# Petition — Arthur Andersen & Co. v. United States > Briefs, arguments, decisions, and more. URL: https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385007_0330%3A1 ## Record - **Collection:** Supreme Court brief - **Document type:** Petition - **Published:** January 1, 1980 - **Citation:** 449 U.S. 1021 ## Text Be eg _ee-810 °°" = Aus? 8 1980 IN THE MICHAEL RODAK, JR., CLERK Supreme Court of the United States OcTOBER TERM, 1980 ARTHUR ANDERSEN & CO., Petitioner, v. UNITED STATES OF AMERICA, et al., Respondents. PETITION FOR A WRIT OF CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR THE FIRST CIRCUIT FREDERIC W. HICKMAN MICHAEL M. CONWAY WM. CARLISLE HERBERT Hopkins, Sutter, Mulroy, Davis & Cromartie One First National Plaza Suite 5200 Chicago, Illinois 60603 (312) 558-6600 Attorneys for Petitioner J. READ MURPHY Murtha, Cullina, Richter, and Pinney 101 Pear! Street Hartford, Connecticut 06103 DONALD DREYFUS Arthur Andersen & Co. 69 W. Washington Street Chicago, Illinois 60602 Of Counsel QUESTIONS PRESENTED 1. Whether, in order to obtain appellate review of a district court order enforcing an IRS summons for production of sensitive accounting workpapers, Arthur Andersen & Co. must flaunt the court’s order and stand in contempt of court. Andersen complied with a final district court order to produce its “tax accrual workpapers” and, as a result, its appeal of the order was dismissed as moot. A case is not moot if it involves an issue which is “capable of repetition yet evading review.” The Court of Appeals held that this case does not fall in the “evading review” category because Andersen could have ob- tained review by defying the district court order and appealing the resulting contempt cita.ion. 2. Whether the Internal Revenue Service must make a particularized showing of relevance to obtain the tax accrual workpapers prepared by a public accounting firm engaged to examine and report on a corporation’s financial statements. Tax accrual workpapers are “opinion” documents, reflecting the accountant’s subjective assessment of its client’s potential tax exposures and prepared in order to test the reasonableness of the client’s estimates, appearing in its financial statements, of its unpaid tax liabilities. PARTIES Parties in the Court of Appeals were The United States of America and Francis W. Murphy, Special Agent, Internal Revenue Service, Petitioners- Appellees; Arthur Andersen & Co. (“Andersen”), Respondent- Appellant; Good Hope Industries, Inc. (“Good Hope”’), Intervenor- Appellee (the taxpayer under investigation and the client of Andersen ). ij TABLE OF CONTENTS Page SE BEES BTID oo coccncoteccocovececscccscseeveccseseceees i ans ascaunenndeasesnncceecess i I inca ssnncsscsnevesccsbesocensscoccscoseaces il IE TEED, cnccocscocthacncacessneccvsceesoccvccceces iv css cpabbasesseoncortoncsccece | Neen eee os cssccscsaseconccotocconesscs 2 I onic ecacnsccentoccdcccnnssescoeccossnccceess 2 ee IE I US PIN oh cn ccccccvsocccnccccccscesccsseceeseses 3 REASONS FOR GRANTING THE WRIT.................... 7 I. SEES 7 Andersen’s Appeal Should Not Have Been Dis- OSE 7 The Court Below Denied Decision of an Impor- tant Public Issue In a Case Where None of the Reasons for the Mootness Prohibition Is Present... 7 The Decision Below Conflicts With Principles of Judicial Administration Enunciated by this Court. 9 The Decision Below Conflicts With the Specific Holding of the Seventh Circuit that a Litigant Need Not Stand in Contempt ..............:ccccseeeeeeeeeees 13 The Decision of the Court Below Is Plainly Wrong and Will Unsettle a Hitherto Settled Rule of Judicial Administration .................:cccccseeseeseeeeees 14 The “Familiar Procedure” Argument Is ee ikinitibibnakecsnabbsbbinernsccenceceseoseecccooosep 14 The Attempt to Distinguish the Seventh Cir- cuit Opinion Lacks Substance...................:00 16 As a Means of Ensuring Concrete Adversity, Contempt Is a Very Undesirable Procedure Where Alternative Procedures Are Available........ 17 Failure to Clarify the Conflict Between Circuits SER 18 The Opinion Below Renders Illusory This Court’s Promise of Appellate Review for Summons sick cn sccsswenenmscescconevensecbess 19 ili Page Il. AS TO THE SUBSTANTIVE ISSUE: DIS- CLOSURE OF TAX ACCRUAL PAPER............ 20 The Ability of the Accounting Profession to Func- tion Effectively In the Public Interest Is At Stake... 20 The Court Below Confirms the Importance of the OOD ccicinsidncilbatcscchninncchaseadne a tacddladaaiaasbiranithies 22 This Appeal ( Unlike Good Hope’s Appeal) Is an Ideal Matrix for a Precedent ..................ccccccccsssesooes 22 , Andersen Seeks a Construction of “Relevance’ That Would Protect the Interests of the IRS, the FORD GOT COG CO FUE sip cccecencessovisdetnaninedesstsnrcizies 24 The Issues In This Case Are Closely Related to Those in the Upjohn Case, for Which This Court Has Just Granted Certioratl ........ccccccccssssssessessoseseses 26 The Decision of the First Circuit Creates a Con- SRE III SR iv sieciscicassierthatiptheiitlidinton ste dvoctns 27 CR INS cthesrnetdinseineheeiiassacliapdadicecsdadaniesbanessetsiatanbigen 29 APPENDIX A: Court of Appeals Opinion in EOE: FIO UOEEN scchsishigsitinnierupine Mittiedisinestin lechiedaieniveilesiutilans A-1 APPENDIX B: District Court Opinion...............::cc:cceeee A-10 APPENDIX C: Court of Appeals Opinion in SAE FOO .schisanetanhcrshbilndaennthasinabiseiiegdianintinichitteanned A-29 APPENDIX D: Judgment of Court of Appeals in RIE, FUME © -nnscssnsdichasdsconasaidageenbeabesgibeenieis aabedssaibls A-38 APPENDIX E: Mr. Justice Brennan’s Order Extending Time for Filing Petition for Writ of Certiorari.............. A-39 APPENDIX F: Statutes 26 U.S.C. § 7602 and 7604........ A-40 APPENDIX G: Denial of Stay in District Court and CREE OE FI vstsctscrecedictnsiecnidiainciombabilincimamialigagice A-42 APPENDIX H: Mr. Justice Brennan’s Denial of Stay on ROG TE, TGP wissisiinainterihssiniteniiidietiabenamameied A-46 APPENDIX I: Internal Revenue Service Manual............ A-47 iv TABLE OF AUTHORITIES Application of United States, 610 F.2d Te Ce es eh es diceediipainschensstenaseion Application of United States, 616 F.2d DR a 0 UN Mills FOIE? P cccscncnsoasbaceecccninnesect Arthur Andersen & Co., United States v., 474 F. Supp. 322 (D. Mass. 1979) dismissed as moot, 45 AFTR 2d 80- Re a, IONE scccieestscspstcearsittighenks Arthur Andersen & Co., United States v., 474 F. Supp. 322 (D. Mass. 1979) aff'd., 46 AFTR 2d 80-5285 (Ist Cir. SID P aisacictnincindenssiososesepsipnecaisiataicancheciions Baldridge v. United States, 406 F.2d 526 CE ey. WII Bickethnsseccisecndiaitinsacusnsendecitlh Barney v. United States, 568 F.2d 116 Ce Sets PPD ckcciasemssAicinicinPllesimesaevecsninas Cobbledick vy. United States, 309 U.S. 323 2, PEERS PREMERA Cire bo Coopers & Lybrand, United States v., 550 F.2d 615 (10th Cir. 1977), aff’g. 413 F. Supp. 942 (D. Colo. 1975) ............... Deak-Perera, United States v., _. F.2d __. No. 79-6035 (2d Cir., Oct. 26, PE ciiscdacctininthe Acie chessdnkaudthdsiniltipesicnamss Doe v. Bolton, 410 U.S. 179 (1973).......... Harvey v. Rosenthal & Co., —_— F.2d —___, No. 79-1803 (7th Cir., July 14, Hickman v. Taylor, 329 U.S. 495 (1947).. In re Special April 1977 Grand Jury, 581 F.2d 589 (7th Cir. 1978), cert. denied sub nom. Scott v. United States, 439 Re PE CFI cactsadesithigevavecssinsenssnibnes Kurshan v. Riley, 484 F.2d 952 (4th Cir. FP EEn hasesacenaneniucdeceestischeadeaieinindpesianiis —_ 10 11 1-2 1-2, 22, 26 11 1] 15 4-5, 28 ll 12 13 26 Lyons, United States v., 442 F.2d 1144 fl OW 6) ) ee Nebraska Press Assn. v. Stuart, 427 U.S. Se EE ID sicsencintcttecnaltasncmniaterse New York Telephone Co., United States v., 434 U.S. 159, 165 n.6 (1977)........... Powell, United States v., 379 U.S. 48 ON | RENATO SN a Ne CRI D cainncsesnrccinntnensenslinneinintabsesenmmapatones Roe v. Wade, 410 US. 113, 124-25 FIFE D sesiccssncsenistensnenconpsosenestsaningueganninect FEW Distierivirstnseicnnecasvicdtesiinashtthananpintin CRIN P céclsesissitsdapicicaiiesegneentnininiinantibiinmesiaahs Southern Pacific Terminal Co. v. Inter- state Commerce Commission, 219 US. BES Ce i ckciidienasciedaitelnssnninininie United Mine Workers, United States v., See Se es BO FEE PD cick United States Parole Commission v. Ge- raghty, No. 78-572, 48 U.S.L.W. 4296, 4298-99 ( March 19, 1980) ......0.. ee. Upjohn Co. v. United States, No. 79-886, 48 U.S.L.W. 3481, 3602 (1980)............ STATUTES BO WEG. 9 FOR wcccerrivsccsimnsnsesenepanninanstinnnn BG UA. BBN cccicntiinnsasinesnansnninncntisninguiintin BO UE. © BSG BD ccsccccccemeceservncnnintioneia Page 11 12 10, 13 26 15, 19 No. IN THE Supreme Court of the United States OCTOBER TERM, 1980 ARTHUR ANDERSEN & CO., Petitioner, v. UNITED STATES OF AMERICA, et al., Respondents. PETITION FOR A WRIT OF CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR THE FIRST CIRCUIT OPINIONS BELOW This case is a proceeding to enforce an IRS summons against Andersen and was heard in the United States District Court for the District of Massachusetts. The summons called for accounting papers prepared and owned by Andersen but relating to the business of Good Hope. Good Hope intervened in the proceeding. The opinion of the district court (Appendix B, infra at A-10) is reported at 474 F. Supp. 322, and unofficially at 79-2 U.S.T.C. 9506 and 44 AFTR 2d 79-5401. Andersen and Good Hope filed separate notices of appeal to the Court of Appeals for the First Circuit, which were assigned separate docket numbers by that court. Both appeals 2 involved the same court order and raised, in substantial part, identical issues. However, because of a delay by Good Hope in processing its appeal, the two dockets were not consolidated but were considered separately by the Court of Appeals. The court’s opinion in Dkt. No. 79-1411 (Andersen’s appeal) is attached as Appendix A, infra at A-l, and is unofficially reported at 45 AFTR 2d 80-1590. The court’s opinion in Dkt. 79-1405 (Good Hope’s appeal) is attached as Appendix C, infra at A-29, and is unofficially reported at 46 AFTR 2d 80-5285. The second opinion (Good Hope’s appeal) decided only issues and arguments not decided in the first opinion ( Ander- sen’s appeal). While only issues involved in the first opinion are presented in this petition, the case was decided by the two opinions in combination. JURISDICTION The judgment of the Court of Appeals in Dkt. 79-1411 was entered on March 31, 1980 and in Dkt. 79-1405 on June 16, 1980. By order dated June 16, 1980 (Appendix E, infra at A- 39), Mr. Justice Brennan extended the time for filing this petition with respect to Dkt. 79-1411 to and including August 28, 1980. (No. A-1102) The jurisdiction of this Court is invoked under 28 U.S.C. 1254(1). STATUTES INVOLVED Sections 7602 and 7604 of the Internal Revenue Code, 26 U.S.C. 7602 and 7604, are the applicable statutes and are set forth in Appendix F, infra at A-40. The key provision is: Section 7602. Examination of books and witnesses. For the purpose of ascertaining the correctness of any return, ... determining the liability of any person for any internal revenue tax ..., or collecting any such liability, the Secretary is authorized (1) To examine any book, papers, records or other data which may be relevant or material to such inquiry; .. . 3 STATEMENT OF THE CASE On November 14, 1977, the Internal Revenue Service issued a summons directing Andersen to produce and to testify about various records and workpapers related to its auditing and tax planning work for Good Hope. Andersen resisted the production of certain documents. The district court ordered the production of all of Andersen’s workpapers. Andersen appealed from the order only with respect to the production of “tax accrual workpapers.” Tax accrual workpapers are prepared in connection with | the independent accounting firm’s auditing function (as dis- tinguished from its tax advisory and tax return preparation function, which the firm may or may not perform for the client). The financial statements of a company reflect an income tax expense and a related accrued liability. The income Statement reflects the tax liability accrued during the period covered by the statement, and the balance sheet reflects the total accrued liability (both known and estimated) which remains unpaid as of the balance sheet date. These numbers are to a significant degree estimates, and no one number is “correct.” In auditing the financial statements of a client, the inde- pendent accounting firm must form a judgment as to whether the accrued tax liabilities are shown in amounts which are reasonable, in order to express its opinion as to whether the company’s financial statements fairly present the company’s financial position. Many positions taken by a taxpayer are not clear-cut under the law. The accountant must evaluate each uncertain tax position in order to determine whether the company has established, in the aggregate, a reasonable accrual to cover the possible tax liability. The tax accrual workpapers are the workpapers prepared by the accounting firm in arriving at this judgment. These 4 workpapers ordinarily are of two diffe ‘ent types. The first type are mechanical in nature, and represent analyses of factual material drawn from the books and records of the company, organized in a manner that is convenient for the accountant. Generally speaking, these are arithmetical analyses which Andersen would make available for examination by the Inter- nal Revenue Service. In addition, such information is fre- quently supplemented by the accountant upon request, to assist its client in furnishing relevant information to the IRS. The second type are workpapers assembled to allow the accountant to form the subjective judgment mentioned pre- viously. Such workpapers do not typically include factual information from the client’s books and records. This subjec- tive information identifies potential issues of adjustment, ana- lyzes the applicability of the tax law to the issues, evaluates the uncertainties involved and estimates the accrued feveral income tax reserves appropriate to protect the company. This analysis is necessary so that, in the event such uncertainties materialize, adjustments to the company’s federal income tax liabilities will not arise in amounts which would impair its financial position. It is these subjective workpapers, involving opinion and judg- mental matters, that Andersen seeks to protect. The IRS sought enforcement of the summons in the district court pursuant to Section 7604 of the Internal Revenue Code, 26 U.S.C. 7604. Andersen asserted in the district court that its tax accrual workpapers were not “relevant” to the IRS’ in- vestigation of Good Hope’s tax liabilities within the meaning of Section 7602. Andersen relied on United States v. Coopers & Lybrand, 550 F.2d 615 (10th Cir. 1977), aff’g. 413 F. Supp. 942 (D. Colo. 1975), the only prior case which had squarely addressed the status of tax accrual workpapers. In Coopers & Lybrand the Tenth Circuit held that tax accrual workpapers were not 5 ordinarily “relevani”™ to an IRS investigation of the client’s tax liabilities within the meaning of Section 7602. The district court below rejected Coopers & Lybrand. 