Tax Court Addresses Implied Waiver of the Attorney-Client Privilege: The Tax Court Holds That Raising Good-Faith and State-of-Mind Defenses to Accuracy-Related Penalties Could Result in an Implied Waiver of the Attorney-Client Privilege

Sullivan & Cromwell LLP - May 14, 2014
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On April 16, 2014, in AD Investment 2000 Fund LLC v. Commissioner, 142 T.C. No. 13, the Tax Court held that, by putting into issue their own legal knowledge, understanding, and beliefs with respect to a particular tax position in order to establish their defenses to accuracy-related penalties, taxpayers forfeited the attorney-client privilege with respect to certain communications relevant to the content and formation of such legal knowledge, understanding, and beliefs.  The decision is a good reminder that a taxpayer may waive the attorney-client privilege when contesting the imposition of penalties notwithstanding that the taxpayer has not expressly relied on an opinion of tax counsel as its affirmative defense.