Editors Choice

Austin Estate Planning & Tax Law Firm Accused by the IRS of Aiding and Abetting Clients Illegally Evade Paying U.S. Taxes. The Lower Court has Ruled in Favor of the IRS, Now the Lawyers are Rushing to the Attorney-Friendly 5th Circuit for Protection and a Reversal of the Adverse Ruling

Here, the Firm’s attorney-client privilege arguments do not meet its burden to rebut a Powell showing, in large part because the Firm makes a blanket assertion and does not produce a privilege log or similar device. See, e.g., Hanse v. United States, 2018 WL 1156201, at *6 (N.D. Ill. Mar. 5, 2018) (concluding that a “blanket assertion of privilege,” which did not properly assert attorney-client privilege on a document-by-document basis, was “insufficient to challenge the validity of the IRS summons”).

LIT COMMENTARY

Taylor Lohmeyer Law Firm PLLC v. United States (5:18-cv-01161), District Court, W.D. Texas (2018)

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. No movement in this appeal since last filing on Nov. 12, 2019.

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 defence of attorney-client privilege rejected – leaving this Austin, Texas tax attorney grounded. And with no flights to the Isle of Man or the British Virgin Islands, it means he’ll have to stay-at-home and comply with the turnover order relating to client data.

Before BARKSDALE, HIGGINSON, and DUNCAN, Circuit Judges. RHESA HAWKINS BARKSDALE, Circuit Judge:

At issue is whether the district court erred by granting the Government’s counter petition to enforce a summons issued to Taylor Lohmeyer Law Firm P.L.L.C. (Firm), notwithstanding the Firm’s blanket claim that all documents responsive to the summons are protected by the attorney-client privilege. AFFIRMED.

I.

The Firm, located in Kerrville, Texas, provides estate- and tax-planning advice to its clients. In October 2018, the Internal Revenue Service (IRS) served a John Doe summons on the Firm, seeking documents for “John Does”, U.S. taxpayers, who, at any time during the years ended December 31, 1995[,] through December 31, 2017, used the services of [the Firm] . . . to acquire, establish, maintain, operate, or control (1) any foreign financial account or other asset; (2) any foreign corporation, company, trust, foundation or other legal entity; or (3) any foreign or domestic financial account or other asset in the name of such foreign entity.

A John Doe summons is “[a]ny summons described in [26 U.S.C.7609(c)(1) (covered summonses)] which does not identify the person with respect to whose liability the summons is issued”. 26 U.S.C. § 7609(f) (Internal Revenue Code’s special procedures for John Doe summonses). Issuing a John Doe summons first requires an ex parte court proceeding, in which the Government establishes: “(1) the summons relates to the investigation of a particular person or ascertainable group or class of persons”; “(2) there is a reasonable basis for believing that such person or group or class of persons may fail or may have failed to comply with any provision of any internal revenue law”; and “(3) the information sought to be obtained from the examination of the records or testimony (and the identity of the person or persons with respect to whose liability the summons is issued) is not readily available from other sources”. Id.; see also id. § 7609(h)(2) (requiring the proceeding be ex parte). The Government successfully made this showing at an October 2018 hearing, prior to issuing the summons to the Firm.

The Government sought documents from the Firm based on the 2018 declaration of IRS Agent Russell-Hendrick, “an Offshore Special Matters Expert in the [IRS’] Special Enforcement Program”, which “identifies and examines [U.S.] taxpayers involved in abusive transactions and other financial arrangements for the purpose of avoiding U.S. taxes”. Agent Russell-Hendrick has submitted two supporting declarations for the Government in this case: the above-described declaration in 2018, prior to the ex parte proceeding; and the other in 2019, attached to the Government’s counter petition. The following is from the Agent’s 2019 declaration.

The Government “is conducting an investigation to determine the identity and correct federal income tax liability of U.S. taxpayers for whom [the Firm] acquired or formed any foreign entity, opened or maintained any foreign financial account, or assisted in the conduct of any foreign financial transaction”. The investigation arose because, during the IRS’ audit of one U.S. taxpayer (Taxpayer-1), its investigation “revealed that Taxpayer-1 hired [the Firm] for tax planning, which [the Firm] accomplished by (1) establishing foreign accounts and entities, and (2) executing subsequent transactions relating to said foreign accounts and entities”. Additionally, “[f]rom 1995 to 2009, Taxpayer-1 engaged [the Firm] to form 8 offshore entities in the Isle of Man and in the British Virgin Islands” and “established at least 5 offshore accounts so [Taxpayer-1] could assign income to them and, thus, avoid U.S. income tax on the earnings”. “In June 2017, [however,] Taxpayer-1 and his wife executed a closing agreement with the IRS in which they admitted that Taxpayer-1 . . . earned unreported income of over $5 million for the 1996 through 2000 tax years, resulting in an unpaid income tax liability of over $2 [m]illion.”

