Bob Parrish CPA, P.C. HOME (941) 387-0926 ~ It Is:
Tax Practitioner-Client Privilege |
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| Tax Advice And Practitioner-Client Privilege | |
| In the case of tax advice, the 1998 IRS Reform Act
extends the common law protections of confidentiality which apply to communications
between a taxpayer and an attorney to communications between a taxpayer and a
"federally authorized" tax practitioner to the extent the communication would be
considered a privileged communication if it were made between a taxpayer and an attorney.
#1 The privilege may only be asserted in connection with any noncriminal tax matter before
the IRS, and any noncriminal tax proceeding brought in Federal court brought by or against
the United States. #2 The privilege does not extend to any written communication between a
practitioner and a director, shareholder, officer, or employee, agent, or representative
of a corporation in connection with the promotion of the direct or indirect participation
of such corporation in any tax shelter. #3 Taxpayers and third parties can, in
appropriate circumstances, refuse to answer questions or comply with demands for summoned
records by claiming protection under the Fifth Amendment privilege against
self-incrimination, the attorney-client privilege, or the work-product doctrine. Federal
law does provide for an accountant-client privilege, even though some states
recognize such a privilege. 469 (Florida does provide for
accountant-client privilege. Texas does NOT provide the same
benefits.) |
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| Citations and Authority | |
| #1 See §7525(a)(1), as added by §3411 of P.L. 105-206, effective for
communications made on or after July 22, 1998. A federally authorized practitioner means
any individual who is authorized to practice under Federal Law to practice before the IRS
pursuant to 31 U.S.C. §330. #2 See §7525(a)(2). #3 See §7525(b). The term "tax shelter" is defined under §6662(d)(2)(C)(iii). |
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| Waiver of Privilege | |
If the taxpayer discloses the communication to anyone outside the attorney-client relationship, the privilege is considered waived. #4 Thus, for example, allowing an IRS agent to read an attorney's opinion can waive the privilege as to that document. #5 Similarly, the taxpayer's disclosure of confidential information to its accountant also constitutes a waiver of the privilege, since there is no accountant-client privilege. #6 |
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| Citations and Authority | |
| #4 U.S. v. United Shoe Machinery Corp., 89 F. Supp. 357 (D. Mass. 1950). #5 See U.S. v. Schoeberlain, 335 F. Supp. 1048 (D. Md. 1971). #6 See U.S. v. Arthur Young & Co., 465 U.S. 805 (1984); Couch v. U.S., 409 U.S. 322 (1973) (Disclosure of confidential information to accountant waives privilege unless accountant acts as the agent of the taxpayer's attorney). See also U.S. v. Adlman, 95-2 USTC ¶50,579 (2d Cir. 1995) (Attorney-client privilege does not protect from disclosure memoranda prepared by accounting firm for a client corporation analyzing the tax consequences of a proposed merger, despite claim that memo was prepared to assist corporation's in-house tax attorney; accounting firm was working under the same arrangement that governed the rest of its work for the corporation). |
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| Work Product Doctrine | |
| The work-product doctrine protects documents, interviews, statements,
memoranda, correspondence, briefs, mental impressions, and tangible things prepared by an
attorney in anticipation of litigation or trial. 515 Litigation is frequently anticipated
before the time a lawsuit is actually commenced. To show that a document was prepared in
anticipation of litigation, the litigant must demonstrate that the document was created
with a specific claim supported by concrete facts which would likely lead to the
litigation in mind, not merely assembled in the ordinary course of business or for other
nonlitigation purposes. 516 Under the work-product doctrine, an attorney's "work product" (consisting of documents and notes) prepared in anticipation of litigation are protected from discovery, absent a showing that the documents are essential to the preparation of the opponent's case or that undue hardship or injustice will otherwise result. 517 Moreover, materials prepared by non-attorneys may be protected by the work product doctrine if the records are compiled for the attorney, under his direction and in anticipation of litigation. 518 The language "in anticipation of litigation" does not simply mean a court proceeding but applies to any proceeding that is adversarial in nature. 519 Therefore, for the work-product doctrine to apply, it is not necessary that litigation has commenced or that it be imminent, provided that litigation is likely. 520 However, the scope of the phrase "prepared in anticipation of litigation" has not been settled. 520.1 |
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| Citations and Authority | |
| 515 Hickman v. Taylor, 329 U.S. 495, 510-511 (1947); P.T. & L. Constr.
Corp. v. Comr., 63 T.C. 404, 408 (1974). /Footnote/ 516 U.S. v. Adlman, 68 F.3d 1495, 95-2 USTC ¶50,579 (2d Cir. 1995); Coastal States Gas Corp. v. Dept. of Energy, 617 F.2d 854, 865 (D.C. Cir. 1980). 517 Upjohn Co.
v. U.S., 449 U.S. 383 (1981); Hickman v. Taylor, 329 U.S. 495 (1947); Byers v. Burleson,
100 F.R.D. 436 (D. D.C. 1983) (Substantial need); McDougall v. Dunn, 468 F.2d 468 (4th
Cir. 1972) (Undue hardship); Fed. R. Civ. P. 26 (b)(3). |
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