Opinion
M-18-304 (RMB) (THK)
July 10, 2002
OPINION AND ORDER
BACKGROUND
This proceeding arises out of an application by the United States ("Petitioner") for an order directing Respondent Joseph Cianciulli ("Respondent") to comply with an Internal Revenue Service ("IRS") summons, issued pursuant to section 7602 of the Internal Revenue Code, 26 U.S.C. § 7602. The summons was issued as part of an investigation for the purpose of ascertaining the correct income tax liability of Respondent for the calendar years 1990 through 1999. Respondent failed to file any tax returns for those years. The summons directed Respondent to appear before a designated Revenue Officer to testify, and to produce for examination, inter alia, all books, records, and other documents that reflected the receipt of taxable income, records of deposits to bank accounts, and receipts regarding wages, salaries, and income. (Petition to Enforce Internal Revenue Service Summons, May 4, 2001, Exhibit ("Ex.") B.)
Respondent failed to comply with the summons and Petitioner secured an Order to Show Cause as to why Respondent should not be compelled to testify and produce the books and records demanded in the summons. (Order to Show Cause, May 8, 2001 (Wood, J.).) In response, Respondent submitted a Memorandum of Law and two sworn declarations of his attorney, James R. DeVita; Petitioner submitted a Reply Memorandum of Law ("Pet. Mem."); and Respondent submitted a Sur-Reply Memorandum of Law ("Sur-Reply"). In his submissions, Respondent invoked his Fifth Amendment privilege against self-incrimination, arguing that responses to the IRS's questions might be used to incriminate him for such offenses as willful failure to file a tax return or to pay a tax, in violation of 26 U.S.C. § 7203. Respondent further argued that the act of producing the requested documents could also incriminate him, by "indicating his belief that they are the documents described in the summons, their authenticity, and admitting his possession and control of them." (Sur-Reply at 4-5.)
Petitioner argued that Respondent's application was inadequate because he failed to meet his burden of establishing facts that demonstrate a substantial and real hazard of incrimination; his attorney's declaration consisted of hearsay and was an insufficient basis on which to invoke the Fifth Amendment privilege; Respondent's reliance on the act of production privilege was misplaced; and even if Respondent reasonably feared incrimination, his blanket assertion of his Fifth Amendment privilege was improper.
United States District Judge Richard M. Berman concluded, in a Decision and Order dated September 17, 2001 ("Sept. 17 Decision"), that compliance with the summons could potentially incriminate Respondent, but that Respondent had failed to satisfy his burden of establishing a blanket Fifth Amendment privilege with respect either to all of the deposition questions which might be posed to him or to all of the documents requested. The Court therefore ordered Respondent to appear for deposition and either respond or invoke his Fifth Amendment privilege on a question-by-question basis. Disputes regarding the invocation of the privilege were to be resolved by the undersigned. Respondent was further ordered to produce to the undersigned, for in camera review, all documents responsive to the summons as to which he asserted a Fifth Amendment privilege.
There followed a series of conferences with the parties regarding the procedure to be used to resolve privilege issues at Respondent's deposition. The parties finally agreed that any privilege issue that arose would likely be the same as to most questions, and it was agreed that rather than conducting the deposition in court, where the invocation of the privilege would be addressed on a question-by-question basis, the deposition would be held out of the Court's presence, and the propriety of Respondent's invocation of the privilege would subsequently be argued to the Court. Respondent's deposition was held on June 3, 2002. As it turns out, the parties have not sought a Court ruling on Respondent's invocation of the privilege with respect to any deposition question.
There was also a substantial delay in scheduling the deposition because of the unavailability of counsel and the possibility that Mr. Cianciulli would retain new counsel.
However, there remains the issue of the document production. Respondent has submitted to the Court, for in camera review, a small quantity of documents that he asserts are the only documents that he still possesses that arguably can be construed as being responsive to the summons. Respondent seeks a protective order with respect to their production, arguing that to produce them could incriminate him because they could "`furnish a link in the chain of evidence needed to prosecute' Mr. Cianciulli for such crimes as willful failure to file income tax returns and income tax evasion." (Letter of James R. DeVita, Oct. 4, 2001, submitted in camera, at 2 (quoting Hoffman v. United States, 341 U.S. 645, 649, 71 S.Ct. 814, 818 (1951)).) Petitioner continues to seek enforcement of the IRS summons, relying on its previous submissions.
