Overriding Attorney-Client Privilege in Tax Evasion Cases: Analysis of IN RE GRAND JURY INVESTIGATION, Appeal of Glen J. Schroeder, Jr.

Introduction

The case of IN RE GRAND JURY INVESTIGATION. Appeal of Glen J. Schroeder, Jr. (842 F.2d 1223) adjudicated by the United States Court of Appeals for the Eleventh Circuit on May 20, 1987, addresses critical issues surrounding the attorney-client privilege within the context of a grand jury investigation into tax evasion. Glen J. Schroeder, Jr., was under investigation for alleged tax evasion, with his attorney, Todd Kliston, both an accountant and a lawyer, entangled in the legal proceedings. The central dispute revolved around whether Kliston could refuse to testify and withhold documents based on attorney-client privilege and the attorney work product doctrine. This commentary delves into the court's decision, its reasoning, the precedents cited, and the broader implications for the legal landscape.

Summary of the Judgment

The Eleventh Circuit Court affirmed the district court's order compelling testimony from Todd Kliston, the attorney and accountant who prepared Schroeder's income tax returns. Schroeder sought to invoke attorney-client privilege and the attorney work product doctrine to prevent Kliston from disclosing certain information. However, the court ruled that while Kliston was not required to answer questions about legal advice unrelated to tax preparation, he must comply with inquiries related to the preparation of tax returns and the sources of Schroeder's income. The court further held that any legal assistance provided by Kliston in generating or disposing of unreported income fell under the crime-fraud exception, thereby overriding the privileges claimed by Schroeder.

Analysis

Precedents Cited

The judgment extensively references prior cases to establish the boundaries of attorney-client privilege and its exceptions. Notable among these are:

• UNITED STATES v. WHITE (5th Cir. 1980) and UNITED STATES v. KELLY (5th Cir. 1978): These cases clarify that the attorney-client privilege applies only to communications made for the purpose of seeking legal advice.
• UNITED STATES v. LAWLESS (7th Cir. 1983) and UNITED STATES v. DAVIS (5th Cir. 1981): These decisions establish that the preparation of tax returns does not inherently constitute legal advice protected by attorney-client privilege.
• COUCH v. UNITED STATES (1973): Confirms the absence of an accountant-client privilege under federal law, reinforcing that only attorney-client communications are protected.
• IN RE SEALED CASE (D.C. Cir. 1985) and In re International Systems and Controls Corporation Securities Litigation (5th Cir. 1982): These cases outline the two-part test for the crime-fraud exception, determining when privileged communications can be disclosed if used to further a crime or fraud.
• ALEXANDER v. UNITED STATES (1891): Discussed regarding the scope of the crime-fraud exception, although later cases have treated its applicability with caution.

These precedents collectively informed the court's stance that the attorney-client privilege does not extend to communications intended to further a crime, such as tax evasion.

Legal Reasoning

The court's legal reasoning centered on the application of the crime-fraud exception to the attorney-client privilege. This exception permits the disclosure of privileged information if it is used to facilitate ongoing or planned criminal activity. The court applied a two-pronged test:

• Prima Facie Showing: There must be initial evidence suggesting the client is engaged or planning to engage in criminal or fraudulent activities.
• Relatedness: The privileged communication must be closely related to the criminal or fraudulent activity.

In Schroeder's case, the court found sufficient evidence of tax evasion through disproportionate cash flows and asset purchases inconsistent with reported income. Additionally, any legal advice provided by Kliston that facilitated the generation or disposal of unreported income was deemed related to the criminal activity, thus nullifying the claimed privileges under the crime-fraud exception.

Impact

This judgment has significant implications for the interplay between attorney-client privilege and law enforcement investigations, particularly in financial crimes such as tax evasion. It underscores that legal protections cannot shield clients from prosecution if the legal advice is intertwined with illicit activities. Consequently, attorneys must exercise heightened diligence to avoid facilitating or becoming complicit in their clients' criminal conduct. Moreover, the decision reinforces the authority of grand juries to compel testimony and document production, even against established privileges, thereby broadening the scope of investigative powers in complex financial misconduct cases.

Complex Concepts Simplified

Attorney-Client Privilege: A legal principle that protects communications between a lawyer and their client from being disclosed without the client's consent, ensuring open and honest communication.

Crime-Fraud Exception: An exception to the attorney-client privilege that allows for the disclosure of privileged information if it was used to commit or plan a crime or fraud.

In Camera Review: A private examination of evidence by a judge to determine its admissibility, without it being disclosed to the public or the opposing party.

Grand Jury Subpoena: A legal order requiring a person to testify or produce evidence before a grand jury, which is responsible for determining whether there is enough evidence to indict someone for a crime.

Conclusion