Audit
Records
7213- Criminal
Penalties for Unauthorized Disclosure of Information: Audit Records
[73-1
USTC ¶9251]ISI Corporation, a California corporation, Plaintiff v.
United States of America, Defendant
U.
S. District Court, No.
Dist.
Calif.
, No. C-71-1899-LHB,
12/8/72
[Code Secs. 7213 and 7602]
Examination of books and witnesses: Government intraoffice reports
and documents: Unauthorized disclosures of information.--A district
court held that the government was not required to produce records,
reports and memoranda which it had prepared in connection with the audit
of the taxpayer's returns for the years in issue. Further, it was held,
for the government to provide the taxpayer with documents, writings and
tangible things which a seller of assets to the taxpayer had furnished
the government would be an unauthorized disclosure of information
prohibited by Code Sec. 7213(a).
Marvin
D. Morgenstein, Steinhart, Goldberg, Feigenbaum and Ladar, One Post St.,
Crocker Plaza, 34th Floor, San Francisco, Calif., for plaintiff. James
L. Browning, Jr., United States Attorney, Martin A. Schainbaum,
Assistant United States Attorney,
San Francisco
,
Calif.
, for defendant.
Memorandum
and Order
BURKE,
District Judge:
Plaintiff's
motion to compel production of documents, answers to questions at a
deposition, and for expenses, and defendant's motion for protective
order pursuant to Rule 26 of the Federal Rules of Civil Procedure came
on for hearing on
October 27, 1972
, in the United States District Court, Northern District of California,
San Francisco
,
California
.
The
subject matter of this action is plaintiff's allocation of a $500,000.00
purchase price it paid to one Raymond H. Miller for the purchase of
assets owned by him and used in plaintiff's business, and the proper tax
treatment thereof.
Plaintiff,
by its present motion, seeks, in essence, to have the defendant produce
(1) all documents, writings and tangible things plaintiff previously
furnished to the Internal Revenue Service in connection with the audit
of plaintiff's income tax returns for the years in issue, (2) all
memoranda and documents prepared by employees of the Internal Revenue
Service in connection with the audit of plaintiff's income tax returns
for the years in issue, and (3) all documents, writings and tangible
things Raymond Miller furnished to the Internal Revenue Service, other
than Miller's income tax returns, which in any way refer to, mention, or
state the value of any of the assets in question.
Plaintiff
deposed the Internal Revenue Agent who conducted the audit of
plaintiff's income tax returns for the years in issue. A number of
questions propounded to the revenue agent were not answered upon the
advice of defendant's legal counsel. Plaintiff seeks to compel the
revenue agent to answer all unanswered questions.
Defendant
does not object to describing the documents contained in its files which
plaintiff previously furnished to the Internal Revenue Service, but does
object to producing exact copies of the documents, since such documents,
by various notations, underlinings and paper clippings made by
defendant's representatives, now reveal the mental impressions, opinions
and conclusions of defendant's representatives. Defendant similarly
objects to the production of the documents prepared by employees of the
Internal Revenue Service insofar as they contain the mental impressions,
opinions, and conclusions of such employees. Defendant likewise asserts
that the revenue agent should not be required to answer any question
regarding his mental impressions, conclusions or opinions.
The
position taken by the government with respect to the production of
documents containing the mental impressions, opinions and conclusions of
government officials has been sustained in several recent cases. In Simons-Eastern
Co. v.
United States
, 29 A. F. T. R. 2d 1114, 72-1 USTC ¶9414 (N. D. Ga.,
April 25, 1972
), the Court noted that--
As
to intra-agency communications containing the opinions, conclusions and
reasoning reached by Government officials in connection with their
official duties * * * a qualified right of nondisclosure has been
recognized by the Congress in enacting the Freedom of Information Act (5
U. S. C. §552), by the Judicial Conference of the United States in
submitting to the Supreme Court on
November 19, 1971
, its revised proposed Federal Rules of Evidence (§509) and by several
decided cases.
Accordingly,
the Court denied production of the documents there in question insofar
as they contained conclusions or opinions reached by various agents of
the Internal Revenue Service. Similarly, in Weir Foundation v. United
States, 29 A. F. T. R. 2d 1225, 72-1 USTC ¶9435 (S. D. N. Y.,
May 11, 1972
), the Magistrate held as follows:
Considering
all of the circumstances including the limited relevance of the
documents requested, the force of the government's contention that the
documents were prepared in anticipation of litigation, and the public
policy articulated in the Freedom of Information Act to protect the
deliberative process of government offices it is believed that the
present motion should be granted only to the limited extent of requiring
the production of factual material (as distinguished from opinions,
legal analyses and recommendations) set forth in the documents.
The
Magistrate's decision was upheld by District Court Judge Gagliardi. See
also Gay Gibson, Inc. v. United States, Ct. Cl. No. 300-70,
unreported order dated
June 19, 1972
.
This
Court agrees with the above cited decisions and holds that the opinions,
conclusions and reasoning of government officials are not subject to
discovery.
With
respect to the documents, Raymond Miller furnished to the Internal
Revenue Service, this Court holds that production of such documents is
prohibited by Section 7213(a) of the Internal Revenue Code of 1954.
Now,
therefore, in light of the above, it is hereby ordered as follows:
(1)
Defendant shall identify the documents, writings and tangible things in
its files which plaintiff previously furnished to the Internal Revenue
Service;
(2)
Defendant shall produce the documents prepared by employees of the
Internal Revenue Service only insofar as they contain factual matters;
(3)
If the revenue agent is called by defendant to testify as a witness at
the trial, the use of his report for impeachment or other purposes shall
be determined at that time;
(4)
Defendant shall not produce the documents, writings, and tangible things
Raymond Miller furnished to the Internal Revenue Service;
(5)
The revenue agent need not answer any question asked of him by
plaintiff's representative at his deposition, which said revenue agent
did not answer, except for the following questions:
1.
"Did you hire anybody to appraise the personal property ISI
acquired from Mr. Miller?"
2.
"Did you obtain a written report from any appraiser concerning the
appraised value of the property that was purchased from Miller by
ISI?"
It
is hereby further ordered as follows:
(1)
Each party shall furnish to the other party, prior to trial, a list of
the names of its witnesses; and
(2)
Each party shall furnish to the other party, prior to trial, copies of
any written appraisal reports and the name or names of the author or
authors of such reports.
