Law Firms

Privilege doesn't protect law firm's client information from IRS summons, 5th Circuit says

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A Texas law firm has to comply with an Internal Revenue Service summons seeking information about any clients that created overseas accounts and entities, according to a federal appeals court.

The 5th U.S. Circuit Court of Appeals at New Orleans said revealing the clients to the IRS in its tax-evasion investigation does not violate the attorney-client privilege.

Law360 has coverage of the April 24 opinion.

The court ruled against the Taylor Lohmeyer Law Firm of Kerrville, Texas, which provides estate- and tax-planning advice to its clients.

The IRS had sought the information after a taxpayer audit found that the law firm had created offshore accounts that the taxpayer used to evade income taxes in the United States. The IRS wanted to learn whether other firm clients may have similarly used the law firm.

Generally, clients’ identities aren’t protected by the attorney-client privilege. Taylor Lohmeyer had argued that its clients’ identities were protected under an exception that bars disclosure when it would result in release of a confidential communication.

The 5th Circuit said the exception is a “limited and rarely available sanctuary” that applies when revealing the identity of a client would disclose confidential communications, such as the confidential motive for hiring a lawyer.

The exception doesn’t apply here because disclosure of clients who participated in overseas transactions doesn’t reveal motive or legal advice, the 5th Circuit said.

The IRS is more aggressively seeking potentially privileged information from law firms and tax practitioners, according to a Bloomberg Tax article. The article cited the IRS summons in the Taylor Lohmeyer case as one example.

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