Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-casd-3_08-cv-00919/USCOURTS-casd-3_08-cv-00919-0/pdf.json

Nature of Suit Code: 870
Nature of Suit: Tax Suits
Cause of Action: 26:7402 IRS: Petition to Enforce IRS Summons

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IN THE UNITED STATES DISTRICT COURT

FOR THE SOUTHERN DISTRICT OF CALIFORNIA

UNITED STATES OF AMERICA

Petitioner,

v.

SCOTT A. WAAGE, as President of The Waage

Law Firm

 Respondent.

Civil No. 08-cv-0919-IEG 

ORDER REQUIRING RESPONDENT TO

MEET AND CONFER WITH IRS AGENT

The IRS has filed a petition to enforce a summons it issued to Scott A. Waage as President of the

Waage Law Firm. The IRS issued the summons in furtherance of its investigation of the tax liabilities of

the Firm for the tax years 2003 and 2004. Respondent has filed an opposition to the petition, arguing he

has produced numerous documents but has withheld from production the Firm’s billing statements

because those statements contain voluminous attorney-client privileged communications. Respondent

has provided the government with two privilege logs, one for each of the tax years for which the IRS

seeks records. The government has filed a reply.

Case 3:08-cv-00919-IEG Document 11 Filed 09/30/08 Page 1 of 5
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The billing statement is a document admitted into evidence in the San Diego County Superior Court

in the context of a fee dispute with a client, where the client waived the attorney-client privilege. [Waage

Decl., ¶ 16.]

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The Court found the matters raised in the petition and responsive papers to be appropriate for

decision on the papers and without oral argument, and the Court vacated the hearing date. 

Background

The IRS is conducting an investigation of the federal income tax liabilities of the Waage Law

Firm for the tax years 2003 and 2004. [Declaration of Revenue Agent George R. Lee (“Lee Decl.”),

Doc. No. 2, ¶ 3.] On May 18, 2007, Revenue Agent Lee issued an IRS summons to Scott Waage as

President of the Waage Law Firm. The summons called for Mr. Waage to appear on June 4, 2007 to give

testimony and produce documents for examination. [Lee Decl., ¶ 4 and Exhibit A.] Mr. Waage appeared

on June 4, 2007, and produced all bank statements, corporate minutes, and the general ledger of the Firm,

as requested by the summons. [Declaration of Scott A. Waage (“Waage Decl.”), Doc. No. 5-1, ¶ 12.] 

However, Mr. Waage refused to produce billing statements, invoices and receipts as requested by the

summons. [Lee Decl., ¶ 7.] 

Mr. Waage advised Revenue Agent Lee in writing that except for billing statements, the Firm

“does not generate invoices or provide invoices to its clients.” [Waage Decl., ¶ 13.] With regard to the

request to produce all “related billing statements,” Mr. Waage informed Revenue Agent Lee in writing

that the “billing statements are comprised of voluminous communications between attorney and client

which are protected under Federal and state law.” [Id., ¶ 14 and Exhibit A (Doc. No. 5-3).] 

Mr. Waage has provided a copy of a typical billing statement1 in support of his opposition to the

IRS petition. [Waage Decl., ¶ 16 and Exhibit B (Doc. No. 5-4).] According to Mr. Waage:

The billing statements of the Firm are unusually detailed and set forth the date services

were performed, the specific nature of the services provided, specific detail on the advice

given to clients, detail on specific areas of law researched, the motivation and purpose of

recommended transactions, the time spent in the performance of such services and other

detail comprising confidential communications to the clients.

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[Waage Decl., ¶ 15.] Because the statements are so detailed, the Firm’s billing statements for the year

2003 comprises 10,054 pages. The statements for the year 2004 comprise 12,999 pages. [Declaration of

Michael Duell (“Duell Decl.”), Doc. No. 5-2, ¶ 5.] 

The Firm’s business manager has prepared a privilege log utilizing the Firm’s 2003 and 2004

billing statements. [Doc. Nos. 5-5 and 5-6.] These privilege logs identify the client code indicating the

identity of the client, the billing date, the invoice number, the billing matter code indicating the general

nature of the work performed, and the dollars billed. [Duell Decl., ¶ 6.]

In addition to the summons issued to Mr. Waage, the IRS issued summonses to more than 30

clients and former clients of the Firm on July 12, 2007. [Waage Decl., ¶ 6.] The IRS has also initiated

an examination of the federal income tax liabilities of approximately 100 clients and former clients of the

Firm. [Waage Decl., ¶ 7.]

