United States of America v. Bernhoft

Filing 14

ORDER that the Government's petition to enforce the IRS summons for [a]ny form, document or letter prepared by Joseph Banister for [Bernhoft] and/or [his] entities and [a]ny correspondence (including e-mails) between Joseph Banister and [Bernhoft] and/or [his] entities is GRANTED. Bernhoft MUST PRODUCE those materials to the Government no later than 11/30/2009. Signed by Judge Rudolph T Randa on 10/28/2009. (cc: all counsel)(Koll, J)

UNITED STATES DISTRICT COURT E A S T E R N DISTRICT OF WISCONSIN

U N I T E D STATES OF AMERICA, Petitioner, v. R O B E R T BERNHOFT, Respondent. C a s e No. 08-C-0515

D E C I S I O N AND ORDER

BACKGROUND O n June 13, 2008, the Petitioner, the United States of America ("the G o v e rn m e n t" ), filed a petition to enforce an Internal Revenue Service ("IRS") administrative s u m m o n s against the Respondent, Robert Bernhoft ("Bernhoft"). The summons was issued p u rs u a n t to 26 U.S.C. § 7602 in connection with an IRS investigation into whether Joseph B a n is te r ("Banister") ­ an employee of Bernhoft's law firm, Bernhoft Law Firm, S.C. (the " L a w Firm") ­ is engaging in the promotion of abusive tax schemes such as tax shelters that w o u ld be subject to civil penalties under 26 U.S.C. § 6700 and whether Bernhoft should be e n jo in e d from promoting abusive tax shelters pursuant to 26 U.S.C. § 7402 and § 7408. Pursuant to the investigation, the lead IRS agent, Shereen Hawkins ("Hawkins"), d is c o v e re d that Banister has been receiving substantial amounts of money from Bernhoft each ye a r, but was unable to verify the purpose behind the financial transactions. Therefore,

H a w k in s issued a summons to Bernhoft for "[a]ny form, document or letter prepared by Joseph B a n is te r for you and/or your entities" and "[a]ny correspondence (including e-mails) between J o s e p h Banister and you and/or your entities." (Hawkins Decl. Ex. 1 at 3.) IRS agent Thomas F e ld o n ("Feldon") served the summons upon Bernhoft on September 17, 2007. (Hawkins D e c l. ¶ 5.) Bernhoft did not appear at the time and place required by the summons. (Hawkins D e c l. ¶ 6.) O n June 13, 2008, the IRS filed the petition to enforce the summons. On F e b r u a ry 3, 2009, the Court issued an Order to Show Cause for non-enforcement of the s u m m o n s to Bernhoft. In that Order to Show Cause, the Court found that the file in this case re f le c ts a prima facie showing that the investigation is being conducted for a legitimate p u rp o s e , the inquiries may be relevant to that purpose, the information sought is not already w i t h i n the IRS Commissioner's possession, and the administrative steps required by the In te rn a l Revenue Code had been followed. See United States v. Powell, 379 U.S. 48, 57-58 (19 6 4 ). O n April 9, 2009, Bernhoft filed a response, raising various defenses and abuses o f process. Thereafter, the Government filed a reply brief. The matter is ready for resolution a n d will be addressed herein. ANALYSIS W ith respect to the challenged summons, Powell, 379 U.S. at 57-58, establishes th e criteria for a prima facie case evidencing the issuance of an IRS summons in good faith. P o w e ll holds that the IRS must show that (1) the investigation was conducted pursuant to a

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le g itim a te purpose; (2) the inquiry is relevant to that purpose; (3) the requested information is not already in the agency's possession; and, (4) the agency followed the administrative steps n e c e s s ita te d by the Internal Revenue Code. Id. The Powell prima facie good faith test "isn't much of a hurdle" and imposes o n ly a "minimal burden" on the agency. 2121 Arlington Heights Corp. v. I.R.S., 109 F.3d 1 2 2 1 , 1224 (7th Cir. 1997); Miller v. United States, 150 F.3d 770, 772 (7th Cir. 1998). The g o v e rn m e n t could "typically make [a prima facie] showing through the affidavit of the re v e n u e agent conducting the audit." 2121 Arlington Heights Corp., 109 F.3d at 1224 (citing U n ited States v. Kis, 658 F.2d 526, 536 (7th Cir. 1981)). In the instant case, the Court has found that the IRS's investigation satisfies the P o w e ll good-faith test. Hawkins's declaration attests that the summons was issued pursuant to a legitimate purpose because it was in "furtherance of the investigation of Banister's a c tiv itie s and in accordance with 26 U.S.C. § 7602" 1 (Hawkins Decl. ¶ 4), the information is n o t already in possession of the IRS, and, the agency has undertaken all the necessary a d m in is tra tiv e steps for the issuance of the summons. (Hawkins Decl. ¶¶ 7-8.) The relevance o f the information sought is established by Hawkins's averment that it is necessary to "obtain

The Government states "Banister is a former IRS employee who now attempts to persuade others that the fe d e r a l income tax system is unconstitutional or otherwise illegal," and that "Banister was disbarred from practicing b e fo r e the IRS for advising clients that the Sixteenth Amendment to the Constitution was not properly ratified and that w a g e income is not taxable under Title 26." (Mem. Law Supp. Pet. to Enforce IRS Summons and Supp. Mot. Order S h o w Cause ("Mem. Supp. Pet.") 3 (citations omitted).) Bernhoft states that Banister is a former IRS Criminal Investigation Division Special Agent turned agency c r itic . According to the Freedom Above Fortune website, Banister's career at the IRS was ended early when he c o n fr o n te d his IRS supervisors with allegations that the IRS was unlawfully administering and enforcing the federal i n c o m e tax. See Freedom Above Fortune - Home, http://www.freedomabovefortune.com (last visited Oct. 7, 2009). B a n i s t e r is the founder of Freedom Above Fortune. (See id.)

