Tax Court holds that IRS litigation memos are protected work product.

• Author: Beavers, James

The Tax Court held that the IRS did not have to turn over memos prepared by IRS personnel during the course of litigation because the memos were protected by the work-product privilege and the IRS had not waived the privilege with respect to the documents.

Background

Thomas and Bonnie Ratke (the taxpayers) timely filed their 1993 federal tax return. In 1996, the IRS sent the taxpayers a notice of deficiency for additional taxes and penalties for 1993. On March 29, 1996, the taxpayers fried suit in the Tax Court disputing the entire amount of the deficiency. On the same day, they also sent the IRS an amended return for 1993 that showed an additional deficiency for the year. In May 1996, the IRS made an assessment for the deficiency amount the taxpayers reported on the amended return plus interest.

In March 1997, the taxpayers settled with the IRS, and the Tax Court entered a decision that they owed a small deficiency for 1993 and no penalties. In May 1997, the Service assessed the deficiency agreed to in the settlement. However, it also sent the taxpayers a notice and demand for the amount they had reported as due on their amended return for 1993.

The taxpayers filed a petition in the Tax Court challenging the IRS's attempts to collect the amount reported as due on the 1993 amended return. The case eventually went to trial and the Tax Court held that the Service could not collect the amount reported as due on the amended return. While preparing for trial, the IRS attorney assigned to the case prepared a memo to the National Office asking for its advice. The memo described the facts in the case and several arguments that the attorney would make in the litigation with the National Office's approval. A National Office representative sent a reply memo to the attorney that set out the National Office's opinion on the attorney's proposed legal arguments.

After the Tax Court issued its decision, the taxpayers moved for an award of costs under Sec. 7430 and later moved for sanctions under Sec. 6673(a)(2). In the course of this further litigation, the IRS provided the taxpayers with a redacted copy of the National Office's reply memo. The taxpayers later made a discovery request for the trial attorney's memo and a full copy of the National Office memo. The Service objected to the request on the ground that the opinion information in the memos was protected by the work-product privilege and that the factual information in them was well known to the...