April 27, 1983
A lawyer who is served with a summons from the IRS seeking the production of what may be confidential information has the ethical obligation to assert the attorney-client privilege wherever it may be relevant and to seek a judicial determination as to what, if any, information should be disclosed.
A lawyer has been served with a summons by the IRS requiring that the lawyer appear before an IRS agent to give testimony and to bring any and all records pertaining to certain real estate transactions conducted on behalf of a particular client. While perfectly willing to cooperate with the IRS, the lawyer is concerned about a violation of the attorney-client privilege.
DR 4-101 provides that except in certain circumstances, a lawyer may not reveal confidences or secrets of a client "gained in a professional relationship that the client has requested be held inviolate or that the disclosure of which would be embarrassing or would be likely to be detrimental to the client." DR 4-101(C) provides that a lawyer may reveal:
Section 7602 of the Internal Revenue Code provides that the IRS is authorized to summon any person it may deem proper to appear before an agent of the service "to produce such books, papers, records, or other data, and to give such testimony, under oath, as may be relevant or material to such inquiry." Further, §7609 of the Code provides that a lawyer is a "third party record keeper" who, on receipt of a summons, "shall proceed to assemble the records requested, . . . and shall be prepared to produce the records pursuant to the summons on the day on which the records are to be examined." Internal Revenue Code §7609(I)(1). The Code does provide some protection for a third party record keeper who makes disclosure in §7609(I)(3) which provides that a third party record keeper making a disclosure of records in good faith reliance on an order of the court, shall not be liable to the customer/client for such disclosure.
In light of the provisions quoted above, the Committee would make the following suggestions regarding the problem proposed. The specific items named in the summons include a number of agreements, contracts, deeds, and applications for a mortgage and loan. Next, the IRS has asked for any and all records pertaining to the real estate transactions which culminated in those formal documents. Third, the IRS has asked for testimony as to those records at the hearing.
In Formal Opinion 172, the Committee was asked to examine a lawyer's obligation to produce documentation and to testify as to the lawyer's preparation of the client's income tax returns for particular years. In that opinion the Committee opined:
"Upon being served with such a subpoena, it is the duty of a lawyer, after notifying or making a bonafide effort to notify the client, to appear before the agent, to respectfully assert the attorney client privilege, and to require a judicial ruling as to whether the privilege applies. A stated in Schwimmer v US (C.A. 8, 1956), 232 F2d 855, at 863:
'The attorney has the duty, upon any attempt to require him to testify or produce documents within the confidence, to make assertion of the privilege, not merely for the benefit of the client, but also as a matter of professional responsibility in preventing the law from being violated.' From this point on, the lawyer will satisfy all ethical requirements if he conforms to the final rulings and judgment of the court. We emphasize the term 'final'; in some cases, the ruling of a district or other trial judge may not satisfy either the conscience of the testifying lawyer or the interest of the client concerning whose matters the lawyer may be directed to give testimony. In such a case, it may be incumbent upon the lawyer who is so directed to testify, to test the question by way of appeal as 'a matter of professional responsibility in preventing the law from being violated.' (See Schwimmer above)." (original emphasis) See also, CI-389.
In Formal Opinion 172, this Committee also examined the specific types of information which have been provided. With respect to the client's original books of account, bills, receipts, cancelled checks, etc. which the client had provided to the lawyer for purposes of dealing with the case, the Committee opined that the court would order the lawyer to produce them. "Evidentiary papers do not become privileged by being put in the hands of counsel. Grant v US, 227 US 74, 57 L ED 423." The Committee noted, however, that if the information sought by the IRS included letters from the client or memoranda drafted by the lawyer during the course of representation, then the papers would be privileged and should not be provided. Further, the Committee noted "the general rule that the privilege extends to information acquired from any source by the lawyer in the course of research and professional investigations, as distinguished from information coming to the lawyer incidentally and casually." It was emphasized that the court would need to be provided with specific information on which it could rule on this question.
With respect to the final formal documents drafted, including contracts, deeds and mortgage and loan applications, it is unlikely that any privilege would apply. By filing these items with the appropriate parties, any privilege as to information contained in them would have been effectively waived by the client. The materials used to generate those documents may, however, be privileged, as discussed.
Finally, there is the question of testimony regarding your dealing with your client. In Formal Opinion 172, the Committee opined:
"The proposed final question 'Was the finished return discussed with the taxpayer?' seems to require a disclosure as to what was said in the course of a professional consultation and it would seem that the court should hold it to be an improper question."
Should you be asked to discuss your consultations with your client with respect to the documents that have been summoned, the court should rule that that would be an improper intrusion into confidential communications.
In conclusion, the lawyer should appear before the IRS agent at the appointed time and present any materials as to which no claim of privilege may be asserted. This should be determined based on applicable law. AS to any materials that the lawyer is unsure of, and testimony regarding dealings with the client, the attorney-client privilege should be asserted and then promptly seek a judicial determination as to the applicability of the privilege. This course of action is best suited to protect both the lawyer and the client's interests.