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Bernhoft's testimony and to examine the documents, letters and other information s o u g h t by the summons in order to properly complete her investigation of Banister." (Hawkins D ec l. ¶ 9.) Relevance of Materials Sought by Summons Despite the Court's prior finding that the IRS has established a prima facie case, B e rn h o f t asserts that the summons requests the production of tens of thousands of pages c o n c ern in g forensic work performed for the Law Firm's clients that would not "even be re le v a n t to the summons's purpose." (Resp't's Opp'n Govt's Pet. to Enforce IRS Summons (" O p p 'n Pet. to Enforce") 8.) The standard for relevancy in summons enforcement case is " re la x e d ." 2121 Arlington Heights Corp., 109 F.3d at 1224. The information sought must o n ly be relevant in the sense that it has the potential to shed "some light" on why Bernhoft is m a k in g payments to Banister. Id. (citing United States v. Arthur Young & Co., 465 U.S. 805, 814-15 (1984)). The Powell court merely required that the records sought "may be relevant." Id. In 2121 Arlington Heights Corp., 109 F.3d at 1222, the IRS was investigating w h e th e r the respondent restaurant had under-reported its income from 1992 to 1993. After f a ile d attempts to reconstruct the income, the IRS issued a summons requesting the re s ta u ra n t's mudd sheets 2 for May 1994 to October 1995. Id. at 1222-23. Although the su m m o n s was a circuitous and potentially inaccurate attempt to ascertain the respondent's p rio r income since a substantial amount, rather than all the respondent's business originated

Mudd sheets are lists of all outgoing calls made on a given phone line. 2121 Arlington Heights Corp., 109 F .3 d at 1223.

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f ro m catering, the appellate court, nonetheless, found the information sought relevant to the in v e s tig a tio n . Id. at 1223-25. Dismissing claims that the mudd sheets would capture outgoing p e rs o n a l calls of the respondent's employees, over 100 people who were allowed to use the p h o n e for that purpose, and that most banquets would be arranged by incoming not outgoing c a lls , the court upheld the finding of relevancy based on the determination that the potential e x i ste d that the IRS could reconstruct the respondent's income from the mudd sheets because th e y might disclose the identity of the repeat customers of the respondent's catering services f ro m 1992 through 1993, and those customers might lead the IRS to cash payments received b y the respondent during 1992 and 1993. Id. at 1224-25. In the instant case, the Court concludes that the "documents, letters, or other c o rre sp o n d e n c e sought by the summons may be relevant to the IRS's investigation of B a n is te r," (Pet. to Enforce 3), and that they may "allow the IRS to prove or disprove that [the] R e s p o n d e n t has paid Banister to provide abusive tax schemes to [the] Respondent's clients." ( S e e Reply Brief in Supp. of Pet. to Enforce IRS Summons 4 ("Reply Pet. to Enforce")). R e g a rd le ss of the actual reason for these transfers of funds, in 26 U.S.C. § 7602 Congress has p ro v id e d the IRS with broad investigative powers so that the IRS may satisfy itself that B e rn h o f t is not paying Banister to engage in conduct subject to penalty under the Internal R e v e n u e Code. The connection at issue here is more substantial than the connection between the su m m o n s and the investigation's purpose in 2121 Arlington Heights Corp. Unlike the attempt to reconstruct an income record with customers removed from the pertinent time frame by five

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m o n th s to nearly two and a half years, it is likely that the requested materials at issue in the in sta n t case could directly address the IRS's inquiry of whether any of Bernhoft's payments to Banister were made in return for the provision of abusive tax schemes. Therefore, Bernhoft h a s not disproved the existence of the Powell factor of relevancy. See 2121 Arlington Heights C o r p ., 109 F.3d at 1222. T h e Court will next examine whether Bernhoft's asserted attorney-client p riv ile g e , overbreadth of summons, or improper IRS conduct precludes enforcement of the sum m ons. Attorney-Client Privilege Bernhoft asserts, on behalf of Banister, that the communications between him a n d Banister would be "evidently [attorney-client] privileged information" because he has and c o n tin u e s to represent Banister.3 (Opp'n Pet. to Enforce 6, 11.) Furthermore, Bernhoft m aintain s that the attorney-client privilege "protection extends to the client[s] of the law firm in which he is a partner and the confidences entrusted in him by clients for whom Banister p e rf o rm e d forensic work under the privilege." (Opp'n Pet. to Enforce 15.) Therefore, B e rn h o f t asserts that "[a]sking which cases Banister worked on is the same as asking which c lie n ts informed the firm they faced criminal exposure" and "`the privilege protects an u n k n o w n client's identity where its disclosure would reveal a client's motive for seeking legal a d v ic e .'" Id. (citing In re Cherney 898 F.2d 565, 568 (7th Cir. 1990)).

Bernhoft has represented Banister in various civil and criminal cases since 2003. (Opp'n Pet. to Enforce 2, 5 -6 .) See, e.g. United States v. Banister, No. 2:04CR00435-W B S (E.D. Cal. filed June 24, 2005).

