Tax Planning Memos

Tax Planning Memos

October 01, 2002 | By Keith Martin in Washington, DC
TAX PLANNING MEMOS from an accounting firm had to be turned over to the Internal Revenue Service, but similar written advice from two law firms was protected from disclosure.

The IRS sought seven documents in connection with its tax audit of a large telephone company. A federal district court judge in Wisconsin said recently that two opinions from the law firm Jenner & Block about transactions to generate tax losses were protected from disclosure by the attorney-client privilege. However, she ordered the company to turn over to the IRS a letter from Arthur Andersen to the company that “outlines the federal income tax consequences of the transactions at issue.” She acknowledged that it was similar to the Jenner & Block opinions, but said the attorney-client privilege did not apply because “this is accounting advice from an accounting firm and not legal advice from a law firm.” She suggested the way to protect the Arthur Andersen opinion would have been to have had the advice run to the law firm in connection with the legal opinion the firm was writing.

She also ordered the company to turn over an outline that Arthur Andersen prepared as a “framework for addressing legal issues” in the transactions. At the same time, she allowed the company to withhold a Sidley & Austin memorandum and attached markup of the Arthur Andersen tax opinion on grounds that it was privileged.

The case is a reminder to tax departments about the need to be careful about what is put in writing and by whom. It is US v. Telephone and Data Systems, Inc.

Keith Martin