Attorney-Client Privilege and Work Product in Tax Controversies: New - - PowerPoint PPT Presentation

Attorney-Client Privilege and Work Product in Tax Controversies: New Standards for Waivers

Leveraging Defenses, Alternative Methods for Document Production, and Best Practices for IRS Examinations to Prevent Waiver

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Attorney-Client Privilege and Work Product in Tax Controversies: New Standards for Waivers

Edward L. Froelich Morrison & Foerster LLP 2000 Pennsylvania Ave., N.W. Suite 6000 Washington, D.C. 20006 202-778-1646 efroelich@mofo.com Richard A. Nessler Shearman & Sterling LLP 599 Lexington Avenue New York, NY 10022-6069 212-848-4003 richard.nessler@shearman.com

January 20, 2015 Strafford Publications Webinar

6

Agenda

• I. Privilege Generally
• Attorney-Client Privilege
• Work Product Protection
• Accountant-Client Privilege
• II. Defenses That Avoid Waiver
• III. Best Practices for IRS Examinations
• IV. Alternative Methods for Document

Production

Privilege Generally

• What is Privilege?
• Privilege v. Duty of Confidentiality
• Major Taxpayer Privileges
• Attorney-Client
• Attorney-Work Product
• Accountant-Client Privilege

7

Attorney-Client Privilege-Defined

• Classic Definition
• “Where legal advice of any kind is sought from a

professional legal adviser in his capacity as such, the communications related to that purpose, made in confidence by the client, are at his instance permanently protected from disclosure by himself or by the legal adviser, except the protection may be waived.”

• Wigmore on Evidence (1904).
• Modern Definition
• “[T]he protection that applicable law provides for

confidential attorney-client communications.” FRE 502(G)(1).

8

Attorney-Client Privilege - Elements

• 1. Communications made for the purpose of

receiving legal advice;

• 2. From a legal advisor;
• 3. Which are made in confidence; and
• 4. The substance of which has not been disclosed

to strangers (i.e., third persons who are outside the privileged scope). Subject to several exceptions (crime/fraud, tax return preparation, and fiduciary relationship).

9

Attorney-Client Privilege

• Non-legal advice such as financial, accounting
• r business advice is not a proper basis to

invoke privileges to communication.

• Waiver as to one outsider probably results in a

waiver to all others for all time, but some policy exceptions are developing.

• Waiver of one communication may well be a

waiver of the entire subject matter addressed in that communication.

• In house tax professionals.

10

Attorney-Client Privilege

• The privilege belongs to the client, his guardian, or

successor in interest.

• Attorney can claim on behalf of client or former client

unless there is clear evidence of client’s intent to waive.

• Neither attorney nor client can be forced to disclose

privileged communications.

• Attorney cannot unilaterally waive.
• The purpose of the privilege is to encourage clients to

have complete and open discussions with their attorneys to enable the attorneys to act most effectively and serve the public interest of justice.

• The law protects certain confidential relationships.

11

12

Attorney-Client Privilege

• The privilege is absolute unless an exception applies
• r a client waives protection.
• Privileges apply at all stages of all proceedings

regardless of whether the client is a party in the proceeding.

• The privilege protects only disclosures that are

necessary to seek professional legal advice that could not be otherwise obtained.

• Documents may be privileged if they are

communications, or are prepared as a means of transmitting confidential communications, or are a record of confidential matter created by the attorney.

13

Attorney-Client Privilege

• Generally privilege must be established by

the party claiming its protection on a specific, document-by-document (or communication) basis.

• Blanket claims of privilege are not sufficient.
• A privilege log is kept to identify which

documents are privileged and why.

Attorney-client Privilege: Who is a Client?

• A client is a person or entity who receives or seeks

legal services from an attorney.

• A consultation without fees is sufficient.
• Services must be legal in nature:
• Cannot be business or accounting advice.
• Cannot be solely tax return preparation.
• A corporation’s lawyer usually represents the

entity rather than employees or shareholders.

• Joint privilege is possible when certain circumstances

exist, such as when:

• The employee clearly sought personal and confidential legal

advice from corporate counsel who knew of its personal nature and avoided a conflict of interest.

