Great Article on the Taxpayer Privilege

Yes, there is a taxpayer privilege.  It is narrow, to be sure, but it exists.  On July 22, 1998, President Clinton signed into law the Internal Revenue Service Restructuring and Reform Act of 1998. taxpayerThis amendment of the Internal Revenue Code, which included the so-called Taxpayer Bill of Rights, contained provisions intended to enhance taxpayers’ rights with the IRS.  Included in this amendment was a limited evidentiary privilege that protects confidential communications between taxpayers and non-lawyer tax practitioners, including accountants.  The amendment is codified at 26 U.S.C. § 7525.

For a detailed look at the taxpayers’ privilege, you should read Washington, D.C. lawyer Christine S. Hooks’ well written article, The Tax-Related Privilege You May Have Already Waived.  Published in the March 2013 issue of The Federal Lawyer, and accessible here with permission, Ms. Hooks’ article explains the privilege’s relation to the attorney-client privilege and defines who qualifies as a tax practitioner for purposes of establishing the privilege.  The article addresses the privilege’s scope and its exceptions.  And, importantly, Ms. Hooks discusses how easily one can waive the privilege without careful attention to its application.

The article is a must-read for those dealing with tax-related communications, whether to an attorney or to a non-lawyer tax practitioner.  My thanks to Ms. Hooks and the Federal Bar Association for permission to reprint the article in this post.

Protecting Witness Statements from Discovery 1

A critical part of an attorney-led investigation involves interviewing witnesses, whether corporate-employee witnesses, outside consultants, or independent, third-party witnesses.  Corporate counsel must determine whether to document the witness’s interview and, if so, whetherwitness by summary memorandum, audio- or video-recording, signed witness statements, or otherwise.  The questions become whether documented witness statements are discoverable and how in-house and outside corporate counsel should handle these statements to maximize the potential for protection.

Several issues arise in answering these questions.  While the corporate attorney-client privilege may (depending on your jurisdiction) protect counsel’s employee-interview notes, does it also protect a signed an employee’s signed statement? The work-product doctrine, which is a preclusion doctrine rather than an evidentiary privilege, may protect a lawyer’s summary memoranda of witness interviews, but the protection is not absolute and may give way upon a sufficient showing of need.  And federal and state civil procedure rules may differ, causing a witness statement to be discoverable in a state forum even if not in a federal forum.

In my article, Protecting Witness Statements from Discovery, recently published by InsideCounsel, I explore all these issues.  The article, accessible here, distinguishes the too-often-conflated work-product doctrine and the attorney-client privilege.  It also outlines legal arguments for protecting witness statements of corporate employees and independent witnesses, and concludes with a set of practice tips for in-house or outside counsel when dealing with witness interviews.  My thanks to InsideCounsel for permission to repost my article in this blog.

Court Refuses to Expand Privilege for Intracorporate Communications

It’s a simple concept: the attorney–client privilege generally protects from compelled disclosure a client’s communications to his client.  And under the Upjohn subject matter test, the corporate attorney–client privilege generally protects corporate employees’ communications to the company’s in-house counsel. Upjohn Co. v. United States, 449 U.S. 383 (1981).

The question arises whether the privilege applies to communications between corporate employees regarding a legal matter, yet occurring without an in-house lawyer present. corporateemployeesWhile not a frequently addressed subject, several courts have applied the privilege to intracorporate communications if the communications’ purpose is to facilitate the rendition of legal services.  For a collection of cases, see Alexander C. Black, What Corporate Communications are Entitled to Attorney–Client Privilege, 27 A.L.R.5th 76 § 44 (1995).  But Magistrate Judge Stephanie A. Gallagher of the U.S. District Court for the District of Maryland recently refused to expand the privilege to communications among corporate employees and inventors of a patent owned by the corporation.  Prowess, Inc. v. Raysearch Labs. AB, 2013 WL 509021 (D. Md. Feb. 11, 2013).

Prowess, Inc. licensed a patent from the University of Maryland–Baltimore (UMB).  The patent inventors were UMB employees.  During discovery, Raysearch sought communications between the patent inventors and Prowess employees.  Prowess claimed the corporate attorney–client privilege protected these communications because they occurred at the direction of Prowess’ attorneys.

Judge Gallagher agreed that the privilege may apply to intracorporate communications, but noted that, while the patent inventors had a relationship with Prowess, they were not Prowess employees.  And on this basis, she ruled that, because the inventors were third parties, Prowess employees’ communications with the inventors “cannot be considered ‘intracorporate.’”  Judge Gallagher rejected the privilege and ordered disclosure of the conversations between Prowess employees and the patent inventors.

PoP Analysis. Judge Gallagher’s ruling comports with the maxim that evidentiary privileges should not be lightly created nor expansively construed.  United States v. Nixon, 418 U.S. 683, 710 (1974). Extending the corporate attorney–client privilege to communications between corporate employees and third parties—despite the relationship—goes too far even if these discussions will assist in-house counsel.

The Kovel doctrine may prove a better alternative to gain privilege protection for this type of communication.  Originating in United States v. Kovel, 296 F.2d 918 (2d Cir. 1961), the doctrine holds that clients may involve certain experts (accountants in Kovel) to assist an attorney’s understanding of certain concepts.  And so long as necessary for counsel to render legal advice, the Kovel doctrine extends the attorney–client privilege to these discussions.