UNITED STATES OF AMERICA, PETITIONER v. ARTHUR YOUNG & COMPANY, ET
AL.

   No. 82-687

   In the Supreme Court of the United States

   October Term, 1982

   On Writ of Certiorari to the United States Court of Appeals for the
Second Circuit

   Brief for the United States

            TABLE OF CONTENTS
   Opinions below
   Jurisdiction
   Statutes involved
   Statement
   Summary of argument
   Argument:
      Tax accrual workpapers prepared by a corporation's independent
      certified public accountant in the course of regular financial
      audits are subject to production in response to an internal
      revenue summons issued under 26 U.S.C. 7602
      A. Congress has given the Internal Revenue Service
          authority to obtain information relevant to its tax
          investigations
      B. Tax accrual workpapers contain evidence that is
          unquestionably relevant to the Internal Revenue's
          Service's tax investigations
      C. The tax accrual papers are not protected from disclosure
          by either a work-product privilege or an
          accountant-client privilege
      D. The rationale for a communications privilege is not
          applicable to this case
      E. The court of appeals erred in assuming a conflict between
          the IRS summons authority and the securities regulation
          statutes
   Conclusion

                            OPINIONS BELOW

   The order of the district court (Pet. App. 1a-15a) is reported at
496 F.Supp. ll52.  /1/ The opinion of the court of appeals (Pet. App.
16a-39a) is reported at 677 F.2d 211.

                             JURISDICTION

   The judgment of the court of appeals was entered on April 13, 1982
(Pet. App. 40a).  The order denying the government's petition for
rehearing, with suggestion for rehearing en banc, was entered on June
22, 1982 (Pet. App. 41a).  By order dated September 13, 1982, Justice
Marshall extended the time within which the United States might file a
petition for a writ of certiorari to and including October 20, 1982,
and the petition was filed on that date.  The petition was granted on
February 22, 1983 (J.A. 108).  The jurisdiction of this Court rests on
28 U.S.C. 1254(1).

                           STATUTES INVOLVED

   The pertinent provisions of Sections 7601, 7602 and 7604 of the
Internal Revenue Code of 1954 (26 U.S.C.) are as follows:

      Sec. 7601.  CANVASS OF DISTRICTS FOR TAXABLE PERSONS

         AND OBJECTS.

         (a) General Rule. -- The Secretary shall, to the extent he
      deems it practicable, cause officers or employees of the
      Treasury Department to proceed, from time to time, through each
      internal revenue district and inquire after and concerning all
      persons therein who may be liable to pay any internal revenue
      tax, and all persons owning or having the care and management of
      any objects with respect to which any tax is imposed. Sec. 7602.
       EXAMINATION OF BOOKS AND WITNESSES.

         For the purpose of ascertaining the correctness of any
      return, making a return where none has been made, determining
      the liability of any person for any internal revenue tax or the
      liability at law or in equity of any transferee or fiduciary of
      any person in respect of any internal revenue tax, or collecting
      any such liability, the Secretary is authorized --

         (1) To examine any books, papers, records, or other data
      which may be relevant or material to such inquiry;

         (2) To summon the person liable for tax or required to
      perform the act, or any officer or employee of such person, or
      any person having possession, custody, or care of books of
      account containing entries relating to the business of the
      person liable for tax or required to perform the act, or any
      other person the Secretary may deem proper, to appear before the
      Secretary at a time and place named in the summons and to
      produce such books, papers, records, or other data, and to give
      such testimony, under oath, as may be relevant or material to
      such inquiry;  and

         (3) To take such testimony of the person concerned, under
      oath, as may be relevant or material to such inquiry. Sec. 7604.
       ENFORCEMENT OF SUMMONS.

         (a) Jurisdiction of District Court.  If any person is
      summoned under the internal revenue laws to appear, to testify,
      or to produce books, papers, records, or other data, the United
      States district court for the district in which such person
      resides or is found shall have jurisdiction by appropriate
      process to compel such attendance, testimony, or production of
      books, papers, records, or other data.

                          QUESTION PRESENTED

   Whether tax accrual workpapers, prepared by a corporation's
independent certified public accountant in the course of regular
financial audits, are privileged from disclosure in response to an
internal revenue summons issued under 26 U.S.C. 7602.

                               STATEMENT

   1. Respondent Arthur Young & Company, a firm of certified public
accountants, has served as Amerada Hess Corporation's independent
auditor since November 1971.  In that capacity, respondent conducted
financial audits of, and certified, Amerada's financial statements for
1972 through 1974 (Pet. App. 19a).  Federal securities laws require
publicly-owned companies such as Amerada to file certified financial
statements annually.  See 15 U.S.C. 78l and m and 17 C.F.R. Part 210,
210.1-01, 210.1-02(a), (d) and (f), and 210.2-01 et seq.  The
certification process requires the independent auditor to evaluate the
reasonableness and adequacy of the corporation's reserve for potential
tax liabilities.

   As part of its certification of Amerada's financial statements,
respondent prepared tax accrual workpapers, which are documents and
memoranda relating to respondent's evaluation of Amerada's tax
liability reserves as they appeared in its financial statements.  The
tax accrual workpapers include facts pertaining to Amerada's financial
transactions based upon company records and respondent's interviews
with company personnel and with third parties, and may identify
specific items whose treatment on Amerada's tax return for the year
was questionable.  If the auditor determines that these items could
reasonably lead to additional tax liability upon examination by the
Internal Revenue Service, it will recommend the establishment of
additional contingency reserves (Pet. App. 24a-25a).

   In May 1975, the Internal Revenue Service began an audit to
determine Amerada's corporate income tax liability for 1972 through
1974.  Amerada is an integrated oil company incorporated in Delaware,
and it reported gross revenues for the years under audit exceeded
seven billion dollars.  During the course of the audit, Amerada
disclosed to the revenue agents that it had maintained a "special
disbursement account," a fund from which political contributions,
gifts to foreign government officials, and other illegal or
questionable payments were made, and that it had convened a special
committee to investigate the company's practices with respect to such
payments.  Amerada turned over the final report of its special
committee to the Internal Revenue Service.  The report disclosed the
deduction of some $7,830 in questionable payments during the years in
question (Pet. App. 2a-3a;  id. at 19a).

   Upon receipt of the report disclosing the deduction of questionable
payments by Amerada, the Internal Revenue Service assigned Special
Agent Kalemba of the Criminal Investigations Division to join the
investigation.  In furtherance of the joint investigation, the Special
Agent issued an administrative summons to respondent pursuant to 26
U.S.C. 7602, seeking, inter alia, the tax accrual workpapers prepared
by respondent.  Pursuant to 26 U.S.C. 7609, notice of the summons was
sent to Amerada, which thereupon instructed respondent not to produce
any of the documents called for by the summons (Pet. App. 2a-3a;  id.
at 19a-20a).

   On October 9, 1979, the government commenced this proceeding to
enforce the summons in the United States District Court for the
Southern District of New York.  /2/ Pursuant to 26 U.S.C. 7609,
Amerada intervened in the proceeding.  Both Amerada and respondent
filed answers to the petition opposing enforcement of the summons,
objecting, inter alia, to the production of the tax accrual workpapers
(Pet. App. 3a;  id. at 18a).

   The district court ordered production of the tax accrual
workpapers.  It found that the documents were relevant to the Internal
Revenue Service's tax investigation of Amerada and rejected
respondent's claim of an accountant-client privilege.  The district
court noted that this Court had refused to recognize such a privilege
in Couch v. United States, 409 U.S. 322, 335-336 (1973), and that the
First Circuit adhered to that view, even where the client claimed that
it gave the information to the auditor under an expectation of
privacy.  See United States v. Arthur Andersen & Co., 623 F.2d 725,
728 (1980).  As the district court concluded, "While there may be an
expectation of privacy insofar as the world at large is concerned,
Amerada cannot reasonably have such an expectation (of privacy) with
regard to the IRS which, the taxpayer knew, could call for all
materials underlying the tax returns and payments" (Pet. App. 9a).

   2. A divided panel of the court of appeals reversed the district
court's order with respect to the tax accrual workpapers (Pet. App.
28a-32a).  /3/ The court agreed with the district court's finding that
tax accrual workpapers were relevant to the Internal Revenue Service's
audit of Amerada's tax liability (id. at 24a-27a).  The court
nevertheless refused to enforce the summons because of its belief that
"these documents should remain confidential in order to protect the
reliability of the independent audit process" (id. at 19a).

   In support of its decision, the court of appeals expressed the view
that the policies behind the disclosure requirements of the federal
securities laws outweigh the policies in support of the Internal
Revenue Service's summons authority.  As the court reasoned, these
"countervailing policies" require(d) * * * (it) to fashion protection
for the work that independent auditors, retained by publicly-owned
companies to comply with the federal securities laws, put into
preparation of tax accrual workpapers" (Pet. App. 28a).  The court
apparently assumed that the tax accrual workpapers contain material
with respect to the "thoughts and theories" (id. at 31a) of the
taxpayer and its auditor concerning potential tax liabilities, and
their strategies and plans for negotiations about these liabilities.
It stated that "the Service does not need to know the taxpayer's
thoughts," and that the IRS can obtain "all the raw data" needed to
calculate the taxpayer's tax from other sources (ibid.).  The court
feared that if the summons were enforceable, corporate management
"might not be perfectly candid with independent auditors" once it knew
that such information would be reachable under Section 7602 (id. at
30a).  The court concluded that enforcement would therefore handicap
investors, who must rely on independent auditors for financial
information regarding publicly-traded securities (Pet. App. 31a).

   In reaching its decision, the court relied on the attorney's
work-product doctrine of Hickman v. Taylor, 329 U.S. 495 (1947).  Its
reasoning, however, was based primarily on an asserted need to
encourage confidential client-accountant communications -- that is, on
the need to create an accountant's communications privilege.  The
court concluded that the IRS may not obtain tax accrual workpapers
except in the "rare situation * * * where it (the IRS) can make a
sufficient showing of need to adequately justify invading the
integrity of the auditing process" (Pet. App. 31a).  No such showing,
according to the court, had been made here, since all the relevant
data were available to the IRS outside the tax accrual workpapers (id.
at 32a).

