The trusty attorneys for Estate of Sharon F. Galliani, Deceased, Raymond A. Galliani, Successor In Interest and Raymond A. Galliani, Docket No. 17626-23, filed 4/18/25, get a Taishoff “Good Move, First Class,” when they “conceded on the record the affirmative defense of reliance on the advice of a professional tax advisor and the reasonable-cause exception under section 6662.” Order, at p. 3.

Thereby, they save attorney-client and a piece of Section 7525 preparer privileges.

In finding privilege, Judge Kashi Way finds “(T)he fact that Mr. Galliani, who is of advanced age, did not recall the names of his lawyers from decades ago does not annul that privilege.” Order, at p. 5. Taishoff says given the leisurely nature of Tax Court practice, this is a gratifying result.

As for trusty accountants, “…no privilege existed with respect to the professional tax advice they received from their accountants prior to July 22, 1998, the effective date of section 7525. Therefore, the multiple references to advice from accountants during this period cannot give rise to a waiver of privilege. Moreover, once petitioners abandoned their defenses of reliance on professional tax advice and reasonable cause, they were no longer putting ‘protected information at issue by making it relevant to the case,’ and the application of privilege does not deny the opposing party ‘access to information vital to his defense.’ Respondent argues that petitioners are using privilege as both a sword and a shield. But at least for the period before the effective date of section 7525, there is no sword being used by petitioners, and therefore they may rightly continue to shield their attorney-client communications.” Order, at p. 5. (Citation omitted).

But post 7/22/98 communication is a different story.

“To the extent petitioners have introduced into the record privileged communications during this period, there is the potential for a waiver of that privilege. Petitioners argue that any services received from their accountants after the effective date of section 7525 did not constitute tax advice but was merely tax return preparation. In the Court’s view, the advice petitioners received from Ms. S with respect to their FBAR obligations rose to the level of tax advice and thus established a privileged communication under section 7525. Ms. S’s advice to petitioners each year that they were not required to file an FBAR because petitioners only owned receivables under the private annuity arrangements goes beyond tax return preparation.” Order, at pp. 5-6. So any FBAR stuff has to be produced, but anything else can be redacted.

This is apparently an offshore (Cayman and Guernsey) trust case, where offshore bank involvement is key.

It’s a cautious calculus that needs to be applied when balancing possible waiver of Section 7525 cover with giving up reasonable-reliance-on-experts defenses. But as we’ve seen from recent cases, Section 7525 and client-attorney look a lot more robust on the statute book than in the courtroom.