Taylor Lohmeyer Law Firm PLLC v. United States (5:18-cv-01161), District Court, W.D. Texas (2018)
Synopsis: This is a government case where the IRS is alleging that this Estate and Tax Planning Law Firm in Austin Texas helped clients illegally avoid paying U.S. Taxes and they want the client list. The lower court has obliged, now it’s off to the 5th Circuit Appellate panel to rule on…. Update as at 15th April, 2020.
April 24, 2020 and there’s a decision from the 5th. Authored by Judge Barksdale, he provides a detailed analysis and conclusion as to why the Tax Attorney cannot shield his business and his clients from inspection by the IRS. In affirming the lower court judges order, it’s thumbs up for the IRS, with the defense of attorney-client privilege rejected – leaving this Austin, Texas tax attorney grounded.
December 15, 2020 and the en banc rehearing petition is denied in a split decision. The IRS wins and attorney-client privilege is rejected.
The Original 3-panel (5th Circuit Judges)
In the en banc poll, eight judges voted in favor of rehearing (Chief Judge Owen, and Judges Smith, Elrod, Haynes, Willett, Ho, Engelhardt, and Oldham),
And nine judges voted against rehearing Judges Jones, Stewart, Dennis, Southwick, Graves, Higginson, Costa, Duncan, and Wilson).
The IRS served the Taylor Lohmeyer law firm with a broad summons requesting the identities of the firm’s clients who had engaged the firm to achieve certain offshore financial arrangements from 1995 to 2017. The IRS has traditionally served such summonses on financial institutions and commercial couriers. Not lawyers. There is good reason to be wary of investigations that exert pressure on lawyers. The relationship between a customer and a financial institution or commercial courier plays little, if any, role in our system’s ability to administer justice—but the same cannot be said of the lawyer-client relationship. When the IRS pursues John Doe summonses against law firms, serious tensions with the attorney-client privilege arise. Courts play a crucial role in moderating the executive power with respect to a John Doe summons. See United States v. Bisceglia, 420 U.S. 141, 146 (1975) (“Substantial protection is afforded by the provision that an Internal Revenue Service summons can be enforced only by the courts.”).
Hearing this case en banc would have helped clarify the boundaries of attorney-client privilege in this precarious area.1 I write to explain that the opinion can and should be read—consistently with our existing precedent— not to impose any new standard with respect to what is required for the attorney-client privilege to protect client identity.
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1 Amici, the American College of Tax Counsel and the National Association of Criminal Defense Lawyers, both supported rehearing en banc.
Attorney-client privilege matters. And it matters not only for particular parties but for the system of justice at large. “Its purpose is to encourage full and frank communication between attorneys and their clients and thereby promote broader public interests in the observance of law and administration of justice.” Upjohn Co. v. United States, 449 U.S. 383, 389 (1981). Although the privilege may at times prevent the government from obtaining useful information, “this is the price we pay for a system that encourages individuals to seek legal advice and to make full disclosure to the attorney so that the attorney can render informed advice.” In re Grand Jury Subpoena for Attorney Representing Criminal Defendant Reyes-Requena, 926 F.2d 1423, 1432 (5th Cir. 1991) (Reyes-Requena II) (quoting Matter of Grand Jury Proceeding, Cherney, 898 F.2d 565, 569 (7th Cir. 1990)). See also In re Grand Jury Proceedings, 517 F.2d 666, 674 (5th Cir. 1975) (Jones) (“The purpose of the [attorney-client] privilege would be undermined if people were required to confide in lawyers at the peril of compulsory disclosure every time the government decided to subpoena attorneys it believed represented particular suspected individuals.”).
Tax, in particular, can be a complex area of law, and our system relies on self-reporting and voluntary compliance. Many individuals, especially with sophisticated business interests, seek assistance to navigate the Internal Revenue Code. Tax attorneys can help clients comply—but only if they have the clients’ full disclosure.
We have previously held that client identities are privileged where disclosure would reveal the client’s confidential motive for retaining an attorney. “If the disclosure of the client’s identity will also reveal the confidential purpose for which he consulted an attorney, we protect both the confidential communication and the client’s identity as privileged.” Reyes- Requena II, 926 F.2d at 1431. See also Jones, 517 F.2d at 674–75 (“The attorney-client privilege protects . . . the clients’ identities when such protection is necessary in order to preserve the privileged motive.”).
Our enduring precedent in Jones and Reyes-Requena II aligns with the long-established case law of other circuits. See, e.g., Cherney, 898 F.2d at 568 (“The client’s identity . . . is privileged because its disclosure would be tantamount to revealing the premise of a confidential communication: the very substantive reason that the client sought legal advice in the first place.”); Tornay v. United States, 840 F.2d 1424, 1428 (9th Cir. 1988) (client identities are privileged when “disclosure of the client’s identity or the existence of a fee arrangement would reveal information that is tantamount to a confidential professional communication”); United States v. Liebman, 742 F.2d 807, 809 (3d Cir. 1984) (client identities are privileged “where so much of the actual attorney-client communication has already been disclosed that identifying the client amounts to full disclosure of the communication”);
N.L.R.B. v. Harvey, 349 F.2d 900, 905 (4th Cir. 1965) (“The privilege may be recognized when so much of the actual communication has already been disclosed that identification of the client amounts to disclosure of a confidential communication.”).