   The dissenting judge would have enforced the summons (Pet. App.
33a-39a).  He believed that Congress had legislated in favor of
disclosure of all relevant documents not subject to traditional common
law privileges, which do not include a privilege for either client
communications to an accountant or an accountant's work-product.  The
dissent observed that "(i)f there is to be recognition of new
privileges, we should leave that task to Congress" (id. at 35a).  The
dissent found nothing in the language or the legislative history of
Section 7602 to indicate that Congress intended to exempt an
accountant's work-product from Internal Revenue Service examination.
Nor could he find anything in Hickman v. Taylor, or the Federal Rules
of Civil Procedure, that would permit a court to depart from the broad
command of Section 7602 (Pet. App. 36a-37a).  As the dissent pointed
out, there is no proper analogy between the attorney-client
relationship and the relationship between a public corporation and its
independent public accountant.  The attorney-client relationship is
completely private and cloaked in confidence.  On the other hand, an
independent public accounting firm has public obligations to assure
itself that contingent tax liabilities have been accurately reflected,
and must decline to certify a statement if it is not satisfied that it
is accurate (id. at 37a-38a).

   The dissenting judge also rejected the majority's premise that
corporations would be so anxious to minimize their tax payments that
they would be willing to deceive their own accountants about debatable
tax items and thereby violate their obligations under the securities
law.  He doubted "that many corporations will be so anxious to avoid
that result (paying what the tax laws require) that they will conceal
these debatable items from their accountants in violation of the
securities laws" (Pet. App. 36a).  But even on the assumption that the
majority's speculation was accurate, the dissent concluded that the
courts should not afford publicly-held corporations "any shield behind
which they can increase their chances of avoiding detection that they
have not paid either the amount of taxes a court might rule was
lawfully required or whatever adjustment might result from a
post-audit settlement" (ibid.).

                          SUMMARY OF ARGUMENT

   1. In refusing to enforce an Internal Revenue Service summons
directing a certified public accountant to produce tax accrual
workpapers prepared in connection with its regular financial audits of
a publicly held corporation and its certification of the corporation's
financial statements, the decision below has created an accountant
work-product privilege, under the rationale of an accountant-client
privilege, that threatens to impede the Internal Revenue Service's tax
investigations of public corporations.  The case therefore stands in
derogation of this Court's ruling in Couch v. United States, 409 U.S.
322, 335 (1973), that "no confidential accountant-client privilege
exists under federal law, and no state-created privilege has been
recognized in federal cases * * *."

   As the Court most recently reaffirmed in Trammel v. United States,
445 U.S. 40, 50 (1980), quoting United States v. Bryan, 339 U.S. 323,
331 (1950), any claim of privilege must overcome the settled principle
that "'the public * * * has a right to every man's evidence.'" Because
testimonial privileges preclude the use of highly relevant evidence
and therefore tend to be "an obstacle to the administration of
justice" (8 J. Wigmore, Wigmore on Evidence Section 2192, at 73
(McNaughton rev. ed. 1961);  see United States v. Nixon, 418 U.S. 683,
711-713 (1974)), such privileges are tolerable only when they "are
designed to protect weighty and legitimate competing interests" (id.
at 709).

   These considerations are fully applicable to the summons authority
of the Internal Revenue Service.  Section 7602 of the 1954 Code,
authorizes the Secretary "(t)o summon * * * any * * * person * * * to
appear * * * and to produce such books, papers, records, or other data
* * * as may be relevant or material" to ascertaining the correctness
of any return.  This Court has consistently construed this authority
to embrace all appropriate measures for enforcement.  See, e.g.,
United States v. Powell, 379 U.S. 48 (1964);  Donaldson v. United
States, 400 U.S. 517 (1971);  United States v. Bisceglia, 420 U.S. 141
(1975);  United States v. Euge, 444 U.S. 707 (1980).

   2. Both courts below found that the tax accrual workpapers sought
from respondent were relevant to the Internal Revenue Service's
investigation of Amerada (Pet. App. 8a;  Pet. App. 26a-27a).  These
papers consist of an amalgam of materials bearing on the adequacy and
reasonableness of the contingency reserves established by a
corporation with respect to its tax liabilities.  The papers contain
facts that may not appear on the corporation's books of account.  They
may also shed important light on the taxpayer's state of mind
regarding the treatment it ultimately presents on its tax returns;
this evidence may bear on liability for fraud and other penalties.
Finally, the papers may also contain the accountant's judgments
regarding the corporation's reporting positions.

   The purpose of obtaining tax accrual workpapers is not primarily to
allow the Service access to the accountant's "opinions" and
"theories".  Rather, the Service's chief interest is to discover the
relevant facts to enable it to make its own appraisal.  Although
production of these papers may help the investigating agent by
highlighting certain issues, there is no basis for cloaking them in
secrecy in the absence of an evidentiary privilege barring their
production.

   3. The court erred in barring production of the tax accrual
workpapers on the authority of the attorney work-product doctrine
established by this Court's decision in Hickman v. Taylor, 329 U.S.
495 (1947).  In Hickman, the Court recognized a qualified privilege
against pretrial discovery for certain materials prepared by an
attorney "acting for his client in anticipation of litigation" (329
U.S. at 508).  See United States v. Nobles, 422 U.S. 225, 236-240
(1975);  Upjohn Co. v. United States, 449 U.S. 383, 397-399 (1981).
Here the papers were prepared by accountants -- not by attorneys -- in
the course of a regular audit of financial statements -- and not in
anticipation of litigation.  Apart from the decision below, we are
aware of no case that extends the attorney work-product rationale to
accountants' workpapers.

   The law recognizes an attorney work-product privilege and not an
accountant work-product privilege because of important practical
differences between the function of an accountant and that of an
attorney.  The attorney is the client's confidential advisor who has
an obligation of undivided loyalty to the client.  An independent
certified public accountant, as the title states, is supposed to be
independent:  its loyalty is not only to the client whose books it is
auditing but also to various governmental agencies regulating its
client's industry, to his client's creditors and to investors in its
client's securities.  Further, the accountant's role is not to give
confidential advice but to give public reports on the adequacy of the
client's financial statements.  It was precisely these differences
between accountants and attorneys that this Court recognized in Couch
in rejecting the claim of an accountant-client privilege as to a
taxpayer's records turned over to an accountant.  See 409 U.S. at
335-336.

   4. Although the decision below is couched in terms of the
work-product privilege, it is plain that the court believed it was
fostering candid communications between client and accountant for the
benefit of the investing public and the enforcement of the securities
laws.  Such a rationale is the essence of a communications privilege.

   The fundamental distinctions between attorneys and accountants, to
which we have referred, have led this Court, and every court that has
considered the issue, to reject the creation of an accountant-client
privilege.  Couch v. United States, supra, 409 U.S. at 335-336, and
cases cited therein.  An accountant's client has no justified
expectation of confidentiallity with respect to communications with an
accountant, and there is therefore no justification for the creation
of an accountant-client privilege.

   Moreover, the rationale for such a privilege does not exist in this
case.  The principal contemporary justification for the
attorney-client privilege is its presumed value in encouraging clients
to make full disclosure to their attorneys.  Upjohn Co. v. United
States, supra, 449 U.S. at 389;  8 J. Wigmore, supra, Sections 2291
and 2306, at 590.  Accordingly, it protects only those disclosures --
necessary to obtain legal advice -- which might not have been made
absent the privilege.  Fisher v. United States, 425 U.S. 391, 403
(1976).  But the communications from Amerada to respondent in this
case were required to be made quite apart from any accountant-client
privilege.  As a publicly-held corporation, Amerada must file accurate
and complete financial statements, certified by its independent
auditors, with the SEC, if it wishes to continue to have its stock
publicly traded.  See 15 U.S.C. 78l and m;  17 C.F.R. 210.1-02(d).

   5. The court of appeals further erred in assuming a conflict
between the federal statutes regulating securities and those enforcing
revenue collection.  Section 7602 of the 1954 Code unequivocally
authorizes agents of the Internal Revenue Service to summon and
inspect records that may be relevant to their investigation.  On the
other hand, the securities regulations relate to the duty of listed
corporations to file annual audited statements, and the duty of
auditors to examine the statements under generally accepted principles
of public accounting.  The statutes and regulations do not even hint
at any duty by the accountants to keep their clients' communications
confidential.  It would therefore be incongruous to enjoin accountants
to do so -- particularly since their basic function is to insure that
the public is accurately informed.

   As the Court made clear in St. Regis Paper Co. v. United States,
368 U.S. 208 (1961), it requires a clear statement of congressional
purpose to create a special rule that will prevent disclosure of
information otherwise relevant and unprivileged.  In St. Regis Paper
Co. the Court held that Section 9(a) of the Census Act (13 U.S.C.
(1958 ed.) 9(a)) preventing the Census Bureau from disclosing census
information except in the form of statistical reports, did not curtail
the normal investigatory powers of other government agencies.  The
present case follows a fortiori from St. Regis Paper Co., since the
securities laws and regulations do not contain any requirements of
confidentiality for accountants.

   Even assuming that the court below correctly identified a conflict
between the policies underlying the securities laws and the provisions
regarding tax enforcement, the resolution of such a conflict lies with
Congress and not in the courts.  This is particularly true where, as
here, the securities laws provide no explicit defense to an Internal
Revenue Service summons and a literal reading of the revenue provision
directs that the documents be produced.  There is no justification for
the conclusion that the securities law has somehow repealed or cut
back on the scope of the Internal Revenue Service's summons authority.

                               ARGUMENT

      TAX ACCRUAL WORKPAPERS PREPARED BY A CORPORATION'S INDEPENDENT
      CERTIFIED PUBLIC ACCOUNTANT IN THE COURSE OF REGULAR FINANCIAL
      AUDITS ARE SUBJECT TO PRODUCTION IN RESPONSE TO AN INTERNAL
      REVENUE SUMMONS ISSUED UNDER 26 U.S.C. 7602

   This case presents a question of great importance to the
enforcement of the internal revenue laws against corporations that
engage certified public accountants.  In refusing to enforce an
Internal Revenue summons directing a certified public accountant to
produce tax accrual workpapers prepared in connection with its regular
financial audits of a publicly-held corporation and its certification
of the corporation's financial statements, the court of appeals has
created an accountant work-product privilege, which it justified by
the rationale of an accountant-client communications privilege.  Its
holding threatens to impede the Internal Revenue Service's tax
investigations of public corporations.  The decision below therefore
stands in derogation of this Court's ruling in Couch v. United States,
409 U.S. 322, 335 (1973), that "no confidential accountant-client
privilege exists under federal law, and no state-created privilege has
been recognized in federal cases * * *."