474 F. Supp. at 329. It declined to require the IRS to show that the tax accrual workpapers were or were likely to be relevant to its investigation. Although the IRS Special Agent who had issued the summons admitted that he did not even know what tax accrual workpapers were, the district court found that the “collective familiarity” of the agents involved in the in- vestigation was sufficient to establish the requisite “expectation” of relevance. Jd. at 329-30. The district court ordered Andersen to comply with all aspects of the summons. Andersen and the intervenor, Good Hope, moved for a stay pending appeal in the district court and in the Court of Appeals, but each court denied the motion (Appendix G, infra at A-42). Good Hope went further and asked this Court for a stay (No. A-158), but that, too, was denied by Mr. Justice Brennan on August 20, 1979. (Appendix H, infra at A-46). When the stays were denied, Andersen was faced with the alternative of complying with the order of the district court and producing the documents or defying the order and standing in contempt. It elected to obey the law. The documents were produced. The United States thereafter moved to dismiss the appeal as moot. Andersen asserted in the Court of Appeals that its appeal was not moot, because the issue involved is “capable of repetition, yet evading review,” a doctrine enunciated by this Court in Southern Pacific Terminal Co. v. Interstate Commerce Commission, 219 U.S. 498, 515 (1911). The Court of Appeals acknowledged that the issue was capable of repetition, as there was a reasonable expectation that Andersen would be subject to the same action again by the IRS. 6 Op at A-4. The court also found that Andersen could not expect to obtain appellate review of the question prior to enforcement of the IRS summons, in light of the strong policy opposing delays in enforcement of such summonses. Op. at A-5. The court nevertheless concluded that the question was not one that “evaded review,” because Andersen could have defied the district court’s order for enforcement and raised its argument in the context of a contempt proceeding. Op. at A-S. The court therefore dismissed the appeal as moot. In reaching its decision, the First Circuit expressly refused to follow the holding of the Seventh Circuit in Jn re Special April 1977 Grand Jury, 581 F.2d 589 (7th Cir. 1978), cert. denied sub. nom. Scott v. United States, 439 U.S. 1046 (1979). In that case, the Seventh Circuit permitted appeal from an order enforcing a grand jury subpoena directed to members of the Illinois Attorney General’s staff, notwithstanding that the staff had complied with the order prior to appeal. The court found that the subpoena was not moot because it was part of a continuing investigation and future subpoenas subject to the same objections were likely. It noted that in applying the “capable of repetition, yet evading review” doctrine: the Supreme Court has not required litigants to subject themselves to contempt or criminal sanctions.... Jd. at 591. The First Circuit sought to distinguish Jn re Special April 1977 Grand Jury on the ground that the staff-members of the Illinois Attorney General did not have as much incentive as Andersen to commit contempt of court. Op. at A-6. The First Circuit also reasoned that committing contempt to obtain appellate review was a “familiar procedure” and that it did not seem “too draconian” to require Andersen to resort to contempt to preserve its objection for appeal. Op. at A-8. 7 REASONS FOR GRANTING THE WRIT I. AS TO MOOTNESS Andersen’s Appeal Should Not Have Been Dismissed as Moot The Court should grant the writ to review the question of mootness because the rule announced below Tejects established precedent in this Court and in another circuit; and in doing so it advances no good purpose or policy, but on the contrary, contributes to disregard for law and the judicial process, subverts the effective investigative procedures of the IRS and imposes unjustifiable burdens on litigants. The particular ground on which the court rests its con- clusion was not developed in the briefs or at oral argument. Petitioner respectfully submits that the court has failed to appreciate the full implications of the rule it announces and the pernicious effect it would have on the judicial process, on the process of administrative investigations and on the resolution of important public issues. The Court Below Denied Decision of an Important Public Issue In A Case Where None of the Reasons for the Mootness Prohibition Is Present The original notion behind the prohibition against deci- ding moot cases was simple: that it is useless for courts to decide a case if there is ro longer a subject matter on which the court's decision can operate. Subsequently the courts developed these additional reasons: 1. Cases in which the original controversy has been settled may be left in a posture which is abstract or hypothetical. That is antithetical to the common law process, which rests on “concrete adversity,” i.e., on the proposition that decisions on concrete facts with active adversaries will, in cumulation, best delineate the contours of more general rules. 2. In cases in which the original controversy has been settled, one or both parties are likely to lose interest and commitment, with the result that the facts and arguments will not be fully developed or carefully presented. 3. In deciding cases in which the original controversy has been settled, courts may intrude on policy making by other branches of government. If the courts’ role is to decide matters in which there is “concrete adversity,” the corollary is that courts intrude on the role of the legislative and executive branches if they depart from cases with “concrete adversity” and promulgate general laws and administrative policies. 4. Acase which is truly moot is not a “case or controversy” in the constitutional sense and, therefore, may not be decided by the federal courts. None of these reasons is present in this case. The substantive issue here could not be more specific or concrete. It focuses on a specific sct of documents and there is a full development of facts in the record and a full development of the arguments in the briefs. No future case is likely to be more concrete or specific. The issue in controversy is extremely important to a large affected class and remains live in every practical sense. The decision confronts not on'y Andersen but all accounting firms with continuing harm. Its mere existence diminishes the willingness of Andersen’s clients to communicate freely and thus renders the professional auditing function more difficult to perform, more costly and less effective. The Internal Revenue Service has already revised its operating Manual to cite che Andersen opinion as supporting its view and to encourage its examining Officers to intrude further into the area at issue. 9 ( Appendix I, infra at A-47) The American Institute of Certified Public Accountants (AICPA) regards the case with great concern and filed amicus briefs in the court below. It intends to do so again, we are advised, in connection with this petition. The issue is prominent in the pages of accounting and legal journals and at the meetings of the AICPA and the American Bar Association. The words of the Court in Sibron v. New York, 392 US. 40, 57 (1968), fit this case exactly: None of the concededly imperative policies behind the constitutional rule against entertaining moot controversies would be served by a dismissal in this case. There is nothing abstract, feigned, or hypothetical about Sibron’s appeal. Nor is there any suggestion that either Sibron or the State has been wanting in diligence or fervor in the litigation. We have before us a fully developed record of testimony about contested historical facts, which reflects the “impact of actuality” to a far greater degree than many controversies accepted for adjudication as a matter of course under the Federal Declaratory Judgment Act, 28 U.S.C. §2201. The Decision Below Conflicts With Principles of Judicial Administration Enunciated by this Court This Court, beginning in Southern Pacific Terminal Co. v. Interstate Commerce Commission, 219 U.S. 498, 515 (1911), has articulated the doctrine that the mootness prohibition does not apply to prevent review in cases “capable of repetition, yet evading review.” The court below eviscerates this doctrine by finding it inapplicable if an appellant can obtain review by defying the district court’s order and standing in contempt, even though that contempt affronts the court and carries the possi- bility of severe punishment for the appellant. Review by an appellate court is usually available in theory to one who is willing to defy the law. But this Court has never required litigants to defy the law and subject themselves to contempt or criminal sanctions to obtain appellate review under the “capable of repetition, yet evading review” doctrine. The 10 First Circuit’s holding is directly in conflict with a number of cases in which this Court and others held issues not to be moot although appellants complied with laws or court orders they could have defied. In the original Southern Pacific Terminal case, it appears that the appellant could have defied the Interstate Commerce Commission and secured review when the Commission sought enforcement or penalties in the courts. This Court’s holding in United States v. New York Tele- phone Co., 434 U.S. 159, 165 n.6 (1977) stands contrary to the decision below on closely analogous facts. In that case, the telephone company challenged an order of the district court compelling the company to make equipment available for a surveillance operation by the FBI. After unsuccessfully moving in the district court and in the court of appeals for a stay pending appeal, the telephone company complied with the order. This Court held that the expiration of the order did not render the case moot, because the controversy was capable of repetition, yet evading review. The Court did not require the telephone company to defy the district court’s order and raise its objection in the context of a contempt proceeding. This holding has been followed without question by both the Court of Appeals for the Third Circuit and the Court of Appeals for the Ninth Circuit in similar cases involving orders for telephone company cooperation with government in- vestigations. In Application of United States, 610 F.2d 1148 (3d Cir. 1979), the court of appeals expressly stated: These cases might appear to be moot since the telephone companies have fully complied with the orders. No decision of this court could remedy any errors that the district courts might have committed. However, we find that the orders fit within the exception to mootness for “short term orders, capable of repetition, yet evading review.” 610 F.2d at 1153. ll And in Application of the United States, 616 F.2d 1122 (9th Cir. 1980), the court believed this conclusion so obvious that it simply observed in a footnote: We do not understand the government to argue, nor could it, that because the surveillance authorized by the district court has been completed, the case is therefore moot. Under the principles set forth in Southern Pacific Terminal Co. ... , the issue presented here is one “capable of repetition, yet evading review.” United States v. New York Telephone Co.,.... 616 F.2d at 1128 n. S. The fact situations in those cases cannot be distinguished from those in this case. In both, a private party, not itself the subject of a government investigation, has been ordered to provide assistance to the government in making its in- vestigation. The order in question is not part of ongoing litigation between the government and the private party. The private party will not be party in any future litigation involving the materials obtained as a result of the order. Consequently, the private party will have no later opportunity to challenge the order. Yet, because of the nature of the private party’s business and the continued need for the kind of investigation involved, the private party will continually be subject to similar orders.’ 1 As the Court of Appeals below noted in its footnote 6 (Op. at A-4), the fact that the private party is not itself under investigation (and therefore will not participate in any proceedings resulting from the investigation) and will be continually asked to assist in in- vestigations, distinguishes this case from that involving resistance by a taxpayer to a summons. A taxpayer will have an opportunity to challenge the use of the fruits of such orders, and, in any event, cannot reasonably claim that he will be subject to repeated orders in the future. See United States v. Deak-Perera, F.2d. No. 79- 6035 (2d Cir., decided Oct. 26, 1979); Barney v. United States, 568 F.2d 116 (8th Cir. 1978); Kurshan v. Riley, 484 F.2d 952 (4th Cir. 1973); United States v. Lyons, 442 F.2d 1144 (Ist Cir. 1971); Baldridge v. United States, 406 F.2d 526 (Sth Cir. 1969). 12 Similarly, the journalists in Nebraska Press Assn. Vv. Stuart, 427 U.S. 539, 546-47 (1976), who challenged a state court order temporarily restraining pretrial publicity, could have violated the order and raised their objection in the context of a contempt proceeding. And the women in Roe v. Wade, 410 U.S. 113, 124-25 (1973), and Doe v. Bolton, 410 U.S. 179 (1973), who challenged statutes forbidding abortion, could have violated those statutes and raised their objections in the context of a criminal prosecution. If the “evading review” category excludes all cases in which review can be obtained by taking unlawful steps, the category does not cover most of the cases in which this Court and other courts have applied the “capable of repetition, yet evading review” doctrine. The doctrine would be reduced to a meaningless thing, as it would cover virtually nothing. The “capable of repetition, yet evading review” doctrine assumes that the appellant has already complied with the law or order — which is why the controversy has arguably become “moot.” The doctrine holds that compliance does not result in mootness if the appellant can expect the issue to recur, with the likelihood that the challenged requirement will again evade review. The concept is that, under these circumstances, the case retains its character as a present, live controversy. The appellant has a continuing personal stake in the requirement, his vigorous advocacy can be expected, and the Article III requirement that a case or controversy exists is met. United States Parole Commission v. Geraghty, No. 78-572, 48 U.S.L.W. 4296, 4298-99 (March 19, 1980). It is unnecessary — and an unwise public policy — to force the appellant into civil disobedience. 