“Ultimately, Taxpayer-1 paid almost $4 million to the IRS to resolve his unpaid federal tax, interest, and penalties for those tax years.” Consequently, the John Doe summons at issue here seeks records that may reveal the identity and international activities of certain clients of [the Firm], from January 1, 1995, through December 31, 2017. This information may be relevant to the underlying IRS investigation into the identity and correct federal income tax liability of U.S. persons who employed [the Firm] to conceal unreported taxable income in foreign countries. In particular, the IRS is seeking information on U.S. taxpayers for whom [the Firm] created and maintained foreign bank accounts and foreign entities that may not be properly disclosed on tax returns.

After receiving the Government’s summons, the Firm filed in federal district court a petition to quash the summons on various grounds, asserting “the summons is overbroad and represents an unprecedented intrusion into the attorney-client relationship and is plainly abusive”. Regarding attorney- client privilege, the Firm claimed that, despite the general rule a lawyer’s clients’ identities are not covered by the privilege, an exception to that rule exists whereby “a client’s identity is protected by the attorney-client privilege if its disclosure would result in the disclosure of a confidential communication”. Accordingly, the Firm asserted the exception applies here, rendering all documents requested in the summons protected by the privilege.

The Government responded by filing a motion to dismiss the petition to quash and a counter petition to enforce the summons. Although the Government contended the Firm’s petition was “jurisdictionally deficient”, which supported the petition’s dismissal, it highlighted that the petition itself “indicate[d] an unwillingness to comply with the summons” and supported enforcing it. As relevant here, the Firm responded to the Government’s motion and counter petition, and the Government filed a reply.

At an April 2019 status hearing to discuss the pending filings, the court, with the parties’ agreement, proceeded directly with the Government’s counter petition. The counter petition was granted on 15 May 2019, with the court’s ruling, inter alia: “blanket assertions of privilege are disfavored, the Firm bears a heavy burden at this stage, and the Firm relies only on a narrowly defined exception to the general rule that identities are not privileged[; therefore,] the Firm does not carry its burden”. Moreover, the court noted in its order that, “if [the Firm] wishes to assert any claims of privilege as to any responsive documents, it may . . . do so, provided that any such claim of privilege is supported by a privilege log which details the foundation for each claim on a document-by-document basis”. Finally, the court stated it would “retain jurisdiction in th[e] case pending any challenges by the Government of the Firm’s privilege log, should the Firm produce one”.

II.

In challenging the court’s ruling, the Firm presents only its contentions as to attorney-client privilege. The district court, upon the Firm’s motion, has stayed its proceedings pending this appeal. In doing so, the court stated: “The Firm produced no privilege log, so there is no longer a need for this Court to retain jurisdiction. Accordingly, the Clerk’s office is directed to CLOSE this case”.

“[A] district court order enforcing an IRS summons is an appealable final order”. Church of Scientology v. United States, 506 U.S. 9, 18 n.11 (1992) (citation omitted). The party challenging the summons may do so “on any appropriate ground”, including because the information sought “is protected by the attorney-client privilege”. Reisman v. Caplin, 375 U.S. 440, 449 (1964) (citation omitted).

But “[r]eview of a district court’s determination with respect to the attorney-client privilege, even on direct appeal, . . . is limited”. In re Avantel, S.A., 343 F.3d 311, 318 (5th Cir. 2003). “The application of the attorney-client privilege is a question of fact, to be determined in the light of the purpose of the privilege and guided by judicial precedents.” EEOC v. BDO USA, L.L.P., 876 F.3d 690, 695 (5th Cir. 2017) (internal quotation marks and citations omitted). “In evaluating a claim of attorney-client privilege, [our court] review[s] factual findings for clear error and the application of the controlling law de novo.” In re Itron, Inc., 883 F.3d 553, 557 (5th Cir. 2018) (italics added) (internal quotation marks and citation omitted).

In this instance, of course, federal privilege-law applies. See, e.g., Avantel, 343 F.3d at 323 (citation omitted). In that regard, for the attorney- client privilege to protect from disclosure, either in whole or in part, a document responsive to the Government’s summons in this case, the Firm must establish that the document contains a confidential communication, between it and a client, made with the client’s “primary purpose” having been “securing either a legal opinion or legal services, or assistance in some legal proceeding”. BDO USA, 876 F.3d at 695 (citation omitted). “Because the attorney-client privilege has the effect of withholding relevant information from the fact-finder, it is interpreted narrowly so as to apply only where necessary to achieve its purpose.” Id. (alteration, internal quotation marks, and citation omitted). Construing the privilege narrowly is particularly important with IRS investigations because of the “congressional policy choice in favor of disclosure of all information relevant to a legitimate IRS inquiry”. United States v. Arthur Young & Co., 465 U.S. 805, 816–17 (1984) (emphasis in original) (citations omitted).

