United States of America and L. Simmons, Revenue Officer, Ofinternal Revenue Service, Plaintiffs-appellees, v. Alberto E. Argomaniz, Defendant-appellant, 925 F.2d 1349 (11th Cir. 1991)

Appellant Alberto Argomaniz (Argomaniz) appeals from an order of the United States District Court for the Southern District of Florida, directing him to comply with a summons issued by the Internal Revenue Service (IRS). Compliance with this IRS summons could violate Argomaniz's fifth amendment privilege against self-incrimination. Accordingly, we REVERSE the district court's order and REMAND for further proceedings consistent with this opinion.

IRS records indicate that Argomaniz did not file income tax returns for the years 1984 through 1987. Therefore, the IRS initiated an investigation into Argomaniz's tax liability for those years. As part of this investigation, the IRS issued an administrative summons, pursuant to 26 U.S.C. § 7602¹ , directing Argomaniz to appear before IRS Officer Simmons to give testimony and produce relevant records and documents.²  On June 20, 1988, the summons was served on Argomaniz. On July 12, 1988 and again on October 13, 1988, Argomaniz appeared before Simmons, in compliance with the summons, but refused to produce any of the summonsed documents. He claimed that production of the documents would violate his fifth amendment privilege against self-incrimination. Simmons then referred the matter to the United States Attorney for enforcement action. On February 21, 1989, the United States filed a petition in the United States District Court for the Southern District of Florida, pursuant to 26 U.S.C. §§ 7402(b)³  and 7604⁴ , to enforce the summons. Attached to the petition was Simmons' declaration, stating that proper IRS summons procedure had been followed and that the documents and information sought by the summons were necessary to the IRS investigation and not otherwise available. The district court referred the case to a magistrate, who ordered Argomaniz to show cause why he should not be compelled to comply with the summons. On April 18, 1989, the show cause hearing was held. Argomaniz again raised his fifth amendment privilege. After instructing Argomaniz that he could raise his fifth amendment privilege on a question-by-question basis, the magistrate entered an order directing Argomaniz to comply with the summons. On April 28, 1989, Argomaniz appeared before Simmons and again refused to answer any questions or produce any documents relating to his tax liability for the years 1984 through 1987.⁵  The United States then filed a motion requesting that the magistrate enter a report and recommendation. The magistrate complied and recommended that the district court direct Argomaniz to respond to the summons. In an order entered on August 7, 1989, the district court adopted the magistrate's report and recommendation. Argomaniz was ordered to comply with the summons within fifteen days. If he failed to do so, he would have twenty days to show cause why he should not be held in contempt. On August 22, 1989, Argomaniz appealed to this court from the district court's order, and filed a motion in the district court for a stay of enforcement of the order. By order dated October 10, 1989, the district court granted Argomaniz's motion and stayed enforcement of the summons pending his appeal, indicating that Argomaniz had shown a reasonable fear of criminal prosecution and that enforcement of the summons could force Argomaniz to waive his fifth amendment privilege against self-incrimination.⁶ 

The fifth amendment privilege against self-incrimination⁷  "protects a person ... against being incriminated by his own compelled testimonial communications." Fisher v. United States, 425 U.S. 391, 409, 96 S. Ct. 1569, 1580, 48 L. Ed. 2d 39 (1976). It "can be asserted in any proceeding, civil or criminal, administrative or judicial, investigatory or adjudicatory." Kastigar v. United States, 406 U.S. 441, 445, 92 S. Ct. 1653, 1656, 32 L. Ed. 2d 212 (1972). Accordingly, a taxpayer may invoke this privilege in response to requests for information in an IRS investigation.

The taxpayer seeking the protection of this privilege to avoid compliance with an IRS summons "must provide more than mere speculative, generalized allegations of possible tax-related prosecution.... [T]he taxpayer must be faced with substantial and real hazards of self-incrimination." United States v. Reis, 765 F.2d 1094, 1096 (11th Cir. 1985) (per curiam). Thus, the question before us is whether Argomaniz has shown such a "substantial and real hazard of self-incrimination" that the fifth amendment will excuse his noncompliance with the IRS summons. The answer to this question will depend on whether compliance with the summons would provide information incriminating to Argomaniz, and, if so, whether the privilege properly was invoked. See Grosso v. United States, 390 U.S. 62, 65, 88 S. Ct. 709, 712, 19 L. Ed. 2d 906 (1968).

