United States v. Schmidt

SHERIDAN, C.J. ...

On April 1, 1971, Special Agent James W. Meade, Jr., of the Internal Revenue Service, issued an Internal Revenue summons requiring respondent, J. Donald Schmidt, a Certified Public Accountant, to appear and to testify concerning the tax liabilities of Vincent C. McCue for the taxable years 1966, 1967, 1968 and 1969, and with respect to the preparation of the joint tax return of Vincent C. McCue and Elizabeth A. McCue for the taxable year 1969. Respondent, J. Donald Schmidt, refused to answer certain questions propounded to him by Special Agent Meade; he has continued to refuse to answer, asserting both the attorney-client privilege and the privilege against self-incrimination. Petitioners moved the court for enforcement of the summons....

The sole question to which the court presently addresses itself is the applicability of the attorney-client privilege. On the record before the court, the uncontroverted facts are as follows: respondent-taxpayers, Vincent C. McCue and Elizabeth A. McCue, retained respondent-attorneys, Shumaker, Williams & Placey, in August 1969; Shumaker, Williams & Placey employed J. Donald Schmidt, a Certified Public Accountant, on April 1, 1970, subsequent to the establishment of the attorney-client relationship; an agreement was entered into between said attorneys and accountant on April 1, 1970, setting forth the terms and conditions of Schmidt's employment. Pursuant to the aforementioned agreement, all accountant's services were to be performed at the written request of counsel; it was made explicit that Vincent and Elizabeth McCue were the clients of the law firm, and not of the accountant; it was stated that Schmidt's services were required to facilitate an accurate and complete legal consultation between the law firm and its taxpayer-clients in the interest of allowing counsel to furnish informed legal advice; all bookkeeping and accounting records, work papers, schedules and reports relating to the taxpayers were made the exclusive property of the law firm, even if they had been prepared by the accountant and even if they were in the accountant's possession; all billings for accounting services were to be made to the law firm; all information obtained by the accountant while performing accounting services was to be confidential, and the accountant was prohibited from disclosing same without the prior written consent of the law firm or an order of court, the only exception to the confidentiality requirement being the information which actually appeared on the tax return.

It is respondents' contention that the establishment of the foregoing is sufficient in itself to bring the subject matter of the questions propounded to Schmidt within the scope of the attorney-client privilege....

What result and why? Have the taxpayers successfully circumvented Couch? Why should it make any difference to the existence of a privilege whether the taxpayer hires an accountant or hires an attorney who hires an accountant?

Is there any privilege that protects the taxpayer from forced disclosure of tax preparation material prepared by his accountant but turned over to his attorney prior to the issuance of any government subpoena?