Privileges 1
Bob received a free consultation from Attorney Sally regarding his tax woes. After the consult was over, Bob decided not to hire Sally.
Are Bob's communications with Sally during the consult privileged?
Yes, they are privileged. The attorney-client relationship exists even though either the attorney or client decide not to work together.
Crunchtime: Page 106
Jill petitioned the Tax Court regarding her NoD. The IRS had disallowed many of her expenses. Respondent calls Jack, her bookkeeper, to the stand to explain some of the journal entries in her books regarding her expenses.
In a completely separate incident just a few days before the Tax Court trial, Jack was arrested for criminal tax fraud for creating false expenses and deductions for over 50 bookkeeping clients. Jill was one of those clients.
Once on the stand in the Tax Court trial, Jack pleads the 5th when Respondent ask him about the journal entries for expenses in Jill's books.
Does Jack have a 5th Amendment privilege in Tax Court in this situation?
Yes. The privilege can be invoked when a person who is compelled to provide testimony is asked to give testimony that may later incriminate him.
Adapted from Crunchtime, Page 113
Broken Betty sees her family physician, Doctor Dan, regarding her back pain. She discusses the issue in-depth with Doctor Dan, and runs multiple expensive diagnostic tests to determine the exact issue.
Betty deducts the related medical expenses on her 2021 tax return.
Betty is later audited regarding her itemized deductions. She didn't keep receipts. When she contacts Doctor Dan's office to get copies of her receipts, she discovers that their system was hacked, and they lost all patient records. Betty's medical expenses were subsequently disallowed.
Betty receives a NoD and timely petitions the Tax Court. Since the medical records have been destroyed, Respondent subpoenas Doctor Dan and asks him to testify about Betty's injuries.
Is Doctor Dan required to testify about Betty's injuries?
No. Betty's injuries are protected by the physician-patient privilege.
*However, it would be helpful for Betty if she allowed Doctor Dan to testify in order to "reconstruct" the medical record.
Attorney Sally is representing Jane in a civil tax fraud case regarding underreported self-employment income. While scrolling through Twitter, Sally sees a public tweet from Jane, where Jane brags about how she never reports any of the cash receipts for her business on her tax returns because the IRS "can't track cash".
Is Sally's knowledge of this tweet protected by the Attorney-Client Privilege?
No. If the attorney makes an observation that third parties also could have made, this is not a protected confidential communication. Sally could be forced to testify as to this observation.
Adapted from Crunchtime Page 107
Father Phillip is taking confessions.
Stealing Sandra meets with Father Phillip face-to-face and confesses that she stole tithes from the church's offering plate and did not report that income on her federal income tax return.
Sandra also has an upcoming Tax Court trial regarding a NoD for underreporting multiple sources of taxable income.
Can Father Phillip testify on the stand as to the content of Sandra's confession?
No. Sandra's communications are protected under the priest-penitent privilege.
But you can bet that she'll never be handed the collection plate again...
Adapted from Crunchtime, page 118
Technical Timmy is the lead IT developer for a brand new marketing software that Tech Corp is creating for the purposes of later selling it to other tech companies. This software will revolutionize the way tech companies set up their marketing funnels.
Tech Corp later finds itself in Tax Court regarding its corporate tax liability.
Respondent subpoenas Timmy to testify for the Commissioner regarding potential underreported income for Tech Corp. During Timmy's testimony, Respondent asks Timmy to discuss the HTML code for the new marketing software Timmy is creating.
Does Timmy have to provide testimony on the new HTML code he created for Tech Corp?
No. The HTML code is part of a trade secret that Timmy is creating for Tech Corp. The HTML code will help Tech Corp compete with other companies, and it has nothing to do with the underreported income.
Adapted from Crunchtime, page 120
Billy searches for a tax attorney to file a USTC petition, and he finds Shady Sam online. Billy has his paid consult, and during the consult, Shady Sam states that he is a practicing attorney who is admitted to practice before the USTC. He provides Billy with his bar number. Billy then divulges information to regarding the facts of his tax case.
