Attorney-Client Privilege in Tax Matters Takes One on the Chin

An April U.S. Tax Court case, Ad Investment 2000 Fund LLC, Community Media, Inc. v. Commissioner, 142 T.C. No. 13, provides that the attorney-client privilege does not apply to a tax shelter opinion letter if the taxpayer claims to have analyzed the facts and authorities to conclude in good faith that there was a greater than 50 percent likelihood of success with regard to the challenged issue if audited by the IRS. The Court concluded that the taxpayer’s state of mind was in issue, and the opinion was relevant to the state of mind.  The court’s ruling is a concern because it represents a reduction of the attorney-client privilege, thereby leaving taxpayers unsure about the confidentiality of their communications with legal counsel.