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.