Tax Notes Quotes Scott Michel on Attorney-Client Privilege
Lee Sheppard of Tax Notes discusses the Supreme Court’s grant of certiorari in In re Grand Jury, S. Ct. Dkt. No. 21-1397 to address the question whether, as she phrases it, dual-purpose documents are covered by the privilege when legal advice is a significant purpose, but the primary purpose for their creation is tax return preparation. Ms. Sheppard interviewed Caplin & Drysdale Member Scott Michel on this significant development.
Excerpt below was taken from Lee Sheppard's article "Court to Hear Privilege Case for Dual-Purpose Communications" in Tax Notes.
There is an apparent three-way conflict among the circuits on dual-purpose documents, and the Seventh Circuit is on the other side. The Court may have taken the case for the purpose of reversing it. As a judge on the District of Columbia Circuit, Justice Brett M. Kavanaugh held that a dual-purpose communication can be protected by attorney-client privilege when legal advice represents a significant purpose for the communication, even if it is not the primary purpose (In re Kellogg Brown & Root, 756 F.3d 754 (D.C. Cir. 2014)).
Ninth and D.C. Circuit precedent conflicts with the Seventh Circuit, which held that a dual-purpose communication is not privileged, even if legal advice represented the most significant purpose, when the other purpose is tax return preparation. The latter court specifically held that “a dual purpose document — a document prepared for use in preparing tax returns and for use in litigation — is not privileged” (United States v. Frederick, 182 F.3d 496 (7th Cir. 1999), cert. denied, 528 U.S. 1154 (2000)).
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“Tax administration and tax compliance will suffer significantly if clients cannot expect confidentiality in their communications with counsel regarding how best to clean up prior tax and reporting violations,” said Scott Michel of Caplin & Drysdale.
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There’s a hard and fast rule that when the tax planning failed, clients should not have the same advisers do the cleanup. “Clients routinely consult tax lawyers about rectifying previous tax sins. Indeed, we’re often the first step toward a taxpayer returning to full compliance,” Michel commented, reflecting broad experience cleaning up FBAR and other international reporting violations.
“A case like that presents sensitive legal questions, and the client is often exposed to great risk, including criminal sanctions and significant monetary penalties,” Michel explained. “The result of such an attorney-client interaction is often one or more IRS filings, and the lawyer’s advice will almost always cover aspects of those filings. That fact should not remove the lawyer-client interactions from the protection of privilege.”
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