14

Privilege in the Corporate Setting

• Upjohn Co. v. United States, 449 U.S. 383 (1981) –

attorney-client privilege can extend beyond communications with individuals capable of controlling a corporation to communications of lower and middle level employees when:

• They are treated as confidential.
• They are communicated to counsel at the

direction of superiors for the purpose of

• btaining legal advice; and
• The communications are related to the duties
• f the employee.
• “Control group” test rejected.

15

Attorney-Client Privilege: Corporate Situations

• Communications between attorneys and employees of related

entities and subsidiaries may be considered privileged when the confidential information is critical to the representation by the attorney(s).

• One court found this to be the case for communications that

concerned the tax consequences surrounding the interaction of a parent and its subsidiaries.

• Some courts have required corporations claiming privilege to

show that communications to in-house counsel were primarily for the purpose of obtaining legal advice as opposed to

• rdinary business advice or other purposes.
• A corporation cannot immunize every document by sending a

copy to its attorney(s). If nonlegal employees also review documents they will likely not be confidential communications for legal advice.

16

Dual Purpose Documents: Legal and Accounting Advice

• Taxpayers have been denied privilege claims

when documents were prepared by both accountants and attorneys, or someone who serves both roles.

• Taxpayers cannot immunize their tax returns by

having them prepared by a lawyer instead of an accountant.

• The non privileged use of dual-purpose

documents can waive the privileged use.

17

Dual Purpose Documents: Legal and Accounting Advice

• Documents prepared for audits to substantiate

positions taken on tax returns are not privileged because the preparation of tax returns and substantiating those returns is not considered to be the practice of law.

• Analysis of law, however, is legal work even if done

for an audit.

• Information can become so intertwined with legal

advice that it becomes privileged.

• Privilege may apply to certain communications while

excluding others from the same transaction.

18

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• credit. If you have not already printed one, the form is posted in the “Handouts” tab in the “Conference

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Verification Code #1

• TXFDVC

Waiver of Attorney-Client Privilege

• Types of disclosure include:
• Deliberate disclosure to third party;
• Advice of counsel defense (sword/shield);
• Inadvertent disclosure.

20

Waiver of Attorney-Client Privilege

• The attorney-client privilege is waived when the client places

an otherwise privileged tax opinion in controversy by asserting a reasonable cause defense to accuracy-related penalties.

• In Ad Investments 2000 Fund LLC v. Commissioner (142 T.C.

13 [April 14, 2014]), taxpayers raised a reasonable cause defense to accuracy-related penalties imposed on a Son-of- Boss transaction. The Service sought to compel the production of six opinion letters issued by Brown & Wood LLP. The taxpayer argued that the partnership reasonably believed that its tax treatment of partnership items was more likely than not the proper tax treatment without relying on the tax

• pinions. The Service argued that the taxpayer placed the tax
• pinions in controversy by relying on an affirmative defense to

penalties that turns on the partnerships’ beliefs or state of mind.

21

Waiver of Attorney-Client Privilege

Ad Investments 2000 Fund LLC

• The Tax Court found that the taxpayer placed the

partnerships’ legal knowledge, understanding, and beliefs into contention, topics which the tax opinion may

• bear. The Court held that if the taxpayer is to rely on its

legal knowledge and understanding to establish reasonable cause and good faith, “it is only fair that respondent be allowed to inquire into the bases of that person’s knowledge, understanding, and beliefs including the opinion.” The Tax Court granted the Services’ motion to compel.

22

Work Product – Defined

• “Work product protection” means the protection

that applicable law provides for tangible material (or its intangible equivalent) prepared in anticipation of litigation or for trial.

• FRE 502(g)(2)
• Document based protection
• Policy: An attorney should not be able to obtain

an unfair advantage by peering into the adversary’s thoughts and analysis.