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A tto rn e y-c lie n t privilege under federal law is "the oldest of privileges for c o n f id e n tia l information known to the common law." United States v. Zolin, 491 U.S. 554, 5 6 2 (1989) (citing Upjohn Co. v. United States, 449 U.S. 383, 389 (1981)). The privilege is, h o w e v e r, not without its limitations.4 In United States v. White, the Seventh Circuit Court of A p p e a ls held that "the privilege is in derogation of the search for the truth," and, therefore, " m u st be strictly confined." 970 F.2d 328, 334 (7th Cir. 1992). Consequently, the Seventh C irc u it generally forbids blanket assertions of privilege. See United States v. Holifield, 909 F .2 d 201, 204 (7th Cir. 1999) (holding that assertions for blanket attorney-client privilege that " [ d o ] not address the applicability of the privilege with respect to each individual document [ th a t the party seeks] to exclude . . . [or] set forth any `specific facts' to support [the] legal co n clus io n s" will not suffice.); White, 970 F.2d at 334; United States v. White, 950 F.2d 426, 4 3 0 (7th Cir. 1991); United States v. Lawless, 709 F.2d 485, 487 (7th Cir. 1983); United S ta te s v. First State Bank, 691 F.2d 332, 335 (7th Cir. 1982). A taxpayer does not need to reveal too many details regarding each document s o as to render the privilege moot. First State Bank, 691 F.2d at 335. However, the taxpayer h a s to "at least identify the general nature of that document, the specific privilege he is c laim in g for that document, and facts which establish all the elements of the privilege he is c la im in g ." Id.

Zolin also held that there is no presumption of attorney-client privilege, 491 U.S. at 567, and that the p r i v ile g e does not apply to future wrongdoings. Id. at 562-63 (citing 8 W ig m o r e § 2298 (McNaughton rev. 1961)). A d d itio n a lly , the court recognized a crime-fraud exception to the privilege where the "`seal of secrecy' . . . between la w y e r and client does not extend to communications `made for the purpose of getting advice for the commission of a fraud' or crime." Zolin, 491 U.S. at 563 (citing O'Rourke v. Darbishire,[1920] A.C. 581, 604 (P.C.)).

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The rationale behind the rejection of blanket privileges is found in the "specific f a cts " requirement of United States v. Kis, 658 F.2d 526, 539 (7th Cir. 1981), which mandates th a t "the taxpayer [must] answer the Government's [prima facie] case through responsive p le a d in g s , supported by affidavits, that allege specific facts in rebuttal." (emphasis added). T h e "simple relationship of attorney and client does not always establish a privilege." First S ta te Bank, 691 F.2d at 335. In the instant case, Bernhoft's assertions of blanket privilege, without any s p e c if ic application to each document, are no more than "brief conclusory summations" that h a v e been rejected by the Seventh Circuit Court of Appeals in prior privilege determinations. S e e Holifield, 909 F.2d at 204. Broad declarations such as "[a] request for `any document' and `a n y correspondence' between a lawyer and his client obviously requests evidently privileged in f o rm a tio n " (O p p 'n Pet. to Enforce 11), are insufficient to establish attorney-client privilege. B e rn h o f t also fails to produce affidavits 5 or privilege logs that detail how the privilege attaches to each document. Additionally, while the identity of a client is normally unprotected by attorneyc lie n t privilege, the Seventh Circuit Court of Appeals has recognized a narrow exception for th e revelation of client motives. See In re Subpoenaed Grand Jury Witness, 171 F.3d 511, 514

5 The Declaration of Robert E. Barnes, Esq. ("Barnes") attests to Banister's provision of "litigation support to [the Law Firm] through forensic-accounting support" and that the work is "non-controversial, mirroring the work a special agent would do so a client can know their situation . . . [when] facing potential or existing criminal e x p o s u r e . " (Barnes Decl. ¶ 7.) However, the Barnes Declaration does not set forth specific facts as required by the S e v e n t h Circuit Court of Appeals because it does not detail which documents are privileged and how that privilege a t t a c h e s . Additionally, the Seventh Circuit Court of Appeals has emphasized that the participation of clients in p o te n tia l ly abusive tax shelters is information that is ordinarily subject to full disclosure under federal law because o f the vigorous congressional intention to subject tax shelters to special scrutiny. BDO Seidman, LLP, 337 F.3d at 8 1 2 (citing 26 U.S.C. §§ 6111, 6112).

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(7 th Cir. 1999); In re Cherney, 898 F.2d 565, 568 (7th Cir. 1990); In re Witnesses Before the S p e c ia l March 1980 Grand Jury, 729 F.2d 489, 494 (7th Cir. 1984); Tillotson v. Boughner, 3 5 0 F.2d 663, 666 (7th Cir. 1965). However, this Court's research has not disclosed any U n ite d States Supreme Court or Seventh Circuit decision that has addressed a situation, such a s the instant case, where both a blanket attorney-client privilege and a blanket motives e x c e p tio n has been asserted. Nevertheless, the instant case is comparable to United States v. BDO Seidman, L L P , 337 F.3d 802, 812 (7th Cir. 2003),6 where the Seventh Circuit Court of Appeals did not f in d production of a client list for a tax shelter investigation problematic. The BDO Seidman, L L P court reasoned that since the IRS "[knew] relatively little about the interactions between [ th e firm] and [the clients], the nature of their relationship, or the substance of their c o n v e r s a tio n s ," disclosure of the clients' identities would not necessarily reveal their motives, o n ly their participation in a tax shelter scheme. Id. In the instant case, the IRS, while s u s p ic io u s of a potential tax scheme that may involve the Law Firm's clients, also does not p o s s e ss any actual knowledge of the interactions between the Law Firm and its clients. F u r th e rm o re , as with BDO Seidman, LLP, 337 F.3d at 812, the participation of clients in p o te n tia lly abusive tax shelters is information that is ordinarily subject to full disclosure under f e d era l law because of the vigorous congressional intention to subject tax shelters to special s c r u t i n y.