   Moreover, the significance of the privilege created by the court
below is not limited to IRS summons enforcement proceedings.  The
existence of such a privilege would be relevant to many other disputes
between federal agencies and corporations, as well as to the conduct
of a grand jury investigation.  Indeed, the court of appeals' desire
to promote candor between accountant and client could not rationally
be limited to questionable transactions having tax significance;  it
would necessarily extend to transactions questionable by other
criteria as well.  Even more important, recognizing such a privilege
would radically affect private litigation involving corporations.

   As we shall discuss in greater detail (pp. 24-27, infra), the tax
accrual workpapers at issue in this case record the result of the
auditor's inquiry with respect to the adequacy of a public
corporation's reserve for contingent tax liabilities under generally
accepted accounting standards.  They include factual information
obtained by the auditor from the taxpayer and others with respect to
financial transactions, as well as the auditor's analyses of these
transactions and its evaluation of the correctness of the various
reporting positions taken on the corporation's tax return.
Accordingly, they are relevant to a legitimate tax investigation.
Although the Internal Revenue Service does not routinely seek these
accountants' workpapers, /4/ it does request them where necessary
factual data pertinent to a corporation's tax liability cannot be
obtained from the taxpayer's books of account.  Tax accrual workpapers
therefore constitute a valuable source of relevant evidence in
determining the tax liabilities of the nation's largest corporations.

   The refusal of the court below to enforce the summons on the ground
of a purported privilege it found to exist for accountants' tax
accrual workpapers is contrary to the well-established rule that
"(e)videntiary privileges in litigation are not favored." Herbert v.
Lando, 441 U.S. 153, 175 (1979).  Indeed, as the Court reaffirmed in
Trammel v. United States, 445 U.S. 40, 50 (1980), quoting United
States v. Bryan, 339 U.S. 323, 331 (1950), any claim of privilege must
overcome the settled principle that "the public * * * has a right to
every man's evidence.'" Accord:  Branzburg v. Hayes, 408 U.S. 665, 688
(1972).  "Whatever their origins, these exceptions to the demand for
every man's evidence are not lightly created nor expansively
construed, for they are in derogation of the search for truth." United
States v. Nixon, 418 U.S. 683, 710 (1974).  See also Blackmer v.
United States, 284 U.S. 421, 438 (1932);  8 J. Wigmore, supra, Section
2192, at 73.  Because testimonial privileges hide relevant evidence
and therefore tend to be "an obstacle to the administration of
justice" (id. Section 2192, at 73;  see United States v. Nixon, supra,
418 U.S. at 711-713), such privileges are tolerable only when they
"are designed to protect weighty and legitimate competing interests"
(id. at 709).  See also Elkins v. United States, 364 U.S. 206, 234
(1960) (Frankfurter, J., dissenting).

   These considerations are fully applicable to the summons authority
of the Internal Revenue Service.  Our self-reporting tax system is
premised upon the assumption that the majority of taxpayers will
honestly report their income and deductions.  But Congress has long
recognized that if the Treasury is to discharge effectively its duty
to administer and enforce the internal revenue laws (26 U.S.C. 7801),
it must have the statutory power to obtain information with respect to
persons who may not have complied with the tax laws.

 A. Congress has given the Internal Revenue Service authority to
obtain information relevant to its tax investigations

   1. Sections 7601 and 7602 of the 1954 Internal Revenue Code (26
U.S.C.) (pp. 2-3, supra) provide the Treasury with the authority
necessary to support vigorous and searching investigations of
taxpayers' liabilities for tax.  The former provision imposes upon the
Secretary the duty "to proceed * * * and inquire after and concerning
all persons * * * who may be liable to pay any internal revenue tax."
"(T)he section thus flatly imposes upon the Secretary the duty to
canvass and to inquire" Donaldson v. United States, 400 U.S. 517,
523-524 (1971).  Section 7602 empowers the Secretary to require the
submission of records and testimony for that purpose.  It authorizes
the Secretary "(t)o summon * * * any * * * person * * * to appear * *
* and to produce such books, papers, records, or other data * * * as
may be relevant or material" to ascertaining the correctness of any
return.  "The purpose of the statutes is not to accuse, but to
inquire.  Although such investigations unquestionably involve some
invasion of privacy, they are essential to our self-reporting system,
and the alternatives could well involve far less agreeable invasions
of house, business, and records." United States v. Bisceglia, 420 U.S.
141, 146 (1975).

   Section 7602 is the Treasury's principal information-gathering
authority, and this Court has construed it broadly to achieve its
purpose -- effective investigations.  Thus the Court has frequently
analogized the summons power to the common law duty attaching to the
issuance of a testimonial summons.  See United States v. Bisceglia,
supra, 420 U.S. at 147-148;  United States v. Powell, 379 U.S. 48, 57
(1964).  This common law duty has been expansively construed and is
normally limited only by notions of relevance and by certain well
cabined doctrines of privilege.  See, e.g., Blair v. United States,
250 U.S. 273 (1919);  United States v. Bryan, supra, 339 U.S. at 331.
Although the Court has recognized that there may be exemptions from
the public duty to give evidence to a competent authority, the
"primary assumption" is that a summoned party must "give what
testimony one is capable of giving" absent an exemption "grounded in a
substantial individual interest which has been found, through
centuries of experience, to outweigh the public interest in the search
for truth" (ibid.).

   Moreover, the Court has consistently construed the summons
authority Congress conferred in Section 7602 to embrace all
appropriate measures for enforcement, repeatedly rejecting attempts to
circumscribe the effective exercise of the Internal Revenue summons
power.  The Court has upheld summons for tax-related accountant's
workpapers, whether in the possession of the taxpayer's accountant
(Couch v. United States, supra) or the taxpayer's attorney (Fisher v.
United States, 425 U.S. 391 (1976)).  See also United States v.
Powell, supra, 379 U.S. at 57;  United States v. Bisceglia, supra;
and United States v. Euge, 444 U.S. 707 (1980).  "There is thus a
formidable line of precedent construing congressional intent to uphold
the claimed enforcement authority of the Service if authority is
necessary for the effective enforcement of the revenue laws and is not
undercut by contrary legislative purposes" (444 U.S. at 715-716;
footnote omitted).  An Internal Revenue Service summons to produce
evidence relevant to a legitimate investigation is enforceable unless
an established privilege protects such evidence or there are
"unambiguous directions from Congress" to the contrary.  United States
v. Bisceglia, supra, 420 U.S. at 150.

   2. As the Court observed in Donaldson v. United States, supra, 400
U.S. at 535, the history of Section 7602 confirms our submission that
the statute authorizes the use of a summons to compel the production
of documents prepared by an accountant that may be material in
determining tax liability.  /5/ The statutory history shows that the
summons power was derived from Sections 3614, 3615(a)-(c), and 3654 of
the Internal Revenue Code of 1939 (see Table II to 1954 Code, 68A
Stat. 969) and that these three provisions had independent roots in
revenue acts dating back to 1919, 1864, and 1868, respectively.  These
three sections of the 1939 Code are highly significant because, in
adopting Section 7602, Congress intended "no material change from
existing law." H.R. Rep. No. 1337, 83d Cong., 2d Sess. A436 (1954);
S. Rep. No. 1622, 83d Cong., 2d Sess. 617 (1954).  See also H.R. Rep.
No. 1337, supra, at 99;  S. Rep. No. 1622, supra, at 133;  100 Cong.
Rec. 3425 (1954).

   Section 3614(a) of the 1939 Code authorized the Commissioner "to
examine any books, papers, records, or memoranda bearing upon the
matters required to be included in the return, and (to require) * * *
the attendance of any other person having knowledge in the premises,
and (to) take his testimony with reference to the matter required by
law to be included in such return * * *." /6/ Section 3615(a)
empowered the collector to "summon any person to appear * * * and to
produce books * * *, and to give testimony or answer interrogatories *
* * respecting any objects or income liable to tax or the returns
thereof * * *." Section 3615(c)(2) and (3) extended the summons power
to "any other person having possession, custody, or care of books of
account containing entries relating to the business of any person * *
*" or "(a)ny other person the collector may deem proper." /7/ Finally,
the third source for the present summons authority -- Section 3654(a)
of the 1939 Code -- conferred upon the collectors the "power to
examine all persons, * * * books and papers, accounts, and premises,
to administer oaths, and to summon any person to produce books and
papers, or to appear and testify under oath before him * * *." /8/

   By combining Sections 3614, 3615 and 3654 into Section 7602 in 1954
without intending to change existing law, Congress affirmed the use of
an Internal Revenue summons to compel the appearance and testimony of
all persons who could further an investigation leading to the
discovery of all those who may be liable for unpaid taxes.  Like
Section 7602, the prior provisions defined the summons power in the
broadest possible manner, using terms such as "books, papers, records,
or memoranda bearing upon the matters required to be included in the
return";  "require the attendance of any * * * person having knowledge
in the premises";  "to summons any person to appear * * * to give
testimony or answer interrogatories," and "to examine all persons,
books, papers, accounts, and premises."

   3. Thus, the history as well as the text, of both the current
provision and its authoritative predecessors, confirm the correctness
of this Court's statement in United States v. Euge, supra, 444 U.S. at
712, that the testimonial requirement imposed by Section 7602 is "an
expansive duty limited principally by relevance and privilege." /9/
Here, both courts below found that the tax accrual workpapers sought
from respondent were "relevant" to the inquiry the IRS was conducting
under Section 7602.  The plain language of Section 7602 thus requires
the courts to uphold the summons to produce them.  The court of
appeals nevertheless refused to order production on the unprecedented
ground that the "integrity of the auditing process" requires that a
"privilege be carved out" (Pet. App. 31a) insulating these papers from
summons in the absence of some extraordinary showing of need.