23

Attorney-Work Product

Hickman v. Taylor, 329 U.S. 495 (1947)

• “[I]t is essential that a lawyer work with a certain degree
• f privacy, free from unnecessary intrusion by opposing

parties and their counsel. Proper preparation of a client’s case demands that he assemble information, sift what he considers to be the relevant facts, prepare his legal theories and plan his strategy without undue and needless interference… This work is reflected, of course, in interviews, statements, memoranda, correspondence, briefs, mental impressions, personal beliefs, and countless other tangible and intangible ways…”

24

Work Product – Elements

• Principles enunciated in Hickman were substantially codified

in Federal Rule of Civil Procedure 26(b)(3). 1. Documents and tangible things; 2. Prepared in anticipation of litigation or for trial; and 3. Prepared by or for a party or by or for the party’s representative.

• Extends beyond attorney-created documents
• Because the doctrine promotes the adversary system by

safeguarding the fruits of an attorney’s trial preparation, and not a confidential relationship, disclosure to a third party which is not inconsistent with maintaining secrecy against

• pponents is not a waiver.

25

Work Product – Anticipation of Litigation

• Circuit Court split
• Majority view
• A document is privileged if it was prepared “because of”

potential or anticipated litigation. United States v. Adlman, 134 F.3d 1194 (2d Cir. 1998).

• But see, Schaeffler v. U.S., 2014 U.S. Dist. LEXIS 72710

(S.D.N.Y. May 29, 2014) (app pending); U.S. v. Textron Inc., 577 F.3d 21 (1st Cir. 2009).

• Minority view
• A document is privileged if the “primary motivating purpose” for

preparing the document is preparation for litigation. U.S. v. El Paso Co., 682 F.2d 530 (5th Cir. 1982).

26

Waiver of Work Product

• A different test from attorney-client

privilege waiver

• Was document disclosed to an adversary
• r conduit to an adversary?
• Does disclosure to a financial auditor

waive work product protection?

27

Federally Authorized Tax Practitioner Privilege - Section 7525

• Statutory privilege enacted by Congress in 1997
• Intended to protect communications regarding Federal tax advice

between non-attorney tax advisors and taxpayers as if the tax advisor was an attorney.

• Incorporates the Federal common law of attorney-client privilege

into the non-attorney tax advisor context.

• In-house tax advisors can provide section 7525 privileged advice to
• corporation. See United States v. Eaton Corp., 110 AFTR 2D 2012-

5638 (N.D. Ohio 2012).

• Same waiver rules apply.
• Limitations
• No application in criminal proceedings, civil litigation, state tax

matters or non tax regulatory investigations (e.g. SEC).

• No application to written communications in connection with the

promotion of a section 6662 tax shelter.

• Does not provide work product protection.

28

Federally Authorized Tax Practitioner Privilege - Section 7525

• Countryside Limited Partnership v. Commissioner,

132 T.C. 347 (2009)

• IRS could not demonstrate that handwritten notes were “written

communications,” or that written minutes were in connection with the promotion of a tax shelter.

• United States v. BDO Seidman LLP, 492 F.3d 806

(2007)

• Burden is on the IRS to establish that the “tax shelter” exception

applied.

• Valero Energy Corp. v. United States, 569 F.3d 626

(7th Cir. 2009)

• Tax shelter exception applied to portion of documents sought in

summons.

29

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Verification Code #2

• 1235

31

Effective Defenses to Avoid Waiver

• Selected “Limited” Waiver
• Kovel Agreement
• Joint Defense Agreement
• Agreement with IRS

Selective Waiver of Privilege: Does it still exist?

• Generally, voluntary disclosure of a privilege

communication to a third party will destroy the attorney-client privilege.

• Diversified Industries v. Meredith, 572 F.2d 596 (8th
• Cir. 1978 [en banc]) adopted the theory of “selective

waiver” related to voluntary disclosure of otherwise privileged material to government agencies.

• Relying on selective waiver, corporations have

subsequently divulged privileged information to the government with the expectation that the corporation could still assert the privilege as to private litigants.

32

Selective Waiver of Privilege

• Other than the Eight Circuit in Diversified Industries, no
• ther federal appellate court has upheld the selective

waiver doctrine.

