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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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
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
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
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
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
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
1. Putting Information at Issue
2. Disclosure to Third Party
a. Disclosure to Outside Auditors
3. No Subject Matter Waiver as a General Rule
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
Treasury Regulations & Preambles:
Internal Revenue Manual:
Securities and Exchange Commission:
Books & Treatises:
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