BDO Seidman, 337 F.3d at 810, involved the statutory tax practioner privilege of 26 U.S.C. § 7525, w h i c h is no broader than that between a taxpayer and an attorney. The court's analysis was based upon the attorneyc l i e n t privilege case law. See id. at 810-12.

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Bernhoft, as the party asserting privilege, has the heavy burden of rebutting the G o v e r n m e n t ' s prima facie case for the summons, and he fails to do so because he has not a p p lie d the privilege to specific correspondence and documents. See Holifield, 909 F.2d at 2 0 4 . Bernhoft has also not established that a blanket privilege protects the motives of the Law F irm 's clients for seeking advice. Scope of Summons B e rn h o f t also asserts that the scope of the IRS summons is overly broad. A lth o u g h breadth is seemingly related to relevancy, it is a separate aspect of a summons. U n it e d States v. Wyatt, 637 F.2d 293, 301-02 (5th Cir. 1981). The Wyatt court defined o v e rb re a d th as "`out of proportion to the ends sought,'" Id. at 302 (quoting United States v. H a r r in g to n , 388 F.2d 520, 523 (2d Cir. 1968)), and "`of such sweeping nature and so u n related to the matter properly under inquiry as to exceed the investigative power,'" Wyatt, 6 3 7 F.2d at 302 (quoting United States v. Morton Salt Co., 388 U.S. 632, 652 (1950)). B e rn h o f t contends that the scope of the summons is overly broad because the summons (1) is a d d re ss e d to him rather than the Law Firm; (2) lacks time specifications for the requested c o rre sp o n d e n c e; (3) lacks subject-matter specifications for the requested correspondence; and, (4 ) satisfies the four factors that are indicative of overbreadth as outlined in United States v. M o n u m e n ta l Life Ins. Co., 440 F.3d 729, 736-37 (6th Cir. 2006) (Opp'n Pet. to Enforce 7, 8, 1 0 .)

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S u m m o n s Addressed to Bernhoft B ern h o ft first contends that he possesses no documentation responsive to the IRS s u m m o n s that was sent to him rather than the Law Firm. (Opp'n Pet. to Enforce 7.) He also arg u es that even though the IRS has notified him that it "interpret[s] the summons to require [ h im ] to have the law firm in which he is a partner disclose and divulge all information c o n ta in e d by the law firm[,] [s]uch a summons, improperly issued without proper prior a p p ro v a l for a summons to a law firm for the law firm's client files, is patently overbroad." ( I d .) "[I]f properly established, non-possession of summoned documents is a valid d e f en s e to an IRS application for an enforcement order." United States v. Rylander, 460 U.S. 7 5 2 , 757 (1983). However, in Rylander, the Supreme Court held that when the respondent is th e "president or other corporate officer[,][he has] possession or control, or both, of the books a n d records of said corporation." Id. at 761 n.3 Here, Bernhoft is in possession or control of th e requested correspondence because he is the founder and named equity partner of the Law F irm .7 Furthermore, Bernhoft's assertion that a summons to a law firm for client files requires p rio r approval cites no supporting IRS manual or procedural policies. In raising a defense of p re se n t inability to comply with an enforcement order, the respondent has the burden of p ro d u c tio n . Id. Bernhoft has failed to meet that burden.

Bernhoft founded the Law Firm on April 3, 2001, and is the named partner. See The Bernhoft Law Firm, S . C . -Robert G. Bernhoft, http://www.bernhoftlaw.com/our-team.htm (last visited October 6, 2009).

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Lack of Time Specified in Summons B e rn h o f t asserts that the summons is overly broad because the summons does n o t specify any particular time period for the requested correspondence. He claims that this o m is s io n would result in the provision of many documents that disclose strategy decisions for p a st and future matters that are not relevant to the Banister investigation.8 (Opp'n Pet. to E n f o rc e 8.) Bernhoft refers to United States v. Theodore wherein the Fourth Circuit Court of A p p e a ls found that a summons for documentation over three years was overly broad. (Id. at 9 (citing United States v. Theodore, 479 F.2d 749, 755 (4th Cir. 1973)).) The Seventh Circuit Court of Appeals has deferred to the IRS on timing issues w h e n the circumstances prohibit a narrowing of a summons to the specific time upon which th e investigation focuses. The 2121 Arlington Heights Corp. court found that a summons was n o t overly broad even when the IRS requested mudd sheets from May 1994 to October 1995, a time period five months to nearly two and a half years after the time period from 1992 and 1 9 9 3 when the agency suspected the respondent might have under-reported its income. 109 F .3 d at 1222-23. The court reasoned that the IRS did not have many other avenues with which to pursue the investigation because the telephone company had already destroyed the earlier re c o rd s and the respondent did not keep adequate financial transaction records. Id. at 1224. In the instant case, the IRS states that it "does not know how long [the] Respondent has been c o m p e n s a tin g Banister" because the sole Form 1099 Banister submitted was in 2006, although

As examples of non-relevant documentation, Bernhoft argues the IRS may be interested in obtaining internal m e m o r a n d a regarding how Banister might appeal the IRS Director of Practice's disbarment to practice before the IRS o r the methods by which Bernhoft managed to receive full acquittals on federal criminal tax charges on behalf of B a n i s t e r . (Opp'n Pet. to Enforce 8.)

