PRIVILEGE ISSUES IN THE ESTATE PLANNING ARENA

STEPHANIE LOOMIS-PRICE

Winstead PC 1100 JP Morgan Chase Tower

600 Travis Houston, Texas 77002

(713) 650-2750 Fax: (713) 650-2400

sloomisprice@winstead.com ©Stephanie Loomis-Price 2012. All rights reserved.

State Bar of Texas 36

th ANNUAL

ESTATE PLANNING AND PROBATE COURSE

June 27-29, 2012 San Antonio

CHAPTER 16

Shareholder

Wealth Preservation

Houston 713.650.2750 Direct 713.650.2600 Fax sloomisprice@winstead.com

Stephanie Loomis-Price primarily handles federal gift and estate tax litigation, including disputes and litigation with the Internal Revenue Service, as well as state fiduciary controversy work. She has assisted clients in numerous cases in the United States Tax Court, the United States Court of Federal Claims and the United States Court of Appeals for the Fifth, Eighth, and Eleventh Circuits. She also counsels clients regarding complex estate administration. Stephanie currently serves as probate editor of the quarterly Real Estate, Probate and Trust Law Reporter published by the State Bar of Texas, and on Council for the Real Property, Trusts and Estates section of the American Bar Association, as well as Co-Chair of the Continuing Legal Education Committee of the same organization.

Prior to entering private practice, Stephanie served as a law clerk to the Honorable Lawrence S. Margolis of the United States Court of Federal Claims in Washington, D.C.

Board Certified in Estate Planning and Probate Law, Stephanie is a Fellow of the American College of Trust and Estate Counsel.

In matters regarding increased estate tax asserted by Internal Revenue Service:

• Estate of Samuel P. Black, Jr.- successful defense of estate against IRS attempt to apply I.R.C. § 2036 to ignore family limited partnership for estate tax purposes (Estate of Black, et at. v. Commissioner, 133 T.C. No. 15 (Dec. 14, 2009).)

• Estate of Wayne C. Bongard- successful defense of estate against IRS in Tax Court case where IRS sought to apply I.R.C. § 2036 to ignore existence of limited liability company for estate tax purposes (Estate of Bongard v. Commissioner, 124 T.C. 95 (2005).)

• Estates of Eugene and Allene R. Stone- successful defense of estate against IRS in Tax Court cases where IRS sought to apply I.R.C. § 2036 to ignore the existence of five family limited partnerships (Estate of Stone, et at. v. Commissioner, 86 T.C.M. (CCH) 551 (2003).)

• Estate of Beatrice Dunn- successful Fifth Circuit appeal and reversal of Tax Court decision regarding valuation of closely held corporation (Estate of Dunn v. Commissioner, 301 F.3d 339 (5th Cir. 2002).)

• Estate of Helen Bolton Jameson -successful representation in Fifth Circuit appeal involving unrealized capital gains discount when valuing stock in closely held C-corporation (Estate of Jameson v. Commissioner, 267 F.3d 366 (5th Cir. 2001 ).)

In matters regarding increased gift tax asserted by Internal Revenue Service:

• Tom and Kim Holman- successful defense of taxpayers in gift tax case involving IRS assertion of step transaction/indirect gift (Holman v. Commissioner, 130 T.C. No. 12 (2008).)

• Charles T. McCord, Jr., and MaryS. McCord- successful defense of taxpayers in case of first impression regarding tax effect of gifts of limited partnership interests made by way of dollar­based defined value formula (Succession of McCord, eta/. v. Commissioner, 461 F. 3d 614 (5th Cir. 2006).)

In matters regarding attorney-client and related privileges:

• Estate of Nellie Segerstrom- successful representation of the estate in federal district court in response to an IRS summons of attorney-client privileged documents, and defense of the estate in Tax Court in an $18 million dispute with the IRS regarding the estate tax value of real estate partnerships (Estate of Segerstrom v. United States, 87 A.F.T.R.2d 2001-1153 (N.D. Cal. 2001).)

Georgetown University Law Center • J.D., 1998 • cum laude • Managing Editor, Georgetown Journal of Legal Ethics

The Johns Hopkins University • M.S., Applied Behavioral Science, 1996

Austin College • B.A., International Studies and Spanish, 1989

Fellow, American College of Trust and Estate Counsel

• Probate Editor of the quarterly Real Estate, Probate and Trust Law Reporter, State Bar of Texas, Real Estate, Probate and Trust Law Section

• American Bar Association, Tax Section; Real Property, Trusts and Estates Law Section; Past Chair, Tax Litigation and Controversy Committee; Co-Chair, Continuing Legal Education Committee; Member, Council; Member, Planning Committee

• Board Certified in Estate Planning and Probate Law, Texas Board of Legal Specialization

• Best Lawyers in America, 2010

• 2009 Judge Thomas Gibbs Gee Award for Outstanding Pro Bono Service

• 2008 Excellence in Writing Award, Probate & Property

• Texas Rising Star, Texas Monthly, 2006

• Lawyer on the Fast Track, H Texas, 2004

• Texas Super Lawyers, Texas Monthly 2010

• Texas, 1998

• U.S. Tax Court

• U.S. Court of Federal Claims

• U.S. District Court, Northern District of Texas

• U.S. Court of Appeals, Fifth, Eighth and Eleventh Circuits

• 9/25/2010- Informal Interview? Or Daunting Deposition?: Case Study on Preparing and Presenting Witnesses for IRS Interviews, American Bar Association Joint Tax/Real Property, Trust & Estates Section Fall 2010 Meeting, Toronto, Canada

• 6/14/2010- WANTED! Family Limited Partnerships (Dead or Alive?), Wells Fargo Private Bank, eCLE

• 5/7/2010- Appealing to a Higher Authority: Taking Your Case to IRS Appeals, American Bar Association's Spring Symposia, Philadelphia, Pennsylvania

• 4/29/2010- Privileges and Partnerships: Preparing for IRS Probes, Attorneys for Family Held Enterprises 2010 Annual Conference, Chicago, Illinois

• 4/9/2010 -What is in the Founder's Drawers? What is in Yours? Transactional Considerations in Creation and Succession of Family Limited Partnerships and Other Trust and Estate Entities, Texas Bar CLE's 16th Annual Advanced Estate Planning Strategies Course, Santa Fe

• 3/5/2010- Best Practices in FLP Planning: Pavlov's Response to IRC 2036, The California State Bar's Estate & Gift Tax Committee Conference, San Francisco, California

• 2/18/2010- Funding Estate Tax Liabilities: Exploring Graegin, § 6165, and § 6161, AU ABA Advanced Estate Planning Techniques, Maui, Hawaii

• 2/10/2010- Planning Through Death: Family Limited Partnerships Are Alive and Kicking, All Childrens' Hospital Foundation, The 1ih Annual Estate, Tax, Legal & Financial Planning Seminar, St. Petersburg, Florida

• 1/11/2010- We Could Tell You, But Then We'd Have to Kill You Privileges, Planning & Partnerships, Southern Nevada Estate Planning Council Conference, Las Vegas

• 12/15/2009- The Bucket List for Limited Partnerships: Planning for IRS Audit Before Death, LCPA 2009 Louisiana Tax Conference, New Orleans

• 12/8/2009- Black, White & Grae(gin): Borrowing to Pay Estate Taxes, American Bar Association eCLE

• 10/29/2009- Practice Pointers for Drafting Discovery in Fiduciary Fights, Texas Bar CLE's 20th Annual Estate Planning & Probate Drafting Course, Dallas, Texas

• 10/20/2009- UN-Certainties of Death and Taxes: Defending Estate Tax Returns with Closely Held Interests, 46th Annual Hawaii Tax Institute, Waikiki, Hawaii

• 9/25/2009- Nuts & Bolts: How to Read a Valuation Report, ABA Joint Fall CLE Meeting, Chicago, Illinois

• 1/17/2008- FLPs: Don't Leave Home Without One (but leave your home outside of it!), 42nd Heckerling Institute on Estate Planning, University of Miami, Orlando, Florida

Privilege Issues in the Estate Planning Arena Chapter 16

i

TABLE OF CONTENTS

I. ANTICIPATE YOUR POTENTIAL AUDIENCE DURING PLANNING STAGE ............................................. 1 A. Preparation for the Transfer Tax Audit or Dispute Begins at the Estate Planning Level ................................ 1 B. Understand the IRS‟s Broad Summons Power ................................................................................................ 1 C. Put Your Client in a Position to Produce Correspondence or Documents in Your File if it is in the

Client‟s Best Interest to Do So ........................................................................................................................ 1 D. Understand and Preserve All Privileges .......................................................................................................... 2

II. ATTORNEY-CLIENT COMMUNICATIONS AND WORK PRODUCT ........................................................... 2 A. Attorney-Client Privilege ................................................................................................................................ 2

1. Definition ................................................................................................................................................. 2 2. Two-Way Communications ..................................................................................................................... 2 3. Not Necessarily the Facts ........................................................................................................................ 2 4. Confidence ............................................................................................................................................... 2 5. Bills and Invoices .................................................................................................................................... 3 6. Not Business Advice ............................................................................................................................... 3 7. Dual Purpose ........................................................................................................................................... 3 8. Loan Officer/Lawyer ............................................................................................................................... 3 9. Tax Opinions ........................................................................................................................................... 3 10. Return Preparation May Not Be Privileged ............................................................................................. 3 11. How Do You Talk to an Entity? .............................................................................................................. 4 12. Crime/Fraud Exception ............................................................................................................................ 4 13. Beware Of Waiver ................................................................................................................................... 4

B. Work Product Doctrine.................................................................................................................................... 5 1. Definition ................................................................................................................................................. 5 2. Scope ....................................................................................................................................................... 5 3. Categories ................................................................................................................................................ 5 4. “Anticipation of Litigation.” .................................................................................................................... 5 5. What About Proposed Transactions?....................................................................................................... 6 6. Protection Is Not Absolute ...................................................................................................................... 6 7. Audit or Tax Return Work Papers Generally Are Not Protected ............................................................ 6 8. “Because Of” vs. Primary Purpose Test .................................................................................................. 6

C. The Physician-Patient Privilege ...................................................................................................................... 6 D. Tax Practitioner‟s Privilege ............................................................................................................................. 7

1. Definitions ............................................................................................................................................... 7 2. Obvious Limitations of Section 7525 ...................................................................................................... 7

III. PRIVILEGES IN THE APPRAISAL PROCESS ................................................................................................... 8 A. The Attorney Should Hire the Appraiser ......................................................................................................... 8

IV. THE KOVEL ACCOUNTANT: SOLUTION? ..................................................................................................... 8 1. Control ..................................................................................................................................................... 9 2. Clarification that Accountant‟s Work Is Not Pure Return Preparation ................................................... 9 3. Ownership ................................................................................................................................................ 9 4. Purpose .................................................................................................................................................... 9

B. Discuss the Methodology and Results of the Appraiser‟s Work With the Appraiser Before the Appraiser Drafts the Report............................................................................................................................. 9

V. THE EFFECT OF ASSERTING THE ATTORNEY-CLIENT PRIVILEGE ON THE BURDEN OF PROOF IN DISPUTED CASES ............................................................................................................................. 9

VI. CONCLUSION ..................................................................................................................................................... 10

EXHIBIT ....................................................................................................................................................................... 11

PRIVILEGE ISSUES IN THE ESTATE PLANNING ARENA (POWERPOINT PRESENTATION) ...................... 13

Privilege Issues in the Estate Planning Arena Chapter 16

1

PRIVILEGE ISSUES IN THE ESTATE

PLANNING ARENA

I. ANTICIPATE YOUR POTENTIAL

AUDIENCE DURING PLANNING STAGE

A. Preparation for the Transfer Tax Audit or

Dispute Begins at the Estate Planning Level

The typical knee-jerk reaction to a request for documents or correspondence (particularly documents in a lawyer‟s file) is to assert all applicable privileges and refuse to produce the documents. However, the attorney-client privilege and the attorney work product privilege may not protect all contents in your file. More importantly, the production of carefully drafted estate planning correspondence or similar documents in response to such a request can actually help you state your case with the examiner or in litigation. With that goal in mind, as you are working on a client‟s estate plan, assume that every document prepared by the estate planning lawyer, the client, the accountant, or any other person involved in the estate planning process may be reviewed by an IRS agent, appeals officer, district counsel, or ultimate finder of fact in tax litigation.