A. Compliance With The IRS Summons Could Be Incriminating

"The central standard for the ... application [of the fifth amendment privilege against self-incrimination is] whether the claimant is confronted by substantial and 'real', and not merely trifling or imaginary, hazards of incrimination." Marchetti v. United States, 390 U.S. 39, 53, 88 S. Ct. 697, 705, 19 L. Ed. 2d 889 (1968). The privilege applies only in "instances where the witness has reasonable cause to apprehend danger" of criminal liability. Hoffman v. United States, 341 U.S. 479, 486, 71 S. Ct. 814, 818, 95 L. Ed. 1118 (1951). The government claims that because the IRS investigation was of a civil nature (its alleged purpose was to determine Argomaniz's civil tax liability for the years 1984 through 1987), Argomaniz's fear of self-incrimination is remote and speculative, and, therefore, not sufficient to invoke the fifth amendment privilege. However, the structure of the IRS, the nature of the summons procedure, and the facts of this case compel the conclusion that the government's position is incorrect. There can exist a legitimate fear of criminal prosecution while an IRS investigation remains in the civil stage, before formal transfer to the criminal division.⁸  See United States v. Sharp, 920 F.2d 1167, 1170 (4th Cir. 1990) (The privilege against self-incrimination "may apply in the context of an IRS investigation into civil tax liability, given the recognized potential that such investigations have for leading to criminal prosecutions.").

In United States v. LaSalle Nat'l Bank, 437 U.S. 298, 98 S. Ct. 2357, 57 L. Ed. 2d 221 (1978), the Supreme Court examined the nature of the IRS investigatory system, and, relying in part on the legislative history of the Internal Revenue Code, concluded that the system's "criminal and civil elements are inherently intertwined." Id. at 309, 98 S. Ct. at 2363. The IRS summons procedure reflects the interrelationship of these components. The IRS summons served on Argomaniz required that he produce all documents and records related to income he received during the years 1984 through 1987.⁹  If Argomaniz did produce these documents, assuming that he did possess them, then both the civil and criminal aspects of the IRS system would be implicated. The IRS would be able to determine Argomaniz's civil tax liability for the years in question. However, although " [i]t is true that a 'routine tax investigation' may be initiated for the purpose of a civil action rather than criminal prosecution [,] ... tax investigations frequently lead to criminal prosecutions." Mathis v. United States, 391 U.S. 1, 4, 88 S. Ct. 1503, 1505, 20 L. Ed. 2d 381 (1968) (holding that even in routine tax investigations a person in custody, regardless of the reason for his detention, must be given the warnings required by Miranda v. Arizona, 384 U.S. 436, 86 S. Ct. 1602, 16 L. Ed. 2d 694 (1966)). Thus, production of these documents and records, if incriminatory (as will be determined by the in camera inspection directed below), also likely would cause Argomaniz to incur criminal liability for violation of the Internal Revenue Code.

Section 7203 of the Internal Revenue Code¹⁰  makes willful failure to file an income tax return a crime. Accordingly, production of these documents would establish two of the essential elements of this crime--it would prove that Argomaniz did have taxable income for the years in question, yet failed to file income tax returns. Under these circumstances, this civil tax "investigation has become 'an inquiry with dominant criminal overtones' ... [such that Argomaniz was] entitled to raise his fifth amendment objections." United States v. Roundtree, 420 F.2d 845, 852 (5th Cir. 1969). The criminal penalties with which Argomaniz was faced "were scarcely 'remote possibilities out of the ordinary course of the law' " and his "hazards of incrimination can only be characterized as 'real and appreciable.' " Grosso v. United States, 390 U.S. 62, 66, 67, 88 S. Ct. 709, 713, 19 L. Ed. 2d 906 (1968). See also United States v. Moss, No. 88-2676 (D. Md. July 24, 1990) (WESTLAW, 1990 WL 169256); United States v. Cates, 686 F. Supp. 1185 (D. Md. 1988). Therefore, Argomaniz's apprehension of criminal prosecution clearly was reasonable, assuming that the records in his possession would be incriminatory under the circumstances existing at the time of production.¹¹ 

We stress, however, that it is the role of the district court, not the taxpayer, to evaluate the taxpayer's claim of incrimination and determine whether it is reasonable. "The witness is not exonerated from answering merely because he declares that in so doing he would incriminate himself--his say-so does not of itself establish the hazard of incrimination. It is for the court to say whether his silence is justified...." Hoffman v. United States, 341 U.S. 479, 486, 71 S. Ct. 814, 818, 95 L. Ed. 1118 (1951). See also Sharp, 920 F.2d at 1170 ("Whether there is sufficient hazard of incrimination is of course a question for the courts asked to enforce the privilege.").

In this case, the district court did opine that Argomaniz would have a legitimate fear of criminal indictment if he complied with the IRS summons. In its order granting Argomaniz's motion for a stay of enforcement of the summons pending this appeal, the district court stated that Argomaniz had "shown more than a generalized fear of criminal prosecution" and had "good reason to believe that his answers may tend to incriminate him...."¹²  Although this finding does suggest that Argomaniz was entitled to raise his fifth amendment privilege, it does not sufficiently determine the applicability of Argomaniz's privilege against self-incrimination to the summons at issue in this case. "A court must make a particularized inquiry, deciding, in connection with each specific area that the questioning party wishes to explore, whether or not the privilege is well-founded." United States v. Melchor Moreno, 536 F.2d 1042, 1049 (5th Cir. 1976). See United States v. Rue, 819 F.2d 1488 (8th Cir. 1987).