13 The Decision Below Conflicts With the Specific Holding of the Seventh Circuit That a Litigant Need Not Stand in Contempt In Jn re Special April 1977 Grand Jury, the Seventh Circuit specifically rejected the argument that a person who objects to a subpoena enforcement order must stand in contempt of court to obtain appellate review and thereby prevent the issue from evading review on appeal. The Court said: ... the Supreme Court has not required litigants to subject themselves to contempt or criminal sanctions to meet this prong of the mootness test. 581 F.2d at 591. That statement accurately reflects the holding of this Court in New York Telephone and other cases discussed above. The Seventh Circuit repeated its conclusions in an as yet unreported decision in Harvey v. Rosenthal & Co., —— F.2d. —___, No. 79-1803, decided July 14, 1980, involving an appeal from a request for a preliminary injunction challenging the location of a Commodities Future Trading Commission repara- tions hearing. The court acknowledged the conflict between its position and that of the First Circuit: To be sure, this Court has in the past been reluctant to require a party to risk serious judicial sanctions in order to preserve a question that will otherwise become moot. See In re Special April 1977 Grand Jury, 581 F.2d 589 (7th Cir. 1978), certiorari denied sub nom. Scott v. United States, 439 U.S. 1046, but see United States v. Arthur Andersen & Co., (1st Cir. No. 79-1411, decided March 31, 1980). The court refused to equate the risk of default in the reparations hearing with being adjudged in contempt of court and held that, in any event, review would be available in conjunction with review of the substantive hearing. 14 The Decision of the Court Below is Plainly Wrong and Will Unsettle a Hitherto Settled Rule of Judicial Administration The decision of the court below rests on a narrow ground. It holds that contempt is a “familiar procedure” for obtaining judicial review and that appellants who fail to resort to that familiar procedure cannot complain of their cases “evading review.” It attempts to distinguish on a factual basis the decision of the Seventh Circuit in Jn re Special April 1977 Grand Jury. The “capable of repetition, yet evading review” doctrine has never before been applied to require appellants to defy the law, no matter how “familiar” the defiance procedure may be. In adding that requirement, the court below unsettles seven decades of practice and will, if it stands, give rise to unfairness and inefficiency in judicial administration and to undesirable changes in the behavior of litigants. The decision below raises no fundamental issues that would profit from re-examination or debate in the lower courts. The narrow grounds relied on below are simply mistaken and should be promptly reversed by this Court before they create widespread trouble. The “Familiar Procedure” Argument is Wrong The court below characterizes contempt as a “familiar procedure” which it is not unreasonable to require. But in the cases applying the “capable of repetition, yet evading review” doctrine contempt is not a “familiar procedure”. On the contrary, it is virtually unknown. As explained earlier, if the doctrine does not cover cases in which appellants could obtain review by defying the law, it is a near-useless thing. In support of its “familiar procedure” rationale, the Court of Appeals cites decisions of this Court which require a citizen who objects to a grand jury subpoena to make a choice between (1) complying with the district court’s enforcement order prior to appellate review and (2) resisting the order for the sake of 15 obtaining review with the possibility that he will incur contempt penalties. United States v. Ryan, 402 U.S. 530 (1971); Cobbledick v. United States, 309 U.S. 323 (1940). In these cases, the Court held that orders denying motions to quash grand jury subpoenas are not appealable. Such appeals, the Court held, would result in undesirable delays in the enforce- ment of subpoenas and are justified by “the necessity for expedition in the administration of the criminal law.” 402 U.S. at 533. Here, on the other hand, there is a clear right to appeal. Reisman v. Caplin, 375 U.S. 440 (1964). The issue involved, whether compliance has rendered the case moot, was not involved in Ryan and Cobbledick. They stand only for the proposition that, in some cases, review before compliance can be had only by standing in contempt.? Contempt, in such cases, is the lesser of two evils. The evil of extended delay and the need for prompt compliance outweigh the evils of forcing a litigant to stand in contempt. In contrast, mootness issues like that involved here arise only after compliance. If the individual, having complied, seeks appellate review, the appeal will be moot unless the case meets the criteria of the “capable of repetition, yet evading review” doctrine. Application of the doctrine in these post-compliance situ- ations also serves “the necessity for expedition.” If the doctrine is not applied, a litigant for whom the issue is a recurring one will be pushed into non-compliance and delay in order to secure an appellate decision. 2 This is, in essence, the same issue decided by the District Court, the Court of Appeals and Justice Brennan in denying a stay of the district court orders in this case. 16 The Attempt to Distinguish the Seventh Circuit Opinion Lacks Substance The First Circuit’s attempt to distinguish Jn re Special April 1977 Grand Jury is invalid both in its reasoning and in its treatment of the facts. The First Circuit surmises that the subpoenaed government employees did not have a strong personal stake in resisting disclosure and could not be expected to stand in contempt to protect the right to appellate review. The opinion implies that it was proper under these circumstances for the Seventh Circuit to consider the merits of the appeal under the “capable of repetition, yet evading review” doctrine. The court surmises that Andersen, on the other hand, had a strong personal stake in resisting disclosure, giving it sufficient incentive to resort to contempt to preserve its right to appeal. The court does not make clear why it thinks separate rules are desirable for different classes of litigants or why it is sensible to make appeal easier for those with little incentive than for those with a great incentive. In any event, the court’s factual distinction is entirely surmise, and experience suggests it is wrong. The distinction implies that the commitment of government employees to their convictions is less than that of employees of private concerns. There is no basis for that assumption. If anything, state employees would be more likely to risk contempt than private employees because they know, as a practical matter, that they are backed by the “majesty of the state” and are less likely to be personally punished. But even if one were to accept the First Circuit’s factual surmise, it argues for the opposite conclusion. If, as alleged, Andersen employees have a strong and continuing interest in non-disclosure of the documents in issue, that affirms that Andersen’s controversy continues to possess a high degree of “concrete adversity” and is, therefore, not moot. 17 Moreover, the First Circuit’s conclusion that contempt offers a satisfactory route to appellate review ignores the risks a litigant faces in defying a court order. These include the threat to his reputation as law-abiding and the direct threat of contempt penalties. The First Circuit belittles, to the point of ignoring, these factors. Finally, whatever merit the First Circuit’s purported dis- tinction may have in explaining the Seventh Circuit case, it does not deal at all with the decisions of this and lower courts which hold issues not to be moot although appellants complied with laws or court orders they could have defied. As a Means of Ensuring Concrete Adversity, Contempt Is a Very Undesirable Procedure Where Alternative Procedures Are Available Whether or not contempt is a “familiar procedure,” it is not a desirable procedure. It should be avoided where other lawful procedures can be made to work. A principal virtue of the “capable of repetition, yet avoiding review” doctrine is that it avoids the necessity for litigants to defy court orders, without sacrificing the need for “live controversy” and “‘concrete adver- sity.” Contempt is an undesirable procedure for several reasons: First, because it encourages litigants, unnecessarily, to flaunt orders of the courts. This Court has observed: The interests of orderly government demand that respect and compliance be given to orders issued by courts pos- sessed of jurisdiction of persons and subject matter. United States v. United Mine Workers, 330 U.S. 258, 303 (1947). Those interests are undermined by requiring a citizen who wishes to preserve his legal rights to defy a court order, when no necessity exists for such a requirement. 18 Second, contempt is an undesirable procedure because it imposes a heavy and unnecessary burden on the appellant. A party faced with a summons enforcement order after a stay has been denied confronts a harsh dilemma. If he obeys the order he loses his ability to appeal. If he disobeys to preserve his appeal, he must be prepared to accept heavy fines or personal imprisonment. The burden of fines is obvious. Imprisonment, apart from the inconvenience, carries an aura of disgrace which is repugnant to citizens who wish to be law abiding.? Where the “capable of repetition, yet evading review” doctrine applies, it avoids both these undesirable effects of the contempt procedure. Failure to Clarify the Conflict Between Circuits Will Produce Injustice This Court should make the options clear for litigants. Uncertainty will produce injustice. If a litigant has no right to obtain review under the “capable of repetition, yet evading review” doctrine, he may > irretrievably lose the opportunity for review by mistakenly counting on the doctrine and failing to defy the enforcement order. This will have happened to Andersen if the First Circuit’s holding is not reversed. If, on the other hand, a litigant has the right to obtain appellate review under the “capable of repetition, yet evading review” doctrine, he may nevertheless be led by the First Circuit’s holding to commit contempt and endure its penalties in order to preserve his right to appeal. 3 Public accountants are licensed by statute in every state. Not only criminal convictions, but also breaches of ethical standards and other improper conduct, may be grounds for license revocation and suspension. Contempt citations could adversely affect the accoun- tants’ reputation, thereby inhibiting their ability to perform these independent auditing functions. 19 Putting litigants in this unfair dilemma is unnecessary, but, given the conflict between Circuits, will persist until this Court decides the issue. The Opinion Below Renders Illusory This Court’s Promise of Appellate Review for Summons Enforcement By denying a stay and then by dismissing the appeal as moot, the First Circuit deprived Andersen of a lawful means of appealing from the District Court’s order. In Reisman vy. Caplin, 375 U.S. 440, 449-59 (1964), this Court declared that the summons enforcement provisions of the Internal Revenue Code provide “full opportunity for judicial review before any coercive sanctions may be imposed” and held that summons enforcement orders were appealable. The Court noted that “with a stay order a witness would suffer no injury while testing the summons.” The ruling of the First Circuit would render illusory: the Reisman promise of appellate review. Summary The First Circuit has interpreted the “capable of repetition, yet evading review” doctrine in a manner inconsistent with the decisions of this Court and on a ground specifically rejected by the Seventh Circuit. The result is to render the doctrine largely meaningless. The rule announced by the First Circuit not only lacks justification, but would lead to affirmatively bad results. It would undercut the authority of the courts, would impose heavy and unjustifiable burdens on litigants, would promote delay in investigations, and would renege on this Court’s prior promise of full opportunity for judicial review of IRS summons. If allowed to stand, the First Circuit decision will unsettle a settled rule and lead to a new round of procedural uncertainty and unfairness, which must ultimately be resolved by this Court. There is no need for the issue to develop further in the 20 lower courts, as the doctrine in issue has been fully developed over a period of seven decades. The First Circuit’s opinion is an aberration, but the conflict it raises is clear, focused and ready for resolution. Il. AS TO THE SUBSTANTIVE ISSUE: DISCLO- SURE OF ACCRUAL PAPERS The Court should grant the writ to review the standard of relevancy to be applied to requests by the IRS for tax accrual workpapers for the following reasons: The Ability of the Accounting Profession to Function Effec- tively In the Public Interest Is At Stake The question of IRS access to tax accrual workpapers presents a critical conflict between administrative convenience in the conduct of tax investigations and the ability of accoun- tants to perform a significant and independent role. On the one hand, the IRS has a great temptation to seek tax accrual workpapers from the corporation’s independent accounting firm, because the opinions and thought processes revealed will, in the ordinary case, provide a roadmap for the IRS audit. On the other hand, granting the IRS free access to tax accrual workpapers will substantially impair the ability of the accountant to determine whether the company’s financial statements fairly present its financial position. If the IRS can, at will, obtain the independent accountant’s work in identifying and evaluating each uncertain tax position of its client, the accounting profession will be perceived as and will become an auxiliary enforcement arm of the IRS and will lose its traditional free access to information from clients. The channels of client-accountant communication, which are critical to effective and efficient audits, will simply dry up. Confronted with the unacceptable prospect of having insufficient data, the accounting profession will search else- 21 where for the necessary data. Audit activities will be expanded, resulting in excessive professional time commitments, increased fees, client resistance and a further deterioration of the con- fidential relationship between accountants and their clients. Automatic access to the tax accrual workpapers will drive the process “underground.” Good record keeping will be avoided. Oral communication will supplant good records and accountants will be pressured to do an increasing amount of their work in their heads. If there is to be no privacy for taxpayers or their professional advisors in thinking through their positions, the thinking process will be inhibited, if not suppressed. Positions will not be thought through for fear that doing so will raise potential issues, which once noted, will not go away regardless of their merits. Taxpayers will refrain from seeking competent professional advice if any questions they raise are to be routinely divulged to the IRS, and the quality of reporting, both tax and financial, will inevitably decline. The success of a voluntary tax system depends upon charging taxpayers with responsibilities which they find gener- ally reasonable. If the requirements are widely regarded as unreasonable or cut against the grain of human nature, the system will fail and no amount of penalties or coercion will make up for the loss of voluntary compliance. For this reason, a voluntary system which depends upon the taxpayer resolving all questions, however doubtful, in favor of the Government will not work. Nor will a system which requires the taxpayer to identify all potential questions so that the Government may then resolve them against the taxpayer. There may be superficial appeal in the argument that compliance can be improved by stripping taxpayers and their professional advisors of privacy in their thought processes. But the fact remains that to require the routine disclosure of the kind of opinion material involved in these papers is to tamper with the wellspring of the system. 