   As we shall show, the creation of this new privilege was
unwarranted, and rested on significant errors in the court's analysis.
 However, before we turn to a detailed discussion of the decision
below and to the question of privilege, we deem it important to
describe the nature and contents of tax accrual workpapers of the sort
at issue in this case.  An understanding of the character of such
papers will confirm that they are not only fully relevant -- as the
courts below correctly acknowledged -- but also that they should not
be insulated from disclosure by a newly-invented evidentiary
privilege.

 B. Tax accrual workpapers contain evidence that is unquestionably
relevant to the Internal Revenue Service's tax investigations

   1. Every publicly-held corporation engages independent auditors who
are qualified as certified public accountants to conduct regular
financial audits of its books and to certify its financial statements.
 These regular financial audits generate audit workpapers and tax
accrual workpapers.  As the court of appeals observed with respect to
the first category of documents referred to as audit workpapers, these
papers "consist almost entirely of factual data generated from the
books when accountants verify the financial statements prepared by
Amerada's own personnel by spot-checking selected bookkeeping entries
and records" (Pet. App. 21a).  The court further added that these
audit workpapers "include third-party confirmations of transactions,
as well as the auditor's own judgments about the implications of the
company's transactions.  Some of the workpapers contain material
learned during confidential discussions between Amerada and (Arthur
Young) employees" (ibid.).

   But the fact that the audit workpapers contained information that
was treated as confidential between Amerada and its outside auditor
did not put such documents beyond the reach of the Internal Revenue
summons.  In enforcing the summons requiring the production of the
audit workpapers, the court of appeals concluded that "it is clear
that the audit workpapers pass the Powell test" (Pet. App. 23a).  In
so ruling, it relied upon its prior ruling in United States v. Noall,
587 F.2d 123 (2d Cir. 1978), cert. denied, 441 U.S. 923 (1979),
enforcing a summons to produce internal audit workpapers.  Finding no
meaningful distinction between the internal audit workpapers in Noall
and the external audit workpapers at issue in this case, the court
reaffirmed its statement in Noall that "the purposes of the internal
audit include the detection of overstatements or understatements of
revenues or expenses, and of identifying accounting procedures that
would lead to these.  If the internal auditors have ascertained an
understatement of revenues or an overstatement of expenses, this
plainly might throw light on the correctness of the returns" (587 F.2d
at 126).

   2. The court of appeals' observations with respect to the relevance
of the audit workpapers are equally applicable to the tax accrual
workpapers whose production it refused to order.  The tax accrual
account (also known as the tax pool analysis, the noncurrent tax
account, or the tax pool) is a reserve account that appears on the
liability side of the corporate balance sheet.  This account reflects
the sum of contingent tax liabilities relating to the tax treatment of
transactions occurring in prior years that may give rise to possible,
but not agreed to, adjustments in the corporation's tax liabilities
for those years.  E. Kohler, A Dictionary for Accountants 119-120 (5th
ed. 1975).  See also G. Johnson & J. Gentry, Finney and Miller's
Principles of Accounting (Intermediate) 117-118 (7th ed. 1974).  The
purpose of the accountant's examination of the account is to determine
the adequacy and reasonableness of that reserve.  N. Lenheart & P.
Defliese, Montgomery's Auditing 508 (8th ed. 1957).

   Both courts below correctly concluded that respondent's tax accrual
workpapers were relevant to the Service's investigation of Amerada
(Pet. App. 6a-8a;  id. at 27a).  /10/ As the court of appeals
observed, "we have consistently used as our test of relevance whether
the documents requested 'might have thrown light upon' the correctness
of a return" (citations omitted).  The documents at issue here
certainly pass this low threshold of relevance.  Different tax
positions lead to different amounts of liability.  It is difficult to
say that the assessment by the independent auditor of the correctness
of positions taken by the taxpayer in his return would not throw
'light upon' the correctness of the return" (id. at 27a).  /11/

   3. As the name implies, tax accrual workpapers consist of an
amalgam of various sorts of materials bearing on the adequacy and
reasonableness of the contingency reserves established by a
corporation with respect to its tax liabilities.

   (a) These papers will, of course, contain or refer to large bodies
of factual information about the corporation's financial transactions
that are relevant to its tax liabilities.  The data will come not only
from the corporation's books but also from information gathered from
the corporation's employees and from third parties.

   Some of these data may in fact be readily available on an ordinary
audit of the corporation's books.  But not necessarily all of it.  The
data may include facts that do not appear on the taxpayer's returns or
the supporting schedules or attachments and that may not come to the
attention of the IRS during a normal audit of the taxpayer's books.
For example, a multinational corporate client may provide its
accountant with facts about the income, expenses, and level of bona
fide business activity of an off-shore subsidiary that the client does
not include in its tax return.  An appraisal of the facts may suggest
the necessity for the Commissioner to make pricing adjustments under
Section 482, the existence of Subpart F (Sections 952 et seq.) income,
or other adjustments that may require assessment of additional taxes
against the U.S. parent.  These are typical and frequently arising
issues in a multinational corporate tax audit.  And these facts may
very well not be readily available on a routine IRS audit;  if
discovered, they may, however, cast serious doubt on the propriety of
the decision not to report, and may lead the independent auditor to
recommend the establishment of a tax reserve against the contingency
that the facts will be uncovered and additional taxable income and
deficiencies determined.

   (b) The tax accrual workpapers may also shed important light on the
taxpayer's state of mind regarding the treatment it ultimately
presents on its tax returns.  If the taxpayer chooses to disregard the
accountant's opinion that the Code and Regulations require an item to
be reported in a certain manner and presents the transaction in a way
likely to mislead the Internal Revenue Service, the taxpayer runs the
risk of being held liable for the penalty provided by Section 6653(a)
of the 1954 Code for "intentional disregard of rules and regulations"
and may also be liable for an additional fraud penalty.  /12/ 26
U.S.C. 6653(b).  Thus, the accountant's appraisal may bear on the
taxpayer's liabilities for these penalties.  /13/

   (c) Furthermore, as any sophisticated lawyer or accountant knows,
there is a vast difference between "raw" data and "organized" data.
The point of the tax accrual workpaper process is to organize the
facts;  the papers will in effect embody the taxpayer's and the
accountant's judgments about which facts are relevant to the
taxpayer's lawful tax liability.

   In the case of a taxpayer with billions of dollars of revenues
arising from untold numbers of intricate transactions, the integrity
of a self-reporting tax system comes under special strain.  The fact
that a needle is there, present in the haystack, is not enough -- the
summons authority extends as well to available tools for discovering
it.  And since it is the taxpayer's duty to report the needle in its
return, and the accountant's duty to discover whether there may be
unreported needles, their judgments about what constitutes a needle --
about which facts are relevant to the taxpayer's lawful tax
liabilities -- are not entitled to be cloaked in secrecy.

   It is in this sense that tax accrual workpapers may be
characterized as a roadmap (to use the figure employed by the court of
appeals (Pet. App. 31a)) -- a roadmap through the raw data.  They
organize the terrain under standards of relevance derived from the
necessity to certify the taxpayer's financial statements.  And the
fact that the roadmap has been created by the taxpayer and the
accountant -- rather than the IRS itself -- does not meaningfully
distinguish it from other data amenable to summons or justify
enshrouding it in secrecy.

   (d) Finally, tax accrual workpapers may also contain the
accountant's -- and, indirectly, the taxpayer's -- opinions and
judgments about the propriety of the corporation's reporting positions
and about the potentials for and strength of an IRS challenge to those
positions.  These opinions and judgments will, of course, be
inextricably mixed in with factual data and characterizations of the
factual data.  So also, of course, the taxpayer's return is an amalgam
of facts, opinions and judgments.

   The purpose of obtaining tax accrual workpapers is not primarily to
allow the Service access to the accountant's and the taxpayer's
"opinions" and "theories" about what is the correct tax liability.
Once the relevant facts are brought to its attention, the Service will
make its own appraisal.  The Service's chief interest is to discover
all of the relevant facts -- and these workpapers may be of critical
importance in allowing it to do so.

   It may, however, be the case that in a given instance the papers
will help the investigating agent by highlighting the vulnerabilities
of the taxpayer's positions and by suggesting alternative theories
with respect to the appropriate tax treatment of a given transaction.
But, absent any evidentiary privilege barring production of such
documents (see pp. 28-39, infra), disclosure of the accountant's
appraisals is consistent with the policy that the audit process and
the attendant summons procedure "is to determine the truthful scope of
the taxpayer's liability, rather than to engage in a sophisticated
game of hide and seek." United States v. Price Waterhouse & Co., 515
F. Supp. 996, 1000 (N.D. Ill. 1981).  See also United States v. McKay,
372 F.2d 174, 176 (5th Cir. 1967).

   As the Fifth Circuit noted in United States v. El Paso Co., 682
F.2d 530, 534 (1982), the number of potential disputes over the tax
treatment of items by a large corporation is "enormous." For fiscal
year 1981, while corporate returns constituted 6.1% of returns
examined, 60.3% of the dollar deficiencies (totalling $4.33 billion)
proposed, involved corporate taxes.  Commissioner of Internal Revenue
and the Chief Counsel for the Internal Revenue Service.  1981 Annual
Report 12-13.  The task facing the Internal Revenue Service in
insuring compliance with the tax law is correspondingly enormous and
should not be stultified by limiting access to relevant material in
the absence of compelling factors.  See Donaldson v. United States,
supra, 400 U.S. at 535-536;  United States v. El Paso Co., supra, 682
F.2d at 545.

   To be sure, Amerada may find disclosure of respondent's tax accrual
workpapers to be disagreeable.  "The divulgence of potentially
incriminating evidence against (the taxpayer) is naturally unwelcome.
But (the taxpayer's) distress would be no less if the divulgence came
not from (its) accountant but from some other third party with whom
(it) was connected and who possessed substantially equivalent
knowledge of (its) business affairs." Couch v. United States, supra,
409 U.S. at 329.

   If Amerada had sought to obtain a substantial line of credit from a
bank which, as a condition of advancing the credit, had engaged an
accountant to conduct an independent audit of Amerada, neither that
auditor, nor Amerada, nor its own regular auditor, could seriously
contend that tax accrual workpapers generated in such an audit would
be immune from compelled disclosure pursuant to an IRS summons.  Like
any other third-party evidence, the bank's papers and those of its
outside auditor would be subject to disclosure.  See Donaldson v.
United States, supra, 400 U.S. at 535-536.