The district court must review Argomaniz' assertions of the privilege on a question-by-question basis. This will best be accomplished in an in camera proceeding wherein Argomaniz is given the opportunity to substantiate his claims of the privilege and the district court is able to consider the questions asked and the documents requested by the summons. See United States v. Roundtree, 420 F.2d 845, 852 (5th Cir. 1969) ("The district court may then determine by reviewing ... [the taxpayer's] records and by considering each question whether, in each instance, the claim of self-incrimination is well-founded.").¹³  The district court already has determined that Argomaniz does face a real and substantial hazard of incrimination. However, we must remand this case to the district court, to enable that court to conduct an in camera proceeding, on a question-by-question basis, to determine the actual extent to which Argomaniz may rely on his fifth amendment privilege to avoid compliance with the IRS summons. Stated differently, the district court must ascertain: first, whether the taxpayer has the records sought and, second, whether under the existing circumstances they are incriminatory.

Even though compliance could be incriminating, the government argues that Argomaniz must comply with the IRS summons because Argomaniz did not properly invoke his fifth amendment privilege. First, the government claims that the fifth amendment is not applicable to this situation because the contents of business records are not privileged. Second, the government asserts that Argomaniz made an impermissible blanket claim of self-incrimination. Both of these arguments are without merit.

The government correctly states that the contents of voluntarily prepared business records are not protected by the fifth amendment privilege against self-incrimination. See United States v. Doe, 465 U.S. 605, 610-12, 104 S. Ct. 1237, 1241-42, 79 L. Ed. 2d 552 (1984). However, Argomaniz is not invoking his privilege as to the contents of the documents described in the IRS summons, but as to the act of producing the documents. The Supreme Court "has emphasized that the mere act of producing documents whose contents were not privileged could be sufficiently testimonial and incriminating in nature to trigger the fifth amendment privilege." In re Grand Jury No. 86-3 (Will Roberts Corp.), 816 F.2d 569, 571 (11th Cir. 1987) (citing United States v. Doe, 465 U.S. 605, 104 S. Ct. 1237, 79 L. Ed. 2d 552 (1984) and Fisher v. United States, 425 U.S. 391, 96 S. Ct. 1569, 48 L. Ed. 2d 39 (1976)). To be testimonial, a "communication must itself, explicitly or implicitly, relate a factual assertion or disclose information," Doe v. United States, 487 U.S. 201, 210, 108 S. Ct. 2341, 2347, 101 L. Ed. 2d 184 (1988); it must "add ... to the sum total of the government's information...." Fisher v. United States, 425 U.S. 391, 411, 96 S. Ct. 1569, 1581, 48 L. Ed. 2d 39 (1975).

By producing documents in compliance with the IRS summons, Argomaniz would be establishing the existence and authenticity of the documents listed in the summons, as well as verifying that these documents were in his possession. Doe v. United States, 487 U.S. 201, 209, 108 S. Ct. 2341, 2347, 101 L. Ed. 2d 184 (1987). He would actually be informing the government that he had income in the years in question yet failed to file income tax returns. This act of production would be sufficiently testimonial and incriminating to activate Argomaniz's fifth amendment privilege.

The government's final argument, that there was no fifth amendment justification for Argomaniz's blanket invocation of the privilege against self-incrimination, is also without merit. It is true that a blanket refusal to produce records or to testify will not support a fifth amendment claim. United States v. Roundtree, 420 F.2d 845, 852 (5th Cir. 1969). However, Argomaniz did not refuse to comply with the summons in a blanket manner. Instead, Argomaniz followed the general rule that a taxpayer "must present himself with his records for questioning, and as to each question and each record elect to raise or not to raise the defense." Id. Argomaniz answered the non-incriminating questions posed by the IRS officer, and, in response to each incriminating question or document request refused to answer and cited his privilege against self-incrimination. When the IRS officer realized that Argomaniz would raise the privilege in response to each of her document requests and to each of her questions concerning Argomaniz's tax liability for the years in question, the IRS officer terminated the interview.¹⁴  Argomaniz could not respond to questions that he was not asked. Thus, the effect of the interview was as if the IRS officer had asked all relevant questions and for each document listed in the summons, and Argomaniz had responded by repeatedly raising his fifth amendment privilege in response. Under the circumstances in this case, a blanket invocation of the privilege against self-incrimination did not occur.

Because compliance with the IRS summons could violate Argomaniz's fifth amendment privilege against self-incrimination and because the district court failed to make a particularized inquiry necessary to determine whether Argomaniz properly refused to comply with the summons, we REVERSE the district court's order compelling Argomaniz to comply with the summons. We REMAND this matter to the district court with instructions to determine, through an in camera inspection, the existence of Argomaniz's fifth amendment privilege in this case.

REVERSED and REMANDED.