Tax planning memo prepared by an accounting firm could not be withheld from disclosure to the IRS under the “attorney client privilege” | Norton Rose Fulbright
Ernst & Young sent the owners of two closely-held companies a memo with advice on what values to report for the two companies in connection with a merger and how to minimize gift taxes on gifts to their children. The taxpayers did not follow the advice and signed affidavits directly at odds with the valuations that Ernst & Young had recommended, thereby reducing their gifts taxes even further. The IRS began a fraud investigation and issued a summons to Ernst & Young for its files on the work it did. The taxpayers moved to quash the summons, arguing that the accounting firm was working for their lawyers, Hale & Dorr, and, therefore, was protected by attorney-client privilege.
A federal district court in Massachusetts said there was no evidence that the accountants were working for the law firm. The engagement letter ran from one of the merged companies directly to Ernst & Young. The files had to be turned over to the IRS.