TAX RETURNS

INSURANCE FRAUD

CAN INSURANCE COMPANIES SUPPLY TAX RETURNS TO PROSECUTORS ?

 

Can an insurance company provide insured’s tax returns to criminal prosecutors for use in an insurance fraud case.  These authorities argue that such use is very limited and restricted to aspects of the tax returns actually used and reasonably relied upon by the insurance company and which are relevant to the fraud allegation.

I.
ABSENT A WAIVER OF EXCEPTION – TAX RETURNS ARE PRIVILEGED
California recognizes a taxpayer privilege governing nondisclosure of federal and state tax returns. Schnabel v. Superior Court, 5 Cal. 4th 704, 718–20 (1993). Such privilege may be overcome by waiver or “a public policy greater than that of confidentiality of tax returns.” Id. at 721. The public policy exception is “narrowly construed, and has been applied only when warranted by a legislatively declared public policy.” Id. (policy favoring confidentiality of tax returns must give way to greater public policy of enforcing child support obligations)

II.
CONSTITUTIONAL RIGHT TO PRIVACY
The California Constitutional right to privacy extends to an individual’s personal financial information. Moskowitz v. Superior Court, 137 Cal.App.3d 313, 315 (1982) (citations omitted). However, the right to privacy “may be abridged to accommodate a compelling public interest.” Id. (citing City of Santa Barbara v. Adamson, 27 Cal.3d 123, 131 (1980); Loder v. Municipal Court, 17 Cal.3d 859, 864 (1976); White v. Davis, 13 Cal.3d 757, 775 (1973)) There must be a judicial determination of “compelling public interest” before the tax returns can be used.
This showing cannot be made.

There is no allegation of tax fraud or fraud relating to the content of the tax returns. Their filing was part of the paperwork submitted at Insurance company’s request but this historical fact does not justify an abandonment of the privilege. To the extent that DEFENDANT provided the returns to Insurance Company, there may have been a partial waiver but “[t]he waiver of a privilege must be narrowly rather than expansively construed,” in order to protect the privilege. Fortunato v. Superior Court (2003) 114 Cal.App.4th 475, 482 The “waiver” certainly does not include a right of Northwestern to publish the returns in the Stockton Record.

The records were provided to demonstrate income over certain periods of time. That is the limit of the “waiver”. Therefore, an expansive use of the returns is improper.

Even within the limited scope of “waiver”, the information is not admissible unless it is relevant. “‘Relevant evidence’ means evidence, including evidence relevant to the credibility of a witness or hearsay declarant, having any tendency in reason to prove or disprove any disputed fact that is of consequence to the determination of the action.” (Evidence Code 210) The prosecution will need to limit any use of the returns to meet that standard. Unless Insurance Company relied upon a portion of the returns, their mere receipt of the returns is irrelevant as is the bulk of the information therein.
III.

HEARSAY
The returns were prepared by others and the documents are hearsay. The prosecution must establish an exception under Evidence Code § 1221 which provides, “Evidence of a statement offered against a party is not made inadmissible by the hearsay rule if the statement is one of which the party, with knowledge of the content thereof, has by words or other conduct manifested his adoption or his belief in its truth.”

 

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