Opinion
CASE NO: 8:03-cv-415-T-26TGW
June 23, 2003
ORDER
Pursuant to this Court's order of May 1, 2003, before the Court are Defendant's Reply and Memorandum of Law in Opposition to United States' "Required Record Exception Arguments" (Dkt. 27), and the United States' Brief on Required Records Exception. (Dkt 29). After careful consideration of the applicable law and the arguments made, the Court concludes that the documents tendered at the hearing held on May 1, 2003, fall within the "required records" exception to the Fifth Amendment privilege against self-incrimination.
Background
On April 3, 2003, this Court entered a temporary restraining order pursuant to I.R.C. § 7407 against Defendant, to prevent the recurrence of conduct subject to penalty under I.R.C. § 6695. (Dkt. 7). The order found that Defendent had refused to provide the IRS with either (1) copies of all income tax returns he had prepared for customers for the last three years or (2) a list of all his customers. In the same order, this Court ordered Defendant Gregory T. Mayer (Mayer) to provide counsel for the United States with the following:
The United States pursues Defendant as a preparer of income tax returns and a promoter of abusive tax shelters. (Dkt. 29).
a list of the names and taxpayer identification numbers of customers for whom he or his related entities have prepared any income tax return, amended return, and/or request for refund in the last three (3) years. This list shall include the names and taxpayer identification or employer identification number of all trusts belonging to customers for whom Mayer has prepared returns or requests for refund.
(Dkt. 7).
Defendant timely filed a Motion for Tender of Testimony and Documents and Information in Camera to Satisfy Compliance with Court Order dated March 21, 2003, which this Court granted. (Dkts. 12 and 13). The Court conducted an in camera evidentiary hearing on May 1, 2003, in accordance with United States v. Argomaniz, 925 F.2d 1349 (11th Cir. 1991). At the hearing, it was determined that Mayer, as a sole proprietor, possessed a valid Fifth Amendment privilege based on both the act of producing the documents and the contents of those documents. At the close of the in camera portion of the hearing, the Court announced on the record that Mayer "has an absolute legitimate right to invoke the Fifth Amendment. . . . [e]verything in those boxes falls within the first category [the materials required to be kept pursuant to § 6107]."
Thereafter, further briefing was ordered on whether the documents submitted in camera fall within the "required records" exception to the Fifth Amendment privilege against self-incrimination. (Dkt. 22). The parties understood that if it is determined that the "required records" exception applies, then the documents, still being held by this Court, must be turned over to the United States. The briefs are now on file, and it must be decided whether the documents described in § 6107(b) constitute "required records" excepted from the protection of the Fifth Amendment.
This order does not address documents other than those specifically defined in § 6107(b).
The Required Records Exception to the Fifth Amendment
Generally, the "required records" doctrine as an exception to the Fifth Amendment, provides that there is no constitutional protection afforded to disclosure or production of documents kept by persons in a regulated industry that are required by the government to be maintained.See e.g., Shapiro v. United States, 335 U.S. 1, 17-19 (1948); In re Grand Jury Proceedings, 601 F.2d 162, 168 (5th Cir. 1979). The "required records" doctrine is not without safeguards, however. Three premises must be established before the doctrine is invoked: (1) the "purposes of the United States' inquiry must be essentially regulatory;" (2) the "information is to be obtained by requiring the preservation of records of a kind which the regulated party has customarily kept;" and (3) the records "must have assumed `public aspects' which render them at least analogous to public documents." Grosso v. United States, 390 U.S. 62, 67-68 (1968). By examining each of these three factors, this Court will determine whether the documents described in § 6107(b)(1) constitute a "required records" exception to the Fifth Amendment.
The act of producing documents "conveys the fact that the documents exist, that they were in the possession of the witness, and that they were the documents subject" to the request. See In re Grand Jury Subpoena Dated April 9, 1996, 87 F.3d 1198, 1200 (11th Cir. 1996) (citing Fisher v. United States, 425 U.S. 391, 410 (1976)). To this extent, the "act of production" may have testimonial value and incriminate the witness, thereby implicating the Fifth Amendment. See id. The "act of production" rule, however, protects only individuals or sole proprietors and not corporations or an agent of a "collective entity." See id. In re Grand lury Subpoena, 635 F. Supp. 569, 571 (N.D. Ga. 1986). As explained in the text of this order, the "required records" exception overcomes any protection the "act of production" rule affords to a sole proprietor.
