Tax Practitioners Must Review Their Communications Containing Both Legal And Nonlegal Advice

According to Law360, Tax practitioners must tread carefully regarding communications that contain both legal and nonlegal advice following the U.S. Supreme Court's sudden dismissal of a case that asked the justices to decide whether such dual-purpose communications are privileged.

The high court unexpectedly dismissed the dispute, known as In Re Grand Jury, by issuing a rare one-sentence decision last month just two weeks after the justices heard oral arguments, saying the petition in the case was improvidently granted.

The High Court's Dismissal Means There Is Still A
Split In The Circuit Courts Over How To Determine
Whether Dual-Purpose Communications Are Privileged.

Practitioners should adhere to a strict interpretation of privilege set by the Ninth Circuit in In Re Grand Jury that said in an amended opinion last year that dual-purpose communications that contained tax preparation advice were not privileged because the primary purpose of the discussions was not legal advice.

Though the Ninth Circuit's "primary purpose" standard is binding only in the states under its jurisdiction, attorneys said they would recommend taking additional measures to ensure certain communications remain confidential even outside those states.

The In re Grand Jury case involved an unnamed law firm's bid to shield certain international tax communications with a client from disclosure to a grand jury. After the Ninth Circuit ordered the firm to turn over those documents two years ago, the firm petitioned the Supreme Court to review its challenge. The justices agreed to review it in October.

At oral arguments on January 9, 2023, the justices strained to understand if there was even a difference between the primary purpose and significant purpose standards based on the firm's and government's positions. 

In The Wake Of The In Re Grand Jury Case,
The First Step Is, If Possible,
Is To Avoid Mixing
The Reasons For Legal And Nonlegal Communications 

in an email, text message, memo or other documents when an attorney is advising a client on a U.S. Department of Treasury Regulation.

Susan Combs, tax controversy and litigation partner at Holland & Hart LLP, suggested using labels and stating the intended purpose of the document if an attorney has concerns about the potential lack of clarity on the purpose of the communication. 

If a challenge is brought as to whether a communication is privileged or not, she said it likely won't come for months or years, when documents are sought in litigation or by a subpoena. If that happens, such indicia can be very helpful to a judge who must decide whether a communication's primary purpose was to provide legal advice, she said.

Many practitioners have struggled for years on how to identify what is legal advice and tax preparation assistance in dual-purpose communications due to the uneven treatment in the federal courts on what is considered privileged tax information. 

Some have held that attorney-client privilege does not apply to communications that deal with a client's tax return preparation, while it does for tax controversy and tax planning issues.

"For Lawyers Who Prepare Tax Returns And Advise
On The Legal Aspects Of Those Same Returns,
There Is A Greater Risk And There Has Always
Been A Greater Risk Of Privilege Waiver,"
said Lawrence Hill, a partner at Steptoe & Johnson LLP .

In particularly sensitive cases, such as criminal cases like In Re Grand Jury, Hill said, "it would be prudent to consider not having the same lawyer advise on the soft spots of the return and prepare the return."

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