Preparation for the transfer tax audit or dispute truly begins at the estate planning level. When writing letters or internal memoranda, think about how that document will look to an IRS agent, an appeals officer, or the ultimate finder of fact in tax litigation. Have you focused on all relevant reasons for the transaction? Or only the estate and gift tax savings that might be achieved through the transaction? Advise your client and the client‟s advisors, such as accountants or stockbrokers who are involved in the estate planning process, that their files may be subject to production in a tax audit or in litigation, or perhaps the client will wish to waive the relevant privileges and voluntarily produce those files.

B. Understand the IRS’s Broad Summons Power

The IRS has broad summons powers that can be used to summons documents or compel testimony from a taxpayer, the taxpayer‟s representative, or a third party. For the purpose of “ascertaining the correctness of any return, making a return where none has been made, [or] determining the liability of any person for any internal revenue tax,” the IRS is authorized (i) to examine any books, papers, records, or other data that may be relevant or material to such inquiry, and (ii) to summon the person liable for tax or required to perform the act, or any officer or employee of such person, or any person having possession, custody, or care of books of account containing entries relating to the business of the person liable for tax or required to perform the act, or any other person the

IRS may deem proper to produce such books, papers, records, or other data. I.R.C. § 7602(a).

Subject to any applicable privileges, the IRS can summon the taxpayer, the taxpayer‟s attorney, the taxpayer‟s accountants, and other third parties to produce books, papers, records, or other data and to testify on matters relevant or material to the IRS‟s inquiry. This summons power includes lawyers, accountants, and others involved in the planning process. It also includes doctors or other health care providers. The range of discoverable documents is also very broad and generally includes all documents in any form (including, for example, computer files and emails).

To enforce a summons, the IRS must show that the summons: (1) was issued for a legitimate purpose; (2) seeks information relevant to that purpose; (3) seeks information that is not already within the IRS‟s possession; and (4) satisfies all administrative steps required by the United States Code. United States v. Powell, 379 U.S. 48, 57-58 (1964). However, the IRS‟s broad summons power remains subject to traditional privileges and limitations. United States v. Euge, 444 U.S. 707, 714 (1980). Thus, if the attorney-client privilege attaches to documents requested by the IRS, the IRS has no right to issue a summons to compel their production.

C. Put Your Client in a Position to Produce

Correspondence or Documents in Your File if

it is in the Client’s Best Interest to Do So The assertion of the privileges at the audit or tax

court level leads to an inference that the taxpayer is hiding something. Arguing that a document should be shielded from discovery by an examining agent or district counsel because it is either subject to the attorney-client privilege or was prepared in anticipation of litigation may have evidentiary implications. See, e.g., Estate of Shoemaker v.

Comm’r, 47 T.C.M. (CCH) 1462, 1464 n.7 (1984) (“Prior to trial, respondent sought discovery of estate planning files of Mr. Parsons‟ law firm pertaining to decedent. The attorney-client privilege was asserted and sustained by us, although we invited attention to the possibility that an unfavorable inference could be drawn from this assertion of the privilege.”).

In cases in which the IRS questions the motives or business purpose for forming a closely held entity, the best evidence of those motives can come from the correspondence prepared in connection with the transaction at issue. Well-drafted contemporaneous correspondence outlining the business and financial reasons (i.e., the non-tax reasons) for the transaction can serve as wonderful evidence to rebut an argument from the IRS that an entity lacks business purpose or was created as “a device solely to avoid taxes.” See,

e.g., John J. Wells, Inc. v. Comm’r, 47 T.C.M. (CCH)

Privilege Issues in the Estate Planning Arena Chapter 16

2

1114, 1116 (1984) (“While obviously the true facts can never be known with complete certainty by an outsider, . . . we base our conclusion upon our view of the spoken testimony and how that testimony, coupled with the documentary evidence, comports with human experience.”). Of course, certain documents may be withheld from production due to one or more applicable privileges. Thus, every estate planner should have a solid understanding of the relevant privileges.

D. Understand and Preserve All Privileges

Perhaps more importantly, the production of carefully drafted estate planning correspondence or similar documents in response to such an IRS request can actually help the taxpayer state your case with the examiner or in litigation. With that goal in mind, while a planner works on a client‟s estate plan, he or she must assume that every document prepared by the estate planning lawyer, the client, the accountant, or any other person involved in the estate planning process may be reviewed by an IRS agent, appeals officer, IRS counsel, or the finder of fact in tax litigation (perhaps a judge or even a jury).

As noted above, the IRS‟s summons power is limited to non-privileged material. Whether or not a privilege exists in the context of an IRS examination is a question of federal law. Jaffee v. Redmond, 518 U.S. 1 (1996); Fed. R. Evid. 501. There are four types of privileges of which estate planners should be aware: (i) the attorney-client privilege; (ii) the attorney work product doctrine; (iii) the tax practitioner‟s privilege; and (iv) various medical privileges.

II. ATTORNEY-CLIENT COMMUNICATIONS

AND WORK PRODUCT

A. Attorney-Client Privilege The attorney-client privilege exists to encourage

the complete and truthful exchange of all sensitive information between a lawyer and his or her client, by ensuring that the confidential information will remain in confidence. Like the Fifth Amendment protection against compelled self-incrimination, the policy recognizes that encouraging complete and honest disclosures to the lawyer is more important than requiring lawyers to testify against their clients.

1. Definition

Professor Wigmore‟s definition of the attorney-client privilege is set forth in VIII Wigmore, Evidence § 2292:

a. where legal advice of any kind is sought; b. from a professional legal adviser in his

capacity as such;

c. the communications relating to that purpose; d. made in confidence; e. by the client; f. are at his instance permanently protected; g. from disclosure by himself or by the legal

adviser; h. subject to waiver.

2. Two-Way Communications

The privilege also works in the other direction: it protects communications from the lawyer to the client. Alexander v. Fed. Bureau of Investigation, 198 F.R.D. 306, 309 (D.D.C. 2000) (“The attorney-client privilege must protect „a client‟s disclosures to an attorney,‟ and „the federal courts extend the privilege also to an attorney‟s . . . communications to a client, to ensure against inadvertent disclosure, either directly or by implication, of information which the client has previously confided to the attorney‟s trust.‟”) (quoting Coastal States Gas Corp. v. Dept. of Energy, 617 F.2d 854, 862 (D.C. Cir. 1980)).

3. Not Necessarily the Facts

The privilege attaches to the communication and does not necessarily insulate the underlying facts against disclosure. Rhone-Poulenc Rorer, Inc. v. Home Indem. Co., 32 F.3d 851, 862 (3d Cir. 1994).

4. Confidence

Above all else, the communication must be made in confidence and intended to remain in confidence. A communication between a client and a lawyer may not be privileged if it is made “in the presence of a third party” who is outside of the privilege umbrella. United States v. Evans, 113 F.3d 1457, 1462 (7th Cir. 1997). Specifically, no privilege attaches to any letter that shows a “cc” or “bcc” to someone outside the attorney-client relationship, and adding a “cc” to a lawyer extends no privilege to a letter to a third party. Andritz Sprout-Bauer, Inc. v. Beazer E., Inc., 174 F.R.D. 609, 633 (M.D. Pa. 1997) (“What would otherwise be routine, non-privileged communications . . . do not attain privileged status solely because . . . counsel is „copied in‟ on correspondence or memoranda.”); United States v. Davis, 636 F.2d 1028, 1041 (5th Cir. 1981) (“[D]ocuments created outside the attorney-client relationship should not be held privileged in the hands of the attorney unless otherwise privileged in the hands of the client. . . .”). However, communications with third parties, such as accountants or financial advisors, made to “assist the attorney in rendering advice to the client” also are generally protected. See, e.g., Segerstrom v. United

States, 2001 WL 283805 (N.D. Cal., Feb. 06, 2001). How to ensure that communications with third parties

Privilege Issues in the Estate Planning Arena Chapter 16

3

such as accountants can be cloaked with the attorney-client privilege is discussed below.

5. Bills and Invoices

Danger arises when IRS agents ask for invoices relating to all payables, and attorneys‟ invoices describing all manner of confidential information are produced without thought given to privilege issues. Generally, receipt and payment of a lawyer‟s bill are not privileged. United States v. Ellis, 90 F.3d 447, 450-51 (11th Cir. 1996) (“receipt of attorney‟s fees normally [is] not [a] privileged matter”); Chaudhry v. Gallerizzo, 174 F.3d 394, 402 (4th Cir. 1999). The descriptions in the invoices are, however, privileged – provided that privilege is not waived. Clarke v. Am. Commerce Nat‟l Bank, 974 F.2d 127, 129 (9th Cir. 1992) (“[C]orrespondence, bills, ledgers, statements, and time records which also reveal the motive of the client in seeking representation, litigation strategy, or the specific nature of the services provided . . . fall within the privilege.”).

6. Not Business Advice

The attorney-client privilege only extends to communications relating to soliciting and receiving legal advice – as opposed to general business advice. In re Grand Jury Subpoena Duces Tecum Dated Sept. 15, 1983, 731 F.2d 1032, 1037 (2d Cir. 1984) (“[T]he privilege is triggered only by a client‟s request for legal, as contrasted with business, advice.”); Olender v. United States, 210 F.2d 795, 806-07 (9th Cir. 1954) (holding that communications with lawyer who merely fills out form deeds and deposits client‟s money at bank not deemed to be confidential attorney-client communications).

7. Dual Purpose

What about dual purpose communications involving legal and business communications? The minority view is that any non-legal purpose precludes the privilege, but the better view looks to the dominant purpose. See, e.g., Neuder v. Battelle Pac. Nw. Nat‟l Lab., 194 F.R.D. 289, 292 (D.D.C. 2000) (“Where business and legal advice are intertwined, the legal advice must predominate for the communication to be protected.”); Pippenger v. Gruppe, 883 F. Supp. 1201, 1207 (S.D. Ind. 1994) (holding conversations “conducted „primarily for the purpose of securing legal opinions and legal services,‟ are not subject to discovery”).