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B a n iste r's bank records show that he received prior payments from the Law Firm. (Reply Pet. to Enforce 8.) Consequently, the Court finds that the time frame of the requested materials is n o t overly broad. Lack of Subject Matter Specified in Summons B e rn h o f t asserts that the scope of the summons is overly broad because the su m m o n s does not specify any particular subject-matter for the requested correspondence. In s u p p o rt of his contention, Bernhoft refers to United States v. Richards, 631 F.2d 341, 345 (4th C i r. 1980) where the Fourth Circuit Court of Appeals found that a "fishing expedition" th r o u g h a taxpayer's records would be overly broad. Bernhoft also cites Adamowicz v. United S ta te s, 531 F.3d 151, 157 (2d Cir. 2008), stating that even as recently as last year, the Second C irc u it upheld this rule. A d a m o w ic z, 531 F.3d at 157, observes that court's decisions and those of other c irc u it courts of appeals, show that "claims of summonses being overbroad generally do not a v a il, except in limited circumstances." Adamowicz, stated that there was no support for the c la im of overbreadth. Id. Both Richards and Adamowicz, cite Theodore, 479 F.2d at 754-55, which is fa ctua lly distinguishable from the instant case. In Theodore, the IRS was actively seeking out p o te n t ia l errors made by any tax preparers by requesting wholesale records from preparers. 4 7 9 F.2d at 752. Theodore held that the IRS summons in those circumstances was a true " f ish in g expedition" and that "Section 7602 summonses [were] not meant to . . . be used to o b ta in from large accounting firms the complete records of all clients so that the IRS might

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d e te rm in e if there is an error of some unknown taxpayer." Id. at 754. Theodore is predicated o n the circumstances of that case. In comparison, the IRS in this instant case is not searching f o r potential errors made by taxpayers, but instead, it is attempting to ascertain whether B a n i ste r is involved in operation of an abusive tax shelter scheme that could encompass a n u m b e r of the Law Firm's clients. 2121 Arlington Heights Corp. provides guidance on subject-matter limitations. T h e re , the IRS was attempting to ascertain the respondent's prior income by reconstructing th e volume of its catering business through outgoing calls. The court held that a summons was n o t overly broad despite requesting all outgoing calls between the respondent and third parties, ra th e r than only business-related calls. 2121 Arlington Heights Corp., 109 F.3d at 1224. The c o u rt also rejected the respondent's argument that the outgoing calls would include mostly n o n -c a te rin g discussions that were outside the scope of the investigation. Id. at 1225. Relying o n 2121 Arlington Heights Corp., this Court concludes that the subject-matter boundary of the su m m o n s is adequately defined by the nexus of the documents to Banister. M o n u m e n ta l Life Insurance Co. Overbreadth Test B e rn h o f t argues that the instant case satisfies the four factors that were held to b e indicative of overbreadth in Monumental Life Insurance Co.: "(1) [T]he subpoena is d ire c te d to a third party, not to the taxpayer being investigated; (2) the IRS seeks a voluminous a m o u n t of highly sensitive proprietary information about [the company]'s general ad m ini stratio n of its products; (3) the IRS has opposed the imposition of a protective order,

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a n d , (4) the magistrate judge . . . found that the IRS was seeking `some irrelevant in f o rm a tio n .'" 440 F.3d at 736-37. Bernhoft asserts in the instant case that (1) he is a third party and not the target o f the investigation; (2) the IRS seeks voluminous and highly sensitive information about m a n y of his cases, including his representation of Banister; (3) the IRS is seeking full e n f o rc e m e n t of the summons; and, (4) the IRS is seeking a "great deal" of irrelevant in f o r m a tio n , not just "some." (Opp'n Pet. to Enforce 10.) Specifically, with respect to v o lu m e , Bernhoft asserts that compliance with the summons would produce at least "hundreds o f thousands" of documents protected by attorney-client privilege. (Id. at 8.) Presumably, the v o lu m e of requested materials would be even greater than "hundreds of thousands" when in c lu d in g nonprivileged documents. The Court begins by noting that Monumental does not hold that satisfaction of th e four factors automatically renders a summons unenforceable, but rather that, in those s itu a tio n s , it lessens the weight of an IRS agent's affidavit attesting to relevancy. Id. at 736. F u rth e rm o re , although Bernhoft is a third party, the Supreme Court has not taken issue with s u m m o n s directed to third parties who are not the target of the investigation. See, e.g. Zolin, 4 9 1 U.S. at 554 ; LaSalle Nat'l Bank, 437 U.S. at 300-01; Arthur Young, 465 U.S. at 805.9 S e c o n d , the question of volume and sensitivity are two separate issues, the Court has addressed th e latter in its discussion of the attorney-client privilege issue. As for the former, several

I n Zolin, the Supreme Court did not find an IRS summons directed to the Clerk of the Los Angeles County S u p e r io r Court, a third party, to be problematic, 491 U.S. at 554; in LaSalle Nat'l Bank, the Supreme Court did not f i n d an IRS summons directed to the respondent's bank, a third party, to be problematic, 437 U.S. at 300-01; and, in A r th u r Young, the Supreme Court did not find an IRS summons directed to the taxpayer's accountant, a third party, to be problematic, 465 U.S. at 805.