DISCUSSION
The District Court (Berman, J.) has already determined that the Fifth Amendment to the United States Constitution, which protects an individual from being compelled to be a witness against himself, is applicable to the instant case. See Sept. 17 Decision. The Fifth Amendment may be asserted in any civil, criminal, or administrative proceeding, when a "witness reasonably believes that his testimony could `furnish a link in the chain of evidence needed to prosecute' him for a crime." Estate of Fisher v. Comm'r of Internal Revenue, 905 F.2d 645, 648 (2d Cir. 1990) (quoting Hoffman, 341 U.S. at 486, 71 S.Ct. at 818). Although the Fifth Amendment does not protect the contents of voluntarily prepared documents, see United States v. Hubbell, 530 U.S. 27, 35-36, 120 S.Ct. 2037, 2043 (2000); United States v. Doe, 465 U.S. 605, 612 n. 10, 104 S.Ct. 1237, 1242 n. 10 (1984), the "act of production" doctrine has been recognized as protecting individuals from incriminating themselves by being compelled to produce documents where the production could implicitly communicate incriminating facts, such as the admission that "papers existed, were in [the producing party's] possession or control, and were authentic." Hubbell, 530 U.S. at 36-37, 120 S.Ct. at 2044; see also Fisher v. United States, 425 U.S. 391, 410-11, 96 S.Ct. 1569, 1581 (1976); In re Grand Jury Subpoena Duces Tecum Dated Oct. 29, 1992, 1 F.3d 87, 93 (2d Cir. 1993), cert. denied sub nom. Doe v. United States, 510 U.S. 109, 114 S.Ct. 920 (1994). Thus, the act of production may result in self-incriminating evidence primarily in two situations: "(1) if the existence and location of the subpoenaed papers are unknown to the government; and (2) where production would implicitly authenticate the documents." AAOT Foreign Econ. Ass'n (VO) Technostroyexport, v. Int'l Dev. Trade Servs., Inc., No. 96 Civ. 9056 (JGK) (AGP), 1999 WL 970402, at *6 (S.D.N.Y. Oct. 25, 1999) (quoting United States v. Doe (In re Grand Jury Subpoena), 1 F.3d at 93).
For example, in a case where the government sought production of working papers prepared by taxpayers' accountants, which were the type of documents that are usually prepared by an accountant working on a client's tax returns, and the government knew the documents were in the possession of the taxpayers, the Supreme Court held that the Fifth Amendment was not violated by requiring the taxpayer to produce the documents. "The existence and location of the papers are a foregone conclusion and the taxpayer adds little or nothing to the sum total of the Government's information by conceding that he in fact has the papers." Fisher, 425 U.S. at 411, 96 S.Ct. at 1581. Compare Hubbell, 530 U.S. at 44-45, 120 S.Ct. at 2047-48 (production in response to broad subpoena for business and tax records had a testimonial aspect where the government did not show that it had prior knowledge of either the existence or whereabouts of the documents, and merely argued that business executives always possessed such documents)
Based upon the record before the Court, including the transcript of Respondent's deposition, there is no reason to believe that the Documents produced to the Court for in camera review are known by the government either to exist or to be in Respondent's possession. Moreover, their existence, and Respondent's possession and production of the documents, could well communicate incriminating facts. Accordingly, Respondent is justified in invoking his Fifth Amendment privilege.
Petitioner also relies on the "required records exception" to the Fifth Amendment, arguing that the records sought from Respondent, such as wage statements, employee earnings statements, and bank records, are required to be maintained by law. (Pet. Mem. at 11-13.) "To qualify as a required record, a document must satisfy a three-part test: (1) it must be legally required for a regulatory purpose, (2) it must be of a kind that the regulated party customarily keeps, and (3) it must have assumed `public aspects' which render it analogous to public documents." AAOT Foreign Econ. Ass'n, 1999 WL 970402, at *7 (citing Grosso v. United States, 390 U.S. 62, 67-68 (1968); Doe v. United States, 711 F.2d 1187, 1191 (2d Cir. 1983)). In the context of tax investigations, it is commonly recognized that W-2 forms and tax returns are required records. Id.
Here, although Petitioner sought, inter alia, employee wage statements, such as W-2 forms, the few documents produced for the Court's in camera review are neither W-2 forms nor tax returns, and do not otherwise fall within the required records exception to the Fifth Amendment.
In short, the Court concludes that production of the documents provided to the Court by Respondent for in camera review could "furnish a link in the chain of evidence needed to prosecute" Respondent, and thus to require him to produce them to Petitioner would violate his Fifth Amendment rights. Accordingly, Petitioner's request to enforce the summons is denied. The original documents will be returned to Respondent, and copies of the documents along with Mr. DeVita's October 4, 2001 letter, will be filed under seal.
So ordered.