Attorney-Client Privilege: The Tax Court Examines Implied Waiver.



As the attorney-client privilege provides protection for communications between lawyers and clients, that protection could be lost through waiver. Probably the most apparent example is definitely an express waiver, but courts also notice that a waiver can happen in situation where a person basically puts fortunate communications in issue by pleading claims or defense. A week ago, the Tax Court checked out implied waiver of privilege poor challenging to penalty determinations. AD Inv. 2000 Fund LLC v Comm’r, 2014 U.S. Tax Ct. LEXIS 13 (Apr. 16, 2014).

AD Investment came about inside a consolidated partnership level proceeding involving two LLCs that elected partnership treatment and involved in a “Son of BOSS” tax shelter. The federal government searched for to compel manufacture of a number of opinion letters that were made regarding the the tax shelter transaction the motion was premised on the concept the partnerships had waived the privilege by challenging the substantial understatement penalty with defenses, for example reasonable cause, that switch on their beliefs or condition of mind. 2014 U.S. Tax Ct. LEXIS 13, slip op. at *3-*4. In reaction, the partnerships stated that they might satisfy their burden on their own defenses without relying upon the opinions and, consequently, that no waiver had happened.

Underneath the Treasury Rules, a citizen satisfies its burden of creating reasonable cause poor a considerable understatement penalty two ways:

by performing its very own research into the details and relevant government bodies and fairly conclude in good belief the tax position is in all likelihood to become upheld, Treas. Reg. § 1.6662-4(g)(i)(A) or

by reasonably relying in good belief upon a viewpoint from the professional consultant when the opinion rests upon the advisor’s research into the relevant details and government bodies and clearly claims that it is more probably these days the tax position is going to be upheld, Treas. Reg. § 1.6662-4(g)(i)(B).

Because the partnerships could contest the substantial understatement penalty without the advantage of a tax opinion, their argument against implied waiver made an appearance to become a minimum of plausible. The Tax Court, however, wasn’t convinced. Within the court’s view, whether or not the partnerships elected to sustain their defense towards the penalty because that they conducted their very own tax analysis, the opinions the partnerships had received were relevant that issue, because the defense place the partnership’s legal understanding in issue, fairness determined the opinions get offers for towards the government. 2014 U.S. Tax Ct. LEXIS 13, slip op. at *16-*18.

Jim Malone is a tax lawyer in Philadelphia. © 2014, Malone LLC.




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