Protecting Privilege in 'Work From Anywhere' Era: The move toward remote or hybrid work arrangements is underway and irreversible.

• Author: Christenson, Erik

Even prior to the COVID-19 pandemic, tax functions were adapting and reacting to fundamental change and uncertainty. Whether the changes were brought about by the Tax Cuts and Jobs Act, by ever more aggressive positions taken by state and local auditors, by complex and burdensome reporting regimes, by novel taxes or levies, or by the unprecedented international cooperation in global tax policy and rulemaking, to name just a few, tax departments were forced to quickly develop new compliance processes and new planning solutions. And these processes and solutions involved the use of newly developed tools and systems to model and measure results under recent legislation.

Against this backdrop of fundamental change and uncertainty in tax policy and administration, the way we work has forever changed in response to the COVID pandemic. The move toward remote or hybrid work arrangements is underway and irreversible. Technology, of course, has risen to the challenge by creating new tools for communication, collaboration, and information sharing.

Those two currents of disruptive change exist independent of each other, but they also intersect, requiring the modern tax department to focus on both substance and process. That is, the modern tax department has to ensure not only that its interpretation of the vast array of new tax rules is technically and substantively correct and defensible, but also that its use of new tools for communication, document sharing, and collaboration does not cause unintended consequences like, for example, waiving privilege or creating other unforeseen issues at the audit stage.

Complicating matters even further, the subjective intent behind tax planning plays a bigger role than ever before. The new generation of tax rules routinely includes intent-based "antiabuse" rules or "principal purpose" tests that can negate the taxpayers affirmative position.1 Some varieties of these rules provide the tax authority with tremendous discretion to invent a transaction that the taxpayer hypothetically could have engaged in and to assess tax on that basis.2 Needless to say, this environment makes discovery an extremely potent weapon for the taxing authority and legal privilege the taxpayer's first and most important line of defense.

Simply put, in tax planning, process matters. Subjective intent matters. Protocols matter. When a taxpayer is called upon to defend the tax position that results from a planning project, in many circumstances the manner in which planning was carried out and communicated could be more consequential than whether the technical position can be supported and defended.

Practical Steps to Protect Privilege in Digital Environment

With limited exceptions, attorneys have a responsibility to keep client information confidential.3 Beyond that, the attorney-client privilege operates to protect communications between a lawyer and client from disclosure to a court or other party. In general, the attorney-client privilege applies to (1) a communication (2) made between attorney and client (3) in confidence (4) for the purpose of seeking, obtaining, or providing legal assistance to the client.4 The third element, that the communication be made in confidence, is not absolute. That is, the privilege may not be waived if any disclosure of the communication was inadvertent and the holder of the privilege took reasonable steps to prevent disclosure and, afterward, to rectify the error.5 While taxpayers (and, on their behalf, their attorneys) need not be constantly on the watch for hidden eavesdroppers, a choice to hold discussions in public where they could be easily overheard demonstrates a lack of concern for confidentiality and likely would not be considered a reasonable approach to prevent disclosure.

In this era in which the working world is moving toward a virtual environment, one might think that taxpayers and lawyers do not need to worry as much about being in public with prying ears. However, because the untethering of work from a physical office opens up the possibility of working from anywhere, the virtual environment can actually exacerbate concerns about being overheard. Conducting a conference call at the beach may be relaxing but may also pose increased risks to the confidentiality of communications. And even in the safety of their own homes, it is easy for clients and attorneys to fall victim to complacency, forgetting that parents, spouses, significant others, and even children do not fall within the scope of the attorney-client privilege. If those persons hear otherwise privileged communications, that may cause the privilege to be waived. Taxpayers and their advisors should take care to avoid these situations.

In addition, it is now necessary to consider safeguards relating to the changing aspects of virtual work, including collaborative document editing, cloud-based file storage, and virtual meetings. As document sharing and collaboration platforms become the norm for writing and editing all types of...