Utility of confidentiality agreements

• The Second Circuit in In re Steinhardt Partners, L.P., 9

F.3d 230 (1993) acknowledged that a voluntary disclosure could be protected as a selective waiver if the disclosing party and the government have entered into an explicit confidentiality agreement. Second Circuit refused to adopt a per se rule against selective waiver, instead holding that courts should assess selective waiver on a case-by-case basis.

33

Selective Waiver of Privilege

• But see, United States v. Massachusetts Institute of

Technology, 129 F.3d 681 (1st Cir. 1997).

• In MIT, the IRS sought disclosure of documents

provided by MIT to the Defense Contracting Audit

• Agency. MIT refused, claiming the requested

materials were protected by the attorney-client privilege and work-product doctrine, and that its disclosure operated only as a selective waiver. The court broadly rejected the selective waiver doctrine where the existence of a confidentiality agreement would not have made a difference. The court stated that “[t]he general principle that disclosure normally negates the privilege is worth maintaining. To maintain it here makes the law more predictable and certainly eases its administration.”

34

Selective Waiver of Privilege

• Even with a confidentiality agreement in hand may not

prevent disclosure to a private litigant.

• In Gruss v. Zwirn, 2013 WL 3481350 (July 10, 2013,

modified Nov. 20, 2013), the Southern District of New York held that the voluntary disclosure of privileged communication to the government, even with a confidentiality agreement in place, can be treated as a waiver of attorney-client privilege with respect to the communication and the underlying source documents.

• Following voluntary disclosure of information to SEC

regarding financial irregularities, former CEO sued and sought production of attorney notes and summaries of witness interviews conducted by outside counsel. Defendants opposed, claiming the notes and summaries were protected by attorney-client privilege and the work- product doctrine.

35

Selective Waiver of Privilege

Gruss v. Zwirn

• District Court held that when a party selectively

discloses attorney-client communications to an adverse entity, the privilege is waived not only as to the materials provided, but also as to the underlying source material. Court also held that the law firm did not have a privacy interest in the interview notes that would protect them from disclosure. Court agreed to an in camera review of the interview notes to protect disclosure of notes that constituted opinion work product.

• In 2008, Congress considered, but decided against,

incorporating the selective waiver doctrine in the Federal Rules of Evidence.

36

Kovel Agreement

• Named after United States v. Kovel, 296 F.2d 9181 (2d Cir. 1961) –

covered communications between an attorney and an accountant.

• Under limited circumstances, attorney-client privilege may extend to

cloak communications involving third parties.

• The purpose of the third party is to assist the attorney in rendering

legal advice to the client. Thus, experts engaged by an attorney to assist in rendering tax advice and representation to a taxpayer fall under the attorney-client privilege.

• Kovel recognizes that the inclusion of a third party in attorney-client

communications does not destroy the privilege if the purpose of the third party’s participation is to improve the understanding of the communication between the attorney and client.

37

Kovel Agreement

• Kovel Agreement is not limited to accountants and can be extended

to any expert who acts as the attorney’s agent. See e.g., In re Copper Market Antitrust Litigation, 2001 WL 459164 (S.D.N.Y. 2001) (Kovel extended to communication with public relations firm retained by outside counsel.

• What about Investment bankers?

United States v. Ackert, 169 F.3d 136 (2d Cir. 1999). Circuit Court held that conversations between an investment banker and an in- house attorney were not privileged. Court would not extend Kovel because rather than translating or interpreting communication between the attorney and the client, the banker was simply providing factual information about a transaction to the attorney.

38

Joint Defense Agreement

• The Joint Defense Doctrine preserves the attorney-

client privilege, despite disclosure to third parties of the privileged information, when a client shares privileged communication among parties with common interest.

• Sometimes referred to as the common interest doctrine
• r common interest privilege.
• The doctrine emerged a century ago in the context of a

criminal defense, but has expanded to include parties in both civil and criminal matters, as well as non- parties.

39

Joint Defense Agreement

• Common interest privilege requirements:
• 1. The underlying communication is privileged;
• 2. The parties disclosed the communication in the course of a

joint defense effort;

• 3. The parties shared a common legal interest;
• 4. The parties have not waived the privilege.
• Doctrine does not apply when parties share only a

common business or commercial interest.

