In contrast to recent court rulings ordering accounting firms to turn over confidential tax-shelter documents, a federal judge has cited attorney-client privilege in handing BDO Seidman a partial victory in its tax-shelter fight with the U.S. government.
Federal Court Judge James F. Holderman on June 28 ruled that the firm had to turn over only six of the 110 documents sought by the Internal Revenue Service, which is investigating questionable tax shelters and the firms that promote them, the New York Times reported. Chicago-based BDO Seidman has already given the IRS the six documents, which were edited by the firm.
In its arguments, BDO Seidman cited attorney-client privilege, which protects confidentiality of written communications between lawyers and clients. The government challenged the claim that accounting firms are covered by those rules, but Holderman disagreed.
At issue are communications between BDO Seidman and three law firms regarding tax shelters, wealthy clients who bought them through BDO Seidman or both. The law firms are Brown & Wood, now Sidley Austin Brown & Wood in Chicago; DeCastro, West, Chodorow, Glickfeld & Nass in Los Angeles; and Proskauer Rose in New York. Brown & Wood and DeCastro West wrote legal opinion letters certifying that the shelters bought by BDO clients were legitimate. Proskauer Rose advised BDO Seidman on the shelters.
Holderman wrote that "evidence of any such coordinated partnership between BDO Seidman and the three outside law firms is lacking." He also wrote that the favorable opinion letters, even though he had not reviewed them, "standing alone, are not enough for this court to conclude that the outside law firms and BDO were promoters," the Times reported.
KPMG LLP did not fare as well. A federal judge in Washington in May ruled that favorable opinion letters by Brown & Wood were "an orchestrated extension of KPMG's marketing machine" for abusive tax shelters.
The judge’s ruling is in response to a petition by certain BDO Seidman clients to have their identities kept secret.