22 For all these reasons, the issue presented is of fundamental importance to the entire accounting profession, to the public and to the tax system. The Court Below Confirms the Importance of the Issue The First Circuit has itself emphasized the importance of the issue. It says generally of tax accrual workpapers: While such papers are said to constitute no part of the tax return or its workpapers, they would seem to indicate the thinking of accounting analysts and policy makers about tax decisions as to which the pros and cons may be in near balance, and thus indicate soft spots where IRS could profitably probe. The importance of the interests of all concerned — tax- payers, accountants and IRS — is clear. That a resolution sensitively reflecting the legitimate interests of all and faithful to applicable statutes would involve the most delicate and demanding analysis of facts, research of law, and reflection on policy is equally clear. Precisely because we view the issue of “relevance” as so significant, we find this case [i.e. the second appeal, by Good Hope] in a poor posture to serve as the matrix for a precedent. Op. at A-36. The Court made these remarks in the context of the second appeal by Good Hope. But they deal with the general issue and could not be more apt in describing its importance. This Appeal (Unlike Good Hope’s Appeal) Is an Ideal Matrix for a Precedent The Good Hope appeal (Dkt. 79-1405) referred to in the last sentence of the First Circuit statement quoted above, involved questions which were hypothetical, unknown and unasked. The kind of concreteness required for making precedent was totally absent. 23 Andersen’s appeal, in contrast, involves facts which are fully developed and concrete, and which present the issue of document production in an ideally unambiguous form. In Andersen’s appeal, the court addressed the production of the tax accrual work papers, the issue raised here. It dismissed the appeal as moot because Andersen had complied with the order by producing the documents. In Good Hope’s appeal, decided subsequently, the court addressed a related, but different question, namely, the possi- bility that the IRS might question Andersen employees about the documents which had been produced. The district court order required Andersen to answer questions about those documents, if asked by the IRS. Good Hope argued, as questions had been neither asked nor answered, that this part of the order was not moot and should be reversed. The court agreed that this issue escaped mootness, but declined to reverse the order for another reason. The court pointed out that a determination on concrete facts would not be possible until specific questions were actually asked, which might never occur. Accordingly, it held that a decision was premature as to that part of the order. We agree that the issue in the Good Hope appeal, dealing with unknown and unasked questions, is too speculative and abstract to provide “the matrix for a precedent.” In contrast, the issue in this appeal, which concerns production of the actual workpapers, has nothing abstract or speculative about it. The trial before the district court dealt with specific, known documents, and the facts were fully developed with testimony from both parties. A clearer, more concrete case than this is unlikely. The issue is presented in bold relief. The Special Agent who issued the IRS summons admitted that he did not even know what tax accrual workpapers are. If, as the IRS contends, it has carte blanche to obtain production of virtually anything, the Special 24 Agent’s testimony is irrelevant. But if, as Andersen contends, the IRS must make some particularized showing of expected relevance in order to obtain these sensitive, opinion documents, the Special Agent’s testimony conclusively documents the fail- ure to make that kind of showing. In sum, the record is clear and factual and the facts are unambiguous. The workpapers are opinion-type documents and the IRS offers no reason to suppose that they supply any facts believed to be missing. If the IRS is entitled to production of the workpapers on this record, then the statutory require- ment of “relevance” encompasses anything that micht conceiv- ably relate to some issue that the IRS might be interested in developing. On the other hand, if the statutory “relevance” require- ment requires some balancing of the interests in confidentiality against the legitimate need for discovery, then this case pro- vides the clearest case for “‘non-relevance.” No better “matrix for precedent” can exist. A black-or- white case is presented. Once decided, subsequent cases can fill in any gray areas. Andersen Seeks a Construction of “Relevance” That Would Protect the Interests of the IRS, the Taxpayer and the Public The tax accrual workpapers have very marginal relevance to the IRS because they principally reflect after-the-fact opin- ions of third parties, and any numbers and facts to which they incidentally refer can ordinarily be obtained directly from primary sources. Andersen seeks a ruling which recognizes that there is a public interest in preserving the confidentiality of these sensitive, opinion-type documents and that the nature of the documents is such that the likelihood of their containing anything relevant is too slight to justify production, absent special circumstances. The factual record corroborates these conclusions. 25 Andersen has suggested the kind of circumstances under which examination of tax accrual workpapers would be justi- fied and has proposed procedures for identifying such situations and for producing any relevant facts. In general, Andersen proposes that the workpapers be found relevant only when the IRS shows a reasonable ex- pectation that they are likely to contain factual data, excluding materials that constitute the accountant’s mental processes and opinions, for which the IRS has substantial need and which it cannot reasonably obtain by other means. In the ordinary case, tax accrual workpapers would not be relevant, because all data contained in them are immediately available from primary sources, i.e., the company’s records, books and accounts — the same sources from which the workpapers take the facts they rely on. On the other hand, the IRS investigators would be granted access to the tax accrual workpapers to the extent they contain needed factual information not available elsewhere — for example, if they contain memoranda of factual statements by an officer of the taxpayer who is no longer available. The construction of “relevance” sought by Andersen is designed to permit the accounting profession to serve the public effectively, to be consistent with traditional standards of rele- vance, to protect the legitimate interests of the IRS, and to accomplish all those results without burdening the courts.4 4The public importance of the issue is demonstrated by the attention of commentators. M. Caplin, “Should the Service Be Permitted to Reach Accountants’ Tax Accrual Workpapers?” 51 J. Tax. 194 (1979); P. Reckers and L. Beard, “IRS Seeks Auditors’ Working Papers,” 48 CPA Journal 35 (1978); R. Hanson and C. Lees, “IRS Examination of Accountants’ Workpapers,” 143 J. Ac- countancy 60 (1977); M. Saltzman, “Accountants and the IRS Summons: Recent Developments,” 7 Tax Adviser 516 (1976). 26 The need is pressing, in the words of the First Circuit quoted earlier, for “*... a resolution sensitively reflecting the legitimate inter- ests of all...” Op. at A-36. The Issues In This Case Are Closely Related to Those in the Upjohn Case, for Which This Court Has Just Granted Certiorari The rule which Andersen urges in this case is akin to the rule applicable to attorney work product announced in Hick- man v. Taylor, 329 U.S. 495 (1947). In Hickman, this Court fashioned a rule which protected attorneys’ work product papers from disclosure on demand, but made them available on a limited basis where specific need was shown. Andersen does not contend that the Hickman work product rule, devised for attorneys’ papers, applies to these accountants’ workpapers or that any privilege is involved. But it does contend that the principles underlying the Hickman rule are also present here and that a similar result is appropriate. On March 17, 1980, this Court granted certiorari in a case which involves the role of the Hickman work product rule in IRS summons enforcement cases under Section 7602. The Upjohn Co. v. United States, No. 79-886, 48 U.S.L.W. 3481, 3602 (1980). Upjohn raises in the context of attorneys the same kind of issue raised here in the context of accountants. Both Upjohn and this petition raise issues about: 1. The balancing of competing interests. The IRS’ administrative convenience in obtaining access to a profes- sional’s work papers must be balanced against the policy considerations which argue for granting qualified protec- tion to communications between taxpayers and their pro- fessional advisors. 2. The “relevance” under United States v. Powell, 379 U.S. 48 (1964), of opinion-type work products which are 27 based on facts taken from original source records equally } available to the government. 3. The showing required to be made by the IRS to support enforcement of the summons for third party papers con- taining opinions and thought processes. In addition to their similarities, Upjohn and Andersen’s case have two significant differences, which would help flesh out the Court’s consideration of this vital issue of IRS summons power: 1. Upjohn’s claim is broader than Andersen’s because the petitioner in Upjohn claims “work product” protection for all of an attorney’s papers evaluating contingencies in anticipation of litigation. Andersen, on the other hand, seeks to invoke a balancing test for only a limited class of workpapers which discuss contingencies affecting the tax accrual. 2. Andersen’s claim is broader than Upjohn in that it seeks to apply the policy considerations involved to another class of professional advisors, public accountants. The substantive issue raised in this petition is related and complementary to that raised in Upjohn. Resolving both these cases will give the Court better perspective on the important policy issue which is raised in slightly different contexts, and will avoid the possibility of deciding the issue in one context with language that unwittingly creates mischief in the other context. The issue is of great importance to both professions and to the publics which they respectively serve. The Decision of the First Circuit Creates a Conflict Between Circuits In the Good Hope appeal, the Court of Appeals affirmed the district court’s order enforcing the IRS summons to Ander- sen.5 The district court held that the IRS can obtain tax accrual 5In Andersen’s appeal, the Court of Appeals simply dismissed the appeal as moot without either affirming or reversing the District Court’s order. 28 workpapers if some of the agents involved in the investigation know what they are and ask for them. The district court expressly rejected the holding of the Tenth Circuit that tax accrual workpapers are not ordinarily relevant to tax in- vestigations within the meaning of Section 7602. United States v. Coopers & Lybrand, 550 F.2d 615 (10th Cir. 1977), aff’g. 413 F. Supp. 942 (D. Colo. 1975). Insofar as the holding of the First Circuit here affirms the order of the district court, it is in direct conflict with that of the Tenth Circuit in Coopers & Lybrand. Prior to the First Circuit decision, Coopers & Lybrand was the only case involving IRS access to tax accrual workpapers. Its helding was unequivocal and reassuring to taxpayers, although the IRS has taken the view that it was wrong. The present case has unsettled all that Coopers & Lybrand had settled. After this case was decided, the IRS revised its operating Manual (as noted) to reassert more strongly its right to tax accrual workpapers. Like a Gresham’s law, the bad drives out the good. Taxpayers conduct their affairs on the basis that the worst may happen and this Andersen decision has shown what the worst may be. Already, taxpayers and their professional advisors are discussing ways to rearrange traditional lawyer-accountant roles in an effort to shelter this sensitive opinion-type material with some privilege or greater protection. Already, taxpayers are avoiding the participation of their accounting advisors in certain activities and pushing them to reduce less and less to paper. Already the channels of communication are perceived as drying up. The First Circuit decision, by its mere existence, is changing public behavior in ways which are detrimental to the public interest, the accounting profession and the adminis- tration of the tax system. 