The regulatory nature of 26 U.S.C. § 6107
Section 6107 of the Internal Revenue Code governs all income tax return preparers. According to § 6107(b)(1), a preparer must do one of the following: (1) retain a completed copy of all returns or claims for refund; or (2) retain a list of the names and taxpayer identification numbers of the taxpayers for whom such returns or claims were prepared. Either the copies of returns or claims for refund or the list must be made available for inspection upon request of the government. See 26 U.S.C. § 6107 (b)(2).
There is no question that Defendant is an income tax return preparer subject to § 6107, which was enacted in 1977 and made applicable to documents prepared after December 31, 1976. Under the first prong espoused in Grosso the Court must determine whether § 6107 was developed and passed as part of a legitimate regulatory scheme. The legislative history of § 6107 reveals much about the underlying impetus for creating a specific law governing income tax return preparers. See S.Rep. No. 94-938(I), 94th Cong., reprinted in 1976 U.S.C.C.A.N. 3438, 3778, and H.Rep. No. 94-658, 94th Cong., 2d Sess. 274, reprinted in 1976 U.S.C.C.A.N. 2897, 3169 (containing almost identical wording).
Under prior law, the tax return preparer was not required to sign the return, thereby leaving the IRS with no way of knowing whether the tax return was prepared by the taxpayer or a preparer "who may be engaging in abusive practices involving a number of returns." Id. Even if the IRS were successful in tracking down the preparers, only criminal penalties were available. By request, the General Accounting Office (GAO) conducted a study which disclosed that commercial preparers were no more likely to make more or larger mistakes than were professional preparers. Both the House and Senate reports remark that "[t]he fact that all types of preparers are about equally likely to make errors in preparing tax returns has led the GAO to recommend that any regulation of tax return preparers apply equally to all preparers." 1976 U.S.C.C.A.N. 3438, 3780; 1976 U.S.C.C.A.N. 2897, 3170. Both reports state that the regulation of all preparers would permit the IRS to correct errors on all the returns prepared by any particular preparer. Finally, the reports provide that in order to aid the IRS in the detection of incorrect returns prepared by tax return preparers and to deter such conduct, the law should require certain information to be maintained and disclosed to the IRS and also should impose various civil penalties.
The legislative history shows that Congress intended to assist the IRS in regulating all income tax return preparers. By requiring the tax preparer to sign the form and maintain copies of all tax returns prepared or a list of all taxpayers and their identification numbers for all the returns prepared, the IRS may now regulate preparers — a vast group who, prior to 1977, played a major role in income tax return filing with no consequences in place for either their innocent error or their improper conduct. Other district courts from different circuits have reached the same conclusion. See United States v. Bohonnon, 628 F. Supp. 1026, 1028-29 (D.Conn.), aff'd, 795 F.2d 79 (2d Cir. 1985);United States v. Nordbrock, No. CIV 83-553TUC WDB, 1990 WL 104187 (D.Ariz. Jan. 16, 1990), as amended by 734 F. Supp. 908, 909 (D. Ariz. 1990) (citing Bohonnon). Customarily Kept Records
Although there is no published opinion in the Elventh Circuit dealing with records kept pursuant to § 6107, the former Fifth Circuit has mentioned in the context of records required to be kept pursuant to the Code of Federal Regulation as promulgated by the Department of Energy, that constitutional protection does not extend to "records required by law to be kept in order that there may be suitable information of transactions which are the appropriate subjects of governmental regulation and the enforcement of restrictions validly established." In re Grand Jury Subpoena, 646 F.2d 963, 968 n. 4 (5th Cir. 1981) (quoting Shapiro, 335 U.S. at 33).
The second prong under Grosso — that the records must be of a kind which the regulated party would customarily keep — is met. One would expect a professional income tax preparer to keep copies of the returns he or she files on behalf of taxpayer customers. Two other district courts are in agreement. See id.
Public Aspects of the Records
The third factor to be considered under Grosso is whether the records themselves bear "public aspects" rendering them analogous to public records. In Bohonnon, the court found that the fact that income tax forms must be filed with the IRS satisfies the public aspect requirement. See Bohonnon 628 F. Supp. at 1029. Defendant has made no persuasive argument to the contrary.
It is therefore ORDERED AND ADJUDGED that the records produced in camera for inspection on May 1, 2003, fall within the "required records" exception to the Fifth Amendment. Defendant Gregory T. Mayer shall produce to counsel for the United States either the copies of the completed tax returns requested or, in lieu of the returns, a list of the taxpayers' names and identification numbers for whom he prepared returns for the relevant three-year period, in accordance with 26 U.S.C. § 6107 (b)(2). The parties shall appear and Defendant Mayer shall produce the above-referenced documents before this Court on Friday July 25, 2003, at 10:30 a.m., in Courtroom 15B, Sam Gibbons United States Courthouse, 801 North Florida Avenue, Tampa, Florida.