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Tax Notes Today Quotes Rachel Partain on Court Ruling that Undermines Work Product Protection

May 30, 2014, Tax Notes Today

Tax Notes spoke with Rachel L. Partain concerning a district court holding that the work product doctrine does not protect a tax memo prepared by an accounting firm from disclosure to the IRS "eviscerates" the doctrine.  The decision may have far-reaching implications for taxpayers who anticipate being audited or involved in litigation.  For the full article, please visit Tax Notes' website (subscription required).
Excerpt taken from the article. 

Rachel Leigh Partain of Caplin & Drysdale said the analysis by the U.S. District Court for the Southern District of New York in its May 28 holding in Schaeffler v. U.S., No. 1:13-cv-04864 (S.D.N.Y. 2014)  2014 TNT 104-13: Court Opinions was hard to comprehend.

"Frankly, I don't understand how work product exists after this opinion," Partain said. "I don't know what would satisfy this court that a tax memo is work product."


Partain took exception to the court's rationale.

"This court treats a tax memo as a document that would have been prepared for other reasons," Partain said. "The court said the taxpayer would have received a 321-page memo regardless of whether it anticipated being audited or not. Not only that, the memo would have looked exactly the same." Partain added that it is uncommon for taxpayers to receive a tax memo of such a length and form unless they expect litigation.


Partain said that the court's interpretation of Circular 230 is incorrect. Circular 230 stands for the proposition that an adviser cannot "take the audit lottery into account" when providing tax advice to a client, she said.

Under Circular 230, an adviser has to assume the taxpayer will be audited, Partain said. "The fact that this taxpayer obtained a Circular 230-compliant memo rather than a non-compliant memo demonstrates that the memo was prepared because of the anticipation of audit and litigation," she said.

Does Not Comport With Adlman

Partain said that because the court's holding does not comport with the liberal standard of work product protection enunciated in United States v. Adlman, 134 F.3d 1194, 1196 (2d Cir. 1998) 98 TNT 36-15: Court Opinions (CTS), she would not be surprised if the decision was overturned on appeal. Adlman holds that a document used for other purposes can still receive work product protection if it is prepared in such form because of the prospect of litigation, Partain said.


Partain said that although the case likely does not move the needle on common legal interest rule, given that not many favorable common legal interest decisions exist, every decision helps to further refine the parameters of the waiver exception.


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