As discussed in part, “[d]etermining the applicability of the privilege is a highly fact-specific inquiry, and the party asserting the privilege bears the burden of proof”. BDO USA, 876 F.3d at 695 (internal quotation marks and citations omitted). In that regard, “[a]mbiguities as to whether the elements of a privilege claim have been met are construed against the proponent”. Id. (citation omitted). Additionally, as a general rule, “the attorney-client privilege may not be tossed as a blanket over an undifferentiated group of documents”. United States v. El Paso Co., 682 F.2d 530, 539 (5th Cir. 1982) (citations omitted). Instead, “[t]he privilege must [generally] be specifically asserted with respect to particular documents”. Id.; see also United States v. Davis, 636 F.2d 1028, 1038–39 (5th Cir. 1981) (“It is generally agreed that the recipient of a summons properly should appear before the issuing agent and claim privileges on a question-by-question and document-by-document basis.” (citations omitted)).

Moreover, “[a]s [another] general rule, client identit[ies] and fee arrangements are not protected as privileged”. In re Grand Jury Subpoena for Attorney Representing Criminal Defendant Reyes-Requena, 926 F.2d 1423, 1431 (5th Cir. 1991) (Reyes-Requena II) (citation omitted). That said, a “narrow exception” exists “when revealing the identity of the client and fee arrangements would itself reveal a confidential communication”. Id. (citation omitted). This “limited and rarely available sanctuary, which by virtue of its very nature must be considered on a case-to-case basis”, recognizes that “[u]nder certain circumstances, an attorney must conceal even the identity of a client, not merely his communications, from inquiry”. United States v. Jones (In re Grand Jury Proceedings), 517 F.2d 666, 671 (5th Cir. 1975) (citation omitted).

The exception, however, does not expand the scope of the privilege; it does not apply “independent of the privileged communications between an attorney and his client”. In re Grand Jury Subpoena for Attorney Representing Criminal Defendant Reyes-Requena, 913 F.2d 1118, 1124 (5th Cir. 1990) (emphasis added). Rather, a client’s identity is shielded “only where revelation of such information would disclose other privileged communications such as the confidential motive for retention”. Id. at 1125 (citation omitted). In that regard, the privilege “protect[s] the client’s identity and fee arrangements in such circumstances not because they might be incriminating but because they are connected inextricably with a privileged communication—the confidential purpose for which [the client] sought legal advice”. Reyes-Requena II, 926 F.2d at 1431 (emphasis added).

Because the Firm contends this case falls within this exception to the general rule that a law firm’s clients’ identities are not protected by the attorney-client privilege, it asserts: “[a]s a matter of law, all documents responsive to the summons are privileged”; and the district court erred in concluding otherwise. To support its position, the Firm relies on, inter alia, Reyes-Requena II and United States v. Liebman, 742 F.2d 807 (3d Cir. 1984).

As discussed, our court made clear in Reyes-Requena II that, “[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”. Reyes-Requena II, 926 F.2d at 1431. And, as stated, “[w]e protect the client’s identity and fee arrangements in such circumstances not because they might be incriminating but   because  they are        connected  inextricably  with a privileged communication—the confidential purpose for which [the client] sought legal advice”. Id. The Firm asserts such an inextricable connection is present here.

In Liebman, the third circuit, in applying the relevant exception to the general attorney-client privilege rule for client identities, determined:

The affidavit of the IRS agent supporting the request for [a John Doe] summons not only identifies the subject matter of the attorney-client communication, but also describes its substance. That is, the affidavit does more than identify the communications as relating to the deductibility of legal fees paid to [the firm] in connection with the acquisition of a real estate partnership interest. It goes on to reveal the content of the communication, namely that “taxpayers . . . were advised by [the firm] that the fee was deductible for income tax purposes.” Thus, this case falls within the situation where “so much of the actual communication had already been established, that to disclose the client’s name would disclose the essence of a confidential communication ”

Liebman, 742 F.2d at 809 (alterations added) (citations omitted). Along that line, the Firm contends: Agent Russell-Hendrick’s 2018 declaration, like that of the IRS agent in Liebman, establishes the Government already knows the content of the legal advice the Firm provided the Does; and, if the Firm is “required to identify [its] clients as requested, that identity, when combined with the substance of the communication . . . that is already known, would provide all there is to know about a confidential communication between the taxpayer-client and the attorney”, breaching the attorney-client privilege. See id. at 810.