8. Loan Officer/Lawyer

A rebuttable presumption may arise where the lawyer works in the General Counsel‟s Office, as opposed to the finance department. Boca Investerings P‟ship v. United States, 31 F. Supp. 2d 9, 12 (D.D.C.

1998) (“There is a presumption that a lawyer in the legal department or working for the general counsel is most often giving legal advice, while the opposite presumption applies to a lawyer . . . who works for the Financial Group or some other seemingly management or business side of the house.”).

9. Tax Opinions

Tax advice and tax opinions by counsel are arguably privileged. United States v. Tel. & Data Sys, Inc., No. 02C0030, 2002 WL 2023767, at *3 (W.D. Wis. Jul. 16, 2002); Wojdak v. First W. Gov‟t Sec., No. 83-1076, 1991 WL 160249, at *1 (E.D. Pa. Aug. 16, 1991) (finding that draft tax opinions were protected by attorney-client privilege because they “were for the purpose of giving legal advice to a client, and were expressly treated by the sender and the recipient as confidential”).

10. Return Preparation May Not Be Privileged

In many cases, lawyers may serve as the preparer of tax returns. A question arises as to what extent the work performed by the lawyer/preparer may fall under the attorney-client privilege. Courts have disagreed on whether tax return preparation by a lawyer is privileged.

a. Not Legal Advice?

Some courts have held that the preparation of a tax return is not the rendering of legal advice. See United States v. Davis, 636 F.2d 1028 (5th Cir. 1981); United States v. Gurtner, 474 F.2d 297 (9th Cir. 1973); Canaday v. United States, 354 F.2d 849 (8th Cir. 1966); In re Grand Jury Investigation (Schroeder), 842 F.2d 1223 (11th Cir. 1987). But see Colton v. United States, 306 F.2d 633, 637 (2d Cir. 1962) (“There can, of course, be no question that the giving of tax advice and the preparation of tax returns . . . are basically matters sufficiently within the professional competence of an attorney to make them prima facie subject to the attorney-client privilege.”).

b. Not Confidential

Other courts acknowledge an element of legal advice in the preparation of a return, but deny privilege based on a lack of expectation of confidentiality or a waiver. United States v. Lawless, 709 F.2d 485, 487 (7th Cir. 1983) (noting that no expectation of confidentiality in information to be included on return); In Re Grand Jury Subpoena Duces Tecum (Dorokee), 697 F.2d 277 (10th Cir. 1983); United States v. Cote, 456 F.2d 142 (8th Cir. 1972) (holding that disclosure waives privilege not only as to disclosed data but also as to details underlying the information on the return); United

Privilege Issues in the Estate Planning Arena Chapter 16

4

States v. El Paso Co., 682 F.2d 530 (5th Cir. 1982) (holding waiver by inclusion on return).

c. Contrary Position

Yet other courts have held such information privileged. Although the IRS has argued that information provided to an attorney for the purpose of preparing tax returns is outside the scope of the privilege, various courts of appeal have rejected this contention, holding that material provided in the context of return preparation may also have been for the rendition of legal advice and may be protected by the privilege. See, e.g., United States v. Abrahams, 905 F.2d 1276, 1282-83 (9th Cir. 1990), partially overruled on other grounds, United States v. Jose, 131 F.3d 1325, 1329 (9th Cir. 1997); United States v. Bornstein, 977 F.2d 112, 116-17 (4th Cir. 1992); United States v. Davis, 636 F.2d 1028, 1043 (5th Cir. 1981).

d. Distinguish Between Advice and Information

Disclosed on Return In light of the inconsistency among jurisdictions,

advisors should consider whether to separate files for a given client based on whether the primary purpose of the engagement was for tax preparation or for legal advice.

11. How Do You Talk to an Entity?

Special problems arise when the client is an entity. When the client is a corporation, a divergence exists between federal law and the law of some states. Since the Supreme Court‟s holding in Upjohn Co. v. United States, 449 U.S. 383, 392-97 (1981), counsel‟s communications with any corporation employees (though not shareholders) may be privileged under federal law, while some states still limit the privilege between counsel and the “control group” of employees. Even communications between counsel and former employees of the corporate client are generally treated as privileged. In re Allen, 106 F.3d 582, 605-06 (4th Cir. 1997). And, communications between counsel for the corporate parent and counsel for the subsidiary are generally privileged. In re Westinghouse Elec. Corp. Uranium Contracts Litig., 76 F.R.D. 47, 58 (W.D. Pa. 1977).

Beware that disclosure of privileged corporation communications to shareholders may constitute a waiver. Cf., Garner v. Wolfinbarger, 430 F.2d 1093, 1103-04 (5th Cir. 1970). By contrast, communications with and disclosures to the general partners of a partnership client are generally privileged. Abbott v. Equity Group, 1988 WL 86826 (E.D. La. 1988).

12. Crime/Fraud Exception The privilege attaches to communications

relating to completed crimes, but not ongoing or future crimes and frauds. This “crime-fraud” exception to the privilege requires a prima facie showing (as opposed to mere suspicion) that (i) the client is in the process of planning or committing a crime or civil fraud, and (ii) the attorney-client communication furthers that crime or fraud, generally by giving direction to it. In re Grand Jury Subpoena, 223 F.3d 213, 217 (3d Cir. 2000). Note that the exception applies even if the lawyer doesn‟t know about the crime or fraud. In re Grand Jury Proceedings, 604 F.2d 798, 802 (3d Cir. 1979).

13. Beware Of Waiver

Any action inconsistent with the maintenance of a privilege may constitute waiver and that waiver may extend to the entire subject matter. Bernardo v. Comm‟r, 104 T.C. 677, 682 (1995), citing In re Sealed Case, 676 F.2d 793, 807 n. 44 (D.C. Cir. 1982). At least in the Tax Court, the party asserting the privilege bears the burden of proving that he has not waived it. Hartz Mountain Indus., Inc. v. Comm‟r, 93 T.C. 521, 525 (1989). Even though the privilege always belongs to the client and the lawyer is not free to waive it without client authorization, a third party is entitled to enforce a waiver based on the actions of that same lawyer as an agent with apparent authority. Id.

Under the precedent of the D.C. Circuit – which governs evidentiary rulings in all Tax Court cases – even an inadvertent waiver by the lawyer (or the Kovel CPA) generally constitutes an enforceable waiver. In re Sealed Case, 676 F.2d at 793. And that waiver generally extends to the entire subject matter. Bernardo, 104 T.C. at 684-85. But see Long-Term Capital Holdings v. United States, 2003 WL 1548770 (D. Conn. 2003) (Disclosure of gist of “more-likely-than-not” tax opinion to auditors did not constitute waiver as to entire opinion.).

Also beware of “witness waiver.” Adverse parties are entitled to inspect anything shown to a witness at any time to refresh his recollection for the purpose of testifying. Fed. R. Evid. 612; Fed. R. Civ. P. 26; Nutramax Labs., Inc. v. Twin Labs, Inc., 183 F.R.D. 458, 468-72 (D. Md. 1998); Bailey v. Meister Brau, Inc., 57 F.R.D. 11, 13 (N.D. Ill. 1972); In re Pioneer Hi-Bred Int‟l Inc., 238 F.3d 1370, 1375 (Fed. Cir. 2001) (“[D]ocuments and information disclosed to a testifying expert in connection with his testimony are discoverable by the opposing party, whether or not the expert relies on the documents and information in preparing his report.”).

Furthermore, the advice of counsel cannot be used as a sword and then cloaked with a privilege. Columbia Pictures Television, Inc. v. Krypton Broad.

Privilege Issues in the Estate Planning Arena Chapter 16

5

of Birmingham, Inc., 259 F.3d 1186, 1196 (9th Cir. 2001) (“The privilege which protects attorney-client communications may not be used both as a sword and a shield. Where a party raises a claim which in fairness requires disclosure of the protected communication, the privilege may be implicitly waived.”); In re G-I Holdings, Inc., 218 F.R.D. 428 (D.N.J. 2003) (holding that privilege is waived in its entirety by raising “reliance upon tax counsel” as “reasonable cause” penalty defense under I.R.C. § 6664).

Finally, the client may wish to waive privileges in order to assert the defense that any underpayment of tax was made in good faith and due to reasonable cause. Reliance on the advice of tax advisors constitutes reasonable cause and good faith if, under all of the circumstances, such reliance was reasonable, and the taxpayer acted in good faith. In order to demonstrate reasonable reliance, the taxpayer may need to disclose what might otherwise be privileged information. Accordingly, each case should be viewed individually to determine whether the client might benefit from disclosure. This disclosure could include producing to the IRS all legal opinions and correspondence from the advisors – a possibility that few lawyers may consider when preparing opinion letters or other correspondence.

B. Work Product Doctrine

The work product of an attorney or his staff in anticipation of litigation is protected from disclosure. Hickman v. Taylor, 329 U.S. 495 (1947); Fed. R. Crim. P. 16(b)(2); Fed. R. Civ. P. 26(b)(3). In fact, the attorney work product doctrine is not a privilege, although some courts (and many practitioners) refer to it as one. Unlike the attorney-client privilege, its purpose does not lie in protecting confidential communications; its purpose is to encourage lawyers to thoroughly prepare for litigation (whether pending or not) through investigation of the good and the bad, without fear of being forced to aid his adversary at the expense of his client. In addition to its focus upon anticipated litigation, this doctrine also differs from the attorney-client privilege in that its protection can be pierced (in very limited circumstances) through no fault of the lawyer or his client.

1. Definition

The doctrine is defined by the narrow scope of its exception in this passage from the Federal Rules of Civil Procedure:

[A] party may obtain discovery of documents and tangible things otherwise discoverable under subdivision (b)(1) of this rule and prepared in anticipation of litigation

or for trial by or for another party or by or for that party‟s representative (including the other party‟s attorney, consultant, surety, indemnitor, insurer, or agent) only upon a showing that the party seeking discovery has substantial need of the materials in the preparation of the party‟s case and that the party is unable without undue hardship to obtain the substantial equivalent of the materials by other means. In ordering discovery of such materials when the required showing has been made, the court shall protect against disclosure of the mental impressions, conclusions, opinions, or legal theories of an attorney or other representative of a party concerning the litigation.

FED. R. CIV. P. 26(B)(3). 2. Scope

Note that the protection extends beyond just the work prepared by the attorney to work prepared by the client and the client‟s employees, agents, etc. at the direction of the lawyer. In re Perrigo Co., 128 F.3d 430, 437 (6th Cir. 1997).

3. Categories

The rule contemplates two types of work product: factual and opinion or “core” work product. Under unusual circumstances, factual work product is discoverable as described in the above-quoted Rule. See also In re Allen, 106 F.3d 582, 607 (4th Cir. 1997). By comparison, opinion work product “enjoys a nearly absolute immunity and can be discovered only in very rare and extraordinary circumstances.” Cox v. Adm‟r U.S. Steel & Carnegie, 17 F.3d 1386, 1422 (11th Cir. 1994), modified on reh‟g by 30 F.3d 1347 (11th Cir. 1994) (quoting In re Murphy, 560 F.2d 326, 366 (8th Cir. 1977).

