Ben Bolas, Esq. of Dilworth Paxson LLP shared his analysis, by way of ProcedurallyTaxing.com, about a recent Second Circuit Court of Appeals case, Schaeffler v. US:
On November 10, 2015, the Second Circuit issued a decision in Schaeffler v. United States that expanded the boundaries of attorney-client privilege and work product doctrine in the context of tax advice, which was rendered in connection with a complex debt restructuring transaction. Schaeffler reminds us of the importance of maintaining proper procedures and documentation to safeguard attorney-client privilege and work product. The Second Circuit rejected the district court’s holding, severely limiting the application of attorney-client privilege and work product doctrine, and rewarded the taxpayer for careful planning.
The nature of this case appears to have been more about overturning a clearly incorrect decision than crafting a new law for broader application of attorney-client privilege. However, the court does seem to expand the borders slightly on when two separate parties have a common legal interest. Namely, that the sharing of otherwise privileged information between parties does not destroy the privilege.
The court took a slightly broader view on documents being produced in anticipation of litigation for a case where there was not a specific treatment of immediate litigation for the issue (such as would appear if a demand letter had been issued by a plaintiff to a potential defendant in a lawsuit). However, given the ongoing audits and the high scrutiny that the IRS had placed on the tax returns for his companies, the Appeals court found that Mr. Shaeffler had a reasonable anticipation of audit and litigation on the transaction. Therefore, the work produced was understandably being produced in anticipation of litigation.
Specifically, the Appeals court appears to have carefully distinguished Mr. Schaeffler's case from a situation where documents are prepared for the preparation of an ordinary tax return or a tax document with a clear application of law.
The appellant, Georg F.W. Schaeffler, with his mother, Maria-Elisabeth. Aside from being the richest man in Germany, he is also a Duke Law graduate. Unfortunately, the answer to this imagined question is "not really." That being said, there is still a gray area where the documents being prepared are on a highly complicated tax issue that does not have a clear application of law. I agree with Attorney Bolas' conclusion:
While the contours of attorney-client privilege and work product doctrine relating to tax advice remain to be defined, Schaeffler broadened attorney-client privilege and work product doctrine by lowering the threshold for achieving such protections in instances where attorneys, accountants and other professionals (bankers in this case) have a common legal interest and share documents in anticipation of litigation.
