Professor Ventry Comments on Tax Court Case of First Impression

Professor Dennis Ventry provided commentary for an article appearing in Tax Notes Today on a Tax Court case of first impression involving the scope of the federal tax practitioner privilege contained within the Internal Revenue Code. For the case, see Countryside Limited Partnership et al. v. Commissioner, 132 T.C. No. 17 (June 8, 2009). For the article, see Jeremiah Coder, Tax Court Upholds Section 7525 Privilege Claim Against IRS Attempt to Compel Documents, TNT (June 9, 2009).

The privilege, created in 1998 and largely equivalent to the common law attorney-client privilege, protects communications between a taxpayer and a federally authorized tax practitioner, a category that includes both lawyers and non-lawyers. The issue in the case involved an exception to the privilege for written communications "promoting" a corporate taxpayer's participation in prohibited tax shelters. In its holding, the Tax Court limited the scope of the exception by adopting a strict definition of what it means to "promote" a tax shelter transaction.

Ventry told Tax Notes Today that other recent court decisions had limited the scope of the privilege in a way reflective of "the larger anti-shelter efforts of Congress, Treasury, and the courts." In particular, they adopted "the view that tax advisers of all stripes--attorneys as well as non-attorneys--should be prohibited from blanketing overaggressive and abusive tax advice with the cloak of privilege."

"The Countryside opinion is notable because it conflicts with this trend," Ventry said. "Indeed, while [another recent case] asked the broad question, ‘Was there a tax shelter transaction involved and did the practitioner advise on the transaction?' the court in Countryside adopted a retrograde and more narrow approach, and instead concentrated on the fee structure between the practitioner and the client to ascertain whether the practitioner, in fact, promoted the transaction as a peddler of tax shelters in the traditional sense rather than merely an adviser in the modern, material adviser sense."