United States of America Plaintiff-Appellee, v. Richard A Frederick, Defendant-Appellant, and Randolph W. Lenz, Karin Lenz, and KCS Industries, Inc., Intervening-Defendant-Appellants.

• Position: Friend-of-the-court brief filed June 18, 1999 by Tax Executives Institute with the U.S. 7th Circuit Court of Appeals - Brief Article

IN THE UNITED STATES COURT OF APPEALS FOR THE SEVENTH CIRCUIT

Nos. 98-2644 and 98-2700

On Appeal from the United States District Court for the Eastern District of Wisconsin

BRIEF OF TAX EXECUTIVES INSTITUTE, INC. AS AMICUS CURIAE IN SUPPORT OF APPELLANT AND INTERVENOR-APPELLANTS' PETITION FOR REHEARING WITH A SUGGESTION FOR REHEARING EN BANC

On June 18, 1999, Tax Executives Institute filed the following brief amicus curiae with the United States Court of Appeals for the Seventh Circuit. The brief was filed in a case involving, among other things, whether the attorney-client privilege and the work product doctrine applied in respect of documents prepared in connection with the preparation of tax returns and the Internal Revenue Service's examination of those returns. The brief was prepared under the aegis of TEI's IRS Administrative Affairs Committee, whose chair is Stephen W. Boocock of Allegheny Teledyne, Inc.

INTEREST OF AMICUS CURIAE

Pursuant to Rule 29 of the Rules of the United States Court of Appeals for the Seventh Circuit, Tax Executives Institute, Inc. (TEI) respectfully submits this brief as Amicus Curiae to urge the Court to grant the Petition for Rehearing with a Suggestion For Rehearing En Banc of the Appellant and the Intervenor-Appellants to clarify the scope of the attorney-client privilege and work-product doctrine as applied to controversies involving the tax law.

TEI is a voluntary, nonprofit association of corporate tax executives who are responsible for managing the tax affairs of their companies and who must contend daily with the provisions of the tax law relating to the operation of business enterprises. The Institute was organized in New York in 1944 and has more than 5,000 members who represent nearly 3,000 of the leading corporations in the United States and Canada, as well as a recently formed chapter in Europe. TEI is dedicated to promoting the uniform and equitable enforcement of tax laws throughout the nation and to reducing the costs and burdens of compliance to the benefit of both the government and taxpayers.

The companies that employ TEI's members are generally part of the Internal Revenue Service's Coordinated Examination Program (CEP), which seeks to examine the returns of the country's largest taxpayers on an on-going basis. That is to say, the IRS is an uninterrupted presence in their lives. The Institute's members are lawyers, certified public accountants, and other professionally trained tax professionals who, as circumstances dictate, retain the services of in-house or outside legal counsel to render advice and otherwise facilitate the performance of their duties. These duties include analyzing the legal aspects of proposed transactions (from a tax perspective), preparing tax returns complying with the tax laws of the United States and other jurisdictions, and defending positions taken in administrative proceedings involving tax authorities (such as the IRS) and in court.

One issue presented in this case is whether certain documents prepared by an attorney in connection with the filing of tax returns and an IRS examination of those returns may be subject to the attorney-client privilege and the work-product doctrine. Without addressing whether a properly construed privilege would protect the communications here, amicus TEI submits that the Court misapprehends the nature of the tax examination process and, as a consequence, the standard it propounds is at once unrealistic and improperly rigid. Amicus TEI is concerned that the Court's decision will adversely affect the ability of tax executives to work, candidly and unobstructedly, with counsel concerning legal issues affecting the tax treatment of business transactions. Thus, TEI's members and the companies they represent have a vital interest in this case.

STATEMENT OF THE CASE

This case involves a petition by the United States of America to enforce an IRS summons issued to Appellant Richard Frederick pursuant to section 7602(a) of the Internal Revenue Code (26 U.S.C.). Mr. Frederick, who is a lawyer, prepared tax returns and provided legal representation for Intervenor-Appellants Randolph and Karin Lenz and their corporation, KCS Industries, Inc. The summons sought voluminous documents from Mr. Frederick, including draft tax returns, workpapers, and correspondence. Mr. Frederick resisted enforcement of the summons, claiming that some of the documents were subject to the attorney-client privilege and the work-product doctrine. The United States sought enforcement of its summons in the U.S. District Court for the Eastern District of Wisconsin, which ordered Mr. Frederick to produce substantially all of the withheld documents. This appeal followed.

The Court's opinion affirming the District Court's order was issued on April 15, 1999, and amended on May 18, 1999. The Court's discussion of the scope of the attorney-client privilege and the work-product doctrine raises two issues of concern. First, the Court held that so-called dual-purpose documents are not, by definition, privileged because they are used in preparing a taxpayer's return. Such an absolute rule, however, is neither justified by precedent nor consistent with the purpose underlying the attorney-client privilege. Unless clarified, the Court's denial of the privilege whenever the information sought is reflected on a tax return will stifle the free flow of advice assessing the legal...