Tax returns are generally not considered privileged documents; however, they are certainly sensitive and many people have a reasonable expectation that their returns will be kept private, so courts generally review a request for tax returns carefully and will in appropriate circumstances issue orders limiting the amount of information to be turned over and the extent to which the receiving party is allowed to disclose that information to third parties. An example of a court engaged in the analysis used to determine these questions (at least in the US District Court for the Southern District of New York) can be found here: http://op.bna.com/dlrcases.nsf/id/gcii-7dblvk/$File/Chen%20v.%20Republic%20Rest.%20Corp..pdf (the order is dated in 2008, so the case law it cites to should be relatively reliable).
In the circumstance you describe - the requesting party is either trying to prove diversity jurisdiction or is trying to show that it doesn't exist - I could see how theoretically part of someone's tax returns might be indicative of where that person resides for diversity purposes; however, it strikes me that there is a wealth of other information that would prove or disprove residence for diversity purposes, so that the tax return information would be merely duplicative (as per the material I linked to, the information contained in the returns wouldn't be disclosed unless the information was not "readily available" elsewhere). Also, if the information were not available elsewhere, it might be reasonable to request that the judge limit the disclosure to just the number of the form that was filed (i.e., was it a resident tax return or a nonresident return) and the address that was given on the return as the person's home address (i.e., not just the mailing address if that is different from the home address).
My answer does not constitute legal advice and may not be relied upon by anyone for any purpose and does not constitute an attorney/client relationship or an offer to form such a relationship. This disclaimer is intended to be fully compliant with the requirements of Treasury Department Circular 230 and the terms thereof are fully incorporated by reference. If you wish to consult with me please contact me at dwatchley@newyorktaxcounsel or visit my website at www.newyorktaxcounsel.com
If diversity of citizenship is at issue and the tax returns as subpoenaed are reasonably calculated to lead to the discovery of admissible evidence it is liklely that access to the tax returns would be allowed. You can always attempt to modify or quash the subpoena, or seek a protective order because the tax returns contain privileged information that is not calculated to lead to the discovery of admissible evidence; however it is not very likely based on the limited facts that you provided that you could get the subpoena quashed.
If there are claims of lost wages, loss of income, or loss of earning capacity involved in the matter the tax returns are almost certainly going to be accessible to the opposing party.
This information is provided for general informational purposes and is not intended as legal advice. An attorney licensed in your jurisdiction can answer questions specific to your specific fact situation and provide you appropriate advice as necessary based on the specific facts of your matter and the jurisdiction in which you reside. If you are in Arizona and interested in discussing your matter further I can be reached at: (480) 838-9000 Mark D. Fullerton, P.C. 1839 S. Alma School Road, Suite 275 Mesa, Arizona 85210