Shady Sam is actually a fraudster who impersonates an attorney so he can steal consultation fees. The bar number actually belongs to another attorney with the same name as Shady Sam.
Is Billy's consultation with Shady Sam protected under the attorney client privilege?
Yes, it is protected under the attorney-client privilege.
As long as a client has a reasonable belief that the person he is talking to is a lawyer, the privilege applies even though the other person is not a lawyer.
Adapted from Crunchtime, Page 107
Swingin' Steven petitions the USTC regarding a NoD for Tax Year 2018 for unreported income for his SMLLC.
Steven's USTCP tells him that Steven's long-time secretary (and long-time paramour), Hoochie Holly, can be called in as a witness by Respondent.
In a panic, Steven marries Holly the next day so that she cannot testify against him based on what she has has heard about the underreported income during their "pillow talk".
Can Holly be protected from testifying in Tax Court about the pillow talk based on the Marital Confidential Communication privilege?
No. Under the Marital Confidential Communication privilege, the parties must be married when the confidential communication occurs.
Adapted from Crunchtime, page 118
ABC Corp hires Honest Henry, a USTCP, to represent it in Tax Court. Anthony Accountant is an employee of ABC, and he has been working with Henry on the TC Case.
In one of their meetings, Anthony tells Henry about a serious car accident he saw on the interstate on the way to their meeting.
Are Anthony's statements to Henry about the car accident covered by the attorney-client privilege?
No. To be privileged, the communication from Anthony to Henry must be about his corporate duties.
Since the statements about the car accident did not relate to Anthony's corporate duties, they are not covered.
Matilda meets with Paulie Probate for the purpose of reviewing her existing will. She tells Paulie that her will provided for 100% of her estate to go to her son, Favorite Freddy, and her other son, Unwanted Ulysses, was to receive nothing.
Matilda died before hiring Paulie, and Ulysses hires his own attorney to contest the will.
Are Matilda's discussions with Paulie covered under the attorney-client privilege?
No. Although the attorney-client privilege generally survives the death of the client, there is a exception if the subsequent legal proceeding covers a case in which the issue concerns who receives the decedent's property.
Adapted from Crunchtime, Page 111
!!!DAILY DOUBLE!!!
Swingin' Steven lost in Tax Court regarding his 2018 NoD. He sucks it up and keeps running his business with Hoochie Holly as his wife/secretary. During their marriage, he secretly confesses to her that he also underreported his personal gambling income for 2019-2022. Holly never goes gambling with Steven and has no access to his bank accounts.
Holly quits her secretary job and divorces Steven for a richer man in January 2023.
In February 2023, Steven receives another NoD regarding unreported income for tax year 2019. He timely petitions the Tax Court again. Respondent subpoenas Holly to testify on the Commissioner's behalf.
Is Holly protected from testifying against Steven under the Marital Confidential Communications privilege?
Yes. The parties must be married at the time the confidential communication occurred. However, the privilege still applies even though they were divorced at the time of the trial.
Crunchtime, Page 118
Cook the Books, Inc., is a company that offers "creative" bookkeeping to gig economy workers.
Larceny Lucy is a client, and she ends up with a NoD stemming from the creative bookkeeping. She timely petitions the Tax Court.
Respondent subpoenas Journaling John, an employee of Cook the Books Inc, to only produce and identify the journal entries he made in Lucy's books. John strongly suspects that the journal entries he made for Lucy were based on false expenses, but he is not 100% sure.
There is no current criminal investigation against John.
Can John assert his privilege against self-incrimination and refuse to produce the journal entries?
No. John has to demonstrate there is a real and appreciable danger of self-incrimination by producing the journal entries.
He is not completely sure that the entries were false, and he is not being asked to do anything other than produce and identify the journal entries.
Adapted from Crunchtime, Page 113 and our text, page 26