United States v. Arthur Young & Co.

United States v. Arthur Young & Co.

Opinion

 [*807]  [***830]  [**1498]    CHIEF JUSTICE BURGER delivered the opinion of the Court.

  [****8]  We granted certiorari to consider whether tax accrual workpapers prepared by a corporation's independent certified public accountant in the course of regular financial audits are protected from disclosure in response to an Internal Revenue Service summons issued under § 7602 of the Internal Revenue Code of 1954 (Code), 26 U. S. C. § 7602.

 [*808]  I

Respondent Arthur Young & Co. is a firm of certified public accountants. As the independent auditor for respondent Amerada Hess Corp., Young is responsible for reviewing the financial statements prepared by Amerada as required by the federal securities laws. ² In the course of its review of these financial statements, Young verified Amerada's statement of its contingent tax liabilities, and, in so doing, prepared the tax accrual workpapers at issue in this case. Tax accrual workpapers are documents and memoranda relating to Young's evaluation of Amerada's reserves for contingent tax liabilities. Such workpapers sometimes contain information pertaining to Amerada's financial transactions, identify questionable positions [****9]  Amerada may have taken on its tax returns, and reflect Young's opinions regarding the validity of such positions. See infra, at 810-813.

In 1975 the Internal Revenue Service began a routine audit to determine Amerada's corporate income tax liability for the tax years 1972 through 1974. When the audit revealed that Amerada had made questionable payments of $ 7,830 from a "special disbursement account," the IRS instituted a criminal investigation of Amerada's tax returns as well. In that process, pursuant to Code § 7602, 26 U. S. C. § 7602, ³ the IRS  [*809]  issued an administrative summons to Young, which required Young to make available to the IRS all its Amerada files, including its tax accrual workpapers. Amerada instructed [****10]  Young not to comply with the summons.

 [****11]  The IRS then commenced this enforcement action against Young in  [***831]  the United States District Court for the Southern District of New York. See 26 U. S. C. § 7604. ⁴ [****12]  Amerada intervened, as permitted by 26 U. S. C. § 7609(b)(1). ⁵ The District Court  [**1499]  found that Young's tax accrual workpapers were relevant to the IRS investigation within the meaning of § 7602 and refused to recognize an accountant-client privilege that would protect the workpapers. 496 F.Supp. 1152, 1156-1157 (1980). Accordingly, the District Court ordered the summons enforced.

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