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c irc u it courts of appeals have found that high volume does not in itself constitute o v e rb re a d th .1 0 See Adamowicz, 531 F.3d at 158; United States v. Judicial Watch, Inc., 371 F .3 d 824, 832 (D.C. Cir. 2004); Spell v. United States, 907 F.2d 36, 39 (4th Cir. 1990); United S ta te s v. Luther, 481 F.2d 429, 433 (9th Cir. 1973). Bernhoft's third and fourth arguments, respectively, that the IRS is seeking full en fo rce m en t of the summons and that enforcement would provide irrelevant information, are b o th distinguishable on the basis of factual circumstances. In Monumental Life Insurance C o ., the respondent had already produced some of the requested documentation and expressed a willingness to produce the rest if it received a protective order to keep proprietary in f o rm a t i o n private. 440 F.3d at 731-32. The Sixth Circuit Court of Appeals became c o n c ern e d when the IRS insisted on full enforcement of the summons despite the protective o rd e r request. Id. at 736. Here, Bernhoft has not provided any unprivileged correspondence, attached p riv ile g e to any of the documents, or sought a protective order. In short, Bernhoft has, in the v ie w of the Court, not taken any steps to indicate a good faith effort to respond to the s u m m o n s . Additionally, the IRS is not seeking full enforcement. The agency does not want to procure all the documentation regardless of its attorney-client privilege. Rather, the IRS h a s requested an in-camera inspection of any allegedly privileged materials. (Reply Pet. to

The Supreme Court and the Seventh Circuit Court of Appeals have not directly addressed the issue of v o lu m e in relation to overbreadth for summonses. However, the position of the District of Columbia, Second, Fourth, a n d Ninth Circuit Courts of Appeals that volume is non-determinative is consistent with the "inquisitorial" nature of t h e IRS's summons power. See Powell, 379 U.S. at 57. Furthermore, in Arthur Young, the Supreme Court did not fin d a summons requesting "all of [a firm's] files relating to [a third party]" to be problematic. 465 U.S. at 805 ( e m p h a s i s added).

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E n f o rc e 10.) Therefore, it is only because of Bernhoft's failure to assert privilege as to each d o c u m e n t and set forth specific facts with respect to those documents that the Court orders full e n f o rc e m e n t of the summons. Bernhoft's claim that enforcement of the summons would produce irrelevant in f o rm a tio n has already been addressed by the Court's discussion of relevancy. Furthermore, in Monumental, the IRS was investigating only one of the respondent's clients whom the a g e n c y suspected had improperly taken income tax deductions for the contributions that it m a d e to its employee welfare benefit plans. 440 F.3d at 730. Although neither the respondent n o r the respondent's other clients were suspected of knowing involvement in the scheme, the M o n u m e n ta l IRS summons requested documentation regarding all the clients. Id. at 731. In this case, the focus of the summons is Banister's participation in the p r o m o tio n of an abusive tax shelter scheme, which may involve Law Firm clients who may b e knowing or willing participants in such a scheme. Again, as observed in BDO Seidman, L L P , 337 F.3d at 812, the participation of clients in potentially abusive tax shelters is in f o rm a tio n that is ordinarily subject to full disclosure under federal law because of the strong c o n g re s s io n a l intention to subject tax shelters to special scrutiny. Improper IRS Conduct B e c au s e the Court has determined that privilege has not been established and th a t the summons is not overbroad, the Court considers whether enforcement of the summons w o u ld constitute an abuse of process, an issue Bernhoft raises indirectly. Since the Powell test h a s been satisfied, Bernhoft must point to "specific facts suggesting that the IRS issued the

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s u m m o n s in bad faith." 2121 Arlington Heights Corp., 109 F.3d at 1224. Powell states that a b u se of the summons process would occur "if the summons had been issued for an improper p u rp o s e such as to harass the taxpayer or to put pressure on him to settle a collateral dispute, o r for any other purpose reflecting on the good faith of the particular investigation." 379 U.S. a t 58. The burden of showing an abuse of the court's process is on the respondent. See id. In the instant case, Bernhoft maintains that both the actions of the individual IRS e m p l o ye e s and the IRS as an institution reveal an improper motive in issuing the summons. (S e e Opp'n Pet. to Enforce 2, 5-8, 17; Barnes Decl. 1-3; Tollefson Decl. 1; Treuden Decl. 1-3; H o jn a c k i Decl. 1-2; and, Raymond Decl. 1.) Bernhoft does not explicitly assert that the s u m m o n s should not be enforced on the basis of the IRS's alleged bad faith. However, the C o u rt addresses the issue because Bernhoft devotes a significant portion of his response to a d is c u s s io n of the alleged improper conduct. (See id.) The Court finds that there is insufficient e v id e n c e of the IRS's institutional bad faith. Bernhoft asserts that the individual IRS employees assigned to the investigation e n g a g ed in improper conduct. In support of this claim, Bernhoft submitted declarations re g a rd in g a July 24, 2008, teleconference between IRS attorney Kevin W. Coy ("Coy"), IRS a g e n t Felton, Hawkins, Bernhoft, his representatives, and three attorneys from the Law Firm, B a rn e s , Daniel J. Treuden, Esq. ("Treuden"), and Christopher J. Ertl, Esq. ("Ertl"). (See T ru d e n Decl. ¶¶ 2-3.) The Court will not go into detail regarding the affidavits from the Law F i r m ' s paralegals, who did not attend the teleconference, but state that they heard shouting o v e r the teleconference phone during the meeting.

