seeking information regarding the basis and
background of the IRS investigation. On January 13, 1981, the
IRS filed a hearing brief, and memoranda in support of a motion
for a protective order regarding such discovery. On January 16,
1981, intervenors replied to such briefs. On January 29, 1981,
the court held a limited hearing for the purpose of determining
whether additional discovery should be permitted. Subsequently,
both IRS and Betts filed additional briefs and memoranda. These
papers, and the arguments presented in court having been
considered, the matter is ready for determination.
Objections to Enforcement
Betts contends the summonses should not be enforced, or,
alternatively, additional discovery should be permitted, on
several grounds. First, he contends enforcement of the
summonses would violate his Fourth, Fifth, Sixth, Eighth, and
Fourteenth amendment rights. Second, he claims enforcement is
improper because the material sought relates to tax years for
which the statute of limitations has run, the IRS is guilty of
laches, the IRS has not made a sufficient showing of necessity
for enforcement, and the summonses are part of a continuing
conspiracy of harassment in violation of Curtis Betts' civil
rights by federal, state and local officials. Willia Betts
claims that enforcement of the summonses as to her papers are
improper. Intervenors also claim enforcement of the summonses
directed to the accounting firm violates the accountant-client
privilege under Illinois law.
The constitutional objections to enforcement are invalid on
their face. It is well-settled that an IRS summons directed to
a third party does not violate the intervenor's right to
privacy under the Fourth and Fourteenth amendments. Donaldson
v. United States, 400 U.S. 517, 522, 91 S.Ct. 535, 538, 27
L.Ed.2d 580 (1970). Nor does the Fifth Amendment privilege
against self-incrimination bar compelled production of records
in the hands of third persons. Fisher v. United States,
425 U.S. 391, 96 S.Ct. 1569, 48 L.Ed.2d 39 (1976). Betts claims
that enforcement of the summons
directed to his accountant violates the Sixth amendment. He
claims that compelling production from his accountant precludes
his accountant and attorney from free communication necessary
for legal advice. This contention is patently incorrect. There
is no accountant-client privilege under Federal law. Couch v.
United States, 409 U.S. 322, 93 S.Ct. 611, 34 L.Ed.2d 548
(1973). Further, the Sixth amendment right to representation by
counsel is only applicable to criminal or quasi-criminal
proceedings where there is a threat of imprisonment.
Argersinger v. Hamlin, 407 U.S. 25, 92 S.Ct. 2006, 32 L.Ed.2d
530 (1972). The constitutional right to counsel is not the
equivalent of the attorney-client privilege.
As for the contention that enforcement would be "cruel and
unusual punishment" in violation of the Eighth Amendment,
however unpleasant IRS investigations may be, they are not
punishments for violations of the criminal law.
The IRS contends that the Betts are barred from raising certain
defenses because these defenses were already litigated and
determined in favor of the government in United States v. Bank
of Three Oaks, et al., Civil Action No. K80-66, Misc. 8, in
the United States District Court for the Western District of
Michigan, Southern Division. The Betts do not dispute that many
of the same issues, for example, statute of limitations,
laches, delay in enforcement, were raised and decided in that
proceeding. They contend, however, that application of
collateral estoppel in these circumstances is inappropriate
because they lacked a full and fair opportunity to be heard in
The doctrine of collateral estoppel is applicable when the
party against whom it is invoked had a full and fair
opportunity to litigate the issues in a prior proceeding.
Parklane Hosiery Company v. Shore, 439 U.S. 332, 99 S.Ct.
645, 58 L.Ed.2d 552 (1979); Speaker Sortation Systems v. U.S.
Postal Service, 568 F.2d 46, 48 (7th Cir. 1978).
According to the document attached to the government's
memoranda in this action, Betts did appear in the Michigan
action, was represented by counsel, and availed themselves of
the opportunity to challenge the summonses at issue there.
However, application of collateral estoppel is unnecessary in
this cause. Upon independent assessment, the court agrees with
the legal conclusions of the Michigan Court regarding several
of these same issues. It is clear that the Michigan court
determined that the IRS summons might be enforced even where
the tax years in question might be covered by the three-year
statute of limitations for recovery of taxes. This court
agrees. The IRS may investigate through the summons procedure
to determine whether any exceptions to the three-year statute
of limitations, i.e., fraud, are applicable, 26 U.S.C. § 6501(a)(c)
(1976); United States v. Powell, 379 U.S. 48, 85
S.Ct. 248, 13 L.Ed.2d 112 (1964); Ryan v. United States,
379 U.S. 61, 85 S.Ct. 232, 13 L.Ed.2d 122 (1964). The Michigan
court also determined that delay in initiation of the
enforcement action does not preclude enforcement of the summons
where neither the intervening taxpayer nor the third-party
recordholder has shown any prejudice resulting from the ...