In a recent opinion in a summons enforcement case, United States v. Shadley 2010 U.S. Dist. LEXIS 81651 (ND CA 2010), the Court held that the witness need not produce checkbook deposit slips for a bank account that the IRS knew about and even already had obtained the bank's records. Thus, the IRS certainly knew of the existence of a bank account, that the witness had made deposits into the account, and that the bank would have given the defendant a stamped deposit slip in normal course of accepting the deposits reflected on the deposit slips. Yet the Court held that the witness had a Fifth Amendment privilege because the act of production was testimonial and the Government had not shown that existence and possession of the deposit slips that the witness surely received was a foregone conclusion.
If Shadley is correctly decided, it is hard to imagine a case where the taxpayer cannot assert the privilege, thus turning the act of production doctrine into a Fifth Amendment privilege for the contents of the documents. So, let's explore a bit more about what level of knowledge is required for the Government to have sufficient knowledge for the foregone conclusion that precludes the assertion of the Fifth Amendment.
In United States v. Norwood, 420 F.3d 888 (8th Cir. 2005). the IRS had instituted a much heralded initiative to discover foreign bank accounts by issuing John Doe summonses to credit card processing agencies within the United States who would have records of processed charges for foreign bank accounts. From those records, the IRS obtained evidence that a particular taxpayer, the taxpayer- defendant in this summons enforcement proceeding had a foreign credit card, The IRS issued the summons for the taxpayer's bank and credit card records and related documents. The taxpayer appeared pursuant to the summons and asserted privileges. The Government then brought the summons enforcement proceeding and requested that the Court also issue an order requiring compliance with a consent directive directing the offshore bank to disclose information to the IRS. In the affidavit in support of the summons, the IRS Agent recounted the following evidence : (i) the taxpayer had a foreign bank account with two associated credit cards; (ii) the bank account number for that account; and (iii) the taxpayer had answered no to the foreign bank account question on Schedule B of his 1040.
One of the taxpayer’s defenses to compliance was the Hubbell defense. The district court and the court of appeals rejected the defense on the basis that the information the IRS already had made the existence of the foreign bank account virtually a “foregone conclusion,” sufficient to meet Hubbell’s requirements. The court of appeals reasoned:
The existence of the requested records relating to Norwood's [foreign bank credit] cards and [related foreign bank] account is a foregone conclusion. The summons seeks records such as account applications, periodic account statements, and charge receipts, all of which are possessed by the owners of financial accounts as a matter of course. Norwood does not contend that he does not possess any of these documents, and the government knows far more about the documents associated with Norwood's [foreign bank] cards and account than it did about the defendant's business records in Hubbell. 530 U.S. at 44. In Hubbell, the government could not show "any prior knowledge of either the existence or whereabouts” of the documents sought. Id. (emphasis added). Here, by contrast, the government knows the name and location of the bank that created the records sought, Norwood's payment card numbers, and even the details of a number of discrete transactions involving the cards and his [foreign bank] account. Accordingly, the district court's conclusion that “Norwood's production of the records has no testimonial significance,” is not clearly erroneous.United States v. Ponds, 454 F.3d 313 (D.C. Cir. 2006) addressed some of the issues left open by Hubbell in holding that the Fifth Amendment was implicated in a compelled document production. Focusing on the spectrum usually encountered between the frames of the two cases – Fisher where the documents were reasonably known to exist (no Fifth Amendment privilege) and Hubble where the Government was just fishing (Fifth Amendment privilege) – the court said (pp. 320-321):
Although the Supreme Court did not adopt the “reasonable particularity” standard in affirming our decision, it emphasized that the applicability of the Fifth Amendment turns on the level of the government's prior knowledge of the existence and location of the produced documents. See Hubbell, 530 U.S. at 44-45. Post-Hubbell, another circuit has applied the reasonable particularity standard to determine whether an act of production is sufficiently testimonial to implicate the Fifth Amendment. See In re Grand Jury Subpoena Dated April 18, 2003, 383 F.3d 905, 910 (9th Cir. 2004). Because that standard conceptualizes the Supreme Court's focus in a useful way, so do we.The Ponds court found that, under the facts, the prosecutors did not have the required particularity of knowledge as to some of the documents and, accordingly, that Ponds had a Fifth Amendment right to not produce the documents. As is sometimes the case where the subpoenaed party properly asserts a Fifth Amendment privilege, the prosecutors in Ponds obtained an immunity order and, as in Hubbell, the immunity order is ultimately what propelled the issue forward when the taxpayer claimed, in effect, that, because his Fifth Amendment privilege was implicated, the prosecutors used the “testimony” thus compelled in a way not permitted by the grant of immunity.
Now, back to Shadley, the question as to an, if not the, appropriate standard -- the reasonable particularity standard -- appears close to the standard for search warrants. Thus, if you framed the question as to whether the Government had sufficient evidence to seek and sustain a search warrant for the deposit slips, then there would be no Fifth Amendment privilege. It seems to me that the combination of the Norwood analysis and Ponds suggests that Shadley was improperly decided.
Nevertheless, Shadley does suggest in this genre of context that it is not a foregone conclusion that a district court will enforce the summons so a taxpayer with documents too risky to disclose voluntarily would be well advised to assert the act of production doctrine and put the IRS to its proof in an enforcement proceeding. There should be no downside to doing so, and the taxpayer may prevail.