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T r e u d e n , on the other hand, was present at the teleconference and states that, d u rin g the meeting, Coy stated to Barnes, "[a]re you a real attorney?" and "[y]ou have no right to speak for the witness!" (Treuden Decl. ¶ 8.) Treuden also states that Coy accused Barnes o f "being obstreperous, of delaying and inhibiting the questioning process," and that Coy th re a te n e d to end the conversation several times if Barnes kept answering for Bernhoft. (Id.) T re u d e n stated that most of Coy's comments were made "while yelling and his voice was g o in g very fast" and that, in his opinion, Coy "had totally lost control." (Id.) The conduct of individual IRS employees is irrelevant to a summons's validity. In Kis, the Seventh Circuit Court of Appeals determined that "the personal intent of the agent is s u in g the summons is . . . irrelevant to the enforceability of a summons . . . [because] an in q u iry into the agent's personal motives would both frustrate the enforcement policy of the S e rv ic e and would unreasonably delay the enforcement of the proceedings." 658 F.2d at 541 (c itin g LaSalle Nat'l Bank, 437 U.S. at 316). Therefore, the argument that the IRS employees w e re personally motivated in issuing the summons because of Bernhoft's success in defending c a s e s against the IRS and Banister's criticism of the agency necessarily fails. Instead, the Kis court concurred with the Supreme Court that the proper bad faith i n q u i r y is into the institutional policy of the IRS. Id. In LaSalle Nat'l Bank, the Supreme C o u rt held that if the summons was issued prior to an IRS recommendation to the Department o f Justice to initiate a criminal prosecution regarding the summons's subject matter, as in the in s ta n t case, there is a heavy burden upon a respondent to "disprove the actual existence of a v a lid civil tax determination or collection purpose by the Service." 437 U.S. at 298, 316.

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L ik e w is e , the Seventh Circuit Court of Appeals has emphasized a respondent's burden to show th a t the "IRS has abandoned any institutional pursuit of a civil tax determination." Kis, 658 F .2 d at 542. B e rn h o f t points to the successiveness of the new IRS investigation and the lack o f evidence warranting such a new inquiry as indications of the agency's institutional bad f a ith . "Within months after the acquittal [of Banister on one count of conspiracy to defraud th e United States and three counts of aiding and assisting the filing of false tax returns in June o f 2004], the IRS opened a case file investigation into Banister under the label `tax shelter' in v e stig a tio n , even though no evidence in the file shows Banister ever selling tax shelters of a n y kind." (Opp'n Pet. to Enforce 5.) However, Bernhoft's reasoning is flawed. The successiveness argument is misapplied in this instant case. Successiveness o rig inates from 26 U.S.C. § 7605(b), which states that only one inspection of a taxpayer's b o o k s of account is allowed annually. 26 U.S.C. § 7605(b) (2006). The Supreme Court and S e v e n th Circuit Court of Appeals have construed successiveness as assertable only when the I R S is examining the same records of a respondent again, not when the IRS is examining d if f e re n t records belonging to the same respondent. See, e.g. Powell, 379 U.S. at 48; Hough v . C.I.R., 882 F.2d 1271, 1275-76 (7th Cir. 1989). In the instant case, the IRS has never previously examined the requested d o c u m e n ta tio n . Furthermore, even if the agency requests some documentation that it has a lre a d y examined, § 7605(b) states that successiveness is allowable when there is a necessity

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f o r further examination. 26 U.S.C. § 7605(b). Powell held that an IRS summons for tax re c o rd s that had been previously examined was not "unnecessary" within the meaning of § 7605(b) because it was issued in connection with a valid tax liability investigation and the re c o rd s were not already in the agency's possession. 379 U.S. at 53. The instant case is s im ila r. The IRS has issued a summons for documents that are not already in its possession, a n d the request is for the legitimate purpose of determining whether Banister is engaged in the p ro m o tio n of an abusive tax shelter scheme. Authorized by 26 U.S.C. § 7602 to investigate a n y tax liabilities, Bernhoft has not established that the IRS has unnecessarily initiated another in v e s tig a tio n or summons in the instant case. Id. Additionally, the argument that no evidence in the file shows that Banister has s o ld tax shelters fails. Powell holds that the IRS does not need to provide grounds for s u s p e c te d fraud or meet a probable cause standard to obtain enforcement of a summons. Id. a t 57. B e rn h o f t also implicitly asserts that the misconduct of the IRS employees in this in s ta n t case reflects the agency's institutional posture. However, the personal conduct at issue in this case does not rise to the level of the conduct that did not warrant such an inference in 2 1 2 1 Arlington Heights Corp. In that case, the appeals court found that an agent's purported th re a t to ruin the respondent's business was insufficient to compel a finding of bad faith on th e part of the IRS as an institution. 2121 Arlington Heights Corp., 109 F.3d at 1225-26. In ste a d , the court determined that such remarks were only "tough language" that was "simply n o t enough to show bad faith on the part of the government." Id. at 1226. In the instant case,

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C o y's statements, such as "[a]re you a real attorney[?]" or threats to end a teleconference, d e m o n stra te a lesser "toughness" than that addressed in 2121 Arlington Heights Corp. Therefore, the statements are insufficient to evidence the IRS's institutional bad faith.11 B e rn h o f t attempts to further suggest institutional bad faith through the d e c la ra tio n of Barnes ­ counsel for Bernhoft and an attorney with the Law Firm. Barnes a tte sts that "a journalist from a well-respected and prominent publication" asked him if "the su m m o n s was punitive in order to quiet the positive publicity Bernhoft received for his c o n tin u in g success against the IRS in nationally prominent cases." (Barnes Decl. ¶ 9.) Barnes f u rth e r attests that the journalist explained to him that from "prior interviews with IRS p e rs o n n e l, they made it clear the IRS was displeased with the national attention Bernhoft re c eiv e d after obtaining felony acquittals for Wesley Snipes . . . and Bernhoft's 50% acquittal ra te in criminal tax felony cases." Id. B arn es's statements about his conversation with the journalist and Barnes's re c ita tio n of the journalist's reports of his conversations with IRS personnel is hearsay and d o u b le hearsay that is inadmissable under Rule 802 of the Federal Rules of Evidence. A d d itio n a lly, Bernhoft's reliance on the journalist's statements is misplaced. The declaration d o e s not indicate that the journalist ever explicitly stated that a valid civil taxation purpose did