40

Joint Defense Agreement

• Courts have not uniformly defined the boundaries of

“common interest”

• Some courts require “identical” legal interest. (see e.g.,

Delaware)

• Other courts do not require a complete unity of interests

among the participants. (See, e.g., California, Florida)

• Courts are not in agreement whether the common interest

doctrine can apply absent anticipated or pending litigation, an element similarly required under the work product doctrine.

• Some courts require actual or pending litigation at the time of

the privileged communication. (see e.g., Colorado)

• Other courts have found it unnecessary that there be actual or

pending litigation. (See, e.g., Second and Seventh Federal Circuits)

41

Joint Defense Agreement

• Advisable to document the existence of a common legal

interest in a joint defense agreement prior to the exchange of information.

• Some courts have refused to acknowledge the existence of a

joint defense agreement in the absence of a written agreement. (See e.g., California)

• The written agreement should include the following:
• 1. the parties intend their communication to be privileged;
• 2. the communication shall remain confidential;
• 3. any party is permitted to withdraw from the agreement upon

notice to all other parties;

• 4. each party retains the right to independently settle the

underlying lawsuit; and

• 5. parties should address how to resolve potential conflicts.
• The written agreement in and of itself does not ensure

that the common interest protection will be sustained.

42

Joint Defense Agreement

• United States v. BDO Seidman LLP, 492 F.3d 806 (7th Cir.

2007)

• BDO asserted privilege over a memorandum sent to

Jenkens & Gilchrist who did not represent BDO.

• Jenkens & Gilchrist jointly serviced tax clients with BDO on

the same or related transactions.

• No formal joint defense agreement. Seventh Circuit

concluded that BDO and Jenkens shared a common legal interest because they were acting as joint ventures to defend their tax products.

• Court found that BDO shared the document with Jenkens so

that they could coordinate a “common legal position that BDO and Jenkens would communicate later to common clients.”

• Court ruled that the communication need not be made in

anticipation of litigation.

43

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• credit. If you have not already printed one, the form is posted in the “Handouts” tab in the “Conference

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Verification Code #3

• HUGO

Best Practices

• In General
• Pre-Examination
• During the Examination

45

Pre-Examination

• Preserving the Privilege in the Corporate Setting
• Establishing Work Product
• Work Product and Duty to Preserve
• Protecting Work Product in Financial Audit

46

Protecting Privilege In the Corporate Setting

• Upjohn Co. v. U.S., 449 U.S. 383 (1981)
• Confidentiality
• “Need to know”

47

Upjohn

• Attorney-client privilege can extend beyond

communications with individuals capable of controlling a corporation to communications of lower-and middle- level employees.

• Focus is on: (1) employees necessary to facilitate legal advice to

corporation and (2) communications with employees being made pursuant to directions from corporate officials.

• Upjohn focused on communications between counsel and

employees, but later courts have generally found that Upjohn supports the general rule that “distribution within a corporation of legal advice received from its counsel does not, by itself, vitiate privilege.” In re: Buspirone Antitrust Litigation, 211 F.R.D. 249, (S.D.N.Y. 2002).

48

Confidentiality

• Confidentiality – avoiding any action inconsistent with

the confidential nature of the communication.

• Privilege waived where disregard for confidentiality.

See Coastal States Gas Corp. v. Department of Energy, 617 F.2d 854 (D.C. Cir. 1980) (circulation within the Department of Energy of audit memoranda produced during compliance audits).

• Confidentiality maintained no privilege waiver. See

FTC v. GlaxoSmithKline, 294 F.3d 141 (D.C. Cir. 2002) (clear admonitions not to further disseminate information was sufficient).

49

Need to Know

• Need to know -- keeping distribution to designated

group within the corporation

• Currency Conversion Antitrust Litig. v. Bank of Am., N.A., 2010 U.S. Dist. LEXIS

117008 (S.D.N.Y. Nov. 3, 2010) (dissemination to a many employees through training and other methods did not waive privilege because employees needed information to protect business relationships and amend customer contracts).