4. “Anticipation of Litigation.”

To qualify for the protection, it is not necessary that the litigation have already been filed or be certain. Statements of the required level of anticipation vary. See, e.g., Energy Capital Corp. v. United States, 45 Fed. Cl. 481, 485 (2000) (“Litigation must at least be a real possibility at the time of preparation.”); A. Michael‟s Piano, Inc. v. Fed. Trade Comm., 18 F.3d 138, 146 (2d Cir. 1994) (holding that document must be created “with an eye toward litigation”); Schiller v. N.L.R.B., 964 F.2d 1205, 1208 (D.C. Cir. 1992) (holding that document must be created “in anticipation of foreseeable litigation”); United States v. Rockwell Int‟l, 897 F.2d 1255, 1266 (3d Cir. 1990) (holding that document must be created “because of

Privilege Issues in the Estate Planning Arena Chapter 16

6

the prospect of litigation”); Binks Mfg. Co. v. Nat‟l Presto Indus., Inc., 709 F.2d 1109, 1119-20 (7th Cir. 1983) (stating that party asserting privilege must show that “some articulable claim, likely to lead to litigation, [has] arisen”).

5. What About Proposed Transactions?

The fact that the work product relates to a proposed transaction is just one factor that suggests it was not prepared in anticipation of litigation and is not, in and of itself, dispositive. United States v. Adlman, 68 F.3d 1495, 1500-01 (2d Cir. 1995) (finding that corporate officer obtained tax memorandum regarding proposed reorganization from accountant/lawyer at Arthur Andersen).

6. Protection Is Not Absolute

Work product is not absolutely immune from disclosure, and some work product may be obtained by an adverse party upon a showing of substantial need. Upjohn Co. v. United States, 449 U.S. 383 (1981).

7. Audit or Tax Return Work Papers Generally Are

Not Protected Accountant‟s work papers and work product

generally are not protected, and any immunity for the work product of an investigative accountant must be derived from the attorney‟s work product privilege. United States v. Arthur Young & Co., 465 U.S. 805 (1984).

8. “Because Of” vs. Primary Purpose Test

Litigation need not be imminent or even the primary reason the documents were prepared, for the work product doctrine to apply. As long as the facts demonstrate that the documents were prepared “because of” anticipated litigation, the doctrine attaches. United States v. Adlman, 134 F.3d 1194, 1203-05 (2d Cir. 1995).

C. The Physician-Patient Privilege

IRS requests for information increasingly seek access to medical records of a decedent and interviews with treating physicians. Under state law, a doctor-patient privilege often protects such information. However, where the IRS is seeking to enforce a summons issued under federal statutory authority, federal privilege rules generally apply. See, e.g., United States v. Moore, 970 F.2d 48, 50 (5th Cir. 1992).1 The Fifth Circuit has held that there is no

1 When Congress adopted the final version of the new Federal Rules Evidence in 1975, it rejected the nine enunciated privileges in the proposed rules (which included a physician-patient privilege) in favor of a single rule

physician-patient privilege under federal law. Id. No other circuit has adopted the privilege. Although the Supreme Court has not yet directly addressed the issue, the Court has determined that federal courts should recognize a psychotherapist-patient privilege under Federal Rule of Evidence 501. Jaffee v. Redmond, 518 U.S. 1, 10 (1996). In Jaffee, the Supreme Court held that confidential communications between a licensed psychotherapist and a patient in the course of diagnosis or treatment are protected from compelled disclosure under Rule 501. In reaching its holding, the Court noted that:

Like the spousal and attorney-client privileges, the psychotherapist-patient privilege is „rooted in the imperative need for confidence and trust.‟ Trammel, 445 U.S. at 51, 63 L. Ed. 2d 186, 100 S.C. 906. Treatment by a physician for physical ailments can often proceed successfully on basis of a physical examination, objective information supplied by the patient, and the results of diagnostic tests. Effective psychotherapy, by contrast, depends upon an atmosphere of confidence and trust in which the patient is willing to make a frank and complete disclosure of facts, emotions, memories, and fears. Because of the sensitive nature of the problems for which individuals consult psychotherapists, disclosure of confidential communications made during counseling sessions may cause embarrassment or disgrace. Id. at 10. While the Jaffee Court did not rule on the applicability of a physician-patient privilege, the cited language shows that medical records based primarily upon physical examination and other objective information supplied by the patient or that result from diagnostic tests may not be considered privileged.

authorizing federal courts to apply “the principles of common law. . . in the light of reason and experience” in determining whether a privilege exists under the common law. Const. Rep. No. 93-1597, Statement by House Subcommittee Chairman, Dec. 18, 1974, as reprinted in 1974 U.S.C.C.A.N. 7108, 7110. The Senate Report accompanying the adoption of the Rules indicates that Rule 501 “should be understood as reflecting the view that the recognition of a privilege based on a confidential relationship . . . should be determined as a case-by-case basis.” S. Rep. No. 93-1277 (1974), as reprinted in 1974 U.S.C.C.A.N. 7058, 7059.

Privilege Issues in the Estate Planning Arena Chapter 16

7

D. Tax Practitioner’s Privilege I.R.C. § 7525(a)(1), enacted in 1998, extends the

same common law protection of confidentiality to a communication between a taxpayer and any “federally authorized tax practitioner” involving tax advice that would have been privileged if it were a communication between a taxpayer and an attorney. This privilege may be asserted only in non-criminal tax matters before the Internal Revenue Service or any non-criminal tax proceeding in federal court brought by or against the United States.

1. Definitions a. Federally Authorized Tax Practitioner

The term “federally authorized tax practitioner” means any individual who is authorized to practice before the IRS if such practice is subject to federal regulation under 31 U.S.C. § 330. In other words, the phrase includes CPAs, enrolled agents, and enrolled actuaries.

b. Tax Advice

The term “tax advice” means any advice given within the scope of the individual‟s authority to practice before the IRS. In other words, it includes tax advice and tax representation.

c. Exception for Tax Shelters

The privilege does not apply to written communications between tax practitioners and directors, shareholders, officers, employees, agents, or representatives of a corporation in connection with the promotion of the direct or indirect participation in any corporate tax shelter as defined in Section 6662(d)(2)(C)(ii).

d. Effective Date

The privilege may be asserted only as to communications made on or after July 22, 1998.

2. Obvious Limitations of Section 7525 a. Uncovered Return Preparers

By its terms, new Section 7525 is applicable only to communications between a taxpayer and a “federally authorized tax practitioner.” This phrase includes CPAs, enrolled agents, and enrolled actuaries. Other accountants, bookkeepers, and possibly agents of otherwise qualified federally authorized tax practitioners do not appear to be included.

b. State, Local & Foreign Tax Matters

The phrase “tax advice” is defined with reference to practice before the Internal Revenue Service or in a proceeding before a federal court.

(i) Query: Are state and foreign tax matters automatically excluded by this definition?

The new provisions apparently do not cover state

court foreclosure actions where one issue might be the priority of the federal tax lien.

c. Scope

The extension of privilege to “any non-criminal tax proceeding in Federal Court brought by or against the United States” in Section 7525(a)(2)(B) was inserted by the Senate (or the conference committee) and was designed to be broader than the House version, which had only covered tax litigation.

(i) Non-Criminal

The statute is specifically inapplicable in criminal proceedings before the Internal Revenue Service and in criminal proceedings in a Federal Court. Note that today‟s privileged communication loses its Section 7525 privilege by the IRS commencing a criminal investigation tomorrow. (ii) Bankruptcy Covered

Bankruptcy is not a non-criminal federal court matter “by or against the United States” until an adversary proceeding is filed. (iii) All Bankruptcy Covered?

Does the new provision cover all bankruptcy cases in which the United States is a party, or just cases in which a determination of tax liability is involved?

d. Tax Shelters

The statute carves out written communications between practitioners and representatives of a corporation in connection with the promotion of the direct or indirect participation of such corporation in any tax shelter.

(i) Ambiguous at Best

Although reference is made to Section 6662, the definition of tax shelter in that section is far from precise.

(ii) Legal Advice Still Privileged as to Shelters

The tax shelter exception originally was designed to remove privilege from attorneys who advised regarding tax shelters as well. In the conference committee bill, lawyers were carved out of the exception. Senate judiciary committee chair Orrin Hatch and House judiciary committee chair Henry Hyde pressured the conference committee to drop all references to the attorney-client privilege in the corporate tax shelter exception. The district court for

Privilege Issues in the Estate Planning Arena Chapter 16

8

the District of Columbia has also issued several important decisions in the tax shelter litigation. In United States v. KPMG LLP ̧237 F. Supp. 2d 35, 38-39 (D. D.C. 2002), citing United States v. Frederick, 182 F.3d 496 (7th Cir. 1999), the court determined that the Section 7525 privilege did not extend to KPMG opinion letters issued to its client because such letters were prepared in connection of preparing a tax return. In a subsequent decision, the court determined that some of the documents KPMG claimed to be protected by Section 7525 were in fact so protected. United States v. KPMG LLP, No. 02-0295, 2003 WL 22336072 (D.D.C. Oct. 10, 2003); see also United States v. BDO Seidman, LLP ̧ 225 F. Supp. 2d 918 (N.D. Il. 2002), aff‟d, 337 F.3d 802 (7th Cir. 2003) (holding name of clients not privileged under Section 7525); Black & Decker Corp. v. United States, 219 F.R.D. 87 (D. Md. 2003) (holding accounting firm‟s advice not privileged because such accounting firm‟s communications with company were not delivered to facilitate communications between company and its attorney).

e. Tax Return Preparation May Not Be Covered

The privilege for tax advice is the same as if the professional were an attorney. This means, among other things, that if the privilege does not protect communications if made to an attorney, it likewise does not protect those same communications to a tax practitioner, such as tax return preparation communications.

III. PRIVILEGES IN THE APPRAISAL

PROCESS Transactional lawyers should be aware that their

work product may qualify for privilege protections as well; it is not necessary that litigation be certain. The required level of anticipation varies by court, but it is clear that in many jurisdictions, a court action need not be imminent. For example, courts have extended work-product doctrine protection even to proposed transactions. Recently, one district court found that the work product doctrine applied to tax accrual work papers of a company, as the company‟s counsel believed that certain transactions entered into by the company would eventually be challenged by the IRS. United States v. Textron, C.A. No. 06-198T, 2007 WL 2458325 (D. RI Aug. 28, 2007).

A. The Attorney Should Hire the Appraiser

In the transfer tax area, valuation appraisals often serve as the basis for a taxpayer‟s position on the value of transferred property. Working with appraisers is an everyday event for most transaction planning attorneys. On the other hand, working with appraisers can be something of a rarity for most

clients, many of whom have dealt with appraisers only in the purchase of real estate.

In most cases, the attorney, rather than the client, should hire the appraiser for a planning transaction. The attorney can offer guidance both to the client and to the appraiser on how similar transactions have been handled in the past by the IRS and the courts. Having the attorney hire the appraiser will also provide the taxpayer with an argument that any unused reports or correspondence are privileged, as the appraisal was intended to assist the attorney in rendering legal advice.

