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When are tax returns subject to discovery for civil cases?

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. 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.

    Avvo doesn't pay us for these responses, and I'm not your lawyer just because I answer this question or respond to any follow-up comments. If you want to hire me, please contact me. Otherwise, please don't expect a further response. We need an actual written agreement to form an attorney-client relationship. I'm only licensed in CA and you shouldn't rely on this answer, since each state has different laws, each situation is fact specific, and it's impossible to evaluate a legal problem without a comprehensive consultation and review of all the facts and documents at issue.


  2. 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 forum, and during a free consultation is not legal advice. The information provided is only general information that may or may not apply to you and may or may not be based on current law. I am NOT YOUR attorney until retained by you in writing.


  3. 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 general in nature and is not intended, nor should be construed, as legal advice for a particular case. This Avvo.com posting does not create any attorney-client relationship with the author. For specific advice about your particular situation, please consult with your own attorney.


  4. 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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