The amici raised important concerns about how to interpret the opinion in this case. However, the opinion assures us, in its citations to Jones and Reyes-Requena II, that it does not diverge from our settled precedent. Taylor Lohmeyer Law Firm P.L.L.C. v. United States, 957 F.3d 505, 510–11 (5th Cir. 2020). I take the opinion at its word. Whenever disclosing a client’s identity would reveal the confidential purpose for which the client consulted the attorney, attorney-client privilege applies. This protection may obtain even if the government does not know the specific, substantive legal advice that was provided to the client.
In the district court, the enforcement order is currently stayed and the case has been administratively closed to facilitate our review of the enforcement order. Once our mandate issues, it may be that the case is reopened and the stay lifted. If so, the May 15, 2019 enforcement order provides that the Lohmeyer law firm will have the opportunity to produce a privilege log, asserting privilege on particular responsive documents. If the law firm does so, the district court may choose then to conduct an in camera review of those documents.2 I am confident that any such review will be guided by the following: “[i]f the disclosure of the client’s identity will also reveal the confidential purpose for which he consulted an attorney, we protect both the confidential communication and the client’s identity as privileged.” Lohmeyer, 957 F.3d at 511 (quoting Reyes-Requena II, 926 F.2d at 1431).
2 The fact that the law firm made “blanket” assertions of privilege was perhaps because the IRS demanded a very broad array of documents to be identified using a client list. When a summons is so structured, a blanket assertion of privilege may be appropriate.
5th Circ. Denies Law Firm Another Go In IRS Summons Battle
Taylor Lohmeyer Law Firm PLLC will not get a second chance to argue that attorney-client privilege protects the identity of clients from an Internal Revenue Service summons after a divided Fifth Circuit rejected its petition for a hearing en banc.
The court on Monday voted 9-8 to refuse a request from Taylor Lohmeyer seeking to void a John Doe summons for the names of clients suspected of using the firm to help hide taxable income in foreign countries.
But a dissenting opinion signed by six of the eight judges voting with the minority warned that the case deserved a rehearing to clarify the boundaries of legal privilege when a firm receives a summons.
“There is good reason to be wary of investigations that exert pressure on lawyers,” Judge Jennifer Walker Elrod wrote for the dissent. “When the IRS pursues John Doe summonses against law firms, serious tensions with the attorney-client privilege arise.”
The dissent also emphasized that the case would not overturn legal precedent that protected client identity when it would reveal the motive for seeking legal advice.
The IRS originally filed a John Doe summons after an audit of a Taylor Lohmeyer client indicated he employed the firm to hide unreported income, according to court documents. A federal district court ruled in 2019 that the government could enforce the summons because the firm had failed to show attorney-client privilege protected the information.
In reaching that decision, the court said the government properly established that the request for information was made with the legitimate purpose of combating tax evasion by identifying Taylor Lohmeyer clients. The Fifth Circuit affirmed the decision in April.
Taylor Lohmeyer argued that under United States v. Jones, attorney-client privilege shields the identity of a client where revealing the information would disclose other privileged communications, such as why the client retained the firm. The government had wrongly interpreted Jones as protecting a client’s identify only when it is the “last link” in a chain of events that led to a crime, the firm said.
The Fifth Circuit majority did not explain its reasoning Monday.
The minority said hearing the case en banc would have clarified the boundaries of attorney-client privilege when law firms receive summonses.
Privilege helps clients disclose information so a lawyer can represent them, the dissent noted. It is particularly important in the complicated arena of tax law, it said.
“Many individuals, especially with sophisticated business interests, seek assistance to navigate the Internal Revenue Code,” the minority wrote. “Tax attorneys can help clients comply — but only if they have the clients’ full disclosure.”
Prior case law has held that privilege extends to information that reveals the client’s confidential motive for retaining a law firm, the dissent added. Revealing a client’s motive is tantamount to a privileged communication where a client admits culpability, the dissent said.
The case should not be interpreted as a new standard for what is required from attorney-client privilege to protect the identity of clients, the minority added.
Legal representatives for Taylor Lohmeyer and for the U.S. did not respond to requests for comment.
The law firm is represented by Steven J. Knight of Chamberlain Hrdlicka White Williams & Aughtry.
The U.S. is represented by Gilbert S. Rothenberg, Michael J. Haungs, Francesca Ugolini, Curtis C. Smith and Douglas C. Rennie of the U.S. Department of Justice, Tax Division.
The case is Taylor Lohmeyer Law Firm PLLC v. U.S., case number 19-50506, in the U.S. Court of Appeals for the Fifth Circuit.
The Dissenting 5th Circuit Judges
The Nodding Nine (Confirming IRS Defeats Attorney-Client Privilege)
Justice Gorsuch – Austin Investiture Justice Brett Busby to the @SupremeCourt_TX
“Civility and Justice in American Courts should be paramount. Lawyers cost too much. Getting to trial takes too long. Juries promised by the Constitution are rarely used.”https://t.co/nghPPUrFXs pic.twitter.com/xeQNuliS3d
— LawsInTexas (@lawsintexasusa) December 16, 2020