However, if the appraiser ultimately proposes a report used by the taxpayer, any documents in the appraiser‟s file, including correspondence, notes, or appraisal drafts may be subject to disclosure to the IRS. Once again, consider whom the audience may ultimately be and understand that the appraiser‟s file may be reviewed by the examining agent, an appeals officer, district counsel, or the ultimate finder of fact in tax litigation. In all cases, the planning lawyer should have an oral discussion with the appraiser after he or she determines the value range but before he or she prepares a first draft of a written report so that differences of opinion or relevant law may be discussed freely. In large and/or complex valuation cases, the planning lawyer may want to consider engaging two appraisers: one to aid the lawyer in his or her analysis of the appraisal (whose work will not be disclosed), and one whose appraisal will ultimately be disclosed to the IRS. IV. THE KOVEL ACCOUNTANT: SOLUTION?

Because of the limits of the tax practitioner privilege, the attorney (not the taxpayer) should consider engaging the accountant to make certain that the accountant‟s work product in assisting the attorney will remain confidential. This engagement is often referred to as a “Kovel Agreement,” named after a landmark case on this issue. See United States v. Kovel, 296 F.2d 918, 921 (2d Cir. 1961); see also United States v. Cote, 456 F.2d 142, 144 (8th Cir. 1972); Cavallaro v. United States, 284 F.3d 236, 246 (1st Cir. 2002). Moreover, if the tax case becomes a criminal matter or if non-IRS matters arise, the communications may not remain privileged unless the attorney has hired the accountant. Communications made to an accountant who is assisting an attorney in providing legal services (not accounting services) to a client are protected by the attorney-client privilege.

To ensure that the accountant is assisting the attorney in providing legal services, a written engagement letter can serve as helpful evidence to preserve the privilege. Such an engagement letter should include terms that focus on the following factors:

Privilege Issues in the Estate Planning Arena Chapter 16

9

1. ControlThat the accountant is engaged by the attorney and working under the attorney‟s direction.

2. Clarification that Accountant‟s Work Is Not Pure Return PreparationThat the work is for the purpose of rendering legal advice, not simply for the preparation of tax returns. For example, the accountant is assisting the attorney in determining whether delinquent federal income tax returns should be prepared and filed and what positions to take on those returns.

3. OwnershipThat the work of the accountant belongs to the attorney.

4. PurposeThat any communications to the accountant are made solely for the purpose of enabling the attorney to provide legal advice to the client.

B. Discuss the Methodology and Results of the

Appraiser’s Work With the Appraiser Before

the Appraiser Drafts the Report Hiring a qualified appraiser is only the first part

of the job. Examine the underlying assumptions, analysis, and conclusions of the appraiser and ensure that they are logical. Appraisers can and do make mistakes. Discuss with the appraiser his or her methodology of his or her examination before the appraiser commits the findings to writing. This doesn‟t mean you should “coach” the appraiser or tell the appraiser the answer that you want; it does mean that you should satisfy yourself that the appraiser‟s assumptions and analysis are correct. If you have questions or concerns regarding the appraiser‟s assumptions or analysis, you should discuss those concerns with the appraiser before the appraiser begins drafting the report. If your concerns cannot be satisfied, consider choosing another appraiser. If you decide to engage a second appraiser before the first appraiser has reduced his findings to writing, there will be no documents from that appraiser to produce in response to an examining agent‟s request for “copies of all appraisals.”

V. THE EFFECT OF ASSERTING THE

ATTORNEY-CLIENT PRIVILEGE ON THE

BURDEN OF PROOF IN DISPUTED CASES

In certain cases, the taxpayer can shift the burden of proof in transfer tax cases from the taxpayer to the government in the Tax Court. See I.R.C. § 7491. Section 7491 provides:

(a) Burden Shifts Where Taxpayer

Produces Credible Evidence.–

(1) GENERAL RULE.–If, in any court proceeding, a taxpayer introduces credible evidence with respect to any factual issue relevant to ascertaining the liability of the taxpayer for any tax imposed by subtitle A or B, the Secretary shall have the burden of proof with respect to such issue.

(2) LIMITATIONS.–Paragraph (1) shall apply with respect to an issue only if –

(A) the taxpayer has complied

with the requirements under this title to substantiate any item;

(B) the taxpayer has maintained all records required under this title and has cooperated with reasonable requests by the Secretary for witnesses, information, documents, meetings, and interviews; and

(C) in the case of a partnership, corporation, or trust, the taxpayer is described in section 7430(c)(4)(A)(ii).

Subparagraph (C) shall not apply to any qualified revocable trust (as defined in section 645(b)(1)) with respect to liability for tax for any taxable year ending after the date of the decedent‟s death and before the applicable date (as defined in section 645(b)(2)).

(3) COORDINATION.– Paragraph (1) shall not apply to any issue if any other provisions of this title provides for a specific burden of proof with respect to such issue.

I.R.C. § 7491 (EMPHASIS ADDED).

To shift the burden of proof, the taxpayer must comply with the substantiation requirements of the Internal Revenue Code and keep all required records. In addition, the taxpayer must have cooperated with “reasonable requests”2 by the IRS for “witnesses, information, documents, meetings, and interviews” and must present “credible evidence” in court on the

2 The question yet to be addressed by the courts is whether a request that seeks privileged information can ever be “reasonable.”

Privilege Issues in the Estate Planning Arena Chapter 16

10

factual matters at issue. If all of these conditions are met, I.R.C. § 7491 provides that the burden of proof shifts to the IRS.

The Tax Court recently determined that a taxpayer did not fail to reasonably cooperate simply because it filed a motion to quash a summons that the IRS had issued to obtain certain documents during discovery. The Court found that the taxpayer:

had a good faith belief that some of the documents respondent sought were irrelevant, sealed, or contained sensitive . . . business information and filed a motion to quash the summons to protect its rights. Once the court denied the estate‟s motion to quash the summons, the estate provided the documents respondent requested. Respondent has not argued that respondent‟s investigation was impaired by any lack of documentation.

ESTATE OF KOHLER V. COMM’R, 92 T.C.M. (CCH) 48, 52 (2006).

If the taxpayer complies with I.R.C. § 7491, the IRS has another layer of litigation hazards to consider, which could aid in resolving more cases before trial.

VI. CONCLUSION

In sum, there are numerous protections of communications among advisors and between advisors and their clients. To best protect those communications from discovery or, if produced, from misinterpretation, it is important to understand the differences among those protections and to ensure that the communications are documented in the context of the broader goals of the clients, such that tax and non-tax tax reasons for the transaction are clearly indicated. Keeping these protections in mind at all times can assist the client‟s advisors in rendering advice to the taxpayer and in accomplishing the client‟s goals. And, although privileges generally are thought to protect communications with the attorneys, anticipating that at some point the client might find it advantageous to waive these privileges and, as a result, deliberately documenting communications that could be helpful in the event of a tax audit or dispute could be the lynchpin for the client‟s case.

Privilege Issues in the Estate Planning Arena Chapter 16

11

EXHIBIT

Internal Revenue Service Department of the Treasury

Date: In Reply Refer to:

Person to Contact:

Contact Telephone Number:

Fax Number:

Re:

Dear

The United States Gift Tax Return you filed for the year _____ is being audited by

this office. We need the information listed below furnished or made available for our

inspection within the next three (3) weeks:

1. Copies of donor’s Federal Income Tax Returns (1040) for the year before, the year

of and the year after the gift referenced above.

2. Copies of all 709’s filed with appraisals, acts of donation and other supporting

documentation. This includes 709’s filed by your spouse.

3. If any assets subject to any of the above referenced gifts have been sold or

agreements to sell have been entered into subsequent to date of donation please

provide complete details, including contracts, deeds and closing statements.

4. A list of donations of any kind, other than customay holiday and birthday gifts of

small value, made during your life time regardless of whether a Gift Tax Return

Form 709 was filed.

5. If the object of any of the above donations was an interest in any closely held

corporation, partnership, limited liability company or other business organization, we

need the following:

a) All documents relating to the creation of the entity (including bills)

from any attorney, accountant or firm involved in recommending the

creation of the entity or in drafting the necessary documents. If a claim

is made that any of these documents are privileged, identify each

privileged document by date, source, audience, and reason for the

privilege.

b) Articles of organization and operating agreement, with any amendments.

c) All documents that were prepared to meet state law requirements on the

formation and operation of the entity.

d) All financial statements and tax returns prepared and/or filed since

inception.

e) All of the entities’ bank and other records (i.e., general ledger, cash

receipts and disbursements journals, check registers, etc.) which reflect

the amount and nature of all deposits and distributions, including

distributions to owner/members, for the period since the entity was formed

to the current period.

f) Minutes of all meetings; if none, indicate the dates of all meetings and

the business discussed.

g) Evidence showing how the value of each entity asset was arrived at as of

the date:

1. it was contributed to the entity;

2. of each gift of a interest in the entity;

provide all appraisals and supporting workpapers.

h) Evidence as to how the entity was valued as a whole as well as fractional

interest. Provide all appraisals if not already furnished.

i) Evidence to substantiate all initial and subsequent capital contributions

and the source of all contributions by owners other than the donor.

j) For any entity asset that has been sold or offered for sale since the

formation of the entity, provide evidence which documents the sale or

attempted sale (i.e., sales agreement, listing agreement, etc.).

k) For each entity asset, explain/provide:

1. evidence that the entity owns the asset;

2. when the donor acquired the asset;

Privilege Issues in the Estate Planning Arena Chapter 16

12

3. how the asset was used by the donor since its acquisition and how

the entity has used the asset since; and

4. who managed the asset prior to and after its contribution, explain

in detail what management consisted of and how it changed after the

entity was formed.

l) Brokerage statements reflecting the ownership and activity of the

securities and mutual funds contributed to the entity for the period

beginning one year prior to the formation of the entity and continuing

through the current date, and copies of any other tax returns and

financial statements which reflect the activity of the entity’s assets, if

different from the foregoing.

m) For each gift or transfer of an interest, provide:

1. evidence that the interest was legally transferred under state law

and under the terms of any agreement among the owner/members.

2. any assignment of any interest along with the terms of the

assignment;

3. the amount and source of any consideration paid along with an

explanation as to how the amount was arrived at.

n) Provide the following with respect to the donor, all other original

members and any recipients of gifts or transfers of interests:

1. date of birth;

2. education and occupation;

3. experience and expertise in dealing with real estate, financial

affairs and investments;

4. extent of the donor’s investments as of the date of the formation of

the entity, including a summary of assets that were not contributed

to the entity; provide tangible evidence thereof; and

5. any personal financial statements and credit applications which were

prepared in connection with loan applications after the LLC was

created.

o) Indicate whether the entity is currently in existence, and, if so, provide

the current ownership interests.

p) Provide a summary of any other transfers of business interests not

reflected in the gift tax returns filed.

q) A statement describing the donor’s state of health at the time of the

formation of the entity and for the six month period prior thereto,

including a description of any serious illnesses. Please also provide the

names, addresses and telephone numbers of all doctors who would have

knowledge of the donor’s state of health during this period to the present

date and provide these doctors with authorization to respond to the

Service’s future requests for information, including a copy of the medical

records, in necessary.

r) A copy of the Donor’s will, revocable trust, and any executed power of

attorney, if not submitted with the return.

s) A statement indicating the identity of the parties recommending the use of

the LLC or partnership, when the recommendations were made, and the

reasons set forth in support of using such an entity.

t) Names, addresses, and current telephone numbers of the representatives of

the Donor/Estate, all donees/beneficiaries, all partners or members,

accountants/bookkeepers, and brokers/investment advisors.

