Attorney-Client Privilege — Common Interest Privilege — Tax Practitioner’s Privilege

The Seventh Circuit in U.S. v. BDO Seidman, LLP, 492 F.3d 806 (7th Cir. 2007), was dealing with the same tax shelter strategy that brought about the demise of the law firm of Jenkens & Gilchrest. The IRS was seeking to enforce administrative subpoenas against the accounting firm of BDO Seidman, which defended in part on the ground that certain of the documents which had been jointly created by BDO and Jenkens were privileged under the Common Interest (Joint Defense) doctrine. The Seventh Circuit upheld the assertion of the privilege, on the following analysis:

1. Scope of Common Interest Privilege. ‛[T]he common interest doctrine extends the attorney-client privilege to otherwise non-confidential communications in limited circumstances. For that reason, the common interest doctrine only will apply where the parties undertake a joint effort with respect to a common legal interest, and the doctrine is limited strictly to those communications made to further an ongoing enterprise“ (492 F.3d at 815-16).

2. Anticipation of Litigation Irrelevant. ‛[C]ommunications need not be made in anticipation of litigation to fall within the common interest doctrine“ (id. at 816).

3. Rationale of Common Interest Privilege. ‛Reason and experience demonstrate that joint venturers, no less than individuals, benefit from planning their activities based on sound legal advice predicated upon open communication“ (id.).

4. Subsequent Dissemination to Clients/Customers Does Not Vitiate Privilege. ‛The district court concluded that BDO and Jenkens & Gilchrist, acting as joint venturers, shared a common legal interest ‘in ensuring compliance with the new regulation issued by the IRS,’ ... and in making sure that they could defend their product against potential IRS enforcement actions.... Communications do not cease to be for the purpose of receiving legal services just because the recipient intended to use the fruits of the legal services to guide its relations with customers“ (id. at 816, 817).

5. Burden of Proving Crime-Fraud Exception. ‛[O]ur our requirement [is] that the party seeking to abrogate the privilege need only ‘give colour to the charge’ by showing ‘some foundation in fact... The approach advocated by BDO and the Intervenors reflects the view of some circuits, which require enough evidence of crime or fraud to support a verdict in order to invoke the crime-fraud exception. [Citation omitted.] We expressly have rejected that approach“ ( id. at 817, 819).

6. No Waiver by Disclosure Unless Unanimously Consented to. “ [B]ecause the privileged status of communications falling within the common interest doctrine cannot be waived without the consent of all of the parties, Jenkens & Gilchrist's subsequent voluntary disclosure of the Kerekes Memorandum in response to the IRS' subpoena did not waive BDO's claim of privilege“ (id. at 817).

7. Tax Practitioner’s Privilege (26 U.S.C. § 7525) Places Burden on Government to Prove Tax Shelter Exception. ‛The IRS submits that § 7525(b)'s ... tax shelter ‘exception’ to the tax practitioner privilege is not an exception to the privilege, but an element of the privilege itself. Thus, under the IRS' theory, the party asserting the privilege must establish that the communication was not made ... ‘[to promote] any tax shelter.’ *** The plain wording of this subsection evinces a clear intent to treat the rule embodied in subsection (b) as an exception to the tax practitioner privilege“ (id. at 817).

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