Both cases, however, are distinguishable. In Reyes-Requena II, which involved whether a defense attorney was required “to reveal the identity of an anonymous third[-]party benefactor who paid the attorney’s fees for [a] drug defendant”, both the district court and our court, unlike in this case, inspected sealed documents relevant to the privilege claim. Reyes-Requena II, 926 F.2d at 1425, 1428, 1432 (citations omitted). Moreover, the benefactor whose identity was at issue intervened in the case, and the district court determined, “[r]elying upon the sealed affidavits presented in camera”, that: “an attorney/client privilege existed between [the defense attorney] and Intervenor. . . and . . . the relationship was ongoing”; “Intervenor retained [the defense attorney] to represent [the criminal defendant] and Intervenor jointly for a confidential purpose”; and “if [the defense attorney] were to reveal the Intervenor’s identity, Intervenor’s confidential motive for retaining [the defense attorney] would be exposed as apparent”. Id. at 1428 (emphasis in original) (citations omitted). It was under these specific circumstances, not present here, that the district court found, and our court agreed, the intervening client’s “confidential motive for consulting [the defense attorney] was intertwined inextricably with his identity and fee arrangements”. Id. at 1431 (citation omitted).

In Liebman, the IRS agent’s declaration explicitly identified taxpayers’ communications “as relating to the deductibility of legal fees paid to [the firm] in connection with the acquisition of a real estate partnership interest” and that, as the defendant firm conceded, “taxpayers . . . were advised by [the firm] that the fee was deductible for income tax purposes”. Liebman, 742 F.2d at 809 (alteration in original) (citations omitted). The IRS contended the fee was not deductible, and the John Doe summons at issue in that case, therefore, sought identity information explicitly for the discrete subset of clients “who paid fees in connection with the acquisition of real estate partnership interests”. Id. at 808 (citation omitted). “Because the IRS request was limited to the group of persons who paid for specific investment advice, the IRS would automatically identify those who were told they could make the questionable deductions”, and this “would [have] provide[d] all there [was] to know about a confidential communication between the taxpayer-client and the attorney[,] . .. breach[ing] the attorney-client privilege to which that communication [was] entitled”. Id. at 809–10 (emphasis added).

Importantly, however, and contrary to the Firm’s contention, Agent Russell-Hendrick’s 2018 declaration did not state the Government knows the substance of the legal advice the Firm provided the Does. (Nor, for that matter, does her 2019 declaration.) Rather, it outlined evidence providing a “reasonable basis”, as required by 26 U.S.C. § 7609(f), “for concluding that the clients of [the Firm] are of interest to the [IRS] because of the [Firm’s] services directed at concealing its clients’ beneficial ownership of offshore assets”. The 2018 declaration also made clear that “the IRS is pursuing an investigation to develop information about other unknown clients of [the Firm] who may have failed to comply with the internal revenue laws by availing themselves of similar services to those that [the Firm] provided to Taxpayer-1”. (Emphasis added.) Therefore, unlike the declaration in Liebman, neither of the Agent’s declarations in this case identified specific, substantive legal advice the IRS considered improper and then supported the Government’s effort to receive the identities of clients who received that advice. See Liebman, 742 F.2d at 809.

Instead, the John Doe summons at issue seeks, inter alia: documents “reflecting any U.S. clients at whose request or on whose behalf [the Firm] ha[s] acquired or formed any foreign entity, opened or maintained any foreign financial account, or assisted in the conduct of any foreign financial transaction”; “[a]ll books, papers, records, or other data . . . concerning the provision of services to U.S. clients relating to setting up offshore financial accounts”; and “[a]ll books, papers, records, or other data . . . concerning the provision of services to U.S. clients relating to the acquisition, establishment or maintenance of offshore entities or structures of entities”. (Emphasis added.) As the Government asserted, this broad request, seeking relevant information about any U.S. client who engaged in any one of a number of the Firm’s services, is not the same as the Government’s knowing whether any Does engaged in allegedly fraudulent conduct, or the content of any specific legal advice the Firm gave particular Does, and then requesting their identities.

This is particularly true given statements made by Fred Lohmeyer, one of the Firm’s name partners, in his declaration attached to the Firm’s memorandum supporting its petition to quash the summons. He stated the Firm’s other clients “ha[ve] facts that are distinguishable from” those of Taxpayer-1 “because[,] to the best of [his] knowledge, [the Firm] never advised any other client with respect to the treatment of earned income as income earned by a foreign corporation”. This undermines the Firm’s contention that the Government knows the substantive content of legal advice the Firm gave the Does.

