Discussions with an investment bank about a tax planning idea had to be disclosed to the IRS on audit, a federal appeals court said on February 26
Goldman Sachs approached Paramount in 1989 with an idea how to generate capital losses to shelter a large gain the company had from sale of a subsidiary. Paramount ultimately did the transaction with Merrill Lynch, but not before Eugene Meyers, Paramount senior vice president and tax counsel, had a number of meetings with David Ackert, an investment banker at Goldman Sachs, to understand how the transaction would be structured and the tax risks. Paramount eventually paid Goldman Sachs $1.5 million for bringing the idea to it.
On audit, the IRS issued a summons to Ackert. Paramount claimed its conversations with Ackert were protected by attorney-client privilege. The US court of appeals for the 2d circuit said they were not. The communications between Meyer and Ackert were not between an attorney and client.
Congress extended a form of attorney-client privilege last year to communications about tax planning with accountants. However, the privilege does not apply to advice concerning “corporate tax shelters.” The IRS is expected to issue a definition sometime this spring.