29 The conflict that has developed is substantial and the issue is important. It is now focused and this case presents it clearly and simply. Certiorari has been granted in the Upjohn case, involving similar issues and facts as they relate to lawyers. This Court should resolve the issue as it relates to the accounting profession. CONCLUSION Petitioner respectfully requests that the petition for a writ of certiorari be granted. FREDERIC W. HICKMAN J. READ MURPHY MICHAEL M. CONWAY Murtha, Cullina, Richter, WM. CARLISLE HERBERT and Pinney Hopkins, Sutter, Mulroy, 101 Pearl Street Davis & Cromartie Hartford, Connecticut 06103 One First National Plaza Suite 5200 DONALD DREYFUS Chicago, Illinois 60603 Arthur Andersen & Co. (312) 558-6600 69 W. Washington Street Chicago, Illinois 60602 Attorneys for Petitioner Of Counsel A-1 APPENDIX A United States Court of Appeals For the First Circuit No. 79-1411 UNITED STATES OF AMERICA and FRANCIS W. MURPHY Special Agent, Internal Revenue Service, PETITIONERS, APPELLEES, v. ARTHUR ANDERSEN & COMPANY, RESPONDENT, APPELLANT, and GOOD HOPE INDUSTRIES, INC., INTERVENOR, APPELLEE. APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF MASSACHUSETTS [Hon. Frank H. FreepMan, U.S. District Judge] Before Corrin, Chief Judge, CAMPBELL and Bownes, Circuit Judges. Frederic W. Hickman. with whom John L. Conlon, Michael M. Conway, Wm. Carlisle Herbert, Hopkins, Sutter, Mulroy, Davis & Cromartie, J. Read Murphy, John T. DelNegro and Murtha, Cullina, Richter & Pinney were on brief, for appellant. Carleton D. Powell, Attorney, Tax Division, Department of Justice, with whom M. Carr Ferguson, Assistant Attorney General, Edward F. Harrington, United States Attorney, Gilbert E. Andrews and Robert E. Lindsay, Attorneys, Tax Division, Department of Justice, were on brief, for appellees. Kenneth J. Bialkin, Louis A. Craco, Howard C, Buschman, II1., Michael P. Zweig and Willkie, Farr & Gallagher on brief for American Institute of Certified Public Accountants, amicus curiae. March 31, 1980 Corrin, Chief Judge. This is an appeal from an order of the United States District Court for the District of Massachusetts A-2 2 U.S. U. ARTHUR ANDERSEN & COMPANY enforcing an Internal Revenue Service summons issued to the appellant, Arthur Andersen & Co. (“Andersen”). Andersen's appeal asserts that this summons did not meet the relevance re- quirement of 26 U.S.C. §7602.' The IRS, in addition to argu- ing the propriety of the district court's order enforcing its sum- mons, filed a motion to dismiss Andersen's appeal as moot. Because we find the question of mootness dispositive, we do not reach the merits of Andersen's appeal. The summons at issue in this case was served upon Andersen in the course of an IRS investigation of Good Hope Industries, Inc., (“Good Hope”), for whom Andersen had acted as auditor and tax advisor for the fiscal years ending July 31, 1973 through 1976. The IRS directed Andersen to produce and to testify about various records and workpapers related to its auditing and tax planning work for Good Hope. Andersen 'Section 7602 defines the scope of the IRS's authority to obtain documents and testimony: “For the purpose of ascertaining the correctness of any return, making a return where none has been made, determin- ing the liability of any person for any internal revenue tax or the liability at law or in equity of any transferee of fiduciary of any person in respect of any internal revenue tax, or collecting any such liability, the Secretary is authorized- (1) To examine any books, papers, records, or other data which may be relevant or material to such inquiry; (2) To summon the person liable for tax or required to perform the act, or any officer or employee of such per- son, or any person having possession, custody, or care of books of account containing entries relating to the business of the person liable for tax or required to per- form the act, or any other person the Secretary may deem proper, to appear before the Secretary at a time and place named in the summons and to produce such books, papers, records, or other data, and to give such testimony, under oath, as may be relevant or material to such inquiry; (3) To take such testimony of the person concerned, under oath, as may be relevant or material to such in- quiry.” The burden of proof is on the IRS to show that a summons “may be relevant” to a legitimate purpose for its investigation. United States v. Powell, 379 U.S. 48, 57-58 (1964). A-3 OPINION OF THE COURT 3 resisted producing its audit work programs, tax planning papers, and tax accrual audit workpapers.? The district court, after holding an evidentiary hearing, ordered Andersen to comply with all aspects of the summons.’ Motions for a stay of the court’s enforcement order were denied first by the district court and then by this court.‘ After filing its notice of appeal from the district court's order,5 Andersen complied with the summons by producing all the documents requested by the IRS. In this appeal, Andersen has challenged only that part of the order requiring the production of the tax accrual workpapers prepared in conjunction with its audit of Good Hope. Since Andersen has produced all of the documents forming the subject matter of this appeal, the controversy presented to this court appears, on its face, to be moot. See United States v. Lyons, 442 F.2d 1144 (1st Cir. 1971) (dismissing as moot an appeal by a taxpayer of an order enforcing an IRS sum- mons that had been complied with). See also Barney v. United States, 568 F.2d 116 (8th Cir. 1978); United States v. Carpenter, 425 F.2d 264 (5th Cir. 1970). Andersen seeks to avoid the preclusive effect of the mootness doctrine by invoking the “capable of repetition yet evading review” exception recog- *“Tax accrual workpapers” are produced by accountants such as Andersen in conjunction with the auditing of financial statements required for companies that file financial statements with the SEC. Part of the auditing function is to evaluate the sufficiency of the client's reserves to meet its potential tax liability. This evaluation is based in part on the accountant’s analysis of corporate records and in part on its assessment of opinions and projections communicated in confidence by the client. In reaching its conclusion, the accoun- tant considers all uncertain tax positions taken by the client and determines the extent of reserves necessary to cover the liability that would result assuming that all such questions were resolved against the client. 926 U.S.C. § 7604 provides for judicial enforcement of summonses issued pursuant to section 7602. ‘Justice Brennan, acting as circuit justice, denied a petition for a stay submitted by Good Hope. 5Orders for enforcement of IRS summonses issued pursuant to 26 U.S.C. § 7604 are final orders appealable under 28 U.S.C. § 1291. Reisman v. Caplan, 375 U.S. 440, 449 (1964). A-4 4 U.S. 0. ARTHUR ANDERSEN & COMPANY nized by the Supreme Court in Southern Pacific Terminal Co. v. ICC, 219 U.S. 498, 515 (1911). An action falls within this exception if “(1) the challenged action was in its duration too short to be fully litigated prior to its cessation or expiration, and (2) there [is] a reasonable expectation that the same com- plaining party [will] be subjected to the same action again.” Weinstein v. Bradford, 423 U.S. 147, 149 (1975).°® We are satisfied that this case meets the latter prong of the exception — that the controversy be sufficiently likely to be repeated. In May of 1979, the Chief Counsel of the IRS stated in an address to the Federal Tax Division of the American In- stitute of Certified Public Accountants that the IRS would ac- tively seek access to accountants’ workpapers in connection with its investigations and that recurring litigation over sum- monses of the type at issue in this case was likely. Andersen is one of the nation’s largest accounting firms; one or more of its clients is likely to be subjected to tax investigations in which the IRS would demand from Andersen its tax accrual workpapers for that client.’ The likelihood of recurrence here is at least as great as in other cases in which the Supreme Court has found the “capable of repetition yet evading review” ex- ception applicable. See, e.g., Gannett v. DePasquale, 47 U.S.L.W. 4902, 4904-05 (U.S. June 26, 1979) (sufficient *The government, in its motion to dismiss Andersen’s appeal, argues that our decision in United States v. Lyons, 442 F.2d 1144 (1st Cir. 1971), precludes Andersen from relying on the “capable of repetition yet evading review” exception. This reliance is misplaced. In Lyons, we found that there was no likelihood of future similar controversies between the taxpayer and the IRS. Moreover, we noted that if and when a proceeding was initiated against the tax- payer, he would have sufficient opportunity to contest the IRS sum- mons at trial. Neither of these grounds for the Lyons decision is ap- plicable in this case. 7An affidavit submitted by Andersen’s in-house counsel states that since January 1, 1975, Andersen has received fifteen summonses and two subpoenas from the IRS for production of documents including tax accrual workpapers. A-5 OPINION OF THE COURI 5 likelihood that new paper will again be enjoined from publishing aspects of criminal proceeding); United States v. New York Telephone Co., 434 U.S. 159, 165 (1977) (sufficient likelihood that telephone company will again be ordered to assist FBI in performing pen register surveillance). The basic requirement of the exception — that the question be one that will otherwise evade review — presents a more dif- ficult problem. Andersen argues that the strong policy oppos- ing delays in the enforcement of IRS summonses makes it unlikely that a district court would set a compliance date that would allow time for a prior appeal. Cf. United States v. Salter, 432 F.2d 697, 700-01 (Ist Cir. 1970) (public policy militates against permitting taxpaver to engage in discovery in proceeding for enforcement of IRS summons since delay would “jeopardize the integrity and effectiveness” of the in- vestigation). Andersen argues further that the difficulty in meeting the “likelihood of success” and “irreparable harm” re- quirements for a stay pending appeal make this an equally unavailable avenue for obtaining review of an enforcement order prior to compliance. Finally, since Andersen is not likely to be a party to any judicial proceeding arising out of Good Hope's tax deficiency, it will have no future opportunity to litigate the validity of the summons. There is, however, one remaining means for a third party to obtain appellate review of such an enforcement order: it can refuse to comply and litigate the merits of the summons as a defense to a contempt citation. In its brief opposing the government's motion to dismiss this appeal as moot, Andersen acknowledges this possibility, but argues that “a person should not be required to stand in contempt of a court order to obtain appellate review.” As support for this assertion, Andersen cites the Seventh Circuit's recent decision in In re Special April 1977 Grand Jury. 581 F.2d 589 (7th Cir.), cert. denied, 439 U.S. 1046 (1979), which permitted a post-compliance appeal from an order enforcing grand jury subpoenas. In that case the A-6 6 U.S. U. ARTHUR ANDERSEN & COMPANY court stated “the Supreme Court has not required litigants to subject themselves to contempt or criminal sanctions in order to meet this prong of the mootness test.” Id. at 591, citing Nebraska Press Association v. Stuart, 427 U.S. 539 (1976): First National Bank of Boston v. Bellotti, 435 U.S. 765 (1978). We see two difficulties with Andersen’s reliance on In re Special Grand Jury. First, the case is distinguishable in one im- portant aspect. The grand jury subpoenas at issue were directed at members of the appellant’s staff, not the appellant himself. It would be unreasonable to expect individuals with no strong interest in resisting the subpoenas to expose themselves to contempt by refusing to comply. Cf. Perlman v. United States, 247 U.S. 7 (1918) (interlocutory appeal from discovery order permitted when order directed to person other than appellant who has insufficient incentive to risk contempt). Here, in contrast, although Andersen is not the im- mediate target of the IRS investigation, it has asserted strenuously that it is damaged by the disclosure of these workpapers to the IRS. According to Andersen, its ability to obtain information from its clients necessary to perform its auditing function properly will be seriously impaired. This asserted interest provides sufficient incentive for Andersen to take all available steps to avoid disclosure. See In re Oberkoet- ter, No. 79-1580, slip op. at 6 (1st Cir. Jan. 4, 1980) (attorney would have adequate incentive to risk contempt to avoid testi- fying against his client). Second, the Supreme Court decisions cited by the Seventh Circuit in In re Special Grand Jury do not lead inevitably to the conclusion that a litigant need not incur a contempt cita- tion before meeting the “evading review” test. It is true that in Nebraska Press Association the court applied the mootness ex- ception even though the newspaper publishers who were en- joined from reporting certain facts regarding an ongoing trial could have tested the court’s order by violating it and con- testing the resulting contempt sanction. Similarly, in First A-7 ~I OPINION OF THE COURT National Bank of Boston the Court noted that the criminal penalties imposed by a Massachusetts statute prohibiting cer- tain political expenditures by banks “discourage challenge by violation”. Both of these cases, however, involved prior restraints on arguably protected speech. We believe the Court's unwillingness to require the parties in these cases to in- vite criminal sanctions in order to obtain appellate review more probably reflected the Court's traditionally disapproving view of prior restraints on speech than a broadly applicable statement on the scope of the capable of repetition yet evading review exception. Well established doctrine regarding the appealability of in- terlocutory orders suggests that the burden of incurring a con- tempt citation is not an unreasonable one to impose on a party seeking review of a question that will otherwise become moot. In United States v. Ryan, 402 U.S. 530, 533 (1971), the Supreme Court stated that interlocutory review of grand jury subpoenas was available only when denial wou!a render “any review whatsoever’, including defense to contempt, impossi- ble. See also Cobbledick v. United States. 309 U.S. 323 (1940): In re Oberkoetter, supra. Similarly, in the context of sub- poenas issued for discovery pursuant to rule 45 of the Federal Rules of Civil Procedure, the general rule is that interlocutory review of orders with regard to such subpoenas may be ob- tained only as a defense to a contempt citation. See Grinnell Corp. v. Hackett, 519 F.2d 595, 596-98 (Ist Cir. 1975): Ryan v. Commissioner, 517 F.2d 13, 18-20 (7th Cir. 1975): United States v. Fried, 386 F.2d 691, 694-95 (2d Cir. 1967): C. Wright & A. Miller, Federal Practice & Procedure § 2463 (1971). But see Covey Oil Co. v. Continental Oil Co.. 340 F.2d 993 (10th Cir.). cert. denied, 380 U.S. 964 (1965). In Grinnell Corp. we dismissed an interlocutory appeal, holding that a discovery order did not meet the requirements of an ap- pealable collateral order in part because it was not a question that would otherwise evade review. In reaching this conclu- A-8 8 U.S. U. ARTHUR ANDERSEN & COMPANY sion We notcd that appellants could have availed themselves of the “familiar procedure” of risking a contempt citation in order to obtain appellate review. 