Court rules that a
"John Doe" summons to obtain
confidential client records from a law firm isn't barred by
attorney-client privilege.
On May 15, 2019, a district court in
the Western District of Texas held that the Internal Revenue
Service ("IRS") may enforce a "John Doe"
summons to obtain confidential client records from a law firm. A
"John Doe" summons allows the IRS to demand records by
describing a category of taxpayers without naming any individual
taxpayers. In Taylor Lohmeyer Law Firm PLLC v. United
States, the IRS sought to enforce a remarkably broad summons
that required an estate planning firm to identify all of its
clients from 1995 to 2017 who were engaged in offshore activities
and to provide detailed information, including billing records and
records relating to offshore accounts, entities, and trusts. The
IRS represented that it was seeking this information to investigate
the civil tax liability of those who "create[d] and
maintain[ed] foreign bank accounts and foreign entities that may
have been used to conceal taxable income in foreign
countries."
The IRS had previously examined an
unidentified client of the Lohmeyer Law Firm, who admitted to
failing to report $5 million in income in an undeclared offshore
account. As part of this examination, the client's lawyer
testified that he had structured similar offshore entities for
multiple other clients. The IRS determined that the lawyer's
firm provided services that were "directed at concealing its
clients' beneficial ownership of offshore assets,"
triggering the "John Doe" summons.
In the summons enforcement action, the
court rejected the law firm's argument that the IRS summons
sought information protected by attorney-client privilege. The
court found that the identity of a law firm's clients are not,
in general, protected by privilege. The court also rejected the
firm's argument that the summons would, in effect, result in
disclosure not only of the clients' names, but also the
specific services that they sought. The court determined that the
law firm's blanket assertion of attorney-client privilege, in
the absence of a privilege log or other particularized showing,
failed to meet the firm's burden of establishing grounds to
quash the summons.
The "John Doe" summons at
issue in Taylor Lohmeyer is one more potential tool in the
IRS's arsenal for investigating the use of offshore structures
for tax evasion. Through the summons to the law firm, the IRS will
identify taxpayers and will be able to cross-reference the
information it receives against the enormous database of
information that it has acquired from multiple other sources,
including voluntary disclosures made by more than 45,000 taxpayers,
disclosures made by foreign banks under a DOJ program and under the
Foreign Account Tax Compliance Act, and information from the leaked
Paradise and Panama Papers.
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