IRS Reaffirms Respect for Attorney-Client Privilege in Schedule UTP Disclosures

Nov 15, 2010   

As we reported several weeks ago, the new Internal Revenue Service (IRS) regulations on uncertain tax positions (UTP) raise significant concerns for taxpayers about attorney-client privilege. The thought is that disclosures required on Schedule UTP may divulge information on the perceived value to a company of pending litigation and other corporate financial events “ information that could fall under attorney-client privilege.

Trying to assuage such concerns, IRS Chief Counsel William Wilkins stated recently that the IRS will not seek a document that is privileged “but for the fact that” there was disclosure made to an auditing firm in conjunction with Schedule UTP. Speaking on October 12th at a conference for the American Health Lawyers Association conference in Arlington, Va., Wilkins stated:

[T]here were some documents that were privileged documents that in a pre-Sarbanes-Oxley world would never have been disclosed to an accountant, but the accounting practices came to be that the auditors needed to trace through what the companies thought processes were, and that required looking at those documents even if showing them to the auditor literally waived the privilege.

Wilkins noted, however, that despite this implied waiver, the IRS examination policy would not require the disclosure of such documents. He said that taxpayers should not confuse IRS policy and “what the law of waiver is.”

In what is widely viewed to be a public relations campaign to put the taxpayers minds at ease, the IRS will be using Wilkins to get out this message to industry over the next few months. On November 18th, Wilkins is slated to speak at the International Fiscal Association, New England Regions Thirteenth Annual Fall Conference. He will be part of a panel discussion on “Reporting on Uncertain Tax Positions; Implications for Attorney/Client Privilege.” Then on December 3rd, he is scheduled to appear at the Tax Executives Institutes seminar, “Schedule UTP: Practical & Strategic Implications.” At that meeting Wilkins is expected to address “How can taxpayers protect against waiver of attorney-client and work-product privilege?”

We will be watching those speeches for you so that you can know exactly what the IRS is thinking on this important topic. Keep coming back to our Blog regularly for the latest information on the implications of Schedule UTP on attorney-client privilege.