11 Bernhoft also argues that IRS employees exhibited bad faith by "[withholding] material information from t h e Department of Justice ("DOJ") regarding [the] summons, including the fact that Bernhoft had prior counsel in this m a t te r and that prior counsel had communicated with the IRS repeatedly regarding it." (Barnes Decl. ¶ 7.) However, the evidence Bernhoft has proffered undermines his claim. For example, Bernhoft contends that th e "summons was issued to Bernhoft personally in his personal capacity at his home, likely intended to evade m e a n i n g f u l supervision from higher ranking [DOJ] officials." (Opp'n Pet. to Enforce 2.) However, Hawkins's a c t iv ity record indicates that she spoke with Robert Fay ("Fay") at the DOJ who told her to have an agent leave the s u m m o n s at Bernhoft's office. (Opp'n Pet. to Enforce Ex. C at 2.) W h e n the agent accomplished delivery at B e r n h o f t 's office, Hawkins notified the DOJ. (Id.)

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n o t exist or that the motive behind the summons was the ill-will intent of the IRS rather than a valid civil taxation purpose. Rather, the journalist merely asked Barnes if IRS bad faith was a possible explanation behind the summons. Even if admissible, the journalist's questions to B a rn e s are not statements of fact and the journalist would not speak for the IRS. CONCLUSION T h e Court concludes that a prima facie case for the enforcement of the IRS su m m o n s exists. Bernhoft's blanket claim for attorney-client privilege necessarily fails b e c au s e he has not provided a privilege log or affidavits specifying the application of privilege to each and every document.1 2 The heavy burden of establishing all elements of the attorneyc lie n t relationship rests upon the party asserting the privilege. First State Bank, 691 F.2d at 3 3 5 . Since Bernhoft fails to do so, he does not attach privilege to any of the requested d o c u m e n ta tio n . Bernhoft also has not established that the summons is overly broad in respect

Bernhoft also cursorily asserts the defenses of duty of confidentiality, work-product privilege, and his and B a n i s te r 's privacy interests without explaining their application to the situation. (Opp'n Pet. to Enforce 2.) The Court w i l l not entertain defenses made without support of legal authorities or arguments. See United States v. Andreas, 150 F . 3 d 766, 769 (7th Cir. 1998) ("W e have held time and again that perfunctory and undeveloped arguments (even c o n s t i t u t i o n a l ones) are waived.") (citation omitted). The Court will, however, briefly discuss work-product privilege doctrine, now set forth in Rule 26(b)(3) of th e Federal Rules of Civil Procedure. The work product doctrine exempts materials from discovery that are (1) o t h e r w i s e discoverable; (2) prepared in anticipation of litigation or for trial; and, (3) by counsel or counsel's r e p r e s e n ta tiv e s or for another party or that party's representative. Laurie A. W e i s s , The Attorney-Client Privilege in C i v il Litigation 329 (Vincent S. W a l k o w i a k ed., American Bar Ass'n Publ'g 2008). Bernhoft contends that "tens of thousands of [requested] pages" would contain forensic work performed for c l i e n t s facing potential criminal exposure. (Opp'n Pet. to Enforce 6, 8, 16-17.) The Supreme Court and the Seventh C i r c u i t have not yet directly addressed the viability of a work-product defense when the respondent does not detail its application to each document. However, Bernhoft's contention is a blanket claim that does not provide the n e c e s s a r y information, such as, whether each document is covered under work-product and whether those that are, w e r e prepared in actual anticipation, rather than a remote possibility, of litigation. The party seeking a work-product p r o t e c tio n bears the burden of establishing that each document was prepared in anticipation of litigation. See Binks M fg . Co. v. Nat'l Presto Indus., Inc., 709 F.2d 1109, 1118 (7th Cir. 1983). "[T]he work product rule does not come in to play merely because there is a remote prospect of future litigation." Id. (citing Diversified Indus., Inc. v. M e r e d i t h , 572 F.2d 596, 604 (8th Cir.1977)).

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to proper addressing, time frame, subject-matter, or the Monumental test. Additionally, B e rn h o f t has not established an abuse of process by the IRS. NOW, THEREFORE, BASED ON THE FOREGOING, IT IS HEREBY O R D E R E D THAT: T h e Government's petition to enforce the IRS summons for "[a]ny form, d o c u m e n t or letter prepared by Joseph Banister for [Bernhoft] and/or [his] entities" and "[a]ny c o r re s p o n d e n c e (including e-mails) between Joseph Banister and [Bernhoft] and/or [his] e n t itie s " is GRANTED. Bernhoft MUST PRODUCE those materials to the Government no later than N o v e m b e r 30, 2009. D a te d at Milwaukee, Wisconsin this 28th day of October, 2009. BY THE COURT

s / Rudolph T. Randa Hon. Rudolph T. Randa U .S . District Judge

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