Tax News

CCH (cch.taxgroup.com) reports:

A national accounting firm that was being investigated for marketing potentially abusive tax shelters did not waive the attorney-client privilege when it faxed a memorandum written by one of its partners to an attorney at a law firm that was assisting the accounting firm in providing tax services to its clients. The common interest doctrine applied to extend the protection afforded by the attorney-client privilege to the memorandum. Because one of the objectives of the privilege is assisting clients in conforming their conduct to the law, litigation need not be pending for the communication to be made in connection with the provision of legal services. The issue of whether the memorandum fell within the crime-fraud exception to the attorney-client privilege was waived by the IRS since the Service failed to raise the issue in the district court after the district court found that Document A-40 fell within the crime-fraud exception.
A customer-intervenor failed to rebut the evidence that Document A-40 came under the crime-fraud exception to the attorney-client privilege; therefore, the customer-intervenor could not invoke the privilege to prevent the disclosure of the document to the IRS pursuant to its civil subpoenas. There was no abuse of discretion by the district court in determining that the IRS provided sufficient evidence to support the conclusion that Document A-40 was a communication in furtherance of a crime or fraud; thus, the document fell within the crime-fraud exception to the attorney-client privilege. A prima facie showing of each element of a particular crime or common law fraud is not required to invoke the crime-fraud exception to the privilege.
The district court record was unclear as to whether the IRS provided sufficient facts to support a finding that the tax practitioner privilege, invoked by the intervenors, was eviscerated by the tax-shelter exception. The district court must re-examine the 266 documents at issue and determine which were covered by the attorney-client privilege, which by the tax practitioner privilege, and which by both. For those documents covered only by the tax practitioner privilege, the IRS is required to provide sufficient evidence to show that the tax-shelter exception applies in order to avoid invocation of the privilege, which would keep the documents from being disclosed. Since the tax-shelter exception is a true exception to the tax practitioner privilege, the party opposing invocation of the privilege must provide sufficient facts to show that the tax-shelter exception applies.
Affirming DC Ill. decisions 2004-2 USTC ¶50,288, 2005-1 USTC ¶50,273 and 2005-2 USTC ¶50,447; affirming in part and vacating and remanding in part 2005-1 USTC ¶50,264.
BDO Seidman, LLP, CA-7, 2007-2 USTC ¶50,530
Other References:
Code Sec. 6111
CCH Reference - 2007FED ¶37,002.16
Code Sec. 6112
CCH Reference - 2007FED ¶37,022.60
Code Sec. 7525
CCH Reference - 2007FED ¶42,816F.25
Code Sec. 7602
CCH Reference - 2007FED ¶42,827.33
CCH Reference - 2007FED ¶42,827.5027
CCH Reference - 2007FED ¶42,827.503
Tax Research Consultant
CCH Reference - TRC IRS: 21,402.20
CCH Reference - TRC IRS: 21,402.30