Opinion ID: 425268
Heading Depth: 2
Heading Rank: 2

Heading: Whether tax accrual workpapers are privileged.

Text: 25 Taxpayer argues that, even if relevant, tax accrual workpapers should not be subject to IRS summons authority absent a showing of particularized need. Taxpayer asks this Court to adopt and extend the reasoning of the Second Circuit in United States v. Arthur Young Company, 677 F.2d 211 (2d Cir.1982), cert. granted, --- U.S. ----, 103 S.Ct. 1180, 75 L.Ed.2d 429 (1983), which held that tax accrual workpapers prepared by independent auditors of a public corporation subject to the federal securities laws are protected from IRS summons authority by a work product privilege similar to the attorney work product privilege recognized by the Supreme Court in Hickman v. Taylor, 329 U.S. 495, 67 S.Ct. 385, 91 L.Ed. 451 (1947), and embodied in Rule 26 of the Federal Rules of Civil Procedure. 26 The decision of the Second Circuit in Arthur Young is based on a perceived conflict between the federal tax and securities laws. The court observed that a decision to permit the IRS routinely to summon documents that contain an auditor's assessment of the questionable tax position taken by its client would undermine the integrity of the auditing process and defeat the purpose of the securities laws mandating independent financial audits and public filing of financial statements. 677 F.2d at 219-20. The court assumed that corporate officials would be less forthcoming with an independent auditor once they knew that the auditor's assessment of the corporation's contingent tax liability would be readily accessible to Internal Revenue agents. Id. at 220. Faced with this clash between two important congressional policies, id., and cognizant of the Supreme Court's recognition that  'contrary legislative purposes' can undercut the 'broad latitude' otherwise provided to the IRS, id. at 219 (quoting United States v. Euge, 444 U.S. 707, 716 & n. 9, 100 S.Ct. 874, 880 & n. 9, 63 L.Ed.2d 141 (1980)), the Second Circuit carved out of the IRS summons authority a new accountant work product privilege. The court stated that the new privilege, similar to the attorney work product privilege, allows the IRS to procure [tax accrual workpapers] when the rare situation arises when it can make a sufficient showing of need to adequately justify invading the integrity of the auditing process. Id. at 221. 27 Trio argues that this Court should adopt the reasoning of Arthur Young and extend it to a case that does not present the same conflict between congressional purposes--because it involves a closely held corporation that is not subject to the federal securities laws--but that does implicate similar policy concerns. We decline this invitation to follow the Second Circuit and embrace instead the position taken by Judge Newman in dissent. We also note the Fifth Circuit's recent decision in United States v. El Paso Company, 682 F.2d 530 (5th Cir.1982), which supports our decision in this case. 28 The broad summons authority that Congress gave to the Internal Revenue Service under Section 7602 is subject to the  'traditional privileges and limitations.'  Upjohn Company v. United States, 449 U.S. 383, 398, 101 S.Ct. 677, 687, 66 L.Ed.2d 584 (1981). The Supreme Court has held, for example, that the attorney-client privilege and the attorney work product doctrine limit the scope of the IRS summons power. Id. at 386, 101 S.Ct. at 681. Federal law, however, does not recognize an accountant-client privilege, Couch v. United States, 409 U.S. 322, 335, 93 S.Ct. 611, 619, 34 L.Ed.2d 548 (1973); International Horizons, Inc. v. Committee of Unsecured Creditors, 689 F.2d 996, 1003-04 (11th Cir.1982), or, at least before Arthur Young itself, an accountant work product privilege, United States v. Arthur Young Company, 677 F.2d at 222 (Newman, J., dissenting). 8 29 Congress' explicit grant of summons power to the IRS should not be limited by a newly recognized privilege unless Congress itself chooses to so limit IRS authority. The Supreme Court in its review of IRS summons power has made clear that absent unambiguous directions from Congress, the courts should not impose additional restrictions on the scope of Section 7602. United States v. Bisceglia, 420 U.S. 141, 150, 95 S.Ct. 915, 921, 43 L.Ed.2d 88 (1975). 30 Trio is not subject to the same federal securities laws that were deemed critical to the decision in Arthur Young, but it argues that the same policy there embraced--protection of accountant work product to ensure the integrity of the auditing process and the protection of investor confidence--should be adopted here. In view of our determination that Congress is the proper body to make any decision to limit IRS summons power with newly recognized privileges, and especially in the absence of any conflicting congressional purposes, we refuse to adopt the position urged upon us by the Taxpayer. 31