In Uncategorized on 10/26/2017 at 16:58

Doesn’t Equal Waiver

The Great Dissenter, etc. etc., Judge Mark V. Holmes, is really swinging away today, his designated hitters wowing the fans. Here’s Estate of Marion Levine, Deceased, Robert L. Larson, Personal Representative and Trustee, Robert H. Levine, Trustee and Nancy S. Saliterman, Trustee, Docket No. 13370-13, filed 10/26/17.

This big-ticket case first appeared on my radar two years ago. See my blogpost “Unfair Surprise,” 11/21/15. My faithful readers know that when there’s big doin’s brewin’ at The Glasshouse, you’ll read about it here first.

So apparently IRS amended, and now the jumpball has to do with attorney work product and how wide a net can be cast over an attorney’s files, when the client claims reasonable cause. Although clearly no one was born yesterday, Neonatology is in play.

“The work-product privilege exists to prevent ‘unwarranted inquiries into the files and the mental impressions of an attorney’ because ‘it is essential that a lawyer work with a certain degree of privacy.’ Hickman v. Taylor, 329 U.S. 495, 510 (1947). The privilege specifically limits discovery of documents prepared ‘in anticipation of litigation.’ See Rule 70(c)(3); Fed. R. Civ. P. 26(b)(3); Bernardo v. Commissioner, 104 T.C. 677, 687 (1995). “In anticipation of litigation” means ‘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.’ Bernardo, 104 T.C. at 687 (quoting Linde Thomson Langworthy Kohn & Van Dyke, P.C. v. Resolution Trust Corp., 5 F.3d 1508, 1515 (D.C. Cir. 1983)); see also Simon v. G.D. Searle & Co., 816 F.2d 397, 401 (8th Cir. 1987). We’ve held that documents prepared during audit — and so before the IRS issues an NOD — can be created ‘in anticipation of litigation.’ Bernardo, 104 T.C. at 688. We’ve also held that documents prepared by a representative who isn’t directly retained, or who isn’t even a lawyer, can be work product. Id. at 687-88. Any documents that [attorney] and his firm produced after petitioners retained them specifically for this litigation likely fit within the definition of work product.” Order, at p. 2. (Name omitted).

Of course, attorney prepared the return and did the tax planning, and IRS wants the whole shebang, all ten (count ‘em, ten) years’ worth. Rob, Rob & Nan only want the stuff from inception to filing the return. They want to show reasonable reliance by the late Marion to dodge any chops.

Rob, Rob & Nan retained attorney as soon as the SNOD hit.

IRS admits the stuff they want is work product, but IRS claims that invoking reasonable reliance waives the privilege.

Of course, IRS is trying to go from first to third on a bloop single without touching second base. Judge Holmes’ rifle arm cuts them down.

“Respondent admits there’s no case directly supporting his position, but he does cite an opinion about attorney-client privilege and a recent order citing that case in a work-product context. In the opinion, Ad Inv. 2000 Fund LLC v. Commissioner, 142 T.C. 248 (2014), we held that raising a good-faith defense could waive attorney-client privilege. Id. at 255. But the only documents at issue there were the more-likely-than-not opinion letters written before the transaction; the IRS wasn’t seeking anything from after the taxpayer filed its return. See id. at 250. The same is true of the order that respondent cites, which concerned documents related to a taxpayer’s choice of transfer-pricing method — a choice it necessarily made before filing its return. See Eaton Corp. & Subsidiaries v. Commissioner, Docket. No. 5576-12, Order, May 11, 2015 (discussing both good faith and reasonable reliance).” Order, at p. 3.

Well, citing an Order is clearly out; Rule 50(f) calls the ball dead and the runner out when you try that, except for issue preclusion and law of the case in the same case.

Anyway, as to the Ad. Inv. 2000 Fund case, see my blogpost “Self-Determination,” 4/16/14; and as to the Eaton order, see my blogpost “The Forty Million – Part Deux,” 5/15/15.

OK, no waiver here. You waive privilege when you invoke it for more-likely-than-not cold-comforts prior to filing the return in the reasonable cause context, but invoking privilege for post-SNOD documents is another story.

But wait, there’s more!

“That’s not the end of our analysis. A party can get work product if he shows he has a “substantial need” for it. Fed. R. Civ. P. 26(b)(3)(A)(ii); Simon, 816 F.2d at 400; see also Hickman, 329 U.S. at 512 (burden on movant seeking discovery through court order or subpoena). Respondent says only that he has a ‘genuine need to review [attorney’s] files and communications ‘to rebut petitioners’ reasonable-cause defense. That defense will require petitioners to show that they gave a competent professional all pertinent facts and relied in good faith on his advice when taking the disputed return position. See Neonatology Assocs., P.A. v. Commissioner, 115 T.C. 43, 99 (2000), aff’d, 299 F.3d 221 (3d Cir. 2002). Respondent doesn’t explain why anything produced after petitioners took their return position, let alone after respondent mailed the notice of deficiency, could possibly lead to evidence that is relevant and admissible to this defense. The cliché is that subpoenas aren’t for fishing expeditions, see Wis. Psychiatric Servs., Ltd. v. Commissioner, 76 T.C. 839, 846 (1981); see also Rule 70(b) (discovery limited to items ‘relevant to the subject matter involved in the pending case’), but that’s not quite true. A well-placed baited hook or cast net may well be okay; this kind of large-scale drift-netting is not.” Order, at p. 3.

IRS can have from start of estate planning through filing the return. The rest is corban, as a much more exalted source put it.

I give all the cites here so you can drag-and-drop for your brief. Just don’t cite the order, OK?


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