• Restricted list shows distribution to “need to know group” – GlaxoSmithKline

distribution to specifically named employees and contractors, most of whom were attorneys or managers who “needed to provide input to the legal department and/or receive the legal advice and strategies formulated by counsel.”

• Privilege waived where insufficient connection between recipient’s duties and
• information. Verschoth v. Time Warner Inc., 2001 U.S. Dist. Lexis 6693

(S.D.N.Y. 2001) (recipient did not “share responsibility” with regard to the subject matter of the information).

50

Inter-Company Considerations

• More than one corporate affiliate is involved in privileged

communications

• United States v. Veolia Env't N. Am. Operations, Inc., D. Del.,

2014 BL 309031, No. 1:13-mc-00003 (Oct. 31, 2014)

• Documents shared within a corporate family can be protected by

attorney-client privilege where other corporate members provided necessary input to counsel

• Cf. Schaeffler v. U.S., 2014 U.S. Dist. LEXIS 72710 (S.D.N.Y. May 29,

2014) (app pending) (common legal interest rule does not protect privileged communications where only common financial interest).

51

Establishing Work Product

• The key element creation in anticipation of litigation.
• Certain contexts are sufficiently adversarial to support

work product assertions.

• Preparing complaint or refund claim after IRS

appeals consideration

• Preparing documents to assist in hostile IRS audit
• Other contexts may be removed from an imminent

adversarial situation and would require more support

• Pre-audit (post or pre-return)
• Memorialize litigation-oriented aspects of document
• Counsel involvement/oversight in creation of

document

52

Duty to Preserve Documents

• “Spoliation” – violation of duty to preserve
• Once a party reasonably anticipates litigation, it must

preserve documents

• “Litigation Hold” procedures: when does the duty arise?
• During audit?
• Consolidated Edison Co. of N.Y. v. United States, 90
• Fed. Cl. 228 (Fed. Cl. 2009)
• Unique features of tax disputes
• Court found insufficient evidence that taxpayer

should have anticipated litigation

53

Duty to Preserve

• The duty to preserve documents and the penalty for failure to do so,

i.e., spoliation, are defined by the courts.

• Consolidated Edison Co. of N.Y. v. United States, 90 Fed. Cl. 228 (Fed.
• Cl. 2009) (“Sanctions for spoliation arise out of the court’s inherent

power governed not by rule or statute but by the control necessarily vested in courts to manage their own affairs so as to achieve the

• rderly and expeditious disposition of cases.”) (citations omitted).
• The duty to preserve arises when litigation is reasonably

anticipated:

• “While a litigant is under no duty to keep or retain every document in its

possession, once a party reasonably anticipates litigation, it must suspend its routine document retention/destruction policy and put in place a litigation hold to ensure the preservation of relevant documents.” Adorno v. Port Auth. of New York and New Jersey, 258 F.R.D. 217, 227 (S.D.N.Y.2009).

54

Duty to Preserve

• Does the duty to preserve arise at the same time work product is created?
• Consolidated Edison addressed whether the taxpayer failed in its duty to

preserve potentially relevant emails in the migration of those emails from

• ne server to another in 2000. At an earlier juncture the court had

rejected the taxpayer’s claim that a 1997 tax memorandum was work

• product. In moving for sanctions, the Government adopted the taxpayer’s
• riginal argument that it had anticipated litigation in 1997 and so should

have preserved the emails.

• Court focuses on unique features of tax disputes where given the

“elaborate structure set up to administratively resolve disputes” with the IRS, the point in the IRS administrative process at which it is reasonable to conclude that litigation should be anticipated will differ in each case.

• Court holds that there was insufficient evidence indicating the taxpayer

should have anticipated litigation prior to the email migration.

• 1997 memorandum and a 1999 listed transaction notice did not

“predetermine” litigation.