In that regard, the circumstances here, as contended by the Government, are more like those in United States v. BDO Seidman, 337 F.3d 802 (7th Cir. 2003). That case involved unnamed clients of a public accounting and consulting firm seeking to intervene in an IRS enforcement action against the firm “to assert a confidentiality privilege regarding certain documents that [the firm] intended to produce in response to [IRS] summonses . . . because the[] documents reveal[ed] their identities as [firm] clients who sought advice regarding tax shelters and who subsequently invested in those shelters”. Id. at 805–06. According to the clients, disclosing their identities “inevitably would violate the statutory privilege [26 U.S.C. § 7525] protecting confidential communications between a taxpayer and any federally authorized tax practitioner giving tax advice”. Id. at 806 (citation omitted).

BDO Seidman, of course, does differ in some respects from this case. Namely, the clients sought to intervene in BDO Seidman (in which the IRS targeted the firm’s, not the clients’, compliance with the Internal Revenue Code); and a statutory, not the attorney-client, privilege, was at issue. See id. at 805–06. Critically, however, the statutory privilege was modeled after the attorney-client privilege, including its rule that “ordinarily the identity of a client does not come within the scope of the privilege” and its “limited exception” allowing that “the identity of a client may be privileged in the rare circumstance when so much of an actual confidential communication has been disclosed already that merely identifying the client will effectively disclose that communication”. Id. at 810–11 (citations omitted). Ultimately, the seventh circuit’s rationale in analyzing the privilege claim on the facts of the case before it, and affirming the district court’s denial of the clients’ motions to intervene, is instructive: “[d]isclosure of the identities of the Does will disclose to the IRS that the Does participated in one of the 20 types of tax shelters described in its summonses”; but, “[i]t is less than clear . . . as to what motive, or other confidential communication of tax advice, can be inferred from that information alone”. See id. at 812–13.

The same is true here: disclosure of the Does’ identities would inform the IRS that the Does participated in at least one of the numerous transactions described in the John Doe summons issued to the Firm, but “[i]t is less than clear . . . as to what motive, or other confidential communication of [legal] advice, can be inferred from that information alone”. See id. at 812. Consequently, the Firm’s clients’ identities are not “connected inextricably with a privileged communication”, and, therefore, the “narrow exception” to the general rule that client identities are not protected by the attorney-client privilege is inapplicable. See Reyes Requena II, 926 F.2d at 1431 (citations omitted).

III.

For the foregoing reasons, the 15 May 2019 enforcement order is AFFIRMED.

HIGGINSON, STEPHEN A.

BARKSDALE, RHESA H.

DUNCAN, STUART K.

Fifth Circuit Rules that Law Firm Clients’ Identities Are Not Privileged

In Taylor Lohmeyer Law Firm P.L.L.C. v. United States, No. 19-50506, the United States Court of Appeals for the Fifth Circuit held that a Texas-based estate and tax-planning law firm (Firm) could not invoke the attorney-client privilege against an Internal Revenue Service (IRS) summons seeking the identity of its clients.

According to an IRS revenue agent’s declaration submitted in support of the summons, the Firm became a target for IRS investigation following an audit of one of its clients, an individual who had used the Firm’s services to establish and operate various foreign accounts and entities, through which the individual had funneled millions of dollars of unreported income. The IRS issued a John Doe summons to the Firm seeking, amongst other things, the identities of other clients for whom it had established foreign accounts or entities.

The Firm filed a petition to quash the summons in the US District Court for the Western District of Texas, arguing that complying with the summons would violate the attorney-client privilege. The Firm acknowledged that the attorney-client privilege generally did not cover the identity of clients, but it noted that an exception existed for situations where disclosure of a client’s identity would by itself result in the disclosure of confidential communications. The Firm argued that the IRS, due to its previous investigation, had specifically identified the content of legal advice the Firm had provided to its clients, and that the exception applied because disclosure of the clients’ identities would enable the IRS to link that legal advice to specific clients, thereby resulting in the disclosure of confidential communications.

The district court rejected the Firm’s argument, noting that blanket assertions of privilege were disfavored. The court also noted that the Firm could have asserted privilege with respect to documents responsive to the summons on a document-by-document basis, provided that such claims were supported by a privilege log detailing the foundation for the claims, but that the Firm had never produced any such privilege log.

The Fifth Circuit affirmed the district court. It noted that the summons did not state that the IRS knew the particular nature of any legal advice provided by the Firm, nor did it seek only the identities of clients who had received a particular kind of legal advice. Rather, the summons sought the identities of all of the Firm’s clients for whom the firm had established foreign accounts or entities, and the Fifth Circuit noted that it was not clear what confidential communications could be inferred from the disclosure of the clients’ identities alone. Therefore, the Fifth Circuit held that the summons did not fall into the “narrow exception” to the attorney-client privilege where a client’s identity was “connected inextricably” with a confidential communication.

