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A recent case in the Fifth Circuit led an appeals panel to find that a law firm cannot invoke attorney-client privilege when it comes to a summons from the IRS. Taylor Lohmeyer Law Firm PLLC of Kerrville, Texas, filed a petition to quash a 2018 "John Doe" summons from the IRS seeking information on the firm's clients. But, on appeal, the court held that a client's identity was not protected.
The case began with an investigation by the IRS' Special Enforcement Program, which identifies taxpayers involved in "abusive transactions" and other attempts to avoid paying taxes. One of the law firm's clients became a target of the investigation when an audit showed they had used the firm's services to create several foreign accounts - which they allegedly used to funnel unreported income.
The IRS issued a "John Doe" summons to the firm, which does not identify the person whose liability is connected to the investigation. The summons requested the firm to identify other clients for whom they had established foreign accounts or entities.
Although attorney-client privilege generally does not protect client's identities, there is an exception when disclosing the identity would result in disclosure of confidential communications. The firm argued that this exception applied in their case because the IRS had already identified legal advice provided by the firm. Therefore, they argued, disclosing other clients' identities would allow the IRS to link that advice to those clients - resulting in the disclosure of confidential communications.
However, the court disagreed. Affirming the district court's dismissal, the Fifth Circuit panel found that the "narrow exception" only applied to cases where the client's identity was inextricably connected to confidential communication. As noted by the district court, the firm could have asserted privilege on certain documents. But, courts are hesitant to allow for a blanket privilege.