PORTFOLIO

The Section 7525 Tax Practitioner-Taxpayer Privilege and Related Issues (Portfolio 5511)

This Portfolio, The Section 7525 Tax Practitioner-Taxpayer Privilege and Related Issues, No. 5511, discusses Section 7525 of the Internal Revenue Code, a statutory privilege applicable to communications between federally-authorized tax practitioners and taxpayers relating to tax advice. 

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DESCRIPTION

This Portfolio, The Section 7525 Tax Practitioner-Taxpayer Privilege and Related Issues, No. 5511, discusses Section 7525 of the Internal Revenue Code, a statutory privilege applicable to communications between federally-authorized tax practitioners and taxpayers relating to tax advice. A federally-authorized tax practitioner is anyone who is authorized to practice before the I.R.S., including attorneys, CPAs, enrolled agents, enrolled actuaries, and others. With certain important exceptions, the Section 7525 privilege is co-extensive with the attorney-client privilege and thus incorporates a rather extensive body of law that has developed in the federal courts. The Portfolio discusses in detail the statute, its purpose and legislative history, the attorney-client privilege, and judicial and administrative guidance on the meaning and application of Section 7525. The Portfolio also covers related issues including state-created accountant privileges and the work product doctrine, both of which may be available to protect communications and documents made or created by non-attorney tax practitioners.
The Worksheets include the Section 7525 statute, articles and statements reflecting the public debate over the statute's enactment, legislative history, excerpts from 31 C.F.R. Part 10, i.e., Circular 230, concerning the scope of practice before the I.R.S., portions of the Internal Revenue Manual relevant to Section 7525, articles regarding the I.R.S. policy toward tax accrual workpapers, and sample privilege log entries.
This Portfolio may be cited as BNA Tax and Accounting Portfolio 5511, Boylan, Erwin, and Froelich, The Section 7525 Tax Practitioner-Taxpayer Privilege and Related Issues (Accounting Policy and Practice Series).


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AUTHORS

KIM MARIE BOYLAN, ESQ.
Kim Marie Boylan, B.S., Georgetown University (1981); J.D., Syracuse University College of Law (cum laude 1986); LL.M., Taxation, Georgetown University Law Center (with honors 1993); member, District of Columbia, Massachusetts and Pennsylvania Bars; Admitted U.S. Tax Court, U.S. Court of Federal Claims, Various U.S. Courts of Appeals; ABA Section of Taxation; Certified Public Accountant; clerk for the Hon. Robert J. Yock, U.S. Court of Federal Claims (1986-1987). Frequent lecturer on tax and accounting policy issues.

DEBORAH K. ERWIN, ESQ.
Deborah K. Erwin, A.B., Princeton University (summa cum laude 1988); Ph.D, English, Yale University (1996); J.D., New York University (2002); member, District of Columbia and Maryland Bars; Admitted U.S. Tax Court, U.S. Court of Federal Claims; ABA Section of Taxation.

EDWARD L. FROELICH, ESQ.
Edward L. Froelich, B.A., Thomas Aquinas College (1988); M.A., Philosophy, Catholic University of America (1991); J.D., University of Virginia School of Law (1994); LL.M., Taxation, Georgetown University Law Center (1999); member, Maryland and District of Columbia Bars; Admitted U.S. Tax Court, U.S. Court of Federal Claims; Chair-elect, Section of Taxation, Federal Bar Association, Co-editor, FBA Section of Taxation Report (2004-2006); ABA Section of Taxation; clerk for the Hon. John P. Wiese, Senior Judge, U.S. Court of Federal Claims (1994-1995); trial attorney, Tax Division, U.S. Department of Justice (1995-1999).

TABLE OF CONTENTS

Detailed Analysis

I. Introduction

Introductory Material

A. No Federal, Judicially-Created Privilege for Communications Between Non-Attorney Tax Practitioners and Clients

1. Couch v. U.S.

2. U.S. v. Arthur Young & Co.

3. U.S. v. Frederick

B. The Section 7525 Privilege â€" Overview

1. Section 7525 in General

2. Effective Date

C. The Kovel Doctrine

D. State-Created Accountant-Client Privileges

E. Work Product Doctrine

F. Fifth Amendment Protection of Tax Documents

G. Ethical Rules

II. The Section 7525 Privilege

Introductory Material

A. Legislative History

B. Extension of Attorney-Client Privilege

1. Relationship Between Attorney-Client Privilege and Section 7525

2. Scope of Attorney-Client Privilege - In General

C. Applies Only to "Federally Authorized Tax Practitioners"

D. Applies Only to "Tax Advice"

1. Meaning of "Tax Advice"

2. Oral Advice

3. Pre-Return Advice

4. "Tax Advice" Contrasted With "Business Advice"

E. Applies Only to "Communications"

1. "Communications" Do Not Include Underlying Facts

2. Communication Must Be Made "by or for the Client"

F. Applies Only to Communications That Are "Confidential"

1. General Rule

2. Privilege Extends to Email and Other Electronic Communications

G. Privilege Belongs to the Client

H. The Privilege Must Be Claimed

1. I.R.S. Position on Oral Assertions of Section 7525

2. Privilege Logs

I. Burden of Proof

1. Interaction of Section 7525 and Section 6112

2. List Maintenance Requirements for Reportable Transactions

3. Asserting the Section 7525 Privilege in Response to a Request for List Information

III. Limitations on the Section 7525 Privilege

Introductory Material

A. Statutory Exception for Written Communications in Connection With the Promotion of a Statutorily Defined "Tax Shelter"