Practice Point: If the IRS seeks the identity of clients in a summons, it is very difficult to defend against the summons by arguing that the disclosure of client identities is inextricably linked to the disclosure of confidential communications with clients. However, disclosure of a client’s identity does not affect the privileged nature of those communications. Even if a practitioner is forced to disclose client identities, they should be vigilant (and may be ethically required) to assert privilege with respect to confidential communications with clients. As noted by the district court in this case, this includes the maintenance of privilege logs on a document-by-document basis.

Fred Lohmeyer graduated from The University of Texas at Austin in 1960, with the degree of Bachelor of Business Administration, and in 1962, with the degree of Doctor of Jurisprudence. While at the Law School of the University of Texas at Austin, he was an Associate Editor of the Texas Law Review and a member of Phi Delta Phi legal fraternity.

Mr. Lohmeyer’s primary focus is on the practice of estate planning and probate law.  Mr. Lohmeyer is Board Certified by The Texas Board of Legal Specialization as a specialist in the field of Estate Planning & Probate Law.

He is a Fellow of the American College of Trust and Estate Counsel. He was named as a Texas Super Lawyer in the fields of Estate Planning/Trusts in Texas Monthly Magazine, from 2003 to 2014.

Mr. Lohmeyer is a Fellow of the Texas Bar Foundation. He was a member of the Board of Governors of the Dallas Estate Planning Council in 1997-1998. He was a member of the Council of the Probate, Trusts, and Estates Section of the Dallas Bar Association in 1992-1993.

For many years, Mr. Lohmeyer was a frequent author and speaker at tax and estate planning law courses sponsored by the Professional Development Program of the Texas Bar Association, and was also an author and speaker at a tax law course sponsored by The Texas Society of Certified Public Accountants.

Mr. Lohmeyer served as a member of The Board of Trustees of King College in Bristol, Tennessee from 2001 to 2008, and was an Elder in the Highland Park Presbyterian Church in Dallas, Texas, for many years.  He recently served as an Elder in the First Presbyterian Church of Kerrville, Texas, and is currently serving as a Director of the Symphony of the Hills Association, Inc., Kerrville, Texas.

SUMMARY OF COMPLAINT

This case is about the Internal Revenue Service’s attempt to seek by John Doe summons certain information related to the clients of Taylor Lohmeyer Law Firm PLLC (“the Firm”), including the clients’ names.

The Firm is the Kerrville estate-planning practice of Fred Lohmeyer and, until his death in 2016, John Taylor.

The IRS previously audited a taxpayer (Taxpayer-1) who used the Firm to “set up foreign accounts, foreign trusts, and foreign corporations to avoid paying U.S. taxes for which he was liable.”

This audit led to a closing agreement with Taxpayer-1 “admitting an unpaid income tax liability of over $2 million from unreported income of over $5 million for the 1996 through 2000 years, as well as additional penalties (including civil fraud penalties) from foreign entities set up and managed by Taylor Lohmeyer.”

Here, the IRS seeks names of and other information related to the Firm’s clients between 1995-2017 to investigate the tax liability of those who used the Firm to “create and maintain foreign bank accounts and foreign entities that may have been used to conceal taxable income in foreign countries.”

The Government undertakes this investigation, it states, because offshore tax evasion usually involves a foreign financial account and an offshore entity controlled by nominee directors to hide the taxpayers’ beneficial ownership.

TAYLOR LOHMEYER LAW FIRM PLLC

v. UNITED STATES OF AMERICA

Civil Action No. SA-18-CV-1161-XR

ORDER

On this date, the Court considered the status of this case. On July 29, 2019, Taylor Lohmeyer Law Firm (“the Firm”) moved for a stay pending appeal of this Court’s order enforcing the United States’ counter-petition to enforce its John Doe summons. Docket no. 19. Here, the Court considers that motion, the United States’ response (docket no. 23) and Petitioner’s reply (docket no. 24).

For the reasons explained below, this Court GRANTS Petitioner’s Motion for Stay Pending Appeal (docket no. 19).

This order reaffirms the Court’s previous order granting the Government’s counter-petition to enforce (docket no. 15), but that judgment is stayed pending appeal.

That order retained jurisdiction in this case pending any challenges by the Government of the Firm’s privilege log, should the Firm produce one. The Firm produced no privilege log, so there is no longer a need for this Court to retain jurisdiction.

Accordingly, the Clerk’s office is directed to CLOSE this case.

BACKGROUND

This case is about the Internal Revenue Service’s attempt to seek by John Doe summons certain information related to the clients of the Firm, including the clients’ names. The Firm is the Kerrville estate-planning practice of Fred Lohmeyer and John Taylor.

The IRS previously audited a taxpayer (Taxpayer-1) who used the Firm to “set up foreign accounts, foreign trusts, and foreign corporations to avoid paying U.S. taxes for which he was liable.” Docket no. 4 at 7.

