When are tax returns subject to discovery for civil cases?

Asked about 2 years ago - Los Angeles, CA

I'm being sued for fraudulent business sale. The plaintiff is requesting my tax returns alleging that the tax returns show something different than what I represented for the sale. Plaintiff has included a confidential agreement clause in the discovery request promising to use the tax returns only for the current case. Plaintiff has also threatened motion to compel. Are the tax returns subject to discovery? Los Angeles Attorneys Plz

Attorney answers (4)

  1. Pamela Koslyn

    Contributor Level 20

    6

    Lawyers agree

    Answered . I've been on both sides of the issue and i know there is case law supporting each side. It really depends on the purpose of the discovery, although it does seem that your representations about the business's income is directly related to the plaintiff's claims, so a judge might just order the production of the returns, subject to the parties agreeing on a stipulated protective order.

    A protective order lets the judge add some "teeth" to the requirement that the returns only be used for the subject suit, can only be used by the parties and their lawyers, must be returned after the litigation ends, etc.

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  2. John Ryan Charles Burt

    Contributor Level 11

    4

    Lawyers agree

    Answered . I agree with the prior response. Personally, I would object and make them bring a motion to compel. Let the judge determine if the taxes are necessary or if they can discover the same info by less intrusive means. Should have an attorney or if you do, co-counsel might be helpful.

    John Burt
    john@inhouseattorneys.com
    800-513-6826

    John Burt - john@inhouseattorneys.com - 800-513-6826. Before you contact me read: Information I provide in this... more
  3. Frank Wei-Hong Chen

    Contributor Level 20

    3

    Lawyers agree

    Answered . Hard to say without know much about your case or the specific discovery requests. I would object on the grounds of the tax privilege make make the plaintiff articulate why the income tax returns are not privileged.

    Federal and state tax returns are privileged in California and cannot be discovered in litigation, except under very limited circumstances such as voluntary waiver. Webb v. Standard Oil Co. (1957) 49 Cal.2d 509, 512-513; Schnabel v. Superior Court (1993) 5 Cal.4th 704.

    Under Schnabel, the taxpayer privilege has three exceptions: (1) waiver or intentional relinquishment; (2) the gravamen of the lawsuit is so inconsistent with the continued assertion of the taxpayer’s privilege as to compel the conclusion that the privilege has in fact been waived; and (3) a public policy greater than that of confidentiality of tax returns is involved.

    In Wilson v. Superior Court (1976) 63 Cal.App.3d 825, the court found the privilege waived, basing its determination on a finding that: “Plaintiff has placed in issue the existence and the content of her tax returns and the tax consequences of the computations therein.” Further, the court stated: “the establishment of all the essential elements of plaintiff’s case will be impossible without proof of statements and computations in her tax returns.

    Although the returns may provide defendant with certain relevant information, disclosure of private information, where allowed, must be narrowly tailored against the propounding party's need to discover relevant facts. (Valley Bank of Nevada v. Superior Court (1975) 15 Cal.3d 652.)

    Frank W. Chen has been licensed to practice law in California since 1988. The information presented here is... more
  4. Douglas A Loefgren

    Contributor Level 2

    3

    Lawyers agree

    Answered . Answer: Mainly when a wage loss is being claimed. The defense wants to always verify if income actually went down during the time of injury and convalescence.

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