Document: 465 U.S. 805 104 S.Ct. 1495 79 L.Ed.2d 826 UNITED STATES, Petitioner,v.ARTHUR YOUNG & COMPANY et al. No. 82-687. Argued Jan. 16, 1984. Decided March 21, Syllabus Respondent certified public accountant firm, as the independent auditor for respondent corporation, was responsible reviewing corporation's financial statements required by federal securities laws. In course of these statements, accounting firm verified statement its contingent tax liabilities, and, in so doing, prepared accrual workpapers relating to evaluation reserves such liabilities. When a routine audit Internal Revenue Service (IRS) determine income liability certain years revealed that corporation had made questionable payments from "special disbursement account," IRS instituted criminal investigation returns. process, IRS, pursuant § 7602 Code 1954—which authorizes Secretary Treasury summon and "examine any books, papers, records, or other data which may be relevant material" particular inquiry—issued summons requiring it make available all files including workpapers. instructed not comply with summons, commenced an enforcement action Federal District Court, which, upon finding were within meaning refusing recognize accountant-client privilege would protect workpapers, ordered enforced. The Court Appeals affirmed part reversed part. While agreeing investigation, court held interest promoting full disclosure accountants, turn ensuring integrity markets, protection under work-product immunity doctrine work auditors perform publicly owned corporations. Accordingly, because found sufficient showing need overcome seeking prove fraud on part, refused enforce insofar sought Held: 1. are 7602. As 7602's language indicates, is judged relevance standards used deciding whether admit evidence court. "may be" reflects Congress' intention allow obtain items even potential ongoing without reference admissibility. discovery tool, critical IRS's investigative functions. That actually preparation returns taxpayer accountants does bar Pp. 813-815. 2. protected 815-821. (a) subject traditional privileges limitations, restrictions power should avoided "absent unambiguous directions Congress." United States v. Bisceglia, 420 141, 150, 95 915, 921, 43 88. There no justify judicially created summoned Indeed, congressional policy favoring information legitimate inquiry. 815-817. (b) light Couch States, 409 322, 93 611, 34 548, confidential exists, Appeals' creation misplaced conflicts clear intent. P. 817. (c) Nor accountants' fitting analogue attorney doctrine. An performs different role whose duty, his client's adviser advocate, present case most favorable possible light. certifying reports depict status, responsibility transcending employment relationship client, owes allegiance creditors stockholders, well investing public. 817-818. (d) markets will suffer absent some auditor's obligation serve assures preserved, 818-819. (e) give unfair advantage negotiating litigating controversies. Since Securities Exchange Commission private plaintiff litigation entitled at issue, there good reason, broad command, conferring lesser authority IRS. 820-821. 677 F.2d 211 (CA2 1982) remanded. Mark I. Levy, Washington, D.C., petitioner. Carl D. Liggio, New York City, respondent, Arthur Young Co. William E. Jackson, Amerada Hess Corp. Chief Justice BURGER delivered opinion Court. 1 We granted certiorari consider regular audits response issued 1954 (Code), 26 U.S.C. 2 * A. 3 accountants. Corp., laws.1 review Amerada's issue this case. Tax documents memoranda Young's Such sometimes contain pertaining transactions, identify positions have taken returns, reflect opinions regarding validity positions. See infra, 810-813. 4 1975 began corporate 1972 through 1974. $7830 well. 7602, 7602,2 administrative Young, files, summons. 5 then against Southern York. 7604.3 intervened, permitted 7609(b)(1).4 496 F.Supp. 1152, 1156-1157 (SDNY 1980). B 6 A divided Second Circuit 1982). majority agreed Amerada, but companies. Drawing Hickman Taylor, 329 495, 67 385, 91 L.Ed. 451 (1947), Fed.Rule Civ.Proc. 26(b)(3), fashioned compliance Because demonstrated 7 One judge dissented portion creating dissent viewed statutory authority, reflecting decision favor also rejected justifications asserted immunity, reasoning necessary ensure certification statements. 