August 1, 1990
A lawyer who receives a cash fee of $10,000.00 or more is not ethically prohibited from complying with an Internal Revenue Code requirement that cash transactions exceeding $10,000.00 be reported to the Internal Revenue Service.
References: MRPC 1.6; CI-389, CI-925; 26 USC section 60501; ABA i1141; Shargel v United States, 742 F2d 61 (CA 2 1984); In Re Grand Jury Subpoena of Harrison Slaughter, et al., 694 F2d 1258 (CA 11 1982).
A lawyer who represents a criminal defendant who was convicted of a drug related offense in the trial court asks whether the lawyer is ethically barred from complying with an Internal Revenue Code Regulation requiring that cash transactions exceeding $10,000.00 be reported to the IRS. The lawyer is concerned that revelation of such a fee could be used by the sentencing judge or the government in a fashion which is detrimental to the client's interest.
Analysis of this problem begins with the recognition of two distinct areas of law. The lawyer-client privilege, including the work product doctrine, constitute one body of rules, as to which this committee expresses no opinion. There is also, however, a body of ethical rules concerning lawyer-client confidentiality as expressed in recognized professional ethics authorities. This dichotomy is recognized in the comment to MRPC 1.6 which states:
"The principle of confidentiality is given effect in two related bodies of law, the client-lawyer privilege (which includes the work product doctrine) in the law of evidence, and the rule of confidentiality established in professional ethics."
The issue then for this committee is whether or not any ethics rule prohibits a lawyer from complying with the provisions of section 60501 of the Internal Revenue Code which requires anyone who receives more than $10,000.00 in cash for a trade or business transaction to report to the Internal Revenue Service on Form 8300, the name, address and the taxpayer identification number of the person transferring the cash.
MRPC 1.6 states in pertinent part:
"(c) A lawyer may reveal:
". . .
"(2) confidences or secrets when permitted or required by these rules, or when required by law or court order."
Confidences or secrets are defined in 1.6(a):
"(a) 'Confidence' refers to information protected by the client-lawyer privilege under applicable law, and 'secret' refers to other information gained in the professional relationship that the client has requested be held inviolate or the disclosure of which would be embarrassing or would be likely to be detrimental to the client."
As stated in the Comment:
"The client-lawyer privilege applies in judicial and other proceedings in which a lawyer may be called as a witness or otherwise required to produce evidence concerning a client. The rule of client-lawyer confidentiality applies in situations other than those where evidence is sought from the lawyer through compulsion of law. The confidentiality rule applies to confidences and secrets as defined in the rule. A lawyer may not disclose such information except as authorized or required by the Rules of Professional Conduct or other law."
The question of whether or not compliance with section 60501 violates the lawyer-client privilege (including the work product doctrine) is a question of law and is therefore not specifically addressed in this opinion. However, it is worth noting that several important courts have held that client identity and fee information are, absent special circumstances, not privileged. See e.g., Shargel v United States, 742 F2d 61 (CA 2 1984); In Re Grand Jury Subpoena of Harrison Slaughter, et al., 694 F2d 1258 (CA 11 1982) and cases cited therein.
Other jurisdictions have considered the precise issue before this committee. New Mexico Op 1989-2 states:
"It is the duty of a competent lawyer to be aware of the law. At the moment the attorney knows that the client contemplates a reportable cash transaction, before accepting the cash, the attorney has a duty created by SCRA 16-101 and 16-102 to advise the client about these apparently conflicting laws.
"If the client demands that the attorney accept the cash and comply with the professional conduct rule by not reporting the transaction, New Mexico law would permit the attorney to decline the representation, [citation omitted] or, if a relationship already exists, to withdraw in view of the apparent conflict and threat of prosecution of both the attorney and the client [citation omitted].
"There is another possibility, which no attorney is ethically obligated to pursue. An attorney may, with the client's consent, agree to 'make a good faith effort to determine the validity, scope, meaning or application of the law at issue [citation omitted]."
The type of challenge suggested by the New Mexico Opinion is that which was proposed in Chicago Op 86-2, which opined:
"The IRS considered the comments of various bar associations and attorney groups when it adopted final regulations. No exemption was provided for lawyers. Therefore a lawyer could arguably file a completed IRS form with the government in reliance on the IRS regulations and DR 4-101(d)(2). Such reliance would not be condemned, but the better response, in light of the uncertainties, would be to file an IRS form that places the government on notice that information has been withheld so that it may seek a judicial order testing the assertion of the privilege."
Arizona Op 87-3 concluded that:
"An exception to the general rule prohibiting disclosure by an attorney of confidential information exists where disclosure is required by law. In such situations, the attorney may, within the bounds of ethical propriety, reveal the sought after information. Whether or not the attorney is prohibited from disclosing the information by some other legal principle is an issue which cannot be decided by this committee. That question must ultimately be resolved by the attorney himself."
The Arizona Opinion took note of ABA i1141, which provides insight into the nature of the inquiring lawyer's obligations, as follows:
"[I]f the attorney is required by law to make a disclosure, . . . the ethics rules are drafted in such a way as to remove any ethical bar to disclosure or to reporting and the only relevant consideration would be the application of legal rules. Included among these, of course, are the legal rules relative to the attorney-client privilege . . . ."
Therefore no ethical prohibition exists which prevents a lawyer from complying with the requirements of the Internal Revenue Code section 60501.
This is not to suggest, however, that a lawyer served with an Internal Revenue Service subpoena for the production of what may be confidential information is relieved of the ethical obligation to assert the lawyer-client privilege wherever it may be relevant and necessary. CI-925 and CI-389 clearly hold that a lawyer served with such a subpoena has an affirmative ethical duty to assert the lawyer-client privilege and that it may be required for the lawyer to obtain a judicial ruling concerning whether or not the information should be disclosed.