5th Circ. Ruling For IRS Could Create Privilege Concerns
Tax Partners Kevin Packman and James Dawson were quoted in a Law360 article about a recent Fifth Circuit decision giving the Internal Revenue Service (IRS) the green light to enforce a John Doe summons against a law firm. This decision that raises questions about attorney-client privilege while highlighting the importance of isolating protected legal advice. The article references a parallel case where the Seventh Circuit found that the identities of clients of accounting firm BDO Seidman LLP weren't protected by federally authorized tax practitioner privilege under Internal Revenue Code Section 7525.
When accountants have clients with issues, they refer them to lawyers so that attorney-client privilege applies, Mr. Packman said. The law firm hires the accounting firm under a Kovel agreement, a process that "demonstrates the huge distinction between [Section] 7525 and attorney-client privilege," Packman continued.
When the Fifth Circuit denied the rehearing request, a dissenting opinion signed by six of the eight judges voting with the minority said the IRS has traditionally served this type of summons on financial institutions, rather than lawyers. Mr. Dawson said he believed that even though the dissenting opinion didn't cite BDO, the panel's reliance on that case caused the eight judges to dissent. Due to the reliance on this case, the dissenting judges were saying "we need to either clarify what the standard is, or you need to be abundantly clear that the case law or the precedent is not changing here," he said.