In Uncategorized on 02/24/2022 at 16:26

My caption derives from the Federally-Authorized Tax Preparer privilege, enshrined in Section 7525(a)(1). This enactment spreads the invisible shield over advice and communications exchanged with the Circular 230 crowd, EAs, CPAs, ERPAs, and EActs, as well as attorneys at law admitted to practice in any State, Commonwealth or Territory.

IRS is trying to pry loose the shield in Picayune Pearl Aggregates, LLC, Picayune Pearl Aggregates Investors, LLC, Tax Matters Partner, Docket No. 7045-19, filed 2/24/22. The shield has two (count ’em, two) components, work-product and advice.

The Picayune Pearls ain’t so picayune, as they’ve taken a $170 million Section 170 deduction.

But the work product they’re trying to hide was prepared years before the NBAP that kicked off the FPAA that’s at issue here.

Judge Courtney D (“CD”) Jones has this one.

First, the work product doctrine. Work product shields from discovery documents, interviews, statements, memoranda, correspondence, briefs, mental impressions, and tangible things prepared by an attorney in anticipation of litigation or trial. The magic words are “in anticipation of litigation or trial.” There’s got to be a specific claim supported by concrete facts that would likely result in litigation.

Here, “…the documents at issue were prepared well before the Internal Revenue Service (IRS) even issued a Notice of Beginning of Administrative Proceedings (NBAP) on May 24, 2018. Consequently, it is difficult to conceive of a factual predicate that would have made it reasonable for Picayune Investors to anticipate litigation concerning the section 170 deduction at issue when these documents were created in 2015 and 2016.” Order, at p. 3, footnote 5.

Judge, if a client of mine even casually mentioned that they were considering taking a nine-figure charitable deduction for anything, and selling the same to high-rollers with big taxable gains, I’d be eo instante anticipating IRS would be doing the Matthew 24:28 number on them. But the Picayune Pearls lose that one. Note that Judge CD Jones cites a case where even a note from the IRS Art Advisory Panel questioning a deduction is enough to invoke work product for everything thereafter. So keep a lookout for casual billets doux from IRS.

Judge CD Jones defers opining whether the client-attorney variant of FATP covers the documents the Picayune Pearls seek to suppress. The privilege log submitted in support is too vague. The Picayune Pearls did ask for a mulligan via a status report in the first week in April, so Judge CD Jones gives them that.

Of course, if the Picayune Pearls are going to claim good-faith reliance on any thereof, privilege is impliedly waived. Here’s one version of implied waiver: “1) assertion of the privilege was a result of some affirmative act, such as filing suit, by the asserting party; (2) through this affirmative act, the asserting party put the protected information at issue by making it relevant to the case; and (3) application of the privilege would have denied the opposing party access to information vital to his defense.” Order, at p. 4. 5 Cir, to which the Picayune Pearls are Golsenized, has a simpler version, but it’s the same story.

Of course, at least in 5 Cir, if their petition was artfully drafted, the Picayune Pearls could claim reliance on statutes, regs, decided cases, administrative practices, policies, and procedures, and never mention what their lawyers and CPAs told them. Practice tip: Take a look at the Schlumberger case, discussed in Order, at p. 5.


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