United States v. Arthur Young & Company

PETITIONER: United States
RESPONDENT: Arthur Young & Company
LOCATION: The D&B Corporation

DOCKET NO.: 82-687
DECIDED BY: Burger Court (1981-1986)
LOWER COURT: United States Court of Appeals for the Second Circuit

CITATION: 465 US 805 (1984)
ARGUED: Jan 16, 1984
DECIDED: Mar 21, 1984

Carl D. Liggio - on behalf of Respondent Arthur Young & Company
Mark Irving Levy - on behalf of Petitioner
William Eldred Jackson - on behalf of Respondent Amerada Hess Corporation

Facts of the case


Media for United States v. Arthur Young & Company

Audio Transcription for Oral Argument - January 16, 1984 in United States v. Arthur Young & Company

Warren E. Burger:

I think you may proceed whenever you're ready, Mr. Levy.

Mark Irving Levy:

Thank you, Mr. Chief Justice and may it please the Court:

This case is here on writ of certiorari to the United States Court of Appeals for the Second Circuit.

The question presented is whether an accountant privilege should be created to shield from the IRS the tax accrual work papers that were prepared by an independent public accountant in connection with his audit of a publicly held corporation pursuant to the federal securities laws.

The Court of Appeals established such a privilege and on that basis denied enforcement of the IRS summons for the tax accrual work papers.

This marks the first and only occasion that any federal accountant privilege has ever been adopted.

The background of this case may be briefly stated.

The federal securities laws require that publicly held corporations, such as Amerada Hess, file financial statements that have been audited and certified by an independent certified public accountant.

Under generally accepted accounting principles, the corporation must accrue as a charge to earnings a reserve for contingent tax liabilities.

This reflects the possibility that the corporation will owe more in taxes than it paid.

In accordance with generally accepted auditing standards, the independent public auditors must determine the adequacy of this reserve in order to certify that the financial statement fairly presents the financial condition of the corporation and was prepared in conformity with generally accepted accounting principles.

Sandra Day O'Connor:

Now, federal law doesn't require that; that's a matter of accounting standards, is that right?

Mark Irving Levy:

Federal law requires that the financial statement be audited in accordance with generally accepted auditing standards.

Sandra Day O'Connor:


But that just is determined by the practice of the accountants generally, not by federal law.

Mark Irving Levy:

That's correct, and then it is incorporated, as it were, into the SEC regulations.

Harry A. Blackmun:

Mr. Levy, would your position be any different if this were a small closely held corporation, not listed?

Mark Irving Levy:

Well, I think that would be a different case.

Our position would be the same, that the IRS is entitled to those work papers.

That case would not raise the dimension that this one does about the conflict that the Court of Appeals perceived between the tax laws and the securities laws.

In that situation there would only be the unfairness rationale of the Court of Appeals to sustain any claim to privilege.

Harry A. Blackmun:

Well, certainly some of your arguments here would be inapplicable in that situation, I would think.

Mark Irving Levy:

Well, I think it's really more that the accounting firm's arguments would be inapplicable in that situation.

They are the ones who have to come forward and justify the privilege, and one of the grounds that the Court of Appeals relied on in sustaining the privilege here was that to allow the IRS to have access to these papers would in some way undermine the securities laws.

That simply would not be a problem in the hypothetical.

Harry A. Blackmun:

Wouldn't some of your arguments be inapplicable, to wit, the duty owed to the public?

Mark Irving Levy:

Well, it would be inapplicable in the sense that we wouldn't need to respond to that argument.

In that situation, Justice Blackmun, essentially the argument would be that there is some sort of an accountant privilege that shields in-house work by a corporation.

That's an issue that could be litigated, but we think it's very unlikely that any court would recognize a privilege in those circumstances.

There are some cases, I should add, that approach the hypothetical that you put.