519 F.2d at 598 (citing Maness v. Meyers, 419 U.S. 449 (1975): United States v. Ryan, supra), In the case at bar, Andersen seeks review because it faces the prospect of repeated orders to produce its tax accrual workpapers for other clients. In addition, the American In- stitute of Certified Public Accountants, as amicus curiae. argues that the continued use of IRS summonses for such workpapers would have a broad detrimental impact on the ac- counting industry. We are aware that this case differs from the appealability cases noted above because the consequence of our denial of jurisdiction here is final foreclosure of Andersen's opportunity to appeal, rather than merely delay of an appeal until a final judgment has been obtained. But to the extent that the issue sought to be reviewed is of such assertedly vital importance to both Andersen and the industry, it does not seem too draconian to insist on resort to contempt in order to preserve the issue for appeal. Finally, while it is tempting to base a decision to review the merits of this case on the significance of the issue presented, as Andersen urges, neither precedent nor sound judicial policy favor such a course. See Richardson v. Ramirez, 418 U.S. 24, 36 (1974). Contrary to Andersen’s assertion, the Supreme Court's decision in Super Tire Engineering Co. v. McCorkle. 416 U.S. 115 (1974), is not applicable here. In Super Tire, the Court did note that the judiciary “must not close the door to the resolution of the important questions” presented in that case. Id. at 127. But the issue raised by appellants in Super Tire. who sought a declaratory judgment that public assistance was not available to workers engaged in an already- terminated economic strike, could not have been saved from mootness by any reasonable action on the part of the ap- pellants. Moreover, we can conceive of no principled basis for adjudicating claims that particular issues or controversies fall A-9 OPINION OF THE COURT 3) within an “importance exception” to the mootness doctrine. In conclusion, we hold that in the absence of some compell- ing circumstances that militate in favor of our deciding an otherwise moot case, the “capable of repetition yet evading review” exception is not available to a litigant aggrieved by a summons or subpoena who could have avoided mootness by refusing to comply. Because we find no such compelling cir- cumstances in this case and because we conclude that Andersen had sufficient incentive to risk contempt in order to avoid compliance with this summons, the appeal is dismissed as moot. Appeal dismissed. Adm Office CS) Courts Blanchard Press, Inc, Boston, Mas: A-10 APPENDIX B UNITED STATES DISTRICT COURT DISTRICT OF MASSACHUSETTS UNITED STATES OF AMERICA \ and FRANCIS W. MURPHY, Spe- cial Agent, Internal Revenue Service, Petitioners, v. ARTHUR ANDERSEN & oe ¥: COMPANY, ivil Action No. 78-3227-F Respondent, and GOOD HOPE INDUSTRIES, INC., Intervenor. J MEMORANDUM July 23, 1979 FREEDMAN, D.J. FACTS This action is brought pursuant to Sections 7402(b) and 7604(a) of the Internal Revenue Code of 1954, 26 U.S.C. %§ 7602(b), 7604(a), seeking judicial enforcement of an Internal Revenue summons. Petitioner Francis V. Murphy is a Special Agent of the Internal Revenue Service (IRS), who is empower- ed to issue summons under authority granted to IRS by Section A-11 7602 of the Internal Revenue Code of 1954, 26 U.S.C. § 7602. See also Treasury Regulation § 301.7602-1, 26 C.F.R. §301.7602-1; and IRS Delegation Order No. 4 (Rev. 4, August 22, 1977), 42 Fed. Reg. 42915 (1977). Respondent Arthur Andersen & Company (Arthur Andersen) is a nationally- known accounting firm with offices in both Boston, Massachu- setts and Hartford, Connecticut. Petitioner is investigating the tax liability of Good Hope Industries, Inc. (Good Hope ), intervenor herein, and its subsi- diaries, which was heretofore the subject of a two-year audit by Revenue agents covering the fiscal years ending July 31, 1973, July 31, 1974, July 31, 1975 and July 31, 1976. Respondent has provided various professional services to Good Hope for the years in question, including auditing and preparation of finan- cial statements, and tax preparation for the years ending July 31, 1973, 1974, and 1975. On November 14, 1977, Special Agent Murphy issued a summons under 26 U.S.C. § 76021 directing respondent Arthur 126 U.S.C. § 7602 provides: For the purpose of ascertaining the correctness of any return, making a return where none has been made, determining the liability of any person for any internal revenue tax ... or collecting any such liability, the Secretary or his delegate is authorized — (1) To examine any books, papers, records, or other data which may be relevant or material to such inquiry; (2) to summon the person liable for tax or required to perform the act, or any officer or employee of such person, or any person having possession, custody, or care of books of account contain- ing entries relating to the business of the person liable for tax or required to perform the act, or any other person the Secretary or his delegate may deem proper, to appear before the Secretary or his delegate at a time and place named in the summons and to produce such books, papers, records, or other data, and to give Footnote continued on next page. A-12 Andersen to appear on November 30, 1977 to testify and to produce for examination certain statements, records, and pa- pers allegedly relating to tax liabilities of Good Hope.? Re- Footnote continued from previous page. such testimony, under oath, as may be relevant or material to such inquiry; and (3) To take such testimony of the person concerned, under oath, as may be relevant or material to such inquiry. 2 The summons sought: (1) Opinions, consolidated financial statements, and accom- panying notes to the consolidated financial statements of GOOD HOPE INDUSTRIES, INC. and SUBSIDIARIES, 622 State Street, Springfield, Massachusetts for the fiscal years ending 7/31/73, 7/31/74, 7/31/75, and 7/31/76. Also, any consoli- dated financial statements with accompanying notes for any interim periods during the fiscal years ending 7/31/73, 7/31/74, 7/31/75, and 7/31/76. (2) All workpapers, analyses and/or summaries relative to the preparation and/or audit of the consolidated financial statements and accompanying notes to the consolidated financial statements of GOOD HOPE INDUSTRIES, INC. and SUBSIDIARIES for the fiscal years ending 7/31/73, 7/31/74, 7/31/75, and 7/31/76. Also, any workpapers, analyses, and/or summaries relative to any consolidated financial statements with accompanying notes for any interim periods during the fiscal years ending 7/31/73, 7/31/74, 7/31/75, and 7/31/76. (3) All workpapers, analyses, and/or summaries relative to the preparation of the Federal Consolidated Corporate Income Tax Returns of GOOD HOPE INDUSTRIES, INC. and SUBSID- IARIES, 622 State Street, Springfield, Massachusetts for the fiscal years ending 7/31/73, 7/31/74, 7/31/75, and 7/31/76. (4) Financial statements, accompanying notes to the financial statements, all workpapers, analyses, and/or summaries relative to the preparation and/or audit of the financial statements and all workpapers, analyses, and/or summaries relative to the preparation of the Federal Corporate Income Tax Returns for the fiscal years ending 7/31/73, 7/31/74, 7/31/75, and 7/31/76 pertaining to GOOD HOPE INDUSTRIES, INC. and ten subsid- iaries. Also, any financial statements with accompanying notes for any interim periods during the fiscal years ending 7/31/73, Footnote continued on next page. A-13 spondent was personally served by in-hand delivery to the managing partner of its Hartford, Connecticut office, where the bulk of the records sought are located. On that same day, Special Agent Murphy mailed notice of service of summons upon a third party record-keeper to the taxpayer, Good Hope, as required by 26 U.S.C. § 7609(b). Neither Arthur Andersen nor Good Hope have questioned service. In a timely and proper manner, Good Hope directed Arthur Andersen not to comply with the summons, temporarily staying compliance under the terms of 26 U.S.C. § 7609(b)(2). At all relevant times, Good Hope has been debtor-in-possession under a Chapter XI Bankruptcy proceeding. After intermittent attempts to negotiate mutually agreeable conditions for production of the requested material, an enforce- ment action was brought against Arthur Andersen in the District of Connecticut (Misc. Civil Action H-78-37) on November 3, 1978. Good Hope exercised its right to intervene. 26 U.S.C. § 7609(b)(1). After a hearing on December 11, 1978, and over the objection of the government, the District Court, Clarie, C.J., granted Respondent’s motion for change of venue under 28 U.S.C. § 1404. The Court noted that the corporation is a Massachusetts corporation and its principal place of business is in Massachusetts, its main conduct of that business is Massachusetts, it is in bank- ruptcy in Massachusetts, the original subpoena was issued to Springfield, Massachusetts; but notwithstanding the Footnote continued from previous page. 7/31/74, 7/31/75, and 7/31/76 and any workpapers, analyses, and/or summaries relative to the preparation of any interim financial statements with accompanying notes for the above- named corporations. (5) All correspondence including intercompany memorandums and consultation and/or management letters or memorandums relative to the GOOD HOPE INDUSTRIES, INC. or any of its subsidiaries. A-14 records, the records are temporarily, presently in Hartford, they have been ordered to be produced in Boston by the Bankruptcy Court; and the Court is of the opinion that that order is subject to review pursuant to this Court’s order by The case came before me for hearing on March 22, 1979. After hearing testimony and argument, I allowed the parties extra time to file memoranda and affidavits, whereupon I took the case under advisement. QUESTIONS PRESENTED As an initial matter, Arthur Andersen concedes its obliga- tion to produce documents in many of the requested categories, under certain circumstances. Petitioner’s Brief at 3.3 As a matter of law this is correct, for extraction of possibly in- criminating information from third party record-keepers “‘is a necessary part of the process of law enforcement and tax investigation.”” Couch v. United States, 409 U.S. 322, 329 (1972). 3 Unfortunately, the parties do not share a common terminology. Arthur Andersen categorizes its Good Hope files in this manner: 1. Audit Workpapers including: Audit Engagement Letters b. Audit Work Programs c. Financial Statements d. Audit Schedules e f. » . Tax Accrual Workpapers Audit Reports g. Miscellaneous correspondence 2. Tax Return Workpapers in-luding: a. Tax Arrangement Letters b. Tax Schedules _¢. Tax Returns (copies ) d. Correspondence 3. Tax Planning and Consultation Papers 4. Administrative Services 5. Billing and Time Sheets Petitioner’s Brief at 3. It objects to production of its Audit Work Programs, Tax Accrual Workpapers, and Tax Planning and Con- ultation papers. A-15 Good Hope and Arthur Andersen focus their objection to compliance on two grounds: 1) That existence of a bankruptcy proceeding in- volving the taxpayer makes the Bankruptcy Court the appropriate forum for determination of any tax liability; 2) That IRS is not entitled to production of all the particular documents sought on two theories: a) an accountant/client privilege, akin to the lawyer/client privilege b) relevancy, in that the challenged documents were not used in preparation of tax returns. BANKRUPTCY Intervenor Good Hope has urged that, after com- mencement of bankruptcy proceedings, jurisdiction to deter- mine tax liability passes to the Bankruptcy Court by virtue of its authority to: Hear and determine any question arising as to the amount or legality of any unpaid tax, whether or not previously assessed, which has not prior to bankruptcy been contested before and adjudicated by a judicial or administrative tribunal of competent jurisdiction. . . 11 U.S.C. § 11(a)(2A). I am not called upon to address this contention today, for the District Court’s jurisdiction is based on quite different grounds. The summons in question was issued under 9 grant of authority: {[fjor the purpose of ascertaining the correctness of any return, making a return where none has been made, determining the liability of any person for any internal revenue tax, ... or collecting any such liability. . . 26 U.S.C. § 7602. This investigative power has been repeatedly characterized as an inquisitorial power, analogous to that of a grand jury. See United States v. Matras, 487 F.2d 1271, 1274 (8th Cir. 1973) and cases cited therein. As such, IRS does not depend on a case or A-16 controversy for power to get evidence, “but can investigate merely on suspicion that the law is being violated, or even just because it wants assurance that it is not.” United States v. Powell, 379 U.S. 48, 57 (1964); see also United States v. Bisceglia, 420 U.S. 141, 146 (1974). It therefore seems clear that exercise of jurisdiction to enforce IRS summonses, under 26 U.S.C. §§ 7402(b) and 7604(a) does not necessarily intrude upon the jurisdiction of the Bankruptcy Court. The scope of allowable purposes for issuance of summonses encompasses a number of situations in which no assessment will result, as where IRS determines from the summoned materials that tax liability was correctly report- ed. Likewise, the result may be purely prospective, as where IRS seeks to determine the correctness of depreciation taken in prior years as it bears on the amount available currently. | conclude that the fact that material obtained by exercise of summons power may at some point be used in a proceeding properly before the Bankruptcy Court does not deprive this Court of jurisdiction over the issuance of such summonses.4 Intervenor next argues that Rule Il-44 of the Bankruptcy Rules of Procedure automatically stays all action against a debtor who files a Chapter XI petition.5 Courts have construed 4In an analogous situation, tolling of the statute of limitations has not been held to bar investigation for time barred years, where the information sought might be relevant to open years. United States v. Giordano, 419 F.2d 564, 568 (8th Cir. 1969), cert. denied 397 US. 1037 (1970); Dunn v. Ross, 356 F.2d 664, 666 (Sth Cir. 1966); see also United States v. Powell, 379 U.S. 48, 57 £ 1964). 