Applying The "Foregone Conclusion" Exception Under The Fifth Amendment Privilege

In government petition for enforcement of an administrative summons for tax records provided by client to her counsel, the Fifth Amendment privilege against self-incrimination was not violated since the government met its burden to show the "foregone conclusion" exception to the privilege applied; the government sufficiently showed (1) substantial information about the existence of the sought-after documents, (2) who had possession of the documents, and (3) the authenticity of the documents in that they were identified in the summons and the government had "precise knowledge" of them, in United States v. Sideman & Bancroft, LLP, __ F.3d __ (9th Cir. Jan. 8, 2013) (No. 11-15930)

In the August issue of the Federal Evidence Review, Evidence Viewpoints® presented articles by two practitioners regarding the Fifth Amendment and encrypted computer files. See Chet Kaufman, "Decryption As Privileged Testimony Under The Fifth Amendment," 9 Fed. Evid. Rev. 801-08 (Aug. 2012); James Silver, "Decoding Encryption for Litigators," 9 Fed. Evid. Rev. 809-14 (Aug. 2012) (a federal prosecutor and defense attorney offer their perspectives on the extent that the government may compel an individual to provide a password to encrypted computer files under the Fifth Amendment). While identifying the new issues arising from encryption, the articles also provide insight into doctrines applicable to claims of privilege. The Ninth Circuit recently addressed a case that illustrates some of the types of issues under the Fifth Amendment when the government seeks tax records.

In the case, the IRS conducted a tax evasion and false declaration investigation of attorney Nolan, who was represented by an attorney in the matter. As part of that investigation, the IRS learned that her income tax preparer had given the tax records to Nolan's civil attorney. The records, which pertained to two tax years under inquiry, measured sixty-six inches of papers if stacked. When contacted, the civil attorney indicated that the records had been transferred to a criminal attorney. The agency issued an administrative summons to obtain the evidence, requesting:

FOR THE YEARS: 2007–2008
Documents in your custody or control relative to the financial transaction of:
MARY NOLAN
THE LAW OFFICE OF MARY NOLAN
MARY NOLAN TRUST
Including but not limited to the following:
Check Carbons (duplicates)
Client Receipts
File Folders of Expenses
Payment Receipts
QuickBooks Printouts
Client Billing Records
Rental Property Records
Tax Returns and Supporting Schedules
Monthly Client Billings
Check Ledgers
Copies of Bills
Daytime Planners
Credit Card Statements
Personal Tax Related Expenses (ie: medical & dental)
Included in the following containers:
4 large banker boxes
3 large accordion folders

Sideman & Bancroft, _ F.3d at _. The criminal attorney resisted, contending that doing so would violate the client-taxpayer's Fifth Amendment rights against self incrimination. The agency sought to enforce the summons in the district court.

The court granted the IRS’s petition to enforce because it determined that the "summonsed documents fell within the 'foregone conclusion' exception to the Fifth Amendment." The attorney appealed to the Ninth Circuit, arguing that the exception did not apply because producing the documents would "tacitly concede[ ] the existence of the papers demanded and their possession ... by the taxpayer," as well as as "indicate the taxpayer’s belief that the papers are those described in the subpoena."

The Ninth Circuit affirmed the district court that the administrative summons should be enforced. After confirming that the Fifth Amendment did apply to the documents, the circuit then examined the "foregone conclusion" exception recognized to that privilege. It noted that the elements of the exception were rather straight-forward, consisting of a showing that the document's "existence and location ... 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." Sideman & Bancroft, _ F.3d at _ (citing United States v. Bright, 596 F.3d 683, 692 (9th Cir. 2010) (quoting Fisher v. United States, 425 U.S. 411 (1976)). When the elements of the exception apply, the circuit noted, enforcing the summons fail to "touch upon constitutional rights."

There were "three elements" to assert that the foregone conclusion exception applied. According to the circuit, the IRS would need to "establish its independent knowledge" of these three elements about the documents sought:

  1. They were in existence
  2. They could be authenticated, and
  3. They were in the "respondent's possession or control.”

Sideman & Bancroft, LLP, _ F.3d at _ (citing United States v. Bright, 596 F.3d 683, 692 (9th Cir. 2010) (quoting Fisher v. United States, 425 U.S. 411 (1976)).

The circuit had little trouble finding affirming the trial judge's application of the exception. The first and third elements required the government to show that the documents actually existed and who actually had them. The circuit found this satisfied in light of the IRS's "substantial" information -- the agency had found the accountant that prepared the income tax returns that were the subject of the investigation and she had "identified for the IRS the documents that Nolan had given her to prepare the 2007 and 2008 amended returns." This was used for listing the documents sought in the summons. The circuit concluded the government had "precise knowledge" of the location of these docuemnts, down to the precise "boxes and folders" in which they were stored. "Thus, from its investigation, the IRS knew with 'reasonable particularity' the existence and Sideman's possession of Nolan's 2007 and 2008 tax records prior to issuing the summons." This meant that the elements of the document's existence and possession" were satisfied. Sideman & Bancroft, __ F.3d at __.

The second element -- authenticity -- was a bit more complicated to satisfy. The element required the government to show that "it can independently verify that the compelled documents ‘are in fact what they purport to be.'" The circuit noted that this means that the government "must demonstrate that it is not “compelling the [taxpayer] to use his discretion in selecting and assembling the responsive documents, and thereby tacitly providing identifying information that is necessary to the government's authentication of the subpoenaed documents.” Sideman & Bancroft, __ F.3d at __(citing Id. at 912 (quoting United States v. Stone, 976 F.2d 909, 911 (4th Cir. 1992)).Id.

Showing "whether the Government has met its burden of demonstrating that it can independently verify that the summonsed tax documents “are what they purport to be” seemed to be satisfied by the evidence given by one witness -- the taxpayer's accountant (Fouts), who disclosed to agents:

"a detailed description of the 2007–2008 documents that [she] had in [her] possession.” It is apparent from Fouts's declaration submitted to the district court that she was very familiar with Nolan's tax records. Fouts described key details about the records, including that Nolan ran her business as a sole proprietorship; that Nolan's law practice grossed consistent income from month to month; that Nolan paid her individual and business expenses with handwritten checks she signed herself; that Nolan classified those working for her as independent contractors rather than employees; that Nolan recorded her billable time in a “dayplanner” appointment book and used QuickBooks to create a bill for each client; and that Nolan owned several rental properties in addition to her residence. Fouts also described the containers in which those documents were stored: four large banker boxes and three large accordion folders.

Sideman & Bancroft, __ F.3d at __.

Although the media at issue was slightly different in Sideman, many of the issues involving goverment access to a subject's information -- on computer, or on paper, boil down to assessing some of the same issues, including the doctrine of the foregone conclusion.

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