In the Matter of GRAND JURY PROCEEDINGS, Involving William Thullen and Kenneth Dvorak, Witnesses Before the Special January, 1999-2 Grand Jury  Nos. 99-3131, 99-3317.

 A grand jury investigating alleged tax fraud by Dr. Basaam Osman subpoenaed numerous documents from two accounting firms hired by his attorneys.  Dr. Osman sought to block production of the documents. He claimed that the accountants were agents of law firms representing him in the grand jury investigation and, thus, that the documents were subject to the attorney-client privilege. In the end, the two accounting firms produced over 2000 documents, but each withheld certain documents based on Dr. Osman’s claim of attorney-client privilege. 

II.  DISCUSSION

There is no accountant-client privilege. See United States v. Arthur Young & Co., 465 U.S. 805, 817-19 (1984) .  However, material transmitted to accountants may fall under the attorney-client privilege if the accountant is acting as an agent of an attorney for the purpose of assisting with the provision of legal advice.

“[W]hat is vital to the privilege is that the communication be made in confidence for the purpose of obtaining legal advice from the lawyer. If what is sought is not legal advice but only accounting service . . . or if the advice sought is the accountant’s rather than the lawyer’s, no privilege exists.” United States v. Brown, 478 F.2d 1038, 1040 (7th Cir.1973)

Although the violation of the attorney-client privilege is a serious matter, our case law has recognized consistently that the privilege is in derogation of the search for the truth and, therefore, must be strictly confined. See United States v. White, 970 F.2d 328, 334 (7th Cir.1992)

In applying this principle, we have held that material transmitted to an attorney or the attorney’s agent for the purpose of using that information on a tax return is not privileged. The preparation of tax returns is an accounting service, not the provision of legal advice. 

On the other hand, information transmitted to an attorney or to the attorney’s agent is privileged if it was not intended for subsequent appearance on a tax return and was given to the attorney for the sole purpose of seeking legal advice. Documents used in both preparing tax returns and litigation are not privileged.

Dr. Osman, as the party seeking to establish the privilege, bears the burden of demonstrating that all of the requirements for invoking the attorney-client privilege have been met.

The inquiry into whether documents are subject to a privilege is a highly fact-specific one. “Only when the district court has been exposed to the contested documents and the specific facts which support a finding of privilege under the attorney-client relationship for each document can it make a principled determination as to whether the attorney-client privilege in fact applies.” Holifield v. United States, 909 F.2d 201, 204 (7th Cir.1990). An assertion of privilege therefore must be made on a document-by-document basis. 

When the circumstances suggest that a document might be privileged, it is important that the district court consider the totality of those circumstances in making its determination as to whether the privilege must be recognized. For instance, a document that appears privileged may have lost that privilege through disclosure or transmittal to a third party.

Similarly, the purpose of a document may not be apparent on its face, and it may be necessary to rely on the testimony of those involved in the production and handling of a document to determine the purpose for which it was produced.

In short, in camera review, although important, often cannot determine definitively whether a document was transmitted in such a way as to destroy any privilege or was created for an unprivileged purpose.  In assessing the district court’s order in this case, we necessarily are bound by the record before us. Accepting, as we must, that limitation, we cannot determine how the district court evaluated the testimony of the accountants. 

We therefore must remand this matter to the district court to permit that court to enter more extensive findings on whether, in light of the purpose, use, or transmission of these documents, any privilege exists. In making these findings, the district court should consider the “totality of the circumstances” surrounding each document. 

In the course of deciding whether particular documents are privileged, the district court should enter specific findings regarding the purpose and history of each document in order to allow for meaningful appellate review.

By:  Chicago Tax Fraud Attorney Michael J. Petro

 

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