55

Duty to Preserve

• Samsung Electronics Co., Ltd. v. Rambus Inc., 439

F.Supp.2d 524 (E.D. Va. 2006)

• The court found that defendant’s document retention

policy, which included the intentional destruction of discoverable documents as a part of the company’s IP litigation strategy, constituted spoliation. The court looked to the anticipation of litigation in the work- product doctrine:

• “The determination of when a party anticipated litigation is

necessarily a fact intensive inquiry, and a precise definition of when a party anticipates litigation is elusive. One helpful analytical tool is the more widely developed standard for anticipation of litigation under the work product doctrine.”

56

Duty to Preserve

• Special considerations in tax cases?
• Burden of proof always on taxpayer
• The Internal Revenue Code requires maintenance of relevant records

supporting return positions. Failure to maintain such records can result in the imposition of a negligence penalty under IRC Section 6662.

• The Government can ask for a finding that missing documents are

adverse to the taxpayer.

• Intentional destruction of relevant documents outside the normal

record retention policy raises other issues such as fraud, concealment and obstruction of justice.

• With respect to all significant transactions or large reported items,

at a minimum complete transactional documentation should be maintained, including key memoranda, notes etc. discussing such transactions and items, regardless of the requirements of the Code.

57

United States v. Deloitte

• 610 F.3d 129 (D.C. Cir. 2010) (D.C. Cir. 2010).
• Deloitte had three documents in its files over which Dow claimed

work product :

• A July 1993 draft memorandum created by Deloitte

based on a meeting with Dow’s attorneys regarding possible litigation of the tax treatment of the partnerships

• A September 1998 analysis created by Dow’s in-house

counsel

• A June 2005 tax opinion from Dow’s outside counsel
• DOJ moved to compel; court upheld the claims of work product.
• Holding: Following the majority view of the definition of work

product, (i) the three documents contained protected work product and (ii) work product was not waived upon disclosure to

• Deloitte. Remand to the district court to determine whether

portion of the 1993 Deloitte memorandum contain non-work product information.

58

Protecting Work Product in Financial Audit

• Keep a record regarding the purpose of meetings with
• utside auditors and their intention to discuss litigation

evaluations as part of their meeting agenda

• Supplement existing ethical requirements of

confidentiality for accountants regarding their attest client files with a specific agreement between the client and auditor setting forth conditions of confidentiality

• Request that the auditor segregate from its own audit

workpapers work product documents received from the company

• Request that any use of such work product in the audit

workpapers be specifically identified to the company

59

During Examination

• Maintain rigorous document review and scrutiny
• Have counsel evaluate whether you can make a good

faith argument for privilege

• Not everything which involves counsel is necessarily

privileged

• Simply copying counsel on an email does not protect

the document unless the purpose is to engage counsel for legal advice

• Work product has special considerations
• Adequate privilege log
• Documents created during the audit to assist in defense
• f the audit can be work product/privileged

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Alternative Methods of Production in Audit

• The point is to preserve privilege and protections while

at the same time satisfying the IRS with its request for information

• As a general matter, the taxpayer’s historic legal

analysis should not be relevant

• IRS should generally not be interested in or even

requesting privileged documents

• Assertion of penalties however engages potential

reasonable cause and good faith argument

• Potential for waiver
• What to do when potentially privileged documents are

implicated by an IDR?

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Alternative Methods of Document Production

• Assert all bona fide privileges and protections and, if

needed, prepare a privilege log

• Alternatives to producing documents
• Persuade IRS that it is not necessary for them to

evaluate the issue

• Provide fresh analysis
• Provide redacted documents

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Note: Answers MUST be submitted on your Official Record of Attendance form used for continuing education

• credit. If you have not already printed one, the form is posted in the “Handouts” tab in the “Conference

Materials” box in the left-hand side of your screen.

Verification Code #4

• BURKE

Note: Answers MUST be submitted on your Official Record of Attendance form used for continuing education

• credit. If you have not already printed one, the form is posted in the “Handouts” tab in the “Conference

Materials” box in the left-hand side of your screen.

Verification Code #5

• TXBXLA

Note: Answers MUST be submitted on your Official Record of Attendance form used for continuing education

• credit. If you have not already printed one, the form is posted in the “Handouts” tab in the “Conference

Materials” box in the left-hand side of your screen.

Verification Code #6

• BEE