U.S. Supreme Court Narrows Attorney Work Product Privilege for IRS Case
Yesterday, the U.S. Supreme Court refused to hear a case involving a ruling by the federal 1st Circuit Court of Appeals involving the attorney work product privilege. The refusal allows the Internal Revenue Service (IRS) to access work papers that were prepared by attorneys for Textron, Inc. The workpapers were prepared to evaluate what kind of reserves Textron should set aside for possible tax liabilities.
The 1st Circuit Court of Appeals had ruled that the documents weren't protected by the work-product doctrine because they weren't prepared specifically for use in litigation. The 1st Circuit also found that the document lost their attorney-client privilege because they were show to outside accountants who were unrelated to the attorneys, and "independent" of the client. United States v. Textron, Inc., et al. (2009).
What does such a ruling have to do with Asset Protection and Estate Planning? The answer is: PLENTY!!
When a client engages in asset protection planning and estate planning, there is almost always a team of advisors involved. The team often includes not only the attorney, but the accountant, a financial or investment advisor, often a life insurance advisor, perhaps a pension actuary or administrator, and sometimes others as well. Usually all of the team members have their own level of expertise about different issues, and often their experiences lend insight to planning options and alternatives.
This ruling by the 1st Circuit Court of Appeals has a direct and dramatic impact on the open sharing of information between and among the team of advisors. No longer will attorneys feel comfortable sharing work product information with the other team members if any of the work product developed by the attorney might be used against the client in litigation or other actions by the Internal Revenue Service (IRS). Calculations of potential tax liabilities from different scenarios obviously are at risk, as that was the specific issue involved with the Textron case. Explanations by the attorney of the relative advantages and disadvantages of alternative strategies may need to be limited to the client, rather than being shared with the whole planning team. Obviously, this will reduce the level of meaningful input from the other team members if planning ideas must be limited because of the potential future disclosure of that information to the IRS upon request or demand in litigation or other enforcement action.
It's possible, perhaps probable, that attorneys will now notate on all work papers, illustrations, evaluations, etc., that the chart, schedule, or other documentation is being prepared specifically for the purpose of evaluating litigation strategies in the event litigation arises out of the transactions involved.
From a planning perspective, this case outlines the parameters that must be met to ensure that documents intended to be privileged communications between attorney and client are in fact privileged communications. To maintain the privilege, such documents or other communications can not be shared with outsiders, including the estate planning team.
As Frederick Krebs, president of the Association of Corporate Counsel, said, the 1st Circuit's ruling "eviscerates the work-product doctrine." I also agree with Krebs statement after the Supreme Court refused to review the 1st Circuit's ruling: "This is an egregious blow to the well-established precedent on application of work product doctrine."
We'll just have to be a little more careful with information we provide clients and the restrictions we place on divulging that information to third parties, including the estate planning or asset protection planning team.
The 1st Circuit Court of Appeals had ruled that the documents weren't protected by the work-product doctrine because they weren't prepared specifically for use in litigation. The 1st Circuit also found that the document lost their attorney-client privilege because they were show to outside accountants who were unrelated to the attorneys, and "independent" of the client. United States v. Textron, Inc., et al. (2009).
What does such a ruling have to do with Asset Protection and Estate Planning? The answer is: PLENTY!!
When a client engages in asset protection planning and estate planning, there is almost always a team of advisors involved. The team often includes not only the attorney, but the accountant, a financial or investment advisor, often a life insurance advisor, perhaps a pension actuary or administrator, and sometimes others as well. Usually all of the team members have their own level of expertise about different issues, and often their experiences lend insight to planning options and alternatives.
This ruling by the 1st Circuit Court of Appeals has a direct and dramatic impact on the open sharing of information between and among the team of advisors. No longer will attorneys feel comfortable sharing work product information with the other team members if any of the work product developed by the attorney might be used against the client in litigation or other actions by the Internal Revenue Service (IRS). Calculations of potential tax liabilities from different scenarios obviously are at risk, as that was the specific issue involved with the Textron case. Explanations by the attorney of the relative advantages and disadvantages of alternative strategies may need to be limited to the client, rather than being shared with the whole planning team. Obviously, this will reduce the level of meaningful input from the other team members if planning ideas must be limited because of the potential future disclosure of that information to the IRS upon request or demand in litigation or other enforcement action.
It's possible, perhaps probable, that attorneys will now notate on all work papers, illustrations, evaluations, etc., that the chart, schedule, or other documentation is being prepared specifically for the purpose of evaluating litigation strategies in the event litigation arises out of the transactions involved.
From a planning perspective, this case outlines the parameters that must be met to ensure that documents intended to be privileged communications between attorney and client are in fact privileged communications. To maintain the privilege, such documents or other communications can not be shared with outsiders, including the estate planning team.
As Frederick Krebs, president of the Association of Corporate Counsel, said, the 1st Circuit's ruling "eviscerates the work-product doctrine." I also agree with Krebs statement after the Supreme Court refused to review the 1st Circuit's ruling: "This is an egregious blow to the well-established precedent on application of work product doctrine."
We'll just have to be a little more careful with information we provide clients and the restrictions we place on divulging that information to third parties, including the estate planning or asset protection planning team.
Posted by Randy Coleman at 5/25/2010 11:55 AM 
Categories: Income Taxes, Estate Taxes, Internal Revenue Service (IRS), Asset Protection
Tags: lawyer asset protection capital gains taxes estate tax Internal Revenue Service (IRS)
Categories: Income Taxes, Estate Taxes, Internal Revenue Service (IRS), Asset Protection
Tags: lawyer asset protection capital gains taxes estate tax Internal Revenue Service (IRS)
Comments