8 certiorari, --- ----, 103 1180, 75 429 (1983). affirm reverse II 9 Corporate one primary sources guide decisions effort control accuracy investors various provisions laws require corporations file their Commission.5 regulations stipulate must audited accordance generally accepted auditing standards.6 By examining books determines been principles.7 issues whole, fairly position operations period.8 n. 13, infra. important aspect function evaluate adequacy reasonableness reserve account This account, known noncurrent pool, represents amount set aside cover adjustments additions actual liability. Additional arise wide variety transactions.9 presence liabilities awareness of, preparedness for, possibility assessment additional taxes. 10 draws many evaluating sufficiency account. Initially, analyzed provisions, Regulations, Rulings, law. assess opinions, speculations, projections management regard unclear, aggressive, prior exploring consequences often engages "worst-case" analysis order accurately extent exposure From conglomeration data, able estimate cost each contingency, probability arise. 11 record process examination analysis. document interviews personnel, judgments questions liability, suggestions alternative treatments transactions purposes. overall item-by-item short, pinpoint "soft spots" return highlighting those areas has may, later date, payment III 12 access exercised conferred inquiry.10 determined satisfied requirement they "might thrown upon" correctness return.11 logical predicate question form we first issue.12 agree 13 clearly Cf. Evid. 401. express purpose Congress obvious: can hardly expected know fact until procured scrutinized. tool discovery, functions see Powell, 379 48, 57, 85 248, 254, 112 (1964); therefore establish seeks technical, evidentiary sense. 14 own filing entails much more than filling blanks undisputed principles; likely not, composite interpretation officers taxpayer. It completing stretched concept beyond what allowed. Records illuminate return—such case—are highly acknowledged this: "It difficult say throw 'light upon' return." F.2d, 219. accordingly holding IV 15 now Based competing policies laws, create so-called 16 Our complex comprehensive system taxation, relying self-assessment reporting, demands taxpayers forthright taxing authorities. Without disclosure, concomitant Government compel our national burden equitably distributed. encourage effective investigations, endowed expansive information-gathering authority; centerpiece design. noted 146, 919, 88 (1975): 17 "The [§ 7602] accuse, inquire. Although investigations unquestionably involve invasion privacy, essential self-reporting system, alternatives could far less agreeable invasions house, business, records." 18 Similarly, Euge, 444 707, 711, 100 874, 878, 63 141 (1980): 19 "[T]his consistently construed intent if claimed performance congressionally imposed responsibilities Code, upheld prohibition substantial countervailing policies." 20 "subject limitations," id., 714, S.Ct., 879, supra, U.S., 921. unable discern sort "unambiguous Congress" very precisely opposite: choice explicit Legislative Branch, courts chary recognizing exceptions fashioning new curtail Milwaukee Illinois, 304, 315, 101 1784, 1791, 68 114 (1981). If latitude circumscribed, Congress, make. 712, 878. 21 nevertheless concluded "substantial policies," To Appeals, concern "chilling effect" facilitate communication between clients, remedy closely resembles testimonial But stated 335, 619, 548 (1973), "no exists law, state-created recognized cases." Couch, foster candid client self-styled misplaced, Congress. 22 do find persuasive argument established supra. founded attorney's advisor loyal representative duty role. collectively assumes client. performing special ultimate "public watchdog" maintain total independence times requires complete fidelity trust. insulate accountant's interpretations ignore significance disinterested analyst charged obligations. 23 cannot accept view apparently feared that, might tempted withhold material proper content representations adequate; ethically professionally obligated ascertain himself stated. convinced scope limited management's reluctance disclose matters reserves, unqualified Instead, qualified opinion, adverse disclaimer thereby notifying problems inherent reports.13 Responsible risk taxpayer's posture afford reflected return.14 Thus, workpapers.15 24 reject respondents' fundamental fairness precludes Respondents urge permits probe thought processes citizens, giving SEC itself, litigation, case, surely so.16 command sound reason litigant suing concerning interest. 