This audit led to a closing agreement with Taxpayer-1 “admitting an unpaid income tax liability of over $2 million from unreported income of over $5 million for the 1996 through 2000 years, as well as additional penalties (including civil fraud penalties) from foreign entities set up and managed by Taylor Lohmeyer.” Id.

In its counter-petition to enforce the John Doe summons, the IRS seeks names of and other information related to the Firm’s clients between 1995-2017 to investigate the tax liability of those who used the Firm to “create and maintain foreign bank accounts and foreign entities that may have been used to conceal taxable income in foreign countries.” Id. at 8.

The Government undertakes this investigation, it states, because offshore tax evasion usually involves a foreign financial account and an offshore entity controlled by nominee directors to hide the taxpayers’ beneficial ownership. Id. at 7.

Before this John Doe summons could issue, the Government was required to make certain minimal showings in an ex parte proceeding before this Court. See 5:18-MC-1046-XR. On October 15, 2018, the Court found that the Government had made these showings through the submission of Revenue Agent Joy Russell-Hendrick’s affidavit. Docket no. 4-1.

This Court found that the Firm did not meet its “heavy burden” of challenging the Government’s showing, and accordingly, the Court granted the Government’s counter-petition to enforce the John Doe summons. Docket no. 15.

DISCUSSION

A district court has inherent authority to manage its docket, including the power to stay proceedings. Whole Woman’s Health v. Hellerstedt, No. A-16-CA-1300-SS, 2017 WL 5649477, at *1 (W.D. Tex. Mar. 16, 2017) (citing Landis v. N. Am. Co., 299 U.S. 248, 254 (1936)). The moving party bears a “heavy burden” of demonstrating that a stay is appropriate. Coastal (Bermuda) Ltd. v. E. W. Saybolt & Co., 761 F.2d 192, 203 n. 6 (5th Cir. 1985).

Courts consider four factors in determining whether to grant a stay pending appeal: “(1) whether the stay applicant has made a strong showing that he or she is likely to succeed on the merits; (2) whether the applicant will be irreparably injured absent a stay; (3) whether issuance of the stay will substantially injure the other parties interested in the proceeding; and (4) where the public interest lies.” Veasy v. Perry, 769 F.3d 890, 892 (5th Cir. 2014); see also United States v. Transocean Deepwater Drilling, Inc., 537 F. App’x 358, 360 (5th Cir. 2013) (noting the last two factors merge when the government is a party). The first two factors of the traditional standard are the most important, id., but “where there is a serious legal question involved and the balance of the equities heavily favors a stay…the movant only needs to present a substantial case on the merits.” Weingarten Realty Inv’rs v. Miller, 661 F.3d 904, 910 (5th Cir. 2011); see also Ruiz v. Estelle, 666 F.2d 854, 856-57 (5th Cir. 1982). Above all, a stay is “an exercise of judicial discretion” and the propriety of a stay depends on the individualized circumstances of the particular case. Ind. State Police Pension Tr. v. Chrysler LLC, 556 U.S. 960, 961 (2009).

Here, the Court finds that there is a serious legal question involved, the balance of equities heavily favors a stay pending the ongoing appeal, and that the Firm has shown the requisite “substantial case on the merits.” See Weingarten, 661 F.3d at 910.

First, the applicability of the attorney-client privilege to a John Doe summons that seeks a broad range of documentation that is arguably covered by the attorney-client privilege is a serious legal question. This is particularly so given the lack of binding precedent in this circuit on the specific issue of the assertion of privilege in response to a John Doe summons.

The Firm hinges its attorney-client privilege argument on a case out of the Third Circuit. United States v. Liebman, 742 F.2d 807 (3d Cir. 1984). In turn, the Government does cite several Fifth Circuit cases, but the Court finds persuasive the Firm’s attempts at distinguishing those cases (docket no. 24 at 2-5), leaving the Court with little precedent directly responsive to this particular legal issue.

But most persuasively, this Court finds the balance of equities does indeed “heavily favor” the Firm; on the one hand, the Firm would suffer potentially irreparable harm if the summons were enforced against it and that enforcement ultimately turned out to be wrongful upon appeal.

On the other hand, the harm to the Government (and to the public) would be less consequential were the Government required to stay its enforcement of the summons and ultimately prevail on appeal.

The Firm represented to this Court that it is compiling and preserving documents responsive to the summons (docket no. 19 at 11), and if the Firm were to lose on appeal, enforcement of the summons would proceed just as it would if the Court had denied this stay.

This Court need not say the Firm is likely to succeed on the merits; given the serious legal question at issue and the balance of the equities, the Firm need only show a substantial case on the merits, and it has done so. Weingarten, 661 F.3d at 910.