   There is, we submit, no significant difference between the
foregoing example and the tax accrual workpapers at issue here,
because -- as we shall now show -- nothing in the relationship between
Amerada and its independent auditor, respondent Arthur Young & Co.,
warrants the creation of an evidentiary privilege barring the
production of such concededly relevant evidence. "* * * (T)his Court
has consistently construed congressional intent to require that if the
summons authority claimed is necessary for the effective performance
of congressionally imposed responsibility to enforce the tax code,
that authority should be upheld absent express statutory prohibition
or substantial countervailing policies." United States v. Euge, supra,
444 U.S. at 711.  No such statutory policies or countervailing
policies bar the production of the papers at issue.

 C. The tax accrual papers are not protected from disclosure by either
a work-product privilege or an accountant-client privilege

   1. In refusing to order production of the tax accrual workpapers
prepared by respondent in connection with its determination of the
adequacy of Amerada's reserve for contingent tax liabilities and its
certification of Amerada's financial statements, the court of appeals
relied upon the attorney work-product doctrine established by this
Court's decision in Hickman v. Taylor, 329 U.S. 495 (1947).  In
Hickman, the Court recognized a qualified privilege against pretrial
discovery for certain materials prepared by an attorney "acting for
his client in anticipation of litigation" (329 U.S. at 508).  See
United States v. Nobles, 422 U.S. 225, 236-240 (1975);  Upjohn Co. v.
United States, 449 U.S. 383, 397-399 (1981).  In so holding, the Court
expressed the view that a lawyer should have "a certain degree of
privacy, free from unnecessary intrusion by opposing parties and their
counsel" so that he may "prepare his legal theories and plan his
strategy without undue and needless interference" (Hickman v. Taylor,
supra, 329 U.S. at 510-511).

   a. The policies underlying the Hickman rationale demonstrate that
the work-product doctrine should not be extended from lawyers to
accountants.  Indeed, we are aware of no case, apart from the decision
below, that has proposed such an extension.  The fact that the law has
recognized an attorney work-product privilege but not an accountant
work-product privilege rests on important practical differences
between the function of an accountant and that of an attorney.  The
attorney is the client's confidential advisor, and an advocate whose
duty it is to present the client's case to the whole world in the most
favorable light possible.  /14/ An independent certified public
accountant performs a sharply different function.  As the title
implies, he reports not to the client but to the public.  He does not
serve as the client's private and confidential advisor, but rather as
an instrument of public oversight.  The law shields the mental
processes of the attorney because the product of those processes --
the rendering of thoughtful legal advice -- has long been deemed to be
entitled to privacy.  But the product of the accountant's mental
processes is in no way designed to be private advice.  It is designed
to constitute a public report on the adequacy of the client's
financial disclosures.  There is no doubt whatever that if respondent
had concluded that Amerada's tax reserves were in adequate, it would
have been duty-bound publicly to disclose that opinion, presumably
through a qualification in its certification.  There is, therefore, no
good reason to cloak in privacy the facts and analytical processes
that led to the very judgment that all concede must be fully disclosed
to the public as a public judgment.

   An attorney, however, is not supposed to be "independent" of the
client.  His duty is to give the client undivided loyalty.  On the
other hand, the independent certified public accountant -- again as
the title implies -- is meant to be "independent." His responsibility
is not only to the client whose books he is auditing but also to
various governmental agencies regulating his client's industry, to his
client's creditors, and to investors in his client's securities.
Thus, ET Section 52 of the Code of Ethics adopted by the American
Institute of Certified Public Accountants states that "(A) certified
public accountant should maintain his integrity and objectivity and
when engaged in the practice of public accounting, be independent of
those he serves." AICPA-Professional Standards 4291 (1982;  emphasis
in original).  The independent public accounting firm is expected to
maintain financial as well as mental independence from the client.
Neither the firm nor its employees is permitted any direct or indirect
interest in the client (ET Section 101, AICPA, supra, at 4411-4412)
and its attitude to the client should be "a judicial impartiality that
recognizes an obligation for fairness not only to management and
owners (shareholders) of a business, but also to creditors and those
who may otherwise rely (in part, at least) upon the auditor's report,
as in the case of prospective owners or creditors" (R. Wixon, W. Kell
& N. Bedford, Accountants' Handbook 26.10 (5th ed. 1970) (hereinafter
cited as Accountants' Handbook), quoting AICPA Committee on Auditing
Procedure (Statement on Auditing Procedure No. 33)).

   The independence of an outside accounting firm, when it is engaged
to render an opinion on financial statements (as respondent was in
this instance), requires that it avoid not only outright misstatements
or omissions but also "any type of presentation that would tend to
favor the client company at the expense of those who read and rely on
the financial statements examined" (Accountants' supra, at 26.10).
See also Gold v. DCL Inc., 399 F. Supp. 1123 (S.D.N.Y. 1973).  Its
responsibilities to the public require it to inform the public when
the client has not presented its financial status fairly, by
qualifying its opinion.  Accountants' Handbook, supra, at 26.27.
Finally, in contrast to the attorney's qualified duty to correct
frauds on the court provided his knowledge does not come through
privileged client communications (DR 7-102(B) Model Code of
Professional Responsibility, supra), the independent public accountant
has a continuing duty to inform the public of misstatements or errors
in the client's audited statements when the accountant has certified
them.  "The accountant owes a duty to the public not to assert a
privilege of silence until the next audited annual statement comes
around in due time." United States v. Natelli, 527 F.2d 311, 319 (2d
Cir. 1975).  /15/

   The public accountant's multiplicity of loyalties exposes
accountants to suits by regulatory agencies, creditors, and investors
on the theory that the accountant ignored his duty to them in favor of
his loyalty to his client.  In such suits, it is common for
accountants to disclose their clients' confidential communications and
their own work product in order to demonstrate that they properly
discharged their duties to all.  /16/ Indeed, it was precisely those
differences between accountants and attorneys that this Court
recognized in Couch in rejecting an analogous claim of an
accountant-client privilege as to a taxpayer's records turned over to
an accountant.  As the Court stated (409 U.S. at 335-336):

         (T)here can be little expectation of privacy where records
      are handed to an accountant, knowing that mandatory disclosure
      of much of the information therein is required in an income tax
      return.  What information is not disclosed is largely in the
      accountant's discretion, not * * * (the taxpayer's).  Indeed,
      the accountant risks criminal prosecution if he willfully
      assists in the preparation of a false return. * * * His own need
      for self-protection would often require the right to disclose
      the information given him. * * * Accordingly, * * * (the
      taxpayer) cannot reasonably claim * * * an expectation of * * *
      privacy or confidentiality.

   Given the independence of the certified public accountant from his
client, and given the fact that his function is to make public reports
rather than to give confidential advice, it is plain that the Hickman
doctrine should not apply to the accountant's workpapers.  Privacy is
accorded to a lawyer in the preparation of his legal theories and
strategy because they are undertaken for the sole benefit of his
client and because we want clients to have access to confidential
legal advice.  In contrast, the accountant's opinion of the adequacy
of the tax contingency reserve account is designed to be public
knowledge for the benefit of a public corporation's creditors,
investors, and the Securities and Exchange Commission.  There is
therefore no policy justification under the Hickman rationale for
enshrouding in secrecy the facts and interpretations which lead to
that publicly-available judgment by the accountant.

   b. The work-product doctrine is also inapplicable to the accountant
tax accrual workpapers because they were prepared in the course of a
regular audit of financial statements and not in connection with
litigation no matter how remotely contemplated.  /17/ According some
degree of confidentiality to lawyers' work product prepared in
connection with litigation is consistent with "the public policy
underlying the orderly prosecution and defense of legal claims."
Hickman v. Taylor, supra, 329 U.S. at 510.  If such materials were
open to opposing counsel on demand, the Court in Hickman concluded
that "Inefficiency, unfairness and sharp practices would inevitably
develop in the giving of legal advice and in the preparation of cases
for trial" (id. at 511).  The result would be that counsel would be
able to derive advantage from the efforts of his opponent.

   These policies have no bearing upon the instant case because the
papers at issue were not prepared in connection with litigation.
Rather, the tax accrual workpapers were prepared to comply with the
regulations of the Securities and Exchange Commission.  See United
States v. El Paso Co., 682 F.2d 530 (1982), petition for cert.
pending, No. 82-716 (tax accrual analyses prepared by house counsel
not work product because they were not prepared with even the remotest
contemplation of litigation).  682 F.2d at 542-544.

   Neither respondent nor Amerada claims that the tax accrual
workpapers would qualify as traditional work product, and the record
fails to support any inference that litigation was, in fact,
contemplated when these workpapers were created.  As codified in Fed.
R. Civ. P. 26(b), the work-product doctrine protects against discovery
"the mental impressions, conclusions, opinions, or legal theories of
an attorney or other representative of a party concerning litigation"
(emphasis added).  It does not protect the mental impressions, etc. of
anyone, including an attorney, if they do not concern litigation.
Rather, the rule contemplates that "documents not obtained or prepared
with an eye toward litigation" should be freely produced on a showing
of relevance.  See Fed. R. Civ. P. 26(b) advisory committee notes.
Accord:  Coastal States Gas Corp. v. Department of Energy, 617 F.2d
854, 864 (D.C. Cir. 1980) ("(work-product doctrine) has uniformly been
held to be limited to documents prepared in contemplation of
litigation");  Goosman v. A. Duie Pyle, Inc., 320 F.2d 45, 52 (4th
Cir. 1963) (reports prepared in ordinary course of business under
Interstate Commerce Commission regulations are not work product).
Accordingly, the attorney work-product privilege, whether founded on
Hickman v. Taylor, or on Rule 26(b)(3), does not extend to
respondent's tax accrual workpapers.

   2. Although the court of appeals cited Hickman v. Taylor, supra,
329 U.S. at 495, as the principal authority in support of its
decision, it is plain that its reasoning was not primarily based on
the Hickman rationale.  Rather, the court's concern focused on
fostering candid communications from client to accountant.  As the
court of appeals stated, "The prejudice involved in exposing to the
Service appraisals of a taxpayer's weaknesses and settlement positions
on audits is of such proportions that a prudent organization might not
be perfectly candid with independent auditors once it knew that the
information revealed would be reachable under Section 7602" (Pet. App.
30a).

