The opinion of the court was delivered by: HOLTZOFF
This is a proceeding brought by the Commissioner of Internal Revenue to require Jack Wasserman and David Carliner, who are members of this bar, to respond to an administrative summons in connection with the investigation of income tax returns of one Carlos Marcello and Vincent Marcello, who were clients of the two respondents in this proceeding. The information sought is the amount of fees paid by the two taxpayers to the respondents as their counsel for legal services, the dates of payments, and by or through whom the payments were made.
This proceeding is instituted under the provisions of 26 U.S.Code 7602, which reads in part as follows:
'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 the liability at law or in equity of any transferee or fiduciary of 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 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 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 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.'
In connection with discovering and investigating frauds on the revenue, the Secretary of the Treasury is given by this statute a wide authority to carry on investigations and to examine witnesses and records. It is claimed, however, that there is no showing that this investigation is necessary or that the information desired is relevant. In support of this contention, the respondents refer to 26 U.S.Code 7605(b), which reads as follows:
It would seem from the language of this statute that this provision is a matter of defense to the inquiry and that the burden is on the taxpayer or the witness, as the case may be, to show that the examination or investigation is unnecessary, and that one inspection of the taxpayer's books for each taxable year has already been made.
But irrespective of that and without relying on this interpretation of the statute, the application sets forth sufficiently both the necessity of the investigation and the necessity and relevancy of the information desired from these respondents. It is set forth that since February, 1961, the Commissioner of Internal Revenue has been investigating the tax liability of Carlos Marcello and Vincent Marcello covering the period 1956 through 1959, inclusive. The Government has filed, in connection with this proceeding, waivers signed by the two taxpayers waiving the statute of limitations back to the year 1956. It also appears that the respondents in this proceeding have declined to supply the information.
As to materiality of the information, that appears to be obvious. Payments made by the taxpayer are necessarily relevant to an investigation of the accuracy of his income tax returns for various reasons. First, it may be desirable to ascertain whether the taxpayer is entitled to certain deductions that he is claiming; for example, whether he actually made payments for attorneys' fees to the respondents which he claims as deductions in his income tax returns. Again, these payments may be material in determining whether the taxpayer has made payments largely in excess of income that he shows in his income tax return. Again, it may be material in connection with any case instituted by the Government on the net worth theory. Consequently, the Court reaches the conclusion that the information desired in this proceeding by the Commissioner of Internal Revenue is both necessary and material as well as relevant.
It is then urged that the amount of fees received by the respondents as counsel for the two taxpayers in connection with legal services rendered by them constitutes a confidential communication and the information is within the attorney and client privilege. The Court is of the opinion that it was entirely proper -- in fact, it was the duty of the respondents -- to call to the attention of the Court the existence of this privilege and request a ruling in respect to it. In so doing they were performing their duties as members of the bar. The Court is of the opinion, however, that the amount of fees paid by a client to his lawyer and the dates of payment, is not a confidential communication and this information does not come within the attorney-client privilege.
There are very few decisions on this point, strangely enough, and we must go back to first principles. Why is the privilege granted and what is its purpose? This is briefly summarized in Wigmore on Evidence, Vol. 8, Sec. 2291, as follows:
'In order to promote freedom of consultation of legal advisers by clients, the apprehension of compelled disclosure by the legal advisers must be removed; hence the law must prohibit ...