Accordingly, the Court GRANTS Petitioner’s Motion to Stay Order Pending Appeal. Docket no. 19. As noted above, this does not modify the Court’s previous order granting the Government’s counter-petition, though having granted the motion to stay, that judgment is stayed pending appeal. Docket no. 15. The Clerk’s office is further directed to CLOSE this case.

It is so ORDERED.

 

SIGNED this 3rd day of October, 2019.

XAVIER RODRIGUEZ
UNITED STATES DISTRICT JUDGE

Certification of the Electronic Record on Appeal in USCA #19-50506 has been accepted by the 5th Circuit. re 17 Notice of Appeal.

Case Selection Page

Case Number
Title
Opening Date Last Docket
Entry
Originating Case Number
Origin
19-50506
Taylor Lohmeyer Law Firm v. USA
06/04/2019 11/12/2019
16:57:38
0542-5 : 5:18-CV-1161
General Docket
United States Court of Appeals for the Fifth Circuit
Court of Appeals Docket #: 19-50506 Docketed: 06/04/2019
Nature of Suit: 2871 IRS – Third Party Suits (TAX DC)
Taylor Lohmeyer Law Firm v. USA
Appeal From: Western District of Texas, San Antonio
Fee Status: Fee Paid
Case Type Information:
     1) United States Civil
     2) United States
     3)
Originating Court Information:
     District: 0542-5 : 5:18-CV-1161
     Originating Judge: Xavier Rodriguez, U.S. District Judge
     Date Filed: 11/06/2018
     Date NOA Filed:      Date Rec’d COA:
     06/03/2019      06/03/2019

10/15/2019 Open Document APPEARANCE FORM for the court’s review. Lead Counsel? No. [19-50506] (Michael J. Haungs ) [Entered: 10/15/2019 10:46 AM]
10/15/2019 Open Document APPEARANCE FORM for the court’s review. Lead Counsel? No. [19-50506] (Gilbert Steven Rothenberg ) [Entered: 10/15/2019 01:51 PM]
10/15/2019 Open Document APPELLEE’S BRIEF FILED. # of Copies Provided: 0. E/Res’s Brief deadline satisfied. Paper Copies of Brief due on 10/21/2019, for Appellee United States of America. Reply Brief due on 11/05/2019, for Appellant Taylor Lohmeyer Law Firm P.L.L.C. [19-50506] REVIEWED AND/OR EDITED – The original text prior to review appeared as follows: APPELLEE’S BRIEF FILED by USA. Date of service: 10/15/2019, via email – Attorney for Appellant: Knight; Attorney for Appellee: Rennie; US mail – Attorney for Appellee: Smith. [19-50506] (Douglas Campbell Rennie ) [Entered: 10/15/2019 02:32 PM]
10/16/2019 APPEARANCE FORM FILED by Attorney(s) Gilbert Steven Rothenberg for party(s) Appellee USA, in case 19-50506 [19-50506] (CBW) [Entered: 10/16/2019 11:50 AM]
10/16/2019 APPEARANCE FORM FILED by Attorney(s) Michael J. Haungs for party(s) Appellee USA, in case 19-50506 [19-50506] (LLL) [Entered: 10/16/2019 02:35 PM]
10/16/2019 ATTORNEY NOT PARTICIPATING. Curtis Smith is designated as inactive in this case. Reason: Counsel’s name does not appear among the list of appellee’s counsel in the appellee’s brief, and nor has counsel electronically filed an appearance form in the case. [19-50506] (DLJ) [Entered: 10/16/2019 04:22 PM]
10/21/2019 Paper copies of Appellee Brief filed by Appellee USA in 19-50506 received. Paper copies match electronic version of document? Yes # of Copies Provided: 7. Paper Copies of Brief due deadline satisfied. [19-50506] (MRW) [Entered: 10/22/2019 10:56 AM]
10/31/2019 Open Document UNOPPOSED LEVEL 1 EXTENSION REQUESTED by Appellant Taylor Lohmeyer Law Firm P.L.L.C. for filing Reply Brief until 11/12/2019 [19-50506] (Steven Jon Knight ) [Entered: 10/31/2019 12:50 PM]
10/31/2019 EXTENSION RECEIVED for Appellant Taylor Lohmeyer Law Firm P.L.L.C.. Extension Granted to and including 11/12/2019. Reply Brief deadline updated to 11/12/2019 for Appellant Taylor Lohmeyer Law Firm P.L.L.C. [19-50506] (DMS) [Entered: 10/31/2019 01:32 PM]
11/12/2019 Open Document APPELLANT’S REPLY BRIEF FILED by Taylor Lohmeyer Law Firm P.L.L.C.. Date of service: 11/12/2019 via email – Attorney for Appellees: Haungs, Rennie, Rothenberg; Attorney for Appellant: Knight [19-50506] (Steven Jon Knight ) [Entered: 11/12/2019 04:57 PM]
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