Presenting a live 90-minute webinar with interactive Q&A 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 TUESDAY, JANUARY 20, 2015 1pm Eastern | 12pm Central | 11am Mountain | 10am Pacific Today’s faculty features: Edward L. Froelich, Of Counsel, Morrison & Foerster , Washington, D.C. Richard A. Nessler, Counsel, Shearman & Sterling , New York The audio portion of the conference may be accessed via the telephone or by using your computer's speakers. Please refer to the instructions emailed to registrants for additional information. If you have any questions, please contact Customer Service at 1-800-926-7926 ext. 10 . NOTE: If you are seeking CPE credit, you must listen via your computer — phone listening is no longer permitted.
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Attorney-Client Privilege and Work Product in Tax Controversies: New Standards for Waivers January 20, 2015 Strafford Publications Webinar Edward L. Froelich Richard A. Nessler Morrison & Foerster LLP Shearman & Sterling LLP 2000 Pennsylvania Ave., N.W. 599 Lexington Avenue Suite 6000 New York, NY 10022-6069 Washington, D.C. 20006 212-848-4003 202-778-1646 richard.nessler@shearman.com efroelich@mofo.com
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 6
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 or 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
Attorney-Client Privilege • The privilege is absolute unless an exception applies or 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. 12
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. 13
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 obtaining legal advice; and • The communications are related to the duties of 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 ordinary 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
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