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Fifth Amendment Protection Covered Subpoenaed Documents Sent to Accountant Who Held Power of Attorney

In October 1995, the IRS contacted T to advise him that the Service was auditing his 1993 return, which included T's veterinary practice. T then executed Form 2848, Power of Attorney, granting to S, a CPA and T's long-time accountant who prepared his returns, a power of attorney to represent T in all matters related to the audit. The power of attorney extended to S the authority to perform "any and all acts" that T could have performed himself in dealing with the IRS in matters related to the audit.

It was decided that the audit would occur at S's office, because it was the most convenient site.

Between October 1995 and March 1996, the Service requested (formally and informally) many documents from S. These documents were delivered to S solely in his capacity as attorney-in-fact for T in the audit and for no other purpose.

In 1996, during the audit, the IRS determined that it was necessary to examine T's ledger books, and in March requested these documents. After the IRS initiated criminal proceedings, T denied this request, claiming a Fifth Amendment privilege. The Service challenged this claim, intending that the privilege was waived once the documents were transferred to S.

The District Court (opinion Crigler, J.) holds for T; the delivery of the documents to S was for the "convenience of the IRS" and the documents remain protected by the Fifth Amendment.

To state the obvious, the Fifth Amendment protects a citizen against self-incrimination. There would be nothing to decide here if the documents on T's privilege log had not been transferred physically from him to S. The privilege against self-incrimination is personal; when the incriminating evidence has been voluntarily relinquished into the hands of a third party, the privilege dissipates. However, when relinquishment of the material asserted to be privileged is so temporary and insignificant as to still leave the compulsion to produce on the taxpayer, production into the hands of the third party will not dissipate the privilege.

The relationship between T and S during the period of the audit is extremely important in determining the capacity in which S received the subject documents. Without doubt, the subject documents were delivered to S in his capacity as attorney-in-fact under the power of attorney executed on Oct. 14, 1995 and not in his capacity as T's accountant. None of the documents actually were utilized by S to prepare the original 1992–1994 returns, nor did he rely on any of the subject documents to prepare the amended 1992 and 1994 returns in his capacity as T's accountant.

An attorney-in-fact under Form 2848 becomes the taxpayer for all purposes related to the subject matter of the power, especially so long as he is discharging the authority under the power of attorney and not acting in any other capacity. In this case, Form 2848 granted to S extensive authority, except he was not empowered to receive monies or sign tax returns. Under generally accepted law, the attorney-in-fact is the agent of the grantor of the power with all authority as expressed by the power of attorney to act on behalf of the grantor. Therefore, delivery of the documents to S as attorney-in-fact under the power of attorney should not be viewed as delivery to a third party, particularly when (as here) the documents were never used for purposes other than those under the power of attorney in matters relating to the audit.

In summary, to trigger an inquiry, there must be delivery into the hands of a third party. This court is of the view that delivery of documents to an attorney-in-fact to permit execution of the authority granted by his power of attorney is not delivery into the hands of a third party so as to dissipate any Fifth Amendment privilege. Instead, such conduct is tantamount to retention of the documents by the taxpayer.

This court further finds that delivery of the documents to S, under the circumstances of this case, was for the convenience of the Service, as that term is defined by the authorities. The term "convenience of the IRS" is a judicial construct; it essentially means that the delivery must be to a third party for the convenience of the precise IRS task (here, an audit) and not for some other purpose. The evidence before the court that favors a finding in favor of T is as follows:

1. The IRS requested the information to perform a civil audit.

2. S received the subject documents only in his capacity as attorney-in-fact and not in his capacity as accountant.

3. None of the documents was used to prepare tax returns or other papers, and they were to be maintained by S only for so long as was necessary for the audit.

4. The documents were received in the Fall of 1995 during the civil audit, and a decision to proceed criminally was not made until late Spring of 1996.

5. Neither T nor S intended that S retain the documents for any purpose other than to conduct the audit, because he had no facilities for storing the documents for an extended period of time.

6. No warnings against self-incrimination were given before the documents were produced; the decision to prosecute came during the audit and after the documents were placed in S's hands.

7. Despite the fact that the IRS did not request the audit occur at S's office, delivery of the documents to his office conveyed a benefit of convenience to both T and the Service in that (1) T's residence and place of business would have greatly inconvenienced the audit, (2) S's office was closer and more convenient to the IRS agents, (3) all discussions regarding the audit would be conducted between the IRS agent(s) and S and (4) S's office provided the most suitable facilities for reviewing and copying documents.

In conclusion, the court holds that the delivery of the documents to S in this case was for the "convenience of the IRS" as that term has been defined by the appellate case authority, notwithstanding what some may view as the "mixed motives" of the participants to produce the documents and conduct the audit at S's office. Therefore, all documents on T's privilege list are protected by the Fifth Amendment.

William J. Streett, DC VA, 5/27/99

©1999 AICPA