Each item should be responded to either by furnishing the requested documentation; a

written response, if called for, under the signature of the donor or a written

explanation as to why the information will not be provided.

Should you have any questions call or write to me at he above number and address. A

Form 2848 is enclosed for your execution if you wish to appoint your attorney or CPA

to represent you.

Very truly yours,

Enclosures:

IRS Publication 1

Form 2848 Power of Attorney

Privilege Issues in the Estate Planning Arena Chapter 16

13

c <( w I­V) z ~

u 0 z' 0 1-(,J

z I V1

~ Vl Cl z ~ -.J Cl 0 0 3 u.J I 1-

0 z 0 1-z <(

z ~ Vl

z 0 1-Vl ::J 0 I

I 1-0:: 0 3 1-0::

0 '""-

V1 ~ -.J -.J <( a

z i= Vl ::J <(

Privilege Issues in the Estate Planning Arena Chapter 16

14

1089

131

WIN

ST

EA

D An

tici

pat

e Y

ou

r P

ote

nti

al A

ud

ien

ce

• D

ocum

ents

Pre

pare

d by

-E

stat

e pl

anni

ng l

awye

r -

Clie

nt

-A

ccou

ntan

t

-A

ny o

ther

per

son

invo

lved

• M

ay b

e R

evie

wed

by

-A

n IR

S a

gent

-A

ppea

ls O

ffic

er

-D

istr

ict

Cou

nsel

-O

r ev

en a

jud

ge

or j

ury

2

Privilege Issues in the Estate Planning Arena Chapter 16

15

1089

131

WIN

ST

EA

D

Un

der

stan

d I

RS

's B

road

Su

mm

on

s P

ow

er

• P

urpo

se

-A

scer

tain

re

turn

's c

orre

ctne

ss

-D

eter

min

e w

heth

er r

etur

n sh

ould

hav

e be

en f

iled

-D

eter

min

e lia

bilit

y o

f an

y pe

rson

for

an

y in

tern

al r

even

ue t

ax

• E

ffect

-M

ay

exam

ine

book

s, p

aper

s, r

ecor

ds,

or o

ther

dat

a

• S

umm

on p

erso

n lia

ble

for

tax

• of

ficer

or

empl

oyee

• an

y pe

rson

hav

ing

poss

essi

on,

cust

ody,

or

care

• an

y ot

her

pers

on t

he I

RS

may

dee

m p

rope

r

• S

ubje

ct to

priv

ilege

s

-Q

uery

wh

eth

er

subj

ect

to F

eder

al R

ules

of

Evi

denc

e

3

Privilege Issues in the Estate Planning Arena Chapter 16

16

WIN

STEA

D

Pre

serv

e A

ll P

rivi

leg

es

• A

ttor

ney

Clie

nt P

rivile

ge

• W

ork

Pro

duct

Doc

trin

e

• M

edic

al P

rivile

ges

• T

ax

Pra

ctiti

oner

Priv

ilege

1089

131

4

Privilege Issues in the Estate Planning Arena Chapter 16

17

1089

131

WIN

STEA

D

Att

orn

ey C

lien

t P

rivi

leg

e

• P

urpo

se is

to

enco

urag

e co

mpl

ete

exch

ange

of a

ll se

nsiti

ve

info

rmat

ion

• W

hat t

he p

rivile

ge c

over

s:

-W

igm

ore'

s D

efin

ition

:

• co

mm

unic

atio

n

• m

ade

in c

onfid

ence

• fo

r pu

rpos

e o

f sec

urin

g le

gal

advi

ce

• fr

om l

egal

adv

isor

• in

clud

ing

any

docu

men

t or

othe

r re

cord

rev

ealin

g su

ch a

co

mm

unic

atio

n

• P

rivile

ge is

clie

nt's

to

wai

ve

5

Privilege Issues in the Estate Planning Arena Chapter 16

18

1089

131

WIN

STEA

D

Wh

o is

Pri

vile

ged

?

• La

wye

r as

cou

nsel

or o

r pl

anne

r

• T

hird

pa

rtie

s-

secr

etar

y, a

ccou

ntan

t, o

r fin

anci

al a

dvis

or

IF

com

mun

icat

ed f

or p

urpo

se o

f fac

ilita

ting

rend

ition

of l

egal

adv

ice

• E

ven

pros

pect

ive

clie

nts

who

rea

sona

bly

belie

ve t

hat t

hey

are

seek

ing

lega

l adv

ice

-C

ourt

s de

fine

"clie

nt"

bro

adly

6

Privilege Issues in the Estate Planning Arena Chapter 16

19

WIN

ST

EA

D

Wh

at is

a P

rivi

leg

ed C

om

mu

nic

atio

n?

• D

iscl

osur

e o

f

-co

nfid

entia

l com

mun

icat

ions

-be

twee

n pr

ivile

ged

pers

ons

(atto

rney

and

clie

nt)

-fo

r pu

rpos

e of

faci

litat

ing

rend

ition

of l

egal

adv

ice

1089

131

7

Privilege Issues in the Estate Planning Arena Chapter 16

20

WIN

STEA

D W

hat

th

e P

rivi

leg

e M

ay N

ot

Co

ver

• no

n-cl

ient

fam

ily m

embe

rs

• st

ock

brok

ers,

acc

ount

ants

, an

d ot

her

third

par

ties

-if

no

t mad

e to

"a

ssis

t the

att

orne

y in

ren

derin

g ad

vice

to t

he

clie

nt"

• w

ork

pape

rs o

f the

att

orne

y (u

nles

s w

ork

pro

duct

)

• co

rres

pond

ence

with

thi

rd p

artie

s

• un

derly

ing

fact

s

• bi

lls a

nd i

nvoi

ces

• bu

sine

ss a

dvic

e

• du

al p

urpo

se a

dvic

e

• ta

x op

inio

ns

• at

torn

eys

as t

ax r

etur

n pr

epar

ers,

ret

urn

prep

arat

ion

mat

eria

ls

• N

OT

E:

crim

e fr

aud

exce

ptio

n

1089

131

8

Privilege Issues in the Estate Planning Arena Chapter 16

21

1089

131

WIN

ST

EA

D A

tto

rney

as

Tax

Ret

urn

Pre

par

er

• A

dvic

e re

nder

ed in

con

nect

ion

with

ta

x re

turn

pre

para

tion

may

n

ot

be c

ove

red

-

See

Uni

ted

Sta

tes

v. F

rede

rick,

182

F.3

d 49

6, 5

00 (

1999

)

• w

ork

pap

ers

crea

ted

by a

ttor

ney

for

use

in p

repa

ratio

n o

f ta

x re

turn

-"D

ua

l p

urp

ose

" do

cum

ents

pre

pare

d fo

r ta

x re

turn

and

lit

igat

ion

• D

ue to

rel

atio

nshi

p to

the

ta

x re

turn

Ori

gina

l Opi

nion

:

• A

ud

it re

pres

enta

tion

wa

s n

ot c

ove

red

9

---

-------

--------

Privilege Issues in the Estate Planning Arena Chapter 16

22

1089

131

WIN

ST

EA

D

Fre

der

ick

Co

urt

am

end

ed i

ts o

pin

ion

• If

"ver

ifyin

g th

e ac

cura

cy o

f a r

etur

n,"

repr

esen

tatio

n is

"a

cco

un

tan

t's w

ork

" ' -

wh

eth

er

done

by

an a

ccou

ntan

t or

a la

wye

r

• If

law

yer

deal

s "w

ith i

ssue

s o

f sta

tuto

ry in

terp

reta

tion

or c

ase

law

th

at th

e re

venu

e ag

ent

may

hav

e ra

ised

" in

aud

it, "

law

yer

is d

oing

la

wye

r's

wo

rk a

nd t

he a

ttor

ney-

clie

nt p

rivile

ge m

ay a

ttac

h"

• B

ewar

e:

-ev

en i

f a d

ocum

ent

is p

rivile

ged,

tha

t pr

ivile

ge c

an b

e w

aive

d

10

Privilege Issues in the Estate Planning Arena Chapter 16

23

1089

131

WIN

STEA

D

Bew

are

Wai

ver

• In

Ta

x C

ourt

, p

art

y as

sert

ing

pri

vile

ge

has

bu

rde

n t

o pr

ove

no

wa

tve

r

• In

ad

vert

en

t wa

ive

r m

ay

be i

mp

ute

d t

o cl

ient

• "W

itne

ss w

aiv

er"

• M

ay

cho

ose

to

wai

ve,

bu

t b

ew

are

su

bje

ct m

att

er

wa

ive

r

• W

he

n t

o w

aiv

e?

-2

03

6

-D

efe

nse

of r

ea

son

ab

le c

au

se a

nd g

ood

faith

• re

lian

ce o

n a

div

ce o

f ta

x a

dvi

sors

• e.

g.,

tax

opin

ion

lett

er

11

Privilege Issues in the Estate Planning Arena Chapter 16

24

1089

131

WIN

ST

EA

D

Th

e A

tto

rney

Wo

rk P

rod

uct

Do

ctri

ne

• D

efin

ition

-M

ater

ials

pre

pare

d "i

n· a

ntic

ipat

ion

of l

itiga

tion"

• di

ffer

ent

stan

dard

s fo

r "a

ntic

ipat

ion"

-re

al p

ossi

bilit

y

-co

mm

unic

ated

"w

ith a

n ey

e to

war

d lit

igat

ion"

-in

ant

icip

atio

n o

f "fo

rese

eabl

e" li

tiatio

n

-lik

ely

to l

ead

to l

itiga

tion

-B

y a

part

y or

the

pa

rty'

s re

pres

enta

tive

• P

urpo

se

-C

reat

es a

zon

e o

f priv

acy

for

stra

tegi

c lit

igat

ion

plan

ning

-P

reve

nts

one

part

y fr

om p

iggy

back

ing

on a

noth

er's

wo

rk

• D

iffic

ult t

o ar

gue

that

an

esta

te p

lann

ing

att

orn

ey'

s in

tern

al m

emos

o

r w

ork

pap

ers

wer

e pr

epar

ed "

in a

ntic

ipat

ion

of s

ubse

quen

t lit

igat

ion"

12

Privilege Issues in the Estate Planning Arena Chapter 16

25

WIN

STEA

D

Th

e A

tto

rney

Wo

rk P

rod

uct

Do

ctri

ne

• T

wo

typ

es

-O

pini

on "

core

" w

ork

pro

duct

, no

t su

bje

ct to

dis

cove

ry

-F

actu

al w

ork

pro

duct

, su

bje

ct to

dis

cove

ry o

nly

upon

sho

win

g o

f • su

bsta

ntia

l ne

ed

• un

able

to s

ecu

re e

lse

wh

ere

with

ou

t un

due

hard

ship

1089

131

13

Privilege Issues in the Estate Planning Arena Chapter 16

26

1089

131

WIN

ST

EA

D

Med

ical

Pri

vile

ges

• F

eder

al v

ersu

s st

ate

priv

ilege

s

-D

octo

r ve

rsus

Psy

coth

erap

ist

priv

ilege

• Ja

ffee

v. R

ed

mo

nd

-P

sych

othe

rapy

is "

roo

ted

in t

he i

mpe

rativ

e ne

ed f

or

conf

iden

ce a

nd t

rust

"

-P

hysi

cal

illn

ess-

Req

uire

s a

phys

ical

exa

min

atio

n,

obje

ctiv

e in

form

atio

n su

pplie

d by

the

pat

ient

, an

d th

e re

sults

of d

iagn

ostic

test

s

14

Privilege Issues in the Estate Planning Arena Chapter 16

27

1089

131

WIN

ST

EA

D

Th

e T

ax P

ract

itio

ner

's P

rivi

leg

e

• I.R

.C.

