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Court Clarifies Limitations of Fifth Amendment “Foregone Conclusion” Doctrine in Tax Enforcement Action

In United States of America, 26 U.S.C. Sections 7402(b) and 7604(a): Enforcement of Internal Revenue Service Summons v. Greenfield, 15-543 (August 1, 2016) (Calabresi, Lynch, Lohier), the Court addressed the “foregone conclusion” exception to the Fifth Amendment privilege in the context of an action to enforce an IRS summons for various documents relating to an audit for tax evasion.  The district court (Judge Hellerstein, SDNY) ordered the enforcement of the summons, and denied Greenfield’s motion to quash on Fifth Amendment self-incrimination grounds.  The Court vacated the enforcement order and remanded for further proceedings. 

According to the Court, the government failed to show that the requested documents were “non-testimonial” under the “foregone conclusion” doctrine set out in Fisher v. United States, 425 U.S. 391 (1976).  In doing so, the Court set a demanding standard for what the Government must “know” (and not merely “infer”), as of the time a summons is issued, to establish that the compelled production of documents will not violate the Fifth Amendment.  Cases involving the act of production doctrine are infrequent in part because subpoenas are resolved through compromise, and so it is useful for the Court to issue decisions like this one marking out the perimeters of the doctrine.

The Fifth Amendment privilege against self-incrimination applies to communications that are “testimonial, incriminating, and compelled.”  Hiibel v. Sixth Judicial Dist. Court of Nev., Humboldt Cty., 542 U.S. 177, 189 (2004).  The Fifth Amendment cannot be invoked to block the production of documents in one’s possession on the sole basis that the documents are substantively incriminating.  However, the recipient of a subpoena may seek to withhold subpoenaed documents on Fifth Amendment grounds if the production itself would serve as an implicit admission of certain facts concerning the nature and status of the documents at issue.

In Fisher, the Supreme Court recognized that the privilege against self-incrimination applies to the compelled production of documents in response to an IRS subpoena in instances where the production itself would tacitly admit (a) the documents’ existence, (b) the possession or control by the taxpayer, and (c) the taxpayer’s belief as to their authenticity.  However, if the existence, possession, and authenticity of the documents are already a “foregone conclusion,” the compelled disclosure does not violate the Fifth Amendment.

Here, the IRS sought to compel Greenfield to produce an array of documents including records of domestic and foreign bank accounts, legal entities owned or controlled by Greenfield, and professional financial services and advice provided to Greenfield.  The June 2013-issued summons sought records as far back as 2001, and related to an audit of the 2005 and 2006 tax years.  (The documents therefore fell outside of the five-year period during which such documents must be maintained pursuant to the Bank Secrecy Act.)

According the Court, “the critical issue in determining whether the act of producing the documents would violate Greenfield’s right against self-incrimination is whether the Government can prove that it is a foregone conclusion that the documents existed, were in Greenfield’s control, and could be authenticated by the Government independent of Greenfield’s production of them when the subpoena was issued in 2013.”  (Emphasis added.)

The Court explained that the Government must establish its knowledge of the existence, control, and authenticity of the compelled documents with “reasonable particularity.”  While this standard does not require “perfect knowledge of each specific responsive document,” the Government “must know, and not merely infer” that the documents exist and are in the control of the compelled party.

Addressing each category of documents in the summons, the Court held that the Government met its burden to establish its knowledge of certain documents’ existence and control by Greenfield as of when those documents were first created, as far back as 2001.  This was not sufficient to overcome Greenfield’s Fifth Amendment challenge, however, since the documents’ continued existence and possession by Greenfield through 2013 could also be incriminatory in certain respects.  In particular, Greenfield’s possession and control of certain documents through 2013 could demonstrate his personal knowledge of the tax evasion scheme and his continued management of certain offshore entities following the 2009 death of Greenfield’s father—who founded the family business, and who Greenfield might otherwise assert was the sole person with knowledge of these financial affairs. 

The Court observed that establishing existence and control as of one date will in some cases allow an inference of existence and control as of a later date, but that such an inference was not permitted here.  The Court applied a four-factor test established by the Eighth Circuit, specifically: (1) “the nature of the documents”; (2) “the nature of the business to which the documents pertained”; (3) “the absence of any indication that the documents were transferred to someone else or were destroyed”; and (4) “the relatively short time period.”  While the first two factors favored the inference for certain documents at issue here, the latter two generally cut against the inference.

The Court concluded that the government failed to establish that it was a “foregone conclusion” that any of the documents requested in the summons existed and were possessed by Greenfield as of 2013.  For some documents, the Court held that the Government also did not establish a foregone conclusion of authenticity, or of possession and control even at an earlier date.

The Court vacated the District Court’s order enforcing the summons and denying Greenfield’s motion to quash, as to all of the documents at issue.  However, the Court did not “foreclose the possibility” that the Government could develop a better record based on the Court’s detailed guidance, and satisfy the foregone conclusion standard “in connection with the issuance of another summons in the future.”

The Court’s decision should limit the government’s ability to pursue certain tax and regulatory investigations and prosecutions.  The fact that documents may once have existed does not mean that the documents still exist, and if there would be testimonial value to the act of production, then the subpoena should not be enforced—unless the government can satisfy, as of the subpoena date, the demanding foregone conclusion standard set out by the Court.  However, the practical impact of this decision going forward is difficult to assess, particularly given the wide discretion inherent in the multi-factor test adopted by the Court.  Even here, the Court recognizes that the government may be able to satisfy the foregone conclusion standard for some of the documents at issue by making a greater showing in the future. 

The Court’s adoption of this non-absolute, multi-factor balancing test may make it difficult for defense lawyers to act with certainty when advising clients about the likelihood that the Fifth Amendment privilege will apply in a particular context.  An uncertain privilege is not without its use, but a well-defined privilege is more protective of the underlying right.  One can hope that future decisions will firm up this rule in a way that creates more predictable outcomes and thereby better protects the Fifth Amendment rights that are implicated by the “act of production” doctrine.

-By Jason Vitullo and Harry Sandick