Tax News

CCH (cch.taxgroup.com) reports:

  A corporation was required to produce certain documents that it received from its tax advisors and that had been withheld as privileged or non-responsive to an IRS summons. The corporation was required to produce internal billing records, fax cover sheets, engagement letters and other unredacted internal documents, such as handwritten notes, numerical calculations, internal e-mails and research findings, because it did not establish that the documents contained confidential communications or that the documents were covered by the tax practitioner privilege. Documents that contained only Canadian tax advice or business and accounting advice, rather than federal income tax advice were not statutorily privileged under
Code Sec. 7525. However, documents that reflected confidential communications between the corporation and its counsel were protected under the attorney-client privilege in their entirety.

  Further, the government met its burden of showing that withheld and redacted documents relating to the corporation's transactions surrounding its merger with a Canadian company fell within the tax shelter exception to the tax practitioner privilege and were, therefore, required to be fully disclosed. The government showed the existence of a "plan or arrangement," a significant purpose of which was to avoid federal income tax, and that the communications between the corporation and its tax advisors were made in connection with the promotion of the corporation's participation in a tax shelter. The government was not required to demonstrate that the underlying transaction lacked economic reality, was driven primarily by tax-avoidance concerns in order or aimed at selling or marketing tax shelter products.

Valero Energy Corp., DC Ill., 2008-2 USTC ¶50,482

Other References:

 
Code Sec. 7525

  CCH Reference - 2008FED ¶42,816F.25

  Tax Research Consultant

  CCH Reference - TRC IRS: 21,404