§ 75

25

-E

xten

ds t

he a

ttor

ney-

clie

nt p

rivi

lege

to c

onfid

entia

l co

mm

unic

atio

ns b

etw

een

taxp

ayer

s an

d ta

x pr

actit

ione

rs

-S

ame

"co

mm

un

ica

tion

[s]

betw

een

taxp

aye

r an

d an

att

orn

ey"

-in

non

-cri

min

al m

atte

rs b

roug

ht b

y o

r ag

ains

t the

U.S

. g

ove

rnm

en

t

• E

xcep

tions

:

-cr

imin

al m

atte

rs

-ta

x sh

elte

rs

-no

n-fe

dera

l m

atte

rs (

such

as

bank

rupt

cy)

15

Privilege Issues in the Estate Planning Arena Chapter 16

28

1089

131

WIN

STEA

D

Th

e T

ax P

ract

itio

ner

's P

rivi

leg

e

• W

arni

ng:

Doe

s n

ot g

rant

the

wo

rk p

rod

uct

pro

tect

ion

to n

on­

atto

rney

adv

isor

s

• A

dditi

onal

war

ning

: 75

25 p

rivile

ged

com

mun

icat

ion

lose

s pr

ivile

ge

prot

ectio

n if

IRS

com

men

ces

crim

inal

inv

estig

atio

n

16

Privilege Issues in the Estate Planning Arena Chapter 16

29

1089

131

WIN

STEA

D Pu

t Y

ou

r C

lien

t in

a P

osi

tio

n t

o P

rod

uce

C

orr

esp

on

den

ce o

r D

ocu

men

ts in

Yo

ur

File

if

It Is

in

the

Cli

ent'

s B

est

Inte

rest

To

Do

So

• B

est e

vide

nce

of p

urpo

se o

ften

com

es f

rom

the

cor

resp

onde

nce

prep

ared

in c

onne

ctio

n w

ith t

he t

rans

actio

n

-C

orre

spon

denc

e ou

tlini

ng t

he b

usin

ess

and

finan

cial

rea

sons

(t

he n

on-t

ax r

easo

ns)

17

Privilege Issues in the Estate Planning Arena Chapter 16

30

1089

131

WIN

ST

EA

D

Pri

vile

ges

in

the

Ap

pra

isal

Pro

cess

: K

ove

l A

cco

un

tan

t/A

pp

rais

er

• A

ttor

ney

shou

ld h

ire t

he a

ppra

iser

/acc

ount

ant

• A

ppra

iser

/acc

ount

ant

is w

orki

ng a

t at

torn

ey's

dire

ctio

n

• C

larif

y th

at w

ork

is n

ot p

ure

retu

rn p

repa

ratio

n

• C

larif

y th

at w

ork

of a

ccou

ntan

t/ap

prai

ser

belo

ngs

to a

ttor

ney

• C

lear

ly s

tate

tha

t pu

rpos

e o

f eng

agem

ent

is t

o as

sist

att

orne

y in

re

nder

ing

lega

l ad

vice

to c

lient

18

Privilege Issues in the Estate Planning Arena Chapter 16

31

1089

131

WIN

STEA

D

Eff

ect

of A

sser

tin

g t

he

Pri

vile

ge

on t

he

Bu

rden

o

f P

roo

f

• I.R

.C.

§ 74

91

-W

here

tax

paye

r ha

s ke

pt a

ll re

cord

s re

quire

d by

Cod

e

-A

nd h

as c

oope

rate

d w

ith r

easo

nabl

e re

ques

ts b

y th

e S

ecre

tary

for

witn

esse

s, i

nfor

mat

ion,

doc

umen

ts,

mee

tings

, an

d in

terv

iew

s

-A

nd i

s no

t pa

rtne

rshi

p, c

orpo

ratio

n, o

r tr

ust

• R

eque

st f

or p

rivile

ged

mat

eria

ls s

houl

d no

t be

con

side

red

reas

onab

le r

eque

st

• F

iling

Mot

ion

to Q

uash

Sum

mon

s do

es n

ot n

eces

saril

y in

dica

te

lack

of c

oope

ratio

n

19

Privilege Issues in the Estate Planning Arena Chapter 16

32

c <( w I­V)

z ~

C1) 0 c: C1) ·--c :::l <( t... :::l 0 >-

C1) .. ns c. ·-0 ·-.. c: <(

0 N

"' ...... (J')

co 0 ......

Privilege Issues in the Estate Planning Arena Chapter 16

33

1089

131

WIN

ST

EA

D

Topi

c(s)

W

ork

Prod

uct D

octr

ine:

V

alua

tion:

20

36:

2036

, Pro

mis

sory

Not

es:

Mar

ital

Ded

uctio

n M

ism

atch

, 203

6:

Agg

rega

tion:

In

dire

ct G

ift:

Agg

rega

tion:

20

36:

Def

ined

Val

ue:

Gif

t on

Form

atio

n, 2

703:

Pr

omis

sory

Not

es:

2036

: A

nnua

l Exc

lusi

on G

ifts:

W

ork

Prod

uct D

octr

ine:

V

alua

tion:

Pr

omis

sory

Not

es:

Indi

rect

Gif

t: V

alua

tion:

A

nnua

l Exc

lusi

on G

ifts:

R

ecyc

ling

of V

alue

: In

dire

ct G

ift:

Def

ined

Val

ue:

2036

: 27

03, I

ndir

ect G

ift:

2036

: In

dire

ct G

ift:

2036

, Equ

itabl

e R

ecou

pmen

t: 27

01:

2036

, Pro

mis

sory

Not

es:

2036

: 27

04:

Rel

evan

t C

ites

Cita

tion

Uni

ted

Stat

es v

. A

dlm

an,

68 F

.3d

1495

(2d

Cir.

199

5)

Ast

lefo

rd v.

Com

m 'r

, 95

T.C

.M. (

CC

H)

1497

(200

8)

Est

ate

of B

igel

ow v

. C

omm

'r,

89 T

.C.M

. (C

CH

) 954

(200

5), a

ff'd

, 50

3 F .

3d 9

55 (

9th

Cir.

2007

) E

stat

e o

f Bla

ck v

. C

omm

'r,

133

T.C

. 15

(200

9)

Est

ate

of B

onga

rd v

. C

omm

'r,

124

T.C.

95

(200

5)

Est

ate

of B

onne

r v.

Uni

ted

Stat

es,

84 F

.3d

196

(5th

Cir.

199

6)

Est

ate

of B

osca

v.

Com

m 'r

, 76

T.C

.M. (

CC

H)

62 (

1998

) E

stat

e o

f Bri

ght v

. C

omm

'r,

658

F.2d

999

(5th

Cir.

198

1)

Uni

ted

Stat

es v

. B

yrum

, 40

8 U

.S. 1

25 (

1972

) E

stat

e o

f Chr

isti

anse

n v.

Com

m 'r

, 13

0 T.

C.

1 (2

008)

, aff

d,

586

F.3d

106

1 (8

th C

ir. 2

009)

C

hurc

h v.

Uni

ted

Stat

es,

85 A

.F.T

.R.2

d 80

4 (W

.D. T

exas

200

0), a

ff'd

, 26

8 F.

3d 1

063

(5th

Cir.

2001

) (un

publ

ishe

d op

inio

n)

Est

ate

of D

unca

n v.

Com

m 'r

, 10

2 T.

C.M

. (C

CH

) 421

(20

11)

Est

ate

of E

rick

son

v. C

omm

'r,

93 T

.C.M

. (C

CH

) 11

75 (

2007

) F

ishe

r v.

Uni

ted

Stat

es,

2010

WL

9354

91 (

S.D

. Ind

. Mar

. 11

, 201

0), a

ppea

l doc

kete

d, N

o. 1

:08-

cv-0

908-

LJM

-TA

B (7

th Ci

r.)

Uni

ted

Stat

es v

. F

rede

rick

, 18

2 F.

3d 4

96 (7

th C

ir. 1

999)

E

stat

e o

f Gal

lagh

er v

. C

omm

'r,

101

T.C

.M. (

CC

H)

170

(201

1)

Est

ate

ofG

raeg

in v

. C

omm

'r,

56 T

.C.M

. (C

CH

) 387

(198

8)

Gro

ss v

. C

omm

'r,

96 T

.C.M

. (C

CH

) 18

7 (2

008)

E

stat

e o

fGiu

stin

a v

. C

omm

'r,

101

T.C

.M. 1

676

(201

1)

Hac

kl v

. C

omm

'r,

118

T.C

. 279

(20

02),

aff'd

, 33

5 F.

3d 6

64 (7

th C

ir. 2

003)

E

stat

e o

f Har

per

v. C

omm

'r,

83 T

.C.M

. (C

CH

) 16

41 (

2002

) H

ecke

rman

v.

Uni

ted

Stat

es,

2009

WL

2240

326

(W.O

. Was

h.)

Hen

drix

v.

Com

m 'r

, 10

1 T.

C.M

. (C

CH

) 16

42 (2

011)

E

stat

e of

Hil

lgre

n v.

Com

m 'r

, 87

T.C

.M. (

CC

H)

1008

(200

4)

Hol

man

v.

Com

in 'r

, 13

0 T.

C. 1

70 (

2008

), af

f'd,

601

F.3

d 76

3 (8

th C

ir. 2

010)

E

stat

e o

fHu

rfo

rdv.

Com

m 'r

, 96

T.C

.M. (

CC

H) 4

22 (

2008

) Jo

nes

v. C

omm

'r,

116

T.C

. 121

(20

01)

Est

ate

of J

orge

nsen

v.

Com

m 'r

, 97

T.C

.M. (

CC

H)

1328

(200

9), a

ffd

, 43

1 Fe

d. A

ppx.

544

(9th

Cir.

20 11

) E

stat

e o

f Kar

maz

in v

. C

omm

'r,

T.C.

Doc

ket N

o. 2

127-

03 (

settl

ed p

rior t

o di

strib

utio

n)

Kel

ler

v. U

nite

d St

ates

, 20

09 W

L 26

0161

1 (S

.D. T

ex ..