1. In General

2. Promotion of Direct or Indirect Participation in a "Tax Shelter"

B. Statutory Exception for Criminal Matters

C. Privilege Applies Only to Certain Federal Tax Matters and Proceedings

D. Privilege May Not Apply to Client Identity and Nature of Fee Arrangement

1. Client Identity Generally Not Privileged

2. Fee Arrangements Generally Not Privileged

3. Exceptions to General Rule

4. Cases Limiting Section 7525's Protection of Client Identity

E. Privilege Does Not Apply to "Tax Return Preparation"

1. Attorney-Client Privilege Does Not Extend to Tax Return Preparation

a. General Rule

b. "Research and Interpretation" Generally Not Necessary

c. Lawyer as "Scrivener"

d. Information Intended to Be Disclosed on Return

2. What Constitutes "Tax Return Preparation"

a. "Lawyer's Work" Versus "Accountant's Work"

b. Accountant-Attorneys â€" Dual Capacity Advisors

c. Advice Underlying a Return Position

d. Information Underlying Data on Return

3. Section 7525 Case Law on Application of Privilege to Tax Return Preparation

4. I.R.S. Position on Representation Letters and Tax Accrual Workpapers

F. Privilege Does Not Apply to Communications in Furtherance of a Crime or Fraud

G. Privilege Does Not Apply to Transfer of Pre-Existing Records

H. Privilege Does Not Apply if It Has Been Waived

1. General Rule

2. Failure to Claim Privilege

3. Intentional Disclosure

4. Inadvertent Disclosure

5. The Effect of Waiver: Subject-Matter Waiver

6. Effect of Filing Amended Return

7. Electronic Communications and Waiver

I. In-House Tax Practitioners

IV. The Kovel Doctrine: Privilege When Accountants and Other Non-Attorneys Assist Attorneys

Introductory Material

A. The Kovel Doctrine

1. U.S. v. Kovel

2. Extension of Kovel

3. Kovel Factors

a. Assisting Attorney in Providing Legal Advice

b. Assisting Versus Providing Legal Advice

c. Tax Return Preparation Exception

d. Serving as a "Translator"

e. Under Direction of Attorney

f. Attorney's Understanding of Subject Matter

4. Types of Communications Protected by Kovel

5. The Kovel Letter

B. The Kovel Doctrine in the Section 7525 Context

V. State Law Issues

Introductory Material

A. State Attorney-Client Privilege Law

B. State-Created Accountant-Client Privileges

1. Section 7525 Not Applicable to State Tax Proceedings

2. Overview of State-Created Accountant-Client Privileges

a. Types of State Privileges

b. Not Subject to Limitations of Section 7525

VI. Work Product Doctrine

Introductory Material

A. Distinguished From Attorney-Client Privilege and Section 7525 Privilege

1. Long-Term Capital Holdings v. U.S.

2. Black & Decker Corp. v. U.S.

B. Overview of Work Product Doctrine

1. Federal Rule of Civil Procedure 26(b)(3)

a. In General

b. Requirements for Application

c. May Be Overcome by Opposing Party

2. Meaning of "In Anticipation of Litigation"

a. Tax Return-Related Documents

b. Dual Purpose Documents

3. Application to Attorneys and Other Party Representatives

4. Accountants as Consultants

5. Ordinary Work Product Protection

6. Core or Opinion Work Product Protection

C. Claiming Work Product Protection

D. Crime-Fraud Exception

E. Waiver

1. Putting Information at Issue

2. Disclosure to Third Party

a. Disclosure to Outside Auditors

3. No Subject Matter Waiver as a General Rule


WORKING PAPERS

Working Papers

TABLE OF WORKSHEETS

Worksheet 1 Internal Revenue Code § 7525

Worksheet 2 Articles, Public Statements, and Letters Regarding Enactment of Accountant's Privilege (1997â€"1998)

Worksheet 3 Internal Revenue Service Restructuring and Reform Act of 1998, Pub. L. No. 105-206, § 3411(a) (1998)

Worksheet 4 H.R. 2676, 105th Congress, § 341 and § 3411

Worksheet 5 Excerpts From Congressional Record

Worksheet 6 Excerpts of Hearings Before the Committee on Finance, United States Senate, 105th Congress, Second Session, on H.R. 2676 (January 28, 29; February 5, 11, and 25, 1998)

Worksheet 7 Excerpts of Federal Reports Accompanying H.R. 2676

Worksheet 8 Staff of Joint Committee on Taxation, 105th Congress, General Explanation of Tax Legislation Enacted in 1998, at 86â€"88 (Committee Print 1998) (Blueblook)

Worksheet 9 American Jobs Creation Act of 2004, Pub. L. No. 108-357, § 813 (2004)

Worksheet 10 H.R. 4520, 108th Congress, § 613, § 406, and § 813

Worksheet 11 Federal Reports Accompanying H.R. 4520

Worksheet 12 Circular 230

Worksheet 13 Internal Revenue Manual

Worksheet 14 Internal Revenue Manual, Part IX, Criminal Investigation, Special Agents Handbook, MT 9781-149, § 344.2, Oct. 19, 1982

Worksheet 15 Articles, Public Statements, and Letters Regarding Tax Accrual Workpapers (2003â€"2005)

Worksheet 16 Sample Privilege Log Entries

Bibliography

OFFICIAL

Federal Statutes:

Treasury Regulations & Preambles:

State Statutes:

Public Laws:

Legislative History:

Court Rules:

Internal Revenue Manual:

I.R.S. Releases:

Securities and Exchange Commission:

SEC Releases:

Cases:

UNOFFICIAL

Books & Treatises:

Periodicals:

Miscellaneous: