TAX COURT FINDS THAT TRUSTED ADVISER IS NOT A PROMOTER06 / 08 / 2009
Countryside Ltd. P'ship v. IRS, 132 T.C. No. 17 (June 8, 2009)
On June 8, 2009, the United States Tax Court held that meeting notes made by a trusted adviser, being paid on an hourly basis for consultations with a taxpayer client, could not be compelled to be turned over to the IRS. These meeting notes and other communications touched on partnership redemptions and associated transactions, and "basis swaps" but were one-on-one, and not of the type akin to "tax shelter promotion." Therefore, for purposes of determining the applicability of Section 7525 (the federally authorized tax practitioner privilege), as well as the "tax shelter exception" under Section 7525(b).
The Tax Court held that the burden of proving the preliminary facts necessary to establish that the 7525 privilege applies falls on the taxpayer, but the IRS has the burden of proving the preliminary facts necessary to establish that the exception applies. The elements under the 7525(b) exception are that there is: (1) the promotion of (2) a corporation's participation in (3) any tax shelter, and (4) a written communication, and by that, the Tax Court held that oral communications or written notes do not fall under the 7525(b) exception, and therefore, are still subject to protection from compelled disclosure. at 8.