5 Rule 11-44(a) provides: A petition filed under Rule 11-6 or 11-7 shall operate as a stay of the commencement or the continuation of any court or other proceed- ing against the debtor, or the enforcement of any judgment against him, or of any act or the commencement or continuation of any court proceeding to enforce any lien against his property, or of any court proceeding, except a case pending under Chapter 10 of this title, for the purpose of the rehabilitation of the debtor or the liquidation of his estate. A-17 the purpose behind Rule Il-44, and the underlying ll U.S.C. § 714, as being “to prevent possible frustration of the rehabilita- tion effort through prejudicial dismembership or the adverse disposition of assets.”” Bohack Corp. v. Borden, Inc., 450 F.Supp. 367, 374 (E.D. N.Y., 1978); see also 14, Collier on Bankruptcy, 4 11-44.02. To compel production of documents will neither interfere with, nor diminish the debtors’ property during the pendancy of the Chapter XI proceedings, Teledyne Industries Inc. v. Eon Corp., 373 F.Supp. 191, 203 (S.D. N.Y. 1974), where, as here, the documents are not in the hands of the debtor-in-possession, and will be returned to their custodian. I thus find that neither the pendancy of bankruptcy action, nor the provisions of Rule Il-44, operate to deprive this Court of jurisdiction to enforce an IRS summons. ACCESS TO PARTICULAR DOCUMENTS Good Hope and Arthur Andersen next raise objections to production of the particular documents sought. The argument is in two parts: a claim of privilege as to three classes of documents, and a claim based on United States v. Powell, 379 U.S. 48 (1964) as to all documents. Accountant/Client Privilege Good Hope takes this opportunity to urge that the Court recognize a privilege between accountant and client, akin to the privilege recognized between attorney and client. _ See Inter- venor’s Brief at 14. In support of this proposition, both Good Hope and Arthur Andersen have submitted numerous affidavits addressing the need for confidentiality between accountant and client in order that frank disclosure might be fostered, the similarity of function between accountant and lawyer in the tax field, and the similar manner in which both professions are A-18 regarded by the public. They argue that such privilege is particularly appropriate as to Audit Work Programs, Tax Accrual Workpapers and Tax Planning and Consultative Pa- pers.© While I appreciate that valid policy questions are raised by the issues presented in this case, I am not inclined to recognize an accountant/client privilege on these facts. The expansive language of Section 7602, authorizing the summo- 6 Witnesses for Arthur Andersen offered, and the government did not object to the following definitions: Audit Work Program: An audit work program is a document prepared for every audit engagement, which outlines the audit procedures that are to be applied to each of the accounts during the course of the audit. * * * Each person performing one of those audit procedures is supposed to sign the program with his initials that they have completed it. Transcript at 100. Tax Accrual Workpapers: The tax accrual workpapers would consist of two or three basic documents. One would be a summary analysis of the transactions requested in the company’s general ledger with respect to its income tax accounts. This analysis would show the amounts provided in the financial statements for the taxes for that year. It would show dates of payments and any other miscellaneous adjustments which might affect the balance of the accrual at the end of the year. It would also include a computation of the tax provision for the current year, whether or not the tax is payable in that year. A third major category of papers would be a memorandum discussing any items reflected in the financial statements as an income or any expense where the ultimate tax treatment is unclear. The memorandum would discuss each of these items with the objective of making a determination as to whether a tax provision should be made to cover the tax on that item either at the date of filing the return or the date of examination. Transcript at 101-102. Tax Planning Memorandum: It would contain essentially the observations and conclusions that the tax partner or tax personnel might have regarding the tax posture of the client. It would contain suggestions, let’s say, for programs of tax minimization. It might contain observations about transactions that had already been com- pleted with ideas as to what the exposures might be and as to what alternative positions might be taken. Transcript at 115. A-19 ning of “any person” for the taking of testimony and exam- ination of ‘books, papers, records, or other data,” invites liberal construction. Settled principles of statutory construction teach that we should be very hesitant to exempt a significant group from the broad sweep of § 7602, absent unambiguous direc- tions from Congress. United States v. Bisceglia, 420 U.S. 141, 150 (1974). Applying this principle to the case at hand, and noting that the Supreme Court has explicitly stated “that no confidential accountant/client privilege exists under federal law...,"” Couch v. United States, 409 U.S. 322, 335 (1972), I see no grounds for establishing an accountant/client privilege as to the Audit Work Programs, Tax Accrual Workpapers, and Tax Planning and Consultation Papers, or any other documents enumerated in the summons. Right to Documents Requested Arthur Andersen and Good Hope also argue that even if the material summoned is not inherently privileged, it is nonetheless unavailable to the government on the facts of this case. I note initially that IRS lacks inherent authority to summon production of private papers, being limited to the exercise of authority granted to it by Congress. United States v. LaSalle National Bank, 437 U.S. 298, 317 (fn. 18) (1978). I note further than an IRS summons can be enforced only by the courts. 26 U.S.C. §§ 7402(b), 7604(b); see United States v. Bisceglia, 420 U.S. 141, 146 (1975). When a summons is challenged, the court is required to scrutinize it “to determine whether it seeks information relevant to a legitimate in- vestigative purpose.”’ United States v. Bisceglia, supra at 146. In conducting such scrutiny, the touchstone is a set of standards first enunciated by the Supreme Court in United States v. Powell, 379 U.S. 48 (1964). The Court there identified four conditions to be satisfied before a § 7602 summons would be enforced: A-20 (1) That the investigation will be conducted pursuant to a legitimate purpose, (2) that the inquiry may be relevant to the purpose, (3) that the information sought is not alieady within the Commissioner’s possession, and (4) that the administrative steps required by the Code have been followed Powell, supra at 57-58. , (1) A “legitimate purpose,” as used in Powell, requires that the production not be sought in furtherance of a purely criminal investigation. See e.g. Donaldson v. United States, 400 U.S. 517, 533 (1970); accord United States v. LaSalle National Bank, supra at 306-07. The summons power of § 7602 is not available to broaden the scope of criminal discovery. United States v. LaSalle National Bank, supra at 312. Respondent has sought to establish a general intent on the part of IRS to conduct such a criminal investigation. Transcript at 50-52. By its very nature, a tax investigation may raise questions of both criminal and civil liability. See e.g. United States v. LaSalle National Bank, supra at 309; United States v. Crespo, 280 F.Supp. 928, 935 (D.Md. 1968). Recognizing this, the Supreme Court has refused to draw a line barring the use of summons power merely because a Special Agent has entered the case. Donaldson vy. United States, supra at 535. The Supreme Court has formulated a two-pronged test to determine the legitimacy of the summons, and has placed the burden on those opposing the enforcement of the summons “to disprove to the actual existence of a valid civil tax determina- tion or collection purpose by the Service.”” United States v. LaSalle National Bank, supra at 316. The Court in LaSalle established, first, that “the summons must be issued before the Service recommends to the Depart- ment of Justice that a criminal prosecution which would A-21 reasonably relate to the subject matter of the summons, but undertaken.” Id. at 318. Through affidavit in support of the Petition for Enforcement, and through testimony before me, (Transcript at 45), Special Agent Murphy has represented that from the time of issuance of the summons to the time of the hearing, no recommendation for criminal prosecution has been made to the Department of Justice. Arthur Andersen and Good Hope do not deny these representations. The second element of the LaSalle test requires that “the Service at all time must use the summons authority in good- faith pursuit of the Congressionally authorized purposes of §7602....‘ Id. at 318. This determination is to be made by reference to the institutional posture of the Service. Id. at 316. Arthur Andersen and Good Hope have sought to establish bad faith by pointing again to the Chapter XI Bankruptcy proceed- ings. They argue that filing of proof of claim in the Chapter XI Bankruptcy proceeding in April 1978, after issuance of the summons, terminated the civil element of the proceedings. They therefore suggest that enforcement could only be in furtherance of solely criminal proceedings. However, as noted above, I find that the jurisdiction of the Bankruptcy Court to determine “any question arising as to the amount or legality of any unpaid tax” 11 U.S.C. §11(a)(2A) neither necessary conflicts with, nor bars, the power of IRS to summon for “the purpose of ascertaining the correctness of any return, making a return where none has been made, [and] determining the liability of any person for any internal revenue tax... .” 26 U.S.C. §7602. Consequently, I hold that the summoned document may be pertinent with respect to adjustment of the claims already filed, and with respect to new claims for the year 1976.7 7The government asserts that the proofs of claim filed in bankruptcy for the years 1973, 1974 and 1975, and subsequent to the Footnote continued on next page. A-22 Therefore, on the basis of Special Agent Murphy’s affida- vit that the material sought is necessary for the determination of the federal tax liabilities of Good Hope for the years in question, I hold that there has been a sufficient showing that the subpoena was issued pursuant to a legitimate purpose. See e.g. United States v. Marine Midland Bank, 585 F.2d 36, 38 (2d Cir. 1978). (2) Respondent’s strongest argument rests upon the sec- ond prong of Powel/—the requirement of relevancy. As an initial matter, I do not understand the respondent to resist on relevancy grounds production of material actually employed in determination of income and in tax preparation. Respondent’s Brief at 9. However, they strenuously urge that Audit Work Programs, Tax Accrual Workpapers, and Tax Planning and Consulting Papers fall into a different category and are not relevant. Respondent’s Brief at 10. The gist of their argument is that such materials are not “factual,” in that they do not form a basis for preparation of tax returns. Respondent’s Brief at 6- 29. In reliance upon United States v. Coopers & Lybrand, 413 F.Supp. 942 (D. Colo.), aff'd 550 F.2d 615 (10th Cir. 1977), respondents consequently argue that the government has failed to establish the relevance of the contested documents to its investigation. I am not inclined to adopt the reasoning of Coopers & Lybrand. I rely upon a close reading of §7602 to determine that the summoned documents are both relevant and reachable. In furtherance of a legitimate purpose, there is authority to summon “any... person... to produce such books, papers, records and other data as may be relevant or material to such inquiry.” 26 U.S.C. §7602(2). This expansive language invites, Footnote continued from previous page. issuance of the summons, were intended to permit the commissioner to make timely assessments before the running of the statute of limitations for assessments. Petitioner’s Post-Hearing Memorandum at 3. With respect to this, I note that the Supreme Court has recognized that “the right to and obligation of the parties became fixed when the summons was issued... . ” Couch v. United States, 409 U.S. 322, 329 n.9. A-23 and has generally been accorded, a liberal construction. United States v. Bisceglia, supra at 149; see also United States v. Continental Bank & Trust, 503 F.2d 45, 50 (10th Cir. 1974); United States v. Humble Oil & Refining Co., 488 F.2d 953, 958, and cases cited at 958, n. 11 therein (Sth Cir. 1974) vacated 421 U.S. 943 (1975). It is true that some of the cases cited to me by respondents have made use in tax preparation the touchstone of relevancy. See United States v. Smith, 373 F. Supp. 14 (1974); United States v. Coopers & Lybrand, supra. Nevertheless, I do not find that such a result is compelled by the statutory language. The commonly articulated interpretation of “may be rele- vant” turns upon “whether the inspection sought might have thrown light upon the correctness of the taxpayer’s return.” Foster v. United States, 265 F.2d 183, 187 (2d Cir. 1959), cert. denied, 360 U.S. 912 (1960); see also United States v. Harring- ton, 388 F.2d 520, 523 (2d Cir. 1968); United States v. Matras, 487 F.2d 1271, 1274 (8th Cir. 1973); United States v. Noall, 587 F.2d 123, 125 (2d Cir. 1978) (appeal pending). Subsequent cases have reflected a refinement of “might” ex- pressed in terms of whether there is, in the particular circum- stance, ‘an indication of a realistic expectation rather than an idle hope that something may be discovered” United States v. Harrington, supra, at 524; accord United States v. Matras, supra at 1274. The summons was prepared by Special Agent Murphy in cooperation with another Special Agent and two Revenue agents. The Revenue agents had been conducting an examination of Good Hope books and records for some time before Special Agent Murphy entered the case. Transcript at 39, 65-66. I find that the collective familiarity of the agents involved in the joint investigation as to Good Hope records will suffice to establish a “realistic expectation” of relevancy. It is clear that expection need not rise to the level of probable cause in order to justify examination. United States v. Powell, supra at 51; United States v. Acker, 325 F.Supp. 857, 862 (S.D.N.Y. A-24 1971). Special Agent Murphy does not, nor does he need to guarantee relevance in fact in order to satisfy the requirement that the summoned documents “may be relevant.” See United States v. Acker, supra. Respondents have urged, on the authority of United States v. Matras, supra, that relevancy “connotes and encompasses more than ‘convenience’.” Jd. at 1275. While this may be true, Matras is readily distinguished from the case at hand. In Matras, IRS sought budget proposals as a “roadmap”’ for their investigation; the court properly noted that it was not the proposals but the actual budgets as implemented that had tax consequences. Where, as here, procedures and systems of analysis were applied directly to actual transactions, they are clearly more than “convenient” or a “roadmap” for the joint investigation. Indeed, such evidence of knowledge or potential discrepancies appears to go directly to the heart of determining whether there has been civil or criminal fraud.