Discussion

In order to obtain judicial enforcement of an IRS summons, the United States “must first establish

its ‘good faith’ by showing that the summons: (1) is issued for a legitimate purpose; (2) seeks

information relevant to that purpose; (3) seeks information that is not already within the IRS' possession; 

and (4) satisfies all administrative steps required by the United States Code.” Fortney v. United States,

59 F.3d 117, 119 (9th Cir. 1995) (citing United States v. Powell, 379 U.S. 48, 57-58 (1964)). “The

government's burden is ‘a slight one’ and typically is satisfied by the introduction of the sworn

declaration of the revenue agent who issued the summons that the Powell requirements have been met.” 

Id. at 120. Once the government has made a prima facie showing that enforcement of the summons is

appropriate, the burden shifts to the respondent to show that enforcement of the summons would be an

abuse of the court’s process. Powell, 379 U.S. at 58. The Supreme Court has characterized respondent’s

burden as a heavy one. Id. 

Here, the government’s petition and Revenue Agent Lee’s supporting declaration satisfies all four

elements of the Powell standard. First, Revenue Agent Lee issued the summons to Mr. Waage in

furtherance of an investigation of the federal income tax liabilities of the Waage Law Firm, a purpose

explicitly authorized under 26 U.S.C. § 7602(a) (IRS may issue summons “[f]or the purpose of

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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 collecting any such liability . . .”). Second, the

documents sought by the summons, including the billing statements, are relevant to the IRS’s

determination of the Firm’s tax liability. Third, Revenue Agent states the documents and data contained

therein are not already in the possession of the IRS. [Lee Decl., ¶ 12.] Finally, the IRS has satisfied all

administrative procedures. [Id., ¶ 14.]

However, IRS summonses are “subject to the traditional privileges and limitations” including the

attorney-client privilege. Upjohn Co. v. United States, 449 U.S. 383, 398 (1991); see also United States

v. Zolin, 491 U.S. 554, 562 (1989). Mr. Waage acknowledges that the identity of a client, the amount of

fees, the identification of payment by case file name, and the general purpose of the work performed are

usually items not protected from disclosure by the attorney-client privilege. Clarke v. American

Commerce Nat’l Bank, 974 F.2d 127, 129 (9th Cir. 1992). However, “correspondence, bills, ledgers,

statements, and time records which also reveal the motive of the client in seeking representation,

litigation strategy, or the specific nature of the services provided, such as researching particular areas of

law, fall within the privilege.” Id. Mr. Waage argues that because the Firm’s billing records contain this

type of privileged information, the Court should not order him to produce the records to the IRS. 

Upon review of the sample billing statement from the Firm, it is apparent the statements contain

the type of information expressly covered by the attorney-client privilege. The billing statements reveal

the specific nature of the services provided and the strategy for such services. In addition, Mr. Waage

has demonstrated it would be unduly burdensome for him to redact the billing statements to remove the

attorney-client privileged materials. The Firm’s business manager has provided a declaration stating the

billing statements from 2003 and 2004 comprise a total of 23,053 pages. It would be unreasonable to

require Mr. Waage or someone else from the firm to go through 23,053 pages of information to redact

the privileged communications. 

Finally, the IRS argues the information it seeks may be available in another format, from invoices

the Firm sent to its clients. However, the firm’s business manager, Mr. Duell, has stated in his

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declaration that “[o]ther than the billing statements described herein, the Firm does not generate invoices

or provide invoices to its clients.” [Duell Decl., ¶ 2.]

In its reply, the IRS argues it seeks only billing records with complete client names, or a key to

translate the client codes listed on the privilege log, to identify client names. As such, it appears the only

information the IRS seeks to learn from the billing statements is the identification of the Firm’s clients. 

Mr. Waage can provide this information to Revenue Agent Lee, permitting Revenue Agent Lee to

identify the Firm’s clients based upon the client codes contained in the privilege logs. Once Revenue

Agent Lee has this information, if he needs additional information to complete his investigation, the IRS

can request additional relief on the Petition.

Conclusion

On or before Friday, October 17, 2008, Respondent must meet and confer in person with

Revenue Agent Lee at his office located at 880 Front Street, Suite 3269, San Diego, CA 92101. Mr.

Waage should contact Revenue Agent Lee at (619)557-7720 to arrange a mutually convenient time for

this meeting. If, following this meet and confer, IRS Agent Lee needs additional information to

complete his investigation, Petitioner may file a request for the Court to take further action on the

Petition.

IT IS SO ORDERED.

DATED: September 30, 2008

IRMA E. GONZALEZ, Chief Judge

United States District Court

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