Summary
In Currier v. Company, 101 N.H. 205, we held that in actions for damages where loss of earnings was in issue, there could be discovery of federal income tax returns but the Trial Court could impose stringent requirements on the production of such returns to prevent harassment or impertinent intrusion.
Summary of this case from McDuffey v. Boston Maine R.ROpinion
No. 4612.
Argued December 3, 1957.
Decided December 31, 1957.
1. Federal income tax returns are not privileged as a matter of law in civil litigation where the returns are material to the claims of the parties.
2. The granting of a motion for discovery in a civil case for the production of such returns is discretionary with the Trial Court and, where circumstances warrant, stringent requirements may be imposed upon the moving party to establish grounds for the production thereof.
3. Discovery of federal income tax returns should not be used as a means of harassment or impertinent intrusion.
MOTIONS, for discovery in actions of case, brought for personal injury and property damage allegedly caused by an explosion of the defendant's gas main in Rochester, New Hampshire, on or about September 28, 1955. The Court (Sullivan, J.) transferred the following reserved case: "The actions of Currier and Marsan were brought for personal injuries, and alleged loss of earnings as an item of damages. The action of Marion Therrien, Individually and as Executrix of the Estate of Alphonse J. Therrien, was brought for damages allegedly resulting when a building owned by her was damaged in the said explosion. The case of Alphonse Therrien, Jr. and Martin Therrien d/b/a A. Therrien Son is brought for damages allegedly resulting to them because of their ownership of a retail furniture store which they operated in the said building, including loss of patronage and profits on account of the closing of their business.
"The defendant in each of the above actions filed motions entitled `Defendant's Motion Requiring Plaintiff to Produce and Permit Defendant to Inspect and Copy Plaintiff's Income Tax Returns.' These motions requested that originals or copies of returns be produced for the years 1950 to date. The Court denied, as a matter of law, these motions, subject to the defendant's exceptions.
"On January 7, 1957 the defendant summoned the plaintiffs to give their depositions on January 14, 1957 and to produce at the time of their depositions the originals or copies of their income tax returns for the years 1950 to 1956 inclusive. The plaintiffs Currier, Marsan, Alphonse Therrien, Jr. and Martin Therrien appeared to give their depositions but refused to make available their income tax returns and other business records. In the cases of Marion Therrien, Alphonse Therrien, Jr. and Martin Therrien the defendant filed a motion in each case asking that the plaintiffs be required to produce their income tax return and other business records. The Court denied, as a matter of law, the motion with respect to production of income tax returns, subject to the defendant's exceptions."
Fisher, Parsons Moran (Mr. Moran orally), for the plaintiffs.
Burns, Calderwood, Bryant Hinchey (Mr. Bryant orally), for the defendant.
The question presented in these tort actions for damages for personal injuries and property damage is whether the plaintiffs' federal income tax returns may be subject to discovery by the defendant. There is no precedent in this state and there is a surprising dearth of appellate authority in other state and federal jurisdictions. Compare, June v. Peterson Co., 155 F.2d 963, holding that federal income tax returns are subject to discovery in civil litigation, with Peterson v. Peterson, 70 S.D. 385, holding that they are privileged and not subject to discovery.
The Internal Revenue Code of 1954 (26 U.S.C.A., s. 6103(a)) and the former 1939 Code (26 U.S.C.A., s. 55) provides that federal income tax returns "shall constitute public records" which are open to inspection only to the extent authorized and approved by the applicable rules and regulations. Anno. 151 A.L.R. 1049; 8 Mertens, Law of Federal Income Taxation (Zimet rev. 1957) s. 47.55. Disclosure of the tax returns contrary to law is a misdemeanor. 26 U.S.C.A., s. 7213. The Code of Federal Regulations provides in part that an individual tax return may be inspected by him or his attorney in fact. 26 CFR (1949 ed.) s. 458.52, and that a copy of the return may be furnished to any person who is entitled to inspect it. 26 CFR (1957 supp.) s. 458.205.
"The greater number of decisions favor the view that in private civil litigation a party may be required to produce copies of his Federal income tax returns." McCormick, Evidence, s. 149, p. 312 (1954). Commentators generally have stated that the purpose of the Internal Revenue Code was to prevent wholesale disclosure of income tax information to persons who have no legitimate interest therein, but in actions for damages, where loss of earnings is an issue, income tax returns may be relevant and subject to inspection. 8 Mertens, Law of Federal Income Taxation (Zimet rev. 1957) s. 47.53; 2 Barron Holtzoff (1957 supp.) Federal Practice and Procedure, s. 798; 3 Prentice-Hall, Federal Taxes, par. 17,934 (1958). A majority of the courts "have held that copies of income tax returns in the possession of a party are not privileged, and that their production can be compelled in an appropriate case, and further that if the party does not have copies he can be required to secure copies from the Internal Revenue authorities." 4 Moore, Federal Practice (2d ed.) s. 26.25 [5], pp. 1168, 1169. There is a dwindling minority view to the contrary, but recent cases have followed the majority view. Kingsley v. Delaware, Lackawanna Western R. Co., 20 F.R.D. 156; Court Degraw Theatre v. Loew's, Inc., 20 F.R.D. 85; 10 Vand. L. Rev. 150 (1956).
We adopt the majority view that federal income tax returns are not privileged as a matter of law in civil litigation where the returns are material to the claims of the parties. We recognize that discovery of federal income tax returns is discretionary with the Trial Court, but it should not be used as a means of harassment or impertinent intrusion. The Trial Court may, if circumstances warrant it, in any particular case impose stringent requirements upon the moving party to establish grounds for the production of federal income tax returns. In this case the Court did not exercise its discretion but ruled as a matter of law that federal income tax returns were not subject to discovery. This was error. See Karlsson v. Wolfson, 18 F.R.D. 474; Tollefsen v. Phillips, 16 F.R.D. 348; Reeves v. Pennsylvania R.R., 80 F. Supp. 107. Since the Court did not exercise discretion (Vallee v. Company, 89 N.H. 285, 291; Colby v. Varney, 97 N.H. 130, 134, 135, the order is
Case remanded.
BLANDIN, J., was absent; the others concurred.