Aug

ust 2

0, 2

009)

, app

eal d

ocke

ted,

No.

V-0

2-62

(5th

Cir.

argu

ed M

ar. 1

9, 2

012)

K

elly

v.

Com

m 'r

, 10

3 T.

C.M

. (C

CH

) 13

93 (

2012

) K

err

v. C

omm

'r,

113

T.C.

449

(199

9), a

ffd

, 29

2 F.

3d 4

90 (5

th Ci

r. 20

02)

21

Privilege Issues in the Estate Planning Arena Chapter 16

34

1089

131

WIN

ST

EA

D

2036

: D

efin

ed V

alue

: V

alua

tion/

App

raisa

l: 20

36:

Priv

ilege

s:

Val

uatio

n:

2036

: In

dire

ct G

ift:

2036

, Ind

irec

t Gift

: V

alua

tion:

D

efin

ed V

alue

: A

ggre

gatio

n:

2036

: 20

36:

2036

, Pro

miss

ory

Not

es:

Igno

ring

Ent

ity:

Val

uatio

n:

Spol

iatio

n:

Def

ined

Val

ue:

Indi

rect

Gift

, Ste

p T

rans

actio

n:

Ann

ual E

xclu

sion

Gift

s:

Def

ined

Val

ue:

Dis

cove

ry D

ue D

ilige

nce:

V

aria

nce

Doc

trin

e:

2036

: 20

36:

Priv

ilege

s:

2036

: 20

36:

2036

: Pr

ivile

ges:

In

dire

ct G

ift:

Rel

evan

t C

ites

(co

nt'd

)

Kim

bell

v. U

nite

d St

ates

, 244

F. S

upp.

2d 7

00 (N

.D. T

ex. 2

003)

, vac

ated

and

rem

ande

d, 3

71 F

.3d 2

57 (5

th C

ir. 2

004)

U

nite

d St

ates

v. K

ing,

545

F.2d

700

(lOt

h Ci

r. 19

76)

Koh

ler

v. C

omm

'r, 9

2 T.

C.M

. (CC

H) 4

8 (2

006)

Es

tate

of K

orby

v. C

omm

'r, 8

9 T.

C.M

. (CC

H) 1

150

(200

5), a

ff'd,

471

F.3d

848

(8th

Cir.

200

6)

Uni

ted

Stat

es v

. Kov

el,

296

F.2d

918

(2d

Cir.

1961

) La

ppa

v. C

omm

'r, 8

6 T.

C.M

. (CC

H) 3

33 (2

003)

Li

ljest

rand

v. C

omm

'r,

102

T.C

.. M. (

CCH)

440

(201

1)

Lint

on v

. U

nite

d St

ates

, 63

8 F.

Supp

. 2d

1277

(W.D

. Was

h. 20

09),

rev

'din

par

t and

rem

ande

d, 6

30 F

.3d

1211

(9th

Cir.

2011

) Es

tate

of M

alki

n v.

Com

m 'r

, 98

T.C.

M. (

CCH)

225

(200

9)

McC

ordv

. C

omm

'r, 1

20 T

.C. 3

58 (2

003)

, rev

'd, 4

61 F

.3d6

14 (5

thCi

r. 20

06)

Succ

essi

on o

f McC

ord

v. C

omm

'r, 4

61 F

.3d 6

14 (5

th C

ir. 2

006)

, rev

'g 1

20 T

.C. 3

58 (2

003)

Es

tate

of M

ellin

ger

v. C

omm

'r,

112

T.C.

26

(199

9)

Esta

te o

f Mill

er v

. Com

m 'r

, 98

T.C.

M. (

CCH)

159

(200

9)

Esta

te o

f Mir

owsk

i v.

Com

m 'r

, 95

T.C.

M. (

CCH)

127

7 (2

008)

Es

tate

of M

urph

y v.

Uni

ted

Stat

es, 2

009

WL

3366

099

(W.D

. Ark

.) Es

tate

of M

urph

y v.

Com

m 'r

, 60

T.C.

M. (

CCH)

645

(199

0)

Pera

cchi

o v.

Com

m 'r

, 86

T.C.

M. (

CCH)

412

(200

3)

Phoe

nix

Four

s, In

c. v.

Stra

tegi

c Re

sour

ces

Cor

p., 2

006

WL

1409

413

(S.D

.N.Y

.) Pe

tter

v. C

omm

'r,

98 T

.C.M

. (CC

H) 5

34 (2

009)

Pi

erre

v. C

omm

'r,

133

T.C.

24

(200

9), s

upp.

by,

Pier

re v

. C

omm

'r, 9

9 T.

C.M

. (CC

H) 1

436

(201

0)

Pric

e v.

Com

m 'r

, 99

T.C.

M. (

CCH)

199

5 (2

010)

Pr

octe

r v.

Com

m 'r

, 15

1 F.

2d 6

03 (4

th Ci

r. 19

45)

Qua

lcom

m In

c. v.

Broa

dcom

Cor

p., 2

008

WL

6693

2 (S

.D. C

al.)

Real

Est

ate

Land

Titl

e an

d Tr

ust C

o. v

. U

nite

d St

ates

, 309

U.S

. 13

(194

0)

Esta

te o

f Rec

tor

v. C

omm

'r, 9

4 T.

C.M

. (CC

H) 5

67 (2

007)

Es

tate

of R

eich

ardt

v. C

omm

'r, 1

14 T

.C. 1

44 (2

000)

U

nite

d St

ates

v.

Rich

ey,

632

F.3d

559

(9th

Cir.

2011

) Es

tate

of R

osen

v. C

omm

'r, 9

1 T.

C.M

. (CC

H) 1

220

(200

6)

Esta

te o

fSch

auer

ham

er v

. Com

m 'r

, 73

T.C.

M. (

CCH)

285

5 (1

997)

Es

tate

of S

chut

t v.

Com

m 'r

, 89

T.C

.M. (

CCH)

135

3 (2

005)

Sc

ott v

. Bet

h Is

rael

Med

ical

Cen

ter,

Inc.,

847

N.Y

.S.2d

436

(N.Y

. Sup

. 200

7)

Send

a v.

Com

m 'r

, 88

T.C

.M. (

CCH)

8 (2

004)

, affd

, 43

3 F.

3d 1

044

(8th

Cir.

200

6)

22

Privilege Issues in the Estate Planning Arena Chapter 16

35

1089

131

WIN

STE

AD

Indi

rect

Gift

: 20

36, M

arita

l Ded

uctio

n M

ism

atch

: Pr

ivile

ges:

27

04:

2036

, Und

ivid

ed In

tere

st:

Prom

isso

ry N

otes

: 20

36:

2036

: 20

36:

2036

: W

ork

Prod

uct D

octri

ne:

2036

: 20

36:

Def

ined

Val

ue:

IRS

Settl

emen

t Gui

delin

es:

Inve

stm

ent C

o. R

ules

: In

vest

men

t Co.

Rul

es:

Inve

stm

ent C

o. R

ules

: Fi

duci

ary

Liab

ility

: TE

FRA

: Es

tate

Tax

Lie

n:

Bur

den

of P

roof

: Su

mm

ons P

ower

s:

Fidu

ciar

y Li

abili

ty:

Wai

ver:

Rel

evan

t C

ites

(co

nt'd

)

Shep

herd

v. C

omm

'r,

115

T.C.

376

(200

0), a

ff'd,

283

F.3

d 12

58 (1

1th

Cir.

2002

) E

stat

e o

f Shu

rtz

v. C

omm

'r, 9

9 T.

C.M

. (CC

H)

1096

(201

0)

Sim

s v.

Lake

side

Sch

ool,

2007

WL

2745

367

(W.D

. Was

h.)

Est

ate

of S

mith

v.

Uni

ted

Stat

es,

2012

WL

5915

06 (F

ed. C

L)

Est

ate

of S

tew

art v

. Com

m 'r

, 92

T.C.

M. (

CCH

) 357

(200

6), v

acat

ed a

nd re

man

ded,

617

F.3

d 14

8 (2

d Ci

r. 20

10)

Est

ate

of S

tick

v. C

omm

'r,

100

T.C.

M. (

CCH

) 19

4 (2

010)

E

stat

e o

f Alle

ne W

Sto

ne v

. C

omm

'r,

86 T

.C.M

. (CC

H) 5

51 (

2003

) E

stat

e o

f Joa

nne

Ston

e v.

Com

m 'r

, 10

3 T.

C.M

. (CC

H)

1237

(201

2)

Est

ate

ofSt

rang

i v.

Com

m 'r

, 11

5 T.

C. 4

78 (2

000)

, aff

'd in

par

t and

rev

'din

par

t, 29

3 F.

3d 2

79 (5

th C

ir. 2

002)

E

stat

e of

Stra

ngiv

. C

omm

'r, 8

5 T.

C.M

. (CC

H)

1331

(200

3), a

ff'd,

417

F.3

d468

(5th

Cir.

200

5)

Uni

ted

Stat

es v

. Te

xtro

n, 5

07 F

. Sup

p. 2

d 13

8 (D

.R.l.

200

7), a

.ffd

in p

art,

vaca

ted

in p

art,

and

rem

ande

d, 5

53 F

.3d

87 (1

st Ci

r. 20

09)

Est

ate

of T

hom

pson

v.

Com

m 'r

, 84

T.C

.M. (

CCH

) 374

(200

2), a

ff'd,

382

F.3

d 36

7 (3

d Ci

r. 20

04)

Est

ate

of T

urne

r v.

Com

m 'r

, 10

2 T.

C.M

. (CC

H) 2

14 (2

011)

W

andr

y v.

Com

m 'r

, 10

3 T.

C.M

. (CC

H)

1472

(201

2)

07 N

o. 0

20 B

NA

Tax

core

25;

http

://w

ww

.irs.

gov/

publ

irs-

utl/a

sg_p

enal

ties J

amil

y _lim

ited _

pshi

ps _}

ina/

reda

cted

10 _

20 _0

6.pd

f LR

.C. §

351

I.R.C

. § 36

8 LR

.C. §

721

LR.C

. § 22

04

LR.C

. § 60

3l(A

) LR

.C. §

6324

LR

.C. §

7491

LR

.C. §

760

2(a)

31

U.S

.C. §

3713

FE

D. R

. EV

ID.

502

23

Privilege Issues in the Estate Planning Arena Chapter 16

36

1089

131

WIN

ST

EA

D

IRS

Cir

cula

r 23

0 D

iscl

aim

er:

U

nd

er

ap

plic

ab

le T

rea

sury

re

gu

lati

on

s, t

his

ad

vice

is

no

t in

ten

de

d o

r w

ritt

en

to

be

use

d,

an

d

can

no

t b

e u

sed

, fo

r th

e p

urp

ose

of

avo

idin

g a

ny

pe

na

ltie

s.

If y

ou

w

ou

ld l

ike

an

op

inio

n u

po

n w

hic

h y

ou

ca

n r

ely

to

avo

id p

en

alt

ies,

p

lea

se c

on

tact

the

se

nd

er

to d

iscu

ss.

24