Thus spake 9 Cir in 1997 in support of the client-attorney privilege. I might want to suggest the clergy-penitent or even the intraspousal for that honor, but Judge Ronald L. (“Ingenuity”) Buch will let it pass, as he denies IRS’ latest attempt to pin the fraud chops on a couple als in Noel M. Parducci & Kenneth L. Parducci, et al., Docket No. 20894-19, filed 10/4/23, via a couple motions (hi, Judge Holmes). And of course the als are Crater Lake Trust and the Hoyals, making their fifth appearance on this my blog.

IRS wants to admit testimony by their trusty attorney, claiming either waiver of client-attorney or crime-fraud. Waiver occurs when the client shares privileged info (legal advice) with non-privileged persons, or makes the info public. IRS claims privilege waived when Hoyals testified in depositions about what trusty attorney did, thereby putting trusty attorney’s performance at issue.  

And privilege doesn’t exist where attorney’s advice is used to plan or further a crime or fraudulent scheme. Here there are some alleged backdated and altered documents presented at Exam.

Problem is, neither Crater Lake nor Hoyals claimed client-attorney, so until they do, IRS’ motion is denied without prejudice. And IRS hasn’t made out a case for crime-fraud.

But wait, there’s more, as the midnight telehucksters say.

IRS wants to reopen discovery to get documents relating to what the Hoyals and trusty attorney did at Exam.

Judge Ingenuity Buch isn’t having it.

“The primary issues are the parties’ liabilities for the years in issue. A related issue is the potential liability for fraud penalties. An issue often considered when determining whether a fraud penalty applies is the parties conduct during an examination. If the Commissioner has evidence of misleading statements or documents being provided during audit, he can present that evidence at trial. At this late stage of these proceedings, any incremental benefit of being able to show additional inconsistent statements is of limited value when weighed against the likely need to delay the trial of these cases that would be caused by reopening discovery.” Order, at p. 5. (Citation omitted, but get it for your files; you’ll probably be seeing a lot of it if you litigate fraud chops).