Michael S. Ross, Esquire Page 4 It is our view, borne out by the vast majority of court decisions, that client identity and fee information are not generally subject to the attorney-client privilege, but we are aware that some courts have alluded to the possibility of the existence of "special" or "exceptional" circumstances that may in rare circumstances render such information privileged. See, e.g. In re Shargel, 742 F.2d 61, 62 (2d Cir. 1984); Tornay v. United States, 840 F.2d 1424, 1427-28 (9th Cir. 1988). As a general proposition, it is our view that the exercise of the Department's discretion in bringing these cases to court should focus primarily on those actually presenting "special circumstances" that could be construed to give rise to a valid claim of privilege. Although some of your Committee's submissions to this office urge us to consider a general chilling effect on the attorneyclient relationship, regardless whether the information sought could reasonably be expected to be held privileged by the courts, it is our view that the courts' analysis of the existence of privilege strikes a proper balance between the governmental need for information and the protection necessary to facilitate the appropriate flow of information between client and attorney. See, e.a. Tornay, 840 F.2d at 1428-29. To be sure, some bar association disciplinary rules and opinions purport to cast broader protection over client confidences than does the attorney-client privilege, and those rules may, in fact, generally extend to client identity and fee information. But those rules and opinions only address the protection of the interests of clients and do not, therefore, take into account the important countervailing interest that the government has in obtaining non-privileged information required to be produced by law. We understand that the issues raised by the enforcement of Section 60501 are of great importance to the Grand Jury Committee and other practitioner groups. It is, therefore, our intention, at least in the short term, to proceed perhaps more cautiously than the legal issues warrant by requiring authorization from the Assistant Attorney General for the Tax Division before a summons enforcement action may be brought against a lawyer under Section 60501. In evaluating these cases, the Tax Division will consider information supplied by summoned lawyers to the Internal Revenue Service. Such information may be supplied to the Service on the Form 8300 or any attachments to the form, in any affidavits or correspondence, or verbally to an Internal Revenue Service agent. We will work out procedures with the Internal Revenue Service to assure that all such materials are forwarded to the Tax Division whenever the Service recommends summons enforcement in one of these cases. 36-883 0 91 - 8 Michael S. Ross, Esquire The Committee's guideline proposal asks the Tax Division to delineate the kinds of representations lawyers could make to obtain favorable consideration of their defenses. The courts have not defined "special circumstances," and we doubt that it would be worthwhile for the Tax Division to attempt to do so. Lawyers who receive cash in amounts necessary to trigger the filing requirement are in the best position to know the facts that may be alleged to make their cases "special" within the meaning of the applicable case law. Although we recognize that some lawyers may be unwilling to provide any information without assurance of the existence of a safe-harbor, they will eventually have to produce some information in court to support a claim of privilege. Furthermore, the question of privilege is almost entirely fact-bound, and a safe harbor hardly makes sense in the context of such an inquiry. The proposed guidelines ask the Tax Division to treat these summonses as John Doe summonses under Section 7609 (f). That section requires the Internal Revenue Service to obtain approval from a court before issuing a summons "which does not identify the person with respect to whose liability ... [it] is issued." Summonses issued to lawyers to ascertain their own liability to comply with the reporting requirement of Section 60501 are not subject to this limitation. We have seen it argued that the Internal Revenue Service is really only interested in obtaining information about clients who pay cash, not lawyers who receive it. But this argument misses the point that Section 60501 is a compliance provision concerned with tracing the flow of cash income to its recipient to assure the payment of all applicable taxes. See Staff of the Joint Committee on Taxation, 98th Cong. 2d. Sess., General Explanation of the Revenue Provisions of the Deficit Reduction Act of 1984 491 (Comm. Print 1986). A recent GAO report identified lawyers among the groups that most often underreport taxable income, so the Service has a significant interest in verifying the source, amount, and circumstances surrounding a lawyer's receipt of substantial cash income. See General Accounting Office, Tax Administration. Profiles of Major Components of the Tax Gap. Briefing Report to the Chairman. Subcommittee on Oversight. Committee on Ways and Means. House of Representatives 3, 29 (April 1990). Lawyers, like all other taxpayers, are subject to Internal Revenue Service audit, and the Service is not prevented, simply by the nature of the lawyer's business, from attempting to verify the amount and nature of the lawyer's income. Summonses to lawyers under Section 60501 are not, therefore, even colorably John Doe summonses, and the Department of Justice does not intend to concede the issue in guidelines. Michael S. Ross, Esquire Page 6 We appreciate the views of your Committee and welcome further discussions with you as our effort to enforce section proceeds. Sincerely yours am ap JAMES A. BRUTON Deputy Assistant Attorney General Tax Division 60501 CC: James J. Keightley Associate Chief Counsel (Litigation) Internal Revenue Service Michael L. Bender, Esquire American Bar Association Criminal Justice Section Chairman PICKLE. We are doing this not just in the interest of time but I realize it has been a long hearing. Mr. KEENEY. Also, Mr. Chairman, in fairness to points that I make in my statement have already been made in the course of the proceedings with your witnesses, the Treasury and IRS people. Chairman PICKLE. I am going to ask you some general questions for your comments. Do you think that businesses generally are complying with section 60501? Mr. KEENEY. No, sir. It seems to me that the educational process has not been that extensive and that unlike what you did here today, getting the attention of the law enforcement community, I don't think that the enforcement people are getting the attention of the business community with respect to their obligations in dealing with cash. Chairman PICKLE. If they are not doing it how do we get the business community to comply? Mr. KEENEY. By education, but the most effective education as was demonstrated in the CTR situation is the filing of serious criminal charges and obtaining convictions of people in the business community. Chairman PICKLE. You are saying we need something like the Bank of Boston case? Mr. KEENEY. That is correct. If that is what we mean are you, Justice, currently conducting any investigations that might lead to a case like the Boston- Mr. KEENEY. Investigations are being conducted which hopefully will lead to something like the Bank of Boston. I will defer to Mr. Bruton on the answer to that question. Chairman PICKLE. Have you, Justice, ever put anybody in jail for violation of section 60501? Mr. BRUTON. Not at this point. There is one case pending and one case referred pending indictment but there have been no charges. Chairman PICKLE. Wouldn't it be effective if we put a few people in jail because of violations of 6050I? Mr. BRUTON. It would, Mr. Chairman. Mr. KEENEY. We don't have the cases. The cases haven't come through the system. We have had a number of situations which were alluded to here today which had 60501 implications but were prosecuted under other statutes. Chairman PICKLE. Now, can you tell me in how many cases you indicted someone for violations of section 6050I? Mr. BRUTON. There were no indictments specifically for violations, failures to file under the section 60501. There have been none until the two referred to. Chairman PICKLE. Mr. Murphy referred to where indictments have been made in Virginia and Louisiana and other places. Weren't those indictments made through the Department? Mr. BRUTON. They were. Those cases are not under the 7203 charge that is part of the IRS Code. Those are money laundering and other related type cases. Chairman PICKLE. There have been no indictments? Mr. BRUTON. There have been on that score but they are not tax indictments for failing to file the forms. Chairman PICKLE. In those cases where you have had indictments, have you had any convictions? Mr. BRUTON. The one case is pending trial. That should be soon. The other case is in plea negotiations. Chairman PICKLE. Did you or the Department of Justice investigate any of these merchants who dealt in the Rayful Edmond case or any of the codefendants for violation of section 60501? |