25 "broad adopt techniques helpful [its] collection responsibilities." 716, 9, 880, 9. Recognizing intrusiveness production sensitivity concerns expressed profession tightening internal requirements issuance summonses. Int. Rev. Manual—Audit (CCH) 4024.4 (May 14, 1981).17 guidelines applicable during promulgation further refutes flexibility reinforces reduce irrevocably power. V Beyond desirable disclosures clients accountants; balance interests, however, weigh balance. kind best left Branch. judgment remanded proceedings consistent opinion. 27 ordered. See, e.g., Act 1934, 12(b)(1)(J)-(L), 48 Stat. 892, 78l (b)(1)(J)-(L); Regulation S-X, CFR 210 seq. 5, Section provides follows: "For ascertaining return, making where none made, determining person revenue law equity transferee fiduciary respect tax, collecting authorized— (1) examine inquiry; (2) liable act, officer employee person, having possession, custody, care containing entries business deem proper, appear before time place named produce testimony, oath, (3) take testimony concerned, inquiry." 7604 7604, that: "If appear, testify, district resides shall jurisdiction appropriate attendance, records data." served affairs Amerada. 7609(a)(1), notice 7609(b)(1) "any who subsection right intervene proceeding section 7604." 1933, Schedule (25)-(27), 88, 77aa (filing registration stock issue); §§ 12(g)(1), (b)(1)(J)-(L), (g)(1) listing exchange); 13(a)(2), 13(b), 894, 78m(a)(2); 249.310, 249.460 (1983) annual reports); 895, 78n; 14A, Item 15, 240.14a-101 connection proxy statements). (1983), prescribes qualifications contents submitted particular, 210.1-02(d) "in standards." "Generally standards" promulgated committee profession's organization, American Institute Certified Public Accountants (AICPA). AICPA Professional Standards 150.02 (1972). AICPA, Statement Auditing 110.01 Promulgated Financial Accounting Board, "generally principles" conventions, rules, procedures define practices. W. Meigs, Larsen, R. Principles 25-26 (5th ed. 1973); H. Stettler, 12-16 509 (1974). For example, characterization proceeds sale capital gain instead ordinary income, claiming investment credit, attribution transaction future year calls gray result recomputation outstanding (1964), impose probable cause show only "that conducted purpose, inquiry already Commissioner's steps followed. . ." Id., 57-58, 254-255 (emphasis added). standard employed return"—appears widely among Courts Appeals. Wyatt, 637 293, 300 (CA5 1981); Turner, 480 272, 279 (CA7 Ryan, 455 728, 733 (CA9 1972); Egenberg, 443 512, 515-516 (CA3 1971); Foster 265 183, 187 (CA2), cert. denied, 360 912, 1297, 1261 (1959). Harrington, 388 520, 524 (1968), amplified test stating "the 'might' articulated standard, 'might return,' indication realistic expectation rather idle hope something discovered." Coopers Lybrand, 550 615 (1977), Tenth petition did relevancy respondents filed cross-petition raising issue. have, argued erred so, precedents prevailing party ground support judgment, relied considered below. Telephone Co., 434 159, 166, 8, 98 364, 369, 54 376 (1977); Dandridge Williams, 397 471, 475-476, 6, 90 1153, 1156-1157, 491 (1970). report give, company's company, results operations, changes period audit, conformity applied principles. 510, 511.01 (1973). Alternatively, states presented except to, departure principles, change uncertainty. 512. reflection determination position, company when materially misstated 513. Finally, expresses inability draw conclusion records. lacks about 514. Arens J. Loebbecke, Auditing: Integrated Approach 643-660 (1976). inclusion anything send signals creditors, investors, others bill health. serious shareholders. protecting insulation undermine public's confidence process. obviate fear loss reliance inaccurate information, encouraging nation's industries. enough accurate; perceive them being accurate. faith reliability depends perception outside professional. Endowing destroy appearance impression advocate value itself lost. 55-58. 19, 85, 77s(b) (for purposes "necessary proper" empowered "require deems inquiry"); 899, 78u(b) (same); 26(b)(1) (parties matter, privileged, matter involved pending action"). provide "unusual circumstances" "collateral source factual written approval Examination Division agent request workpapers; addition, state examiner reasonable means secure issuing auditor.

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