   The court's emphasis on candid communications between client and
accountant -- for the supposed benefit of the investing public and the
enforcement of the securities laws -- indicates that the court was
establishing the basis for a communications privilege.  Upjohn Co. v.
United States, supra, 449 U.S. at 389;  United States v. El Paso Co.,
supra, 682 F.2d at 541 n.13;  In re Sealed Cases, 676 F.2d 793,
808-809 (D.C. Cir. 1982).  But this Court and every court that has
considered the issue (apart from the court below) has rejected the
creation of an accountant-client privilege.  Couch v. United States,
supra, 409 U.S. at 335.

   In Couch, the Court ruled that the Fifth Amendment rights of a
taxpayer were not violated by the enforcement of a documentary summons
directed to her accountant and requiring production of the taxpayer's
own records in the possession of the accountant.  It did so on the
ground that in such a case "the ingredient of personal compulsion
against an accused is lacking" (409 U.S. at 329).  In so holding, the
Court rejected the taxpayer's argument that "the confidential nature
of the accountant-client relationship and her resulting expectation of
privacy in delivering the records protect(ed) her, under the Fourth
and Fifth Amendments, from their production" (409 U.S. at 335).  The
Court flatly stated, "Although not in itself controlling, we note that
no confidential accountant-client privilege exists under federal law,
and no state-created privilege has been recognized in federal cases"
(ibid.).  /18/

   The reasons underlying the judicial rejection of an
accountant-client communication privilege derive from the distinctions
between lawyers and accountants that we have discussed (pp. 29-35,
supra) in connection with the attorney work-product doctrine.  The
lawyer's work product and the communications between lawyer and client
are protected from compelled disclosure because the lawyer owes
undivided loyalty to champion his client's interests against all
others and because the relationship is meant to be confidential.  /19/
The accountant, however, makes public judgments and reports based on a
duty to the public and to public law enforcement bodies.  The very
purpose of client communications to him is to enable the accountant to
exercise his discretion to disclose all relevant information to the
public or public agencies.  Hence, there is no justification for
cloaking in secrecy a client's communications with his accountant, and
the accountant's tax accrual papers should not be protected by either
a work-product or a communications privilege.

   3. In light of the foregoing, it is not surprising that no other
court has protected tax accrual workpapers from an Internal Revenue
summons on the ground of privilege or policy.  In United States v. El
Paso Co., supra, the Fifth Circuit enforced an Internal Revenue
summons for tax accrual workpapers prepared by a public corporation's
in-house accountants and attorneys, and communicated to its
independent accountants in connection with the establishment of a
reserve for contingent tax liabilities and the certification of its
financial statements.  The court relied on this Court's admonition in
Couch that there is no federal accountant-client evidentiary
privilege, and rejected "(t)he logic of (the decision below that)
implies that the taxpayer's revelation of tax accrual workpapers to an
accountant should be considered a communication in confidence" (682
F.2d at 540-541).  /20/

   In United States v. Price Waterhouse & Co., 515 F. Supp. 996 (D.D.
Ill. 1981), the district court rejected Price Waterhouse's claim that
its "thoughts, ideas and opinions" (id. at 998 n.4) are not subject to
an Internal Revenue summons.  The court understood Price Waterhouse to
be objecting to revealing its thoughts and opinions on issues that the
Internal Revenue Service may not have pinpointed on its own in the
course of the audit (ibid.).  But the court concluded that protection
of such documents is not justified because it would turn the audit
into "a sophisticated game of hide and seek" (id. at 1000), in which
the accountants would turn material over if the agent guesses right
and claim privilege if the agent guesses wrong.  /21/

   Finally, in United States v. Arthur Andersen & Co., 474 F. Supp.
322 (D. Mass. 1979), appeal of one party dismissed, 623 F.2d 720 (1st
Cir.), cert. denied, 449 U.S. 1021, aff'd as to second party, 623 F.2d
725 (1st Cir. 1980), /22/ the district court refused to create a
privilege to protect Arthur Andersen's tax accrual workpapers.  It
relied on this Court's opinion in Couch, and this Court's broad
construction of the Internal Revenue Service's statutory summons power
(474 F.Supp. at 327).  /23/

 D. The rationale for a communications privilege is not applicable to
this case

   Even if some communications between client and accountant could be
deemed privileged, the rationale for such a privilege does not exist
in this case.  The principal contemporary justification for the
attorney-client privilege is its presumed value in encouraging clients
to make full disclosure to their attorneys, Upjohn Co. v. United
States, supra, 449 U.S. at 389;  8 J. Wigmore, supra, Sections 2291
and 2306, at 590.  Clients, of course, have no legal duty fully to
inform their lawyers;  without the privilege, therefore, disclosure
might be deterred and it might be difficult to obtain fully informed
legal advice.  "(S)ince the privilege has the effect of withholding
relevant information from the factfinder, it applies only where
necessary to achieve its purpose.  Accordingly, it protects only those
disclosures -- necessary to obtain legal advice -- which might not
have been made absent the privilege." Fisher v. United States, 425
U.S. 391, 403 (1976).

   There is no substantial basis for the court of appeals' assumption
that the production of tax accrual workpapers would cause corporations
to withhold information from their outside auditors.  /24/ As a
publicly-held corporation, Amerada was required to file accurate and
complete financial statements, certified by its independent auditors,
with the SEC, if it wished to continue to have its stock publicly
traded.  See 15 U.S.C. 78l and m;  17 C.F.R. 210.1-01, 210.1-02(a),
(d), and (f), 210.2-01.  Thus, Amerada had an independent legal duty
to make full disclosures to respondent, without reference to or
encouragement by any privilege.  As the dissenting judge pointed out,
there is accordingly no justification for the majority's premise "that
some corporations are so anxious to minimize their tax payments that
they are willing to deceive their accountants concerning the existence
of debatable tax items and thereby violate their obligations under the
securities law" (Pet. App. 36a;  footnotes omitted).  See also United
States v. El Paso Co., supra, 682 F.2d at 544.

   The cost of engaging in the financial deceit that the court below
predicted would occur in the absence of a privilege is very high.  If
an accountant refuses to certify a public corporation's financial
statements, the corporation may be excluded from the public capital
markets and may be exposed to private causes of action.  Respondent
was, therefore, hardly at the mercy of its client in these
circumstances.  When confronted with an independent accountant's
demand for additional information, the client has only three choices:
(1) to provide the accountant the information requested;  (2) to
reconcile itself to receiving a qualified opinion, or (3) to discharge
the accountant.  See In re John Doe Corp., 675 F.2d 482, 484-489 (2d
Cir. 1982).

   From the client's point of view, the latter two alternatives are
highly undesirable.  A qualified opinion would damage the client by
revealing the nature, if not the facts, of the problem.  Discharging
the accountant would likewise harm the client because, under the
securities regulations, a listed company must inform the Securities
and Exchange Commission, as well as its shareholders, whenever its
independent accountant resigns or is discharged (see 17 C.F.R. 249.308
and 240.14a-3(b) (4);  4 Fed. Sec. L. Rep. (CCH) Paragraph 31,001,
Form 8-K, Item 4, at 21,995 (May 4, 1983));  explain whether there had
been any disagreements over an accounting treatment or principle in
connection with the audits of the two most recent fiscal years;  and
request the former accountant to inform the Commission whether the
accountant agrees with the company's response to Item 4.  In addition,
if a change of accountants has been reported in a Form 8-K during the
24 months immediately preceding the registration of new securities,
the registrant must disclose the nature of the disagreement with the
accountant and explain the effect on the financial statement of not
having followed the former accountant's opinion (17 C.F.R. 229.304).

   It is therefore the accountant's public duty to withhold
certification of a false, incomplete or misleading statement, and it
is the sanctions of the securities laws -- not the existence of any
privilege -- that provide the corporation with the necessary incentive
to be candid with its independent auditor (see Pet. App. 37a-38a).
The rationale for a communications privilege is accordingly
inapplicable to this case.  /25/

 E. The court of appeals erred in assuming a conflict between the IRS
summons authority and the securities regulation statutes

   1. The court of appeals further erred in assuming a conflict
between the federal statutes regulating securities and those enforcing
revenue collection.  Section 7602 of the 1954 Code unequivocally
authorizes agents of the Internal Revenue Service to summon and
inspect records that may be relevant to their investigation.  On the
other hand, the securities regulations relate to nothing more than the
duty of listed corporations to file annual audited statements, and the
duty of auditors to examine the statements under generally accepted
principles of public accounting.  The statutes and regulations do not
even hint at any duty of accountants to keep their clients'
communications confidential.  It would be particularly incongruous to
order accountants to do so when their basic function is to insure that
the public is informed accurately.

   As the Court made clear in St. Regis Paper Co. v. United States,
368 U.S. 208 (1961), a clear statement of congressional purpose is
required to create a special rule preventing the disclosure of
relevant information to a duly authorized government agency.  In St.
Regis Paper Co., the Court construed Section 9(a) of the Census Act,
13 U.S.C. (1958 ed.) 9(a), which prohibits the Census Bureau from
disclosing census information except in the form of statistical
reports.  St. Regis asserted that this prohibition was, in effect, a
pledge of confidentiality and protected the company from having to
disclose the same information to the Federal Trade Commission.  This
Court disagreed, holding that the statute merely forbade dissemination
of the information by the Census Bureau;  the statute did not curtail
the normal investigatory powers of other government agencies:  "Ours
is the duty to avoid a construction that would suppress otherwise
competent evidence unless the statute, strictly construed, requires
such a result. * * * (W)hen Congress has intended like reports not to
be subject to compulsory process it has said so.  See 45 U.S.C.
Section 41, 49 U.S.C. Section 320(f) (footnotes omitted)." 368 U.S. at
218.  The present case follows a fortiori from St. Regis Paper Co.,
since the securities laws and regulations do not contain any
requirements of confidentiality for accountants.

