IRS & Lawyers: The Attorney-Client Privilege at Risk

Houston Lawyers, IRS & Lawyers Battle Over Attorney-Client Privilege Related to Reporting Requirement When Receiving More Than $10,000 in Legal Fees From Client

by Edward Poll, J.D., M.B.A., CMC

Watch Dick DeGuerin and Lewis Dickson v. United States of America, U.S. District Court, Southern District of Texas. This case may be one of the most important trials for the practice of law ... and the attorney-client privilege!

"The case raises issues concerning the relationship between attorneys and their clients, such as how far does the attorney-client privilege go when it's time to report income to the IRS? Is a lawyer required to identify the source of legal fees in all instances or can such information be protected under the attorney-client privilege? And should a lawyer be assessed penalties for failing to disclose a client's identity when the attorney reasonably believes the client's identity is protected? ...

"Section 6050I requires any person engaged in a trade or business who receives more than $10,000 in cash in one transaction (or two or more related transactions) to file Form 8300, which reports the transaction and identifies the name, address and taxpayer identification number of the person from whom the cash was received as well as the amount, date and nature of the transaction...

"... Form 8300 was devised because the nation's "underground economy" operates mainly in cash and there was no way to track these transactions. Congress thus put the burden on businesses -- everyone from car dealers to lawyers who receive fees in excess of $10,000 in cash (to) report it..." The Judge characterized one of the attorneys’ primary arguments as follows: "Penalties are not warranted because ... the rules of professional responsibility and attorney-client privilege actually forbid disclosing their clients' identities.

"The government's arguments, (the Judge) said, were that (the attorneys) did not have a valid reason to believe their clients' identities could be protected by the attorney-client privilege when the forms were filed in 1995 ..."

"Neil McCabe, a criminal law professor at Houston's South Texas College of Law, says that ... (the names of clients) ... ‘(are) not privileged just because they're the names of clients,’"

"Nor is there anything to show that the names are tied with some attorney-client communication or that the information would be a "last link" in a chain of criminality that the government needs, McCabe says.

"But when all is said and done, the attorney-client privilege is just a privilege -- not a constitutional right -- and there are more important things than the attorney-client privilege, McCabe says. ‘It may be that the government's interest in getting the names of people who are moving large sums of cash is more important than the attorney-client privilege.’"

(See Texas Lawyer article for the full article on this case written by Erica Lehrer Goldman on August 26,2002)