E.D.Cal.: 26 U.S.C. § 7609 and the Code of Professional Conduct for CPAs creates no REP; Couch remains good law

“[D]efendant Galloway moves to suppress from admission into evidence the tax records received from CPA Livsey by IRS agents, arguing that 26 U.S.C. § 7609 and the Code of Professional Conduct for CPA’s conferred upon him a reasonable expectation of privacy in the documents he had provided to his accountant, Livsey. (Doc. No. 67 at 6-7.) Alternatively, defendant Galloway argues the court should exercise its equitable powers to exclude from evidence at trial the business records that the government obtained due to the failure to comply with the requirements of 26 U.S.C. §§ 7603 and 7609. (Id. at 11.)” Valiant try but rejected. “Fatal to this aspect of the pending motion is the fact that defendant Galloway had no legitimate expectation of privacy in the tax records he had turned over to his accountant. Generally speaking, one does not have a reasonable expectation of privacy in information revealed to a third party which is passed on to the government.” Couch and the third-party doctrine require rejection of the argument. United States v. Galloway, 2017 U.S. Dist. LEXIS 26362 (E.D. Cal. Feb. 23, 2017):

Most importantly for resolution of the pending motion, it is well established that a person has no expectation of privacy in business and tax records turned over to an accountant. Couch v. United States, 409 U.S. 322, 335-36, 93 S. Ct. 611, 34 L. Ed. 2d 548 (1973). In Couch, a taxpayer hired an accountant as an independent contractor and for many years delivered her business records to him for purposes of preparing her taxes. 409 U.S. at 324. The IRS undertook an investigation of the taxpayer for tax fraud in connection with the underreporting of her income. Id. As part of that investigation the IRS issued a summons to the accountant for the taxpayer’s records. Id. at 325. The taxpayer asserted ownership of the business records and asserted a Fifth Amendment privilege as well as a reasonable expectation of privacy in them under the Fourth Amendment in an attempt to thwart their production. Id. at 325, 335. The Supreme Court rejected these claims, reasoning as follows: …

The holding in Couch has been consistently applied by the lower federal courts. See United States v. Hickok, 481 F.2d 377, 379 (9th Cir. 1973); KRL v. Moore, No. 2:99-cv-02437-JAM-DAD, 2006 U.S. Dist. LEXIS 8314, 2006 WL 548520, at *4 (E.D. Cal. Mar. 3, 2006) (“It is well established that a person has no expectation of privacy in business and tax records turned over to an accountant.”), aff’d in part, rev’d in part on other grounds, and remanded sub nom. KRL v. Estate of Moore, 512 F.3d 1184 (9th Cir. 2013); United States v. McLaughlin, 910 F. Supp. 1054, 1059 (E.D. Pa. 1995) (“Moreover, the defendants’ voluntary provision of the records to [his accountant] knowing that they would be used to prepare and be incorporated into tax returns which would be viewed by others, establishes that the defendants had no legitimate expectation of privacy in them.”). Couch and its progeny control here, especially in light of the fact that is undisputed that defendant Galloway provided his records to CPA Livsey with the understanding that they would be turned over in the course of the IRS tax audit.

Contrary to defendant’s assertion, the enactment of 26 U.S.C. § 7609 did not alter this well-established principal. At the outset, it must be recognized that Congress gave the IRS a “broad mandate to investigate and audit persons who may be liable for taxes.” United States v. Bisceglia, 420 U.S. 141, 145, 95 S. Ct. 915, 43 L. Ed. 2d 88 (1975) (internal quotation marks omitted). In order to assist the IRS in carrying out that mandate, it was provided the authority to “summon the person liable for tax … or any other person … to appear before the Secretary … and to produce … books, papers, records, or other data.” 26 U.S.C. § 7602(a)(2). Section 7609 of Title 26 merely provides that when an IRS summons is served on a “third-party record keeper,” the taxpayer to whom the records named in the summons relate is entitled to notice of the summons, and may move to quash the summons or intervene in the summons enforcement proceeding. 26 U.S.C. §§ 7609(a) and (b). According to the Congressional Committee Report, the purpose of § 7609, is merely to facilitate a taxpayer’s opportunity to raise defenses to a third party summons.

Congress enacted § 7609 in response to the Supreme Court’s decisions in Donaldson v. United States, 400 U.S. 517, 91 S. Ct. 534, 27 L. Ed. 2d 580 (1971) and United States v. Bisceglia, 420 U.S. 141, 95 S. Ct. 915, 43 L. Ed. 2d 88 (1975). See Tiffany Fine Arts, Inc. v. United States, 469 U.S. 310, 314-15, 105 S. Ct. 725, 83 L. Ed. 2d 678 (1985). In Donaldson the Supreme Court had affirmed the denial of an employee’s motions for intervention to oppose the enforcement of an IRS summons issued to his employer. 469 U.S. at 315. In Bisceglia the Supreme Court had upheld a third party summons issued by the IRS to a bank for purposes of identifying an unnamed individual who had deposited a large amount of severely deteriorated currency with the bank. Id. In response, citing only those two decisions in reports, in 1976 Congress enacted § 7609 addressing third party summons served by the IRS to ensure that: (1) the taxpayer to whose business or transactions the summoned records related is informed of the summons and provided an opportunity to intervene in any enforcement proceedings; and (2) in the case of so-called “John Doe” summons where the identity of the specific taxpayer is not known, the government makes a required showing in a court proceeding prior to issuance of the summons. Id. at 315-17.

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