   2. Even if there were a potential conflict between the policies
underlying the securities laws and the tax enforcement laws, the
resolution of such a conflict of policy properly lies in Congress and
not in the courts.  The securities laws do not, on their face, create
any exception to the Internal Revenue Service's summons authority;  a
literal reading of the revenue provision plainly directs that relevant
documents be produced.  There is no justification for the assumption
of the court below that the securities laws somehow limit or cut back
on the scope of the Internal Revenue Service's summons authority.
"One canon of construction is that repeals by implication are
disfavored." Regional Rail Reorganization Act Cases, 419 U.S. 102, 133
(1974).  Since the IRS summons statutes and the securities laws are
"'capable of co-existence, it is the duty of the courts, absent a
clearly expressed congressional intention to the contrary, to regard
each as effective.'" Id. at 133-134, quoting Morton v. Mancari, 417
U.S. 535, 551 (1974).  "With respect to enforcement of the tax laws,
Congress itself has decided the policy issue, and it is not for the
courts to challenge that determination." United States v. Noall,
supra, 587 F.2d at 126.  See also FTC v. TRW, Inc., 628 F.2d 207, 210
(9th Cir. 1980).  As the Fifth Circuit put it in El Paso Co. in
reaching the opposite conclusion from that of the court below (682
F.2d at 545):  "In the absence of a more profound clash between
congressional policies, we cannot cut back on the summons power that
Congress has given to the Service.  We do not feel free to reweave the
fabric of national legislation in accord with our notions of how
various statutory schemes mesh.  Such policy choices belong to the
Congress."

                              CONCLUSION

   The judgment of the court of appeals should be reversed, and the
summons ordering production of the tax accrual workpapers should be
enforced.

   Respectfully submitted.

   REX E. LEE

      Solicitor General

   GLENN L. ARCHER, JR.

      Assistant Attorney General

   PAUL M. BATOR

      Deputy Solicitor General

   STUART A. SMITH

      Assistant to the Solicitor General

   CARLETON D. POWELL

   KRISTINA E. HARRIGAN

      Attorneys

   JUNE 1983

   /1/ The district court issued a modified order on February 23,
1981, which was not reported and which is reproduced at J.A. 106-107.

   /2/ In support of its petition for enforcement of the summons, the
government submitted an affidavit by Special Agent Armstrong, who had
succeeded Special Agent Kalemba.  In his affidavit, the agent stated,
inter alia, that the summons had been issued in the course of a joint
investigation by the Examination and Criminal Investigation Divisions
of the Internal Revenue Service to ascertain the correctness of
Amerada's tax returns for the years 1972, 1973 and 1974;  that no
decision or recommendation had been made regarding criminal
prosecution of Amerada;  and that the material sought was relevant to
the purpose of the examination and was not in the government's
possession (J.A. 11-14).  Subsequently, there were repeated exchanges
of affidavits between IRS officials, on the one hand, and Arthur Young
and Amerada, on the other, in which Arthur Young and Amerada disputed
the accuracy of the IRS agent's affidavit (J.A. 22-79).  This factual
dispute led to a hearing before the district court on January 3, 1980
(J.A. 80-88).  After considering the conflicting affidavits, the
district court enforced the summons with respect to the tax accrual
workpapers.

   /3/ The Internal Revenue Service's summons directed respondent to
produce all files related to its client, Amerada Hess Corporation, for
which respondent served as independent auditor (Pet. App. 17a-18a, 20a
n.4).  The district court ordered the production of all items sought
by the summons except respondent's audit program and the documents
prepared by the special committee that investigated Amerada's
questionable payments.  The government did not appeal the district
court's refusal to enforce the summons with respect to the audit
program and the special committee documents.

   Accordingly, the only issues considered by the court of appeals
were the production of audit workpapers and tax accrual workpapers
(Pet. App. 20a-21a).  Since the court of appeals affirmed the district
court's order with respect to the audit workpapers (id. at 21a-24a),
the government's petition to this Court was limited to the tax accrual
workpapers.  Although Arthur Young has sought to raise the question of
the production of the audit workpapers in its cross-petition (No.
82-837), the Court has not granted that cross-petition, which remains
pending.  Hence, the only question before this Court is that presented
by the government's petition, i.e., the production of the tax accrual
workpapers.

   /4/ The Internal Revenue Manual instructs agents that before
requesting information pertaining to the tax accrual account, they
should "first exhaust all reasonable means to secure this information
from the corporate officer before looking to the independent auditor
to provide the information." Guidelines for Requesting Audit or Tax
Accrual Workpapers, (Audit) 1 Int. Rev. Man. (CCH) Paragraph 4024.4
(May 14, 1981).

   /5/ The tax accrual workpapers prepared by respondent fit
comfortably within the statutory phrase "any books, papers, records,
or other data * * *." Section 7602(1).  Moreover, the statutory
summons power of the Internal Revenue Service unquestionably extends
to accountants who are or may have been engaged by the taxpayer.
Section 7602(2) broadly authorizes the Service to summon "any person
having possession, custody, or care of books of account containing
entries relating to the business of the person liable for tax * * *,
or any other person the Secretary may deem proper, to appear * * * and
to produce such books, papers, records, or other data, and to give
such testimony, under oath, as may be relevant or material to such
inquiry * * *."

   /6/ The Commissioner was first given the power to examine records
and compel attendance of witnesses and take testimony in 1919.  Act of
Feb. 24, 1919, ch. 18, Section 1305, 40 Stat. 1142.  As evidenced by
Section 3654 of the 1939 Code, which had its origins in 1868 (pp.
19-20 n.8, infra), similar authority had been previously granted to
the collectors.  This authority was likewise continued.

   The 1919 provision was reenacted several times before becoming part
of the 1939 Code.  Act of Nov. 23, 1921, ch. 136, Section 1308, 42
Stat. 310;  Act of June 2, 1924, ch. 234, Section 1004, 43 Stat. 340;
Act of Feb. 26, 1926, ch. 27, Section 1104, 44 Stat. 113;  Act of May
29, 1928,ch. 852, Section 618, 45 Stat. 878.

   /7/ Section 3615(a)-(c) of the 1939 Code closely followed a
provision first adopted in 1864, Act of June 30, 1864, Section 14, 13
Stat. 226, and reenacted several times prior to its codification in
1939.  Act of July 13, 1866, ch. 184, Section 9, 14 Stat. 101;  Act of
Dec. 24, 1872, ch. 13, Section 1, 17 Stat. 401.  In 1874, the
provision was codified as part of Section 3173 of the Revised Statutes
(1878 ed.), which was amended by Act of Mar. 1, 1879, ch. 125, Section
3, 20 Stat. 330-331, Act of Aug. 27, 1894, ch. 16, Section 34, 28
Stat. 557;  Act of Oct. 3, 1913, ch. 16, Subsec. I, 38 Stat. 177;  Act
of Sept. 8, 1916, ch. 463, Section 16, 39 Stat. 773;  Act of Feb. 24,
1919, ch. 18, Section 1317, 40 Stat. 1146;  Act of Nov. 23, 1921, ch.
136, Section 1311, 42 Stat. 311;  Act of June 2, 1924, ch. 234,
Section 1018, 43 Stat. 344;  Act of Feb. 26, 1926, ch. 27, Section
1115, 44 Stat. 117.

   /8/ Section 3654 of the 1939 Code was derived from an essentially
identical provision first enacted in 1868, Act of July 20, 1868, ch.
186, Section 49, 15 Stat. 144, and codified as part of Section 3163 of
the Revised Statutes of 1874 (1878 ed.).

   Table II of the 1954 Code, 68A Stat. 969, states that Sections 3614
and 3615(a)-(c) of the 1939 Code were essentially carried forward into
Section 7602 of the 1954 Code.  See also Donaldson v. United States,
supra, 400 U.S. at 535.  Although Table II does not contain a
reference to Section 3654(a) of the 1939 Code, that provision is
likewise necessary as an aid to understanding the current scope of the
summons power because of Congress' stated intention not to change
existing law.  Moreover, there was no need to continue the summons
authority to collectors because the office of collector had been
abolished (26 U.S.C. 7804).  Pursuant to Section 7801 and 7802 of the
1954 Code, the authority to enforce the revenue laws was vested in the
Secretary of the Treasury and the Commissioner of Internal Revenue.

   /9/ For purposes of this case, the other requirements for
enforcement of an Internal Revenue Service summons have been met and
are not at issue.  Thus, the Internal Revenue Service must demonstrate
that the investigation is conducted for a legitimate purpose, the
information sought may be relevant and is not already in the Internal
Revenue Service's possession, and the administrative steps prescribed
by the Internal Revenue Code have been followed.  United States v.
Powell, supra, 379 U.S. at 57-58.  In practice, these requirements are
met by an affidavit from the agent issuing the summons, which states
that the investigation has civil purposes and that the summons was
issued prior to a recommendation for criminal prosecution, and further
recites that the other requirements prescribed by Powell have been
met.

   /10/ Both courts below rejected respondent's arguments that (1)
only documents actually used in the preparation of federal income tax
returns are relevant, and (2) documents sought from any third party
are subject to an even higher threshold of relevance.  In so holding,
they relied on United States v. Noall, 587 F.2d 123 (2d Cir. 1978),
cert. denied, 441 U.S. 923 (1979), which ruled that even documents not
used in tax return preparation may, nevertheless, be relevant to an
Internal Revenue Service audit as long as the documents might throw
some light on the correctness of the return.  Id. at 125.  But cf.
United States v. Coopers & Lybrand, 413 F. Supp. 942 (D. Colo. 1975),
aff'd, 550 F.2d 615 (10th Cir. 1977).  See p. 39 n.23, infra.  The
court of appeals further held that even assuming that a higher
threshold of relevance might apply to records in the hands of a third
party who was in fact a stranger to the taxpayer, respondent could not
claim protection under such a rule because it had been and continued
to be intimately involved in Amerada's financial and tax affairs (Pet.
App. 22a).

   /11/ "The statutory language (of Section 7602(2)) is 'may be
relevant or material.' Congress acted advisedly in using the verb 'may
be' rather than 'is,' since the Commissioner cannot be certain that
the documents are relevant or material until he sees them." United
States v. Noall, supra, 587 F.2d at 125.

   /12/ The court of appeals apparently believed that tax accrual
workpapers should be protected "so long as a case does not involve
allegations of fraud" (Pet. App. 31a).  But as this Court recognized
in United States v. LaSalle National Bank, supra, 437 U.S. at 308-309,
the purpose of a tax investigation is to determine all relevant facts
that may establish a basis for additional taxes, the imposition of the
fraud penalty, or even criminal prosecution.  Most cases begin as
routine audits, not as fraud investigations.  Hence, Section 7602
necessarily permits the use of a summons at the very outset of the
investigation for the purpose of uncovering the basic facts necessary
for a determination of the taxpayer's correct liability, including
liability for the fraud penalty.