® There is, in fact, broad support for the position that relevancy does not turn on whether the summoned material was used in preparing tax returns. See e.g. United States v. Noall, supra (audit reports and related workpapers) United States v. Shlom, 420 F.2d 263 (2d Cir. 1969 cert. denied 397 U.S. 1074 (1970) (record of receipts, kept for sales monitoring purposes ); United States v. Acker, supra (full minutes of board meetings ). I am of the opinion that the results in this set of cases better reflect a liberal interpretation of §7602. The decision in Noall is instructive on this point. The Court there initially emphasized that the statutory language is “may be relevant,” denoting a law threshold of relevancy. United States v. Noall, supra at 125. In the final analysis, the determination of relevancy in fact 8In the course of testimony, a witness for Arthur Andersen conceded that the three contested categories of documents might indeed contain factual discussion of the taxpayer’s status. Transcript at 112. Inasmuch as the witness was not personally familiar with the Good Hope files, I do not rely upon this admission in reaching my decision. A-25 must be deferred until the documents are produced and analyzed. While the audit reports found relevant in Noall/ are not at issue here, the underlying rationale for ordering produc- tion is particularly persuasive. As expressed by that Court, the “Commissioner’s interest lies in whether the tax returns cor- rectly reflected ... . income, not simply whether there were correctly prepared from the books of accounts and other records used.” United States v. Noall, supra at 126. On the facts of this case I am satisfied that the information sought ‘“‘may be” relevant to the investigation, and that Powell is satisfied. (3) The third prong of Powell requires that the material sought not already be in the possession of IRS. As to the Audit Work Programs, Tax Accrual Workpapers, and Tax Planning and Consulting Papers, IRS clearly does not already have possession. As to the balance of the summoned materials, Good Hope argues that over the course of the two-year IRS audit, the Service acquired possession of “the information contained in the summonsed documents’ Intervenor’s Brief at 17. However, I am persuaded that Good Hope misstates the relevant standard. Section 7602 refers in clear terms to “books, papers, records or other data,” and not to copies thereof. The Service is entitled to verify the accuracy of the questioned returns by reference to the original material, and does not have to prove error or tampering before it may have the originals. See United States v. Davey, 543 F.2d 996, 1001 (2d Cir. 1976). I do not understand Arthur Andersen and Good Hope to argue that IRS holds any significant part of the 55 linear feet of Good Hope records in Arthur Andersen’s Hartford office alone. Special Agent Murphy estimates that IRS holds only three or four file binders containing copies of original records—many of which are illegible. Transcript at 68. Consequently, I hold that ®In support of their position, Good Hope notes that IRS prepared a 557-page report summarizing the results of the audit. A-26 production of the summoned documents will not violate the third prong of Powell. (4) Arthur Andersen and Good Hope do not seriously argue that IRS has violated the fourth prong of Powell. Good Hope does not argue that IRS has gone beyond the usual procedure suggested by §§4024 et. seg. of the IRS manual, (Intervenor’s Brief at 15), but the test is clearly whether the IRS has followed the administrative steps required by the Code. United States v. Powell, supra at 57. MISCELLANEOUS ISSUES Good Hope alleges that the breadth of the summons constitutes an unreasonable search and seizure within the meaning of the Fourth Amendment. Intervenor’s Brief at 17. The mere fact that the summons encompasses a large volume of relevant materials does not render it unreasonable. The applicable files are clearly identified. I will not bar discovery on these grounds. Both Arthur Andersen and Good Hope offer what seems to be a Fifth Amendment objection to the taking of their property by summons. Good Hope’s claim that the government should share part of the original cost of preparing the documents (some $2,000,000) before it may examine them is patently frivolous, and I reject it. Arthur Andersen additionally claims, through counsel, that the estimated cost of compliance is in excess of $125,000. Transcript at 31. While that sum is large, there is no evidence that it is unreasonable in the course of Arthur Andersen’s business. Moreover, as an incident of Arthur Andersen’s duty to cooperate with a lawful summons there is a concommitant duty to “shoulder the financial burden of cooper- ation.”” United States v. Dauphin Deposit Trust Co., 385 F.2d 129, 130 (3d Cir. 1967) cert. denied 390 U.S. 921 (1968); see also United States v. Continental Bank & Trust Co., 503 F.2d 45, 48 and cases cited therein (10th Cir. 1974). On the facts, I do not find that the cost to Arthur Andersen “exceeds that A-27 which respondent may reasonably be expected to bear as a cost of doing business,” see United States v. Freidman, 532 F.2d 928, 938 (3d Cir. 1976), absent a showing that the same material could be produced in a significantly less expensive manner. See United States v. Friedman, supra; United States v. Dauphin Deposit Trust Co., supra. Arthur Andersen further argues that some of the files are the subject of continuing work, ( Respondent’s Brief at 30), and that those ordered to be produced should be examined in Hartford. Absent a showing of what percentage of files are currently active, respondent has not established that it would be unduly onerous to copy such files and make the originals available to IRS. Similarly, there has been no showing that production of the docufnents will work a hardship on the bankruptcy proceedings. I, therefore, reject this argument. During the course of this litigaton, Good Hope secured an order directing certain IRS agents involved in this investigation to appear for depositions with certain documents. The govern- ment seeks an order enjoining such discovery. Had Good Hope initially sought discovery in the course of this enforcement proceeding, it would have first been required to present evi- dence showing that enforcement of the summons would con- stitute an abuse of the District Court’s process. On the basis of the evidence presented, and of Special Agent Murphy’s testi- mony, I would have found no such showing. Consequently, on the authority of United States v. Salter, 432 F.2d 697 (1st Cir. 1970), I would have denied Good Hope discovery as against IRS. The government alleges that Good Hope has sought to circumvent this Court to improperly secure a discovery order from the Bankruptcy Court. On the facts presently before me, I am unable to conclude that the discovery order is irrelevant to any legitimate purpose of the Bankruptcy Court, and so I decline to interfere with that Court’s jurisdiction. Petitioner’s motion for an Order enjoining Discovery is denied. A-28 CONCLUSION For the above stated reasons, the Petition to Enforce Internal Revenue Summons is allowed, and the summons shall be enforced according to its original terms. Petitioner’s Motion for Order Enjoining Discovery is denied without prejudice. An appropriate order will issue. United States District Judge A-29 APPENDIX C United States Court of Appeals For the First Circuit No. 79-1405 UNITED STATES OF AMERICA, et al., PETITIONERS, APPELLEES, v. ARTHUR ANDERSEN & CO., RESPONDENT, APPELLEE, ' and GOOD HOPE INDUSTRIES, INC., INTERVENOR, APPELLANT. APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF MASSACHUSETTS [Hon. Frank H. Freepman, U.S. District Judge] Before Corrin, Chief Judge, CAMPBELL and Bownes, Circuit Judges. Chester M. Howe, John M. Conley, and Gaston Snow & Ely Bartlett on brief for appellant. M. Carr Ferguson, Assistant Attorney General. Edward F. Harr- ington, United States Attorney, Gilbert E. Andrews, Robert E. Lindsay, and Carlton D. Powell, Attorneys, Tax Division, Depart- ment of Justice, on brief for The United States of America and Fran- cis V. Murphy, appellees. June 16, 1980 Corrin, Chief Judge. This is an appeal arising out of an ef- fort by petitioner Internal Revenue Service to enforce a sum- mons under 26 U.S.C. § 7602. The summons, issued in the course of a tax investigation of intervenor Good Hope In- dustries, Inc., ordered Good Hope's accounting firm, respon- dent Arthur Andersen & Co., to produce certain “tax accrual workpapers™' and to testify concerning them. Both intervenor ' For discussion of the nature of tax accrual workpapers, see United States v. Arthur Andersen © Co., No. 79-1411, slip op. at 3 n. 2 (Ist Cir. Mar. 31, 1980). A-30 2 U.S. U. ARTHUR ANDERSEN & CO. and respondent appealed from a district court judgment allowing the petition to enforce summons. After failing to ob- tain a stay of enforcement pending appeal from the district court, ourselves, and the Circuit Justice, Andersen complied with the summons. Because all of the contested workpapers had been produced, we dismissed Andersen's appeal as moot. United States v. Arthur Andersen & Co., No. 79-1411 (1st Cir. Mar. 31, 1980). This appeal by Good Hope escaped mootness by reason of preserving the question whether that part of the summons as yet unexecuted, commanding Andersen’s testimony concerning the tax accrual workpapers, should have been enforced. Good Hope raises four issues. The first, and most intricately woven, contention requires that one additional set of facts be noted. At the time the summons was issued, November 14, 1977, Good Hope was operating as a debtor-in-possession under Chapter XI of the Bankruptcy Act. Subsequently, in the spring of 1978, the IRS assessed taxes, penalties and interest against Good Hope and its subsidiaries and filed a proof of claim for the taxes (excluding penalties and interest) in the district court. The adjudication of these taxes is now before the bankruptcy court. Good Hope argues that IRS, at the time the summons was issued, had lost all its section 7602 summonsing power and that the government, now capable of acting only through the Department of Justice, is confined in_ its discovery efforts to procedures under the Bankruptcy Rules. IRS may remain, according to Good Hope, only “an in- terested observer in the Bankruptcy proceeding”. The fabric of the argument consists of the following strands: (1) Under 11 U.S.C. § 1l(a)(2A), the bankruptcy court had the power to “determine any question arising as to the amount or legality of any unpaid tax, whether or not previously as- sessed”. (2) Under 26 U.S.C. § 7122, when a matter is refer- red to the Department of Justice for prosecution or defense, A-31 OPINION OF THE COURT 3 as were the claims for Good Hope’s taxes here, only the At- torney General or his delegate may compromise any such case. (3) 26 U.S.C. § 6871(a), providing for immediat» assessment upon adjudication of bankruptcy, entirely supercedes normal IRS assessment procedures; IRS, having exercised its assess- ment authority,? has lost any power to make further assessments. (4) Since the Department of Justice has available all the discovery procedures of Part VII of the Rules of Bankruptcy Procedure, it may not supplement them by using § 7602, since to do so would subject Good Hope to “un- necessary examination” in violation of 26 U.S.C. § 7605(b). Interestingly enough, perhaps significantly, Good Hope has been unable to locate any cases dealing with the authority or lack of authority of IRS to enforce a section 7602 summons after the taxpayer is within bankruptcy court jurisdiction. We note the comprehensive scope and unambiguous tone of sec- tion 7602° and conclude that its reach and strength are not 2 The fact that an assessment has been made does not, of course, bar a supplemental assessment if a prior one is “imperfect or in- complete”. 26 U.S.C. § 6204. > 26 U.S.C. § 7602 provides: “For the purpose of ascertaining the corectness of any return, making a return where none has been made, determining the liabili- ty of any person for any internal revenue tax or the liability of law or in equity of any transferee if fiduciary at any person in respect of any internal revenue tax, or collecting any such liability, the Secretary or his delegate is authorized- (1) To examine any books, papers, records, or other data which may be relevent or material to such inquiry; (2) Tosummon the person liable for tax or required to perform the act, or any officer or employee of such person, or any per- son having possession, custody, or care of books of account containing entries relating to the business of the person liable for tax or required to perform the act, or any other person the Secretary or his delegate may deem proper, to appear before the Secretary or his delegate at a time and place named in the summons and to produce such books, papers, records, or other data, and to give such testimony, under oath, as may be rele- vent or material to such inquiry; and A-32 4 U.S. U. ARTHUR ANDERSEN & CO. lightly to be reduced. In the absence of any direct limitation in the statutory language, we look for such an obvious conflict between the exercise of authority under section 7602 by IRS, under 11 U.S.C. § (11)(a)(2A) and 26 U.S.C. § 6871(a) by the bankruptcy court, and under 26 U.S.C. § 7122 by the Depart- ment of Justice as to compel a limiting interpretation of section 7602. . As far as the authority of the bankruptcy court to “deter- mine” tax questions is concerned, the authorities cited by Good Hope, such as Sharpe v. Commissioner, 69 T.C. 19 (1977), and Tatum v. Commissioner, 69 T.C. 81 (1977), mere- ly recognize a lack of jurisdiction in the Tax Court to decide tax questions when a petition in bankruptcy preceded the fil- ing of a petition for redetermination of deficiencies in the Tax Court. Such jurisdictional: holdings say nothing about the power of the IRS to continue an investigation preparatory to the making of an assessment by the Commissioner of Internal Revenue. In fact, assessments were made in both Sharpe and Tatum after the filing of petitions in the bankruptcy court.‘ Similarly, we find no basis for inferring that because only the Attorney General may compromise a case that has been referred to the Department of Justice, such as referral ter- (3) To take such testimony of t [Text truncated at 120,000 characters. The full text is on the page linked above.] --- Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385007_0330%3A1. Public record. Not legal advice.