   /13/ The 1982 amendments to the Internal Revenue Code of 1954 (to
be codified in 26 U.S.C.) added additional penalties that make the
taxpayer's state of mind even more relevant to an income tax
investigation.  See Pub. L. No. 97-34, 95 Stat. 341 (Section 6659)
(Addition to Tax in the Case of Valuation Overstatements);  Pub. L.
No. 97-248, 96 Stat. 324, Section 6661 (Substantial Understatement of
Liability);  Section 6700 (Promoting Abusive Tax Shelters);  and
Section 6701 (Penalties for Aiding and Abetting Understatement of Tax
Liability).

   /14/ There are, of course, certain ethical restrictions imposed
upon an attorney in the conduct of his advocacy.  For example,
Disciplinary Rule 7-102(A) of the Model Code of Professional
Responsibility (1976) forbids the knowing use of perjured testimony or
false evidence, or counseling a client to engage in illegal or
fraudulent conduct.  But section (B) of that same rule prohibits
revealing even perjury to the relevant tribunal if the attorney's
knowledge of the perjury rests on privileged communications, i.e.,
from the client.  Moreover, Ethical Consideration 7-4 requires the
attorney to urge any construction of law or facts favorable to his
client if the construction is "supportable by a good faith argument
for an extension, modification, or reversal of the law" (emphasis
added), i.e., even if the attorney himself does not believe in the
argument.  Model Code of Professional Responsibility 36C, 32C (1976).
See also Rule 1.6 Model Rules of Professional Conduct (Proposed Final
Draft 1981), dealing with confidentiality of information.  Model Rules
of Professional Conduct 9 (Final Draft 1982).  The ABA House of
Delegates amended this proposal to protect against disclosure of
information by an attorney that his client is about to commit a
non-violent crime (e.g., fraud), but the ABA itself has not taken
final action on the proposed rules.  See N.Y. Times, Feb. 9, 1983, at
A24, col. 1.

   /15/ See Note, The Duties and Obligations of the Securities Lawyer:
 The Beginning of a New Standard for the Legal Profession?, 1975 Duke
L. J. 121, for a detailed analysis of the distinction between the
roles of lawyers and accountants and the unique responsibilities to
the public imposed on securities lawyers by the courts and by the
regulations of the Securities and Exchange Commission.

   /16/ See, e.g., Pegasus Fund, Inc. v. Laraneta, 617 F.2d 1335 (9th
Cir. 1980) (respondent Arthur Young & Co. produced its workpapers to
show that it had no reason to know of fraud by its client);  Oleck v.
Fischer, 623 F.2d 791 (2d Cir. 1980) (Arthur Andersen & Co. testified
regarding reserves for notes payable appearing in client's financial
statement);  Herzfeld v. Laventhol, Krekstein, Horwath & Horwath, 540
F.2d 27 (2d Cir. 1976);  SEC v. Geotek, 426 F. Supp. 715 (N.D. Cal.
1976), aff'd, 590 F.2d 785 (9th Cir. 1979).

   /17/ The work-product doctrine would, of course, protect workpapers
that an accountant prepares when engaged by an attorney in preparation
for litigation.  In re Grand Jury Subpoena, 599 F.2d 504, 513 (2d Cir.
1979);  cf. Fed. R. of Civ. P. 26(b)(3), advisory committee.

   /18/ See, e.g., Wm. T. Thompson Co. v. General Nutrition Corp., 671
F.2d 100, 103-104 (3d Cir. 1982);  United States v. Gurtner, 474 F.2d
297, 299 (9th Cir. 1973);  United States v. Wainwright, 413 F.2d 796,
803 (10th Cir. 1969);  United States v. Kovel, 296 F.2d 918, 922 (2d
Cir. 1961);  Falsone v. United States, 205 F.2d 734 (5th Cir.), cert.
denied, 346 U.S. 864 (1953).  See also Gariepy v. United States, 180
F.2d 459, 463-464 (6th Cir. 1951);  Himmelfarb v. United States, 175
F.2d 924, 939 (9th Cir.), cert. denied, 338 U.S. 860 (1949);  Olender
v. United States, 210 F.2d 795, 806 (9th Cir. 1954).

   /19/ The attorney may reveal confidential communications if the
client sues him about the quality of representation (Tasby v. United
States, 504 F.2d 332, 336 (8th Cir. 1974)), or if the communication
was made in furtherance of on-going or future criminal activity and
the attorney's defense against criminal prosecution regarding the
criminal activity requires disclosure of the communication (Housler v.
First Nat'l Bank of East Islip, 484 F. Supp. 1321 (E.D.N.Y. 1980)).
Cf. Myerhoffer v. Empire Fire & Marine Insurance Co., 479 F.2d 1190
(2d Cir. 1974) (attorney permitted to reveal confidences when he was a
defendant in a civil suit involving the securities law).

   /20/ El Paso resisted the summons arguing, inter alia, that because
the tax accrual analysis was conducted by employees who were
attorneys, the documents were privileged either under the
attorney-client privilege or the attorney work-product doctrine.  The
court assumed that the attorney-client privilege might have been
applicable (682 F.2d at 539).  However, it enforced the summons
because El Paso had discussed the tax accrual analyses with its
outside auditors and thereby waived any privilege that might have
applied to these records (id. at 540).  The court held that El Paso
waived any presumed attorney-client privilege because no
accountant-client privilege existed.  By communicating to a
non-privileged party -- the outside auditor -- El Paso forfeited
whatever privileged status might have been accorded to the
communication.

   /21/ Compare United States v. Procter & Gamble, 356 U.S. 677,
682-683 (1958) ("Modern instruments of discovery serve a useful
purpose * * *.  They together with pretrial procedures make a trial
less a game of blindman's buff and more a fair contest with the basic
issues and facts disclosed to the fullest practicable extent * * *.
Only strong public policies weigh against disclosure.");  see also
Rozier v. Ford Motor Co., 573 F.2d 1332, 1345-1346 (5th Cir. 1978).

   /22/ Neither the corporate taxpayer nor the independent auditor in
Arthur Andersen & Co. obtained a stay of the district court decision.
Hence, the auditor produced the tax accrual papers, and its appeal
with respect to that issue was dismissed as moot (623 F.2d 720 (1st
Cir. 1980)).  The taxpayer's appeal challenged, inter alia, the
relevance of the Service's questioning the auditor with respect to the
workpapers.  Before addressing the taxpayer's claim that the requested
testimony of the auditor was not relevant, the court of appeals first
expressed agreement with this Court's admonition in Couch v. United
States, supra, 409 U.S. at 335, that there is no recognized
accountant-client privilege.  See pp. 5-6, supra.  The court of
appeals held that the taxpayer's appeal as to the relevancy of the
auditor's testimony was premature until such questioning was in fact
resisted (623 F.2d at 729-730).

   /23/ Cf. United States v. Coopers & Lybrand, 413 F. Supp. 942 (D.
Col. 1975), aff'd, 550 F.2d 615 (10th Cir. 1977).  There, the court
refused to enforce a summons for tax accrual workpapers on the ground
that they were not relevant to the Internal Revenue audit, relying, in
part, on the fact that they were not created in the course of
preparing the taxpayer's tax return.  This narrow definition of
relevance has not been followed in subsequent decisions of other
courts, including the Tenth Circuit itself.  United States v. El Paso
Co., supra;  United States v. Noall, 587 F.2d 123, 125-126 (2d Cir.
1978), cert. denied, 441 U.S. 923 (1979);  and United States v.
Southwestern Bank & Trust Co., 693 F.2d 994 (10th Cir. 1982);  United
States v. City National Bank & Trust Co., 642 F.2d 388 (10th Cir.
1981).

   /24/ There is certainly nothing in the record to support such an
inference.  The only factual submission put forward by respondent on
this point was the unsupported self-serving statement of its counsel
that (J.A. 32):

      Clients would be reluctant to provide necessary information * *
      * (if the tax accrual workpapers were disclosed).  The
      devastating impact of this to the auditing profession and to the
      primary objectives of that audit, the integrity of the financial
      statements, is obvious.

   Surely an evidentiary privilege that undercuts the powerful
governmental interest in collecting taxes should rest on something
more substantial than the self-serving speculation by an interested
party.  In Branzburg v. Hayes, supra, this Court rejected similar
arguments advanced in support of creating a newsman's privilege.  The
reporters in that case had argued that their confidential sources
would dry up if the sources believed that the reporter might be
required to testify before a grand jury regarding the identity of the
source or the information obtained from the source.  The Court found
the argument unpersuasive because the asserted result was highly
speculative (408 U.S. at 693-694) and because, even if the ill-effect
were assumed to occur in the future, it would not outweigh the present
public interest in obtaining the information from the reporters (id.
at 695).  Cf. Hawkins v. United States, 358 U.S. 74, 81-82 (Stewart,
J., concurring).

   /25/ Upjohn Co. v. United States, supra, upon which the court of
appeals relied (Pet. App. 30a n.9), is not to the contrary.  There,
the Court held that the attorney-client privilege protected
communications from a corporation's employees to its general counsel,
who was conducting an investigation of questionable payments made by
one of the corporation's foreign subsidiaries.  In so holding, the
Court rejected the government's argument that the privilege was
inapplicable because the risk of civil or criminal liability would
ensure that corporations would seek legal advice even in the absence
of the privilege.  The Court observed that absent the privilege, the
depth and quality of any investigations to insure compliance would
suffer.  The Court added that the argument proved too much because
even a corporation seeking to comply with the law has a strong
incentive to disclose information to its lawyer (449 U.S. at 393 n.2).

   But these considerations have no application here where the
securities laws independently require certified financial statements
made by accountants who have a separate and distinct obligation to the
public.  Hence, the law and not any privilege ensures candid
communications between the public corporation and its outside auditor.
 In sharp contrast, consultation with an attorney is a voluntary act
that the attorney-client privilege is designed to facilitate.  See
United States v. El Paso Co., supra, 682 F.2d at 544-545 n.16.