John Doe Summons Doesn't Violate Attorney Client Privilege

On April 24, 2020, the U.S. Court of Appeals for the Fifth Circuit published its opinion in Taylor Lohmeyer Law Firm P.L.L.C. v. United States. The Fifth Circuit court held that the Taylor Lohmeyer Law Firm (the law firm OR the firm) could not invoke the attorney-client privilege against an Internal Revenue Service (IRS) summons seeking information about clients that created overseas accounts and entities.

The Court determined that a law firm will not violate attorney-client privilege if it reveals relevant client information to the IRS in a tax-evasion investigation.

Investigation into the Taylor Lohmeyer Law Firm

The Texas law firm became a target in a 2018 IRS investigation following an audit of one of its clients, an individual who had used the firm to establish and operate various foreign accounts and entities, through which the individual funneled millions of dollars of unreported income.

Following its discovery of this particular individual’s illegal activity, the IRS issued a John Doe summons to the firm in order to “determine the identity and correct federal income tax liability of U.S. taxpayers for whom [the firm] acquired or formed any foreign entity, opened or maintained any foreign financial account, or assisted in the conduct of any foreign financial transaction.”

A John Doe summons allows the IRS to demand records by describing a category of taxpayers without naming any individual taxpayers. This particular type of summons allows the IRS to obtain the names and requested information and documents concerning all taxpayers in a certain group. A John Doe summons can be a useful tool when trying to obtain information like a list of investors in a certain tax shelter, owners of tax-exempt bonds, or account holders at a financial institution. In order to serve a successful John Doe summons, a federal court must approve the summons.

Question of Attorney-Client Privilege

The firm initially filed a petition to quash the summons in the U.S. District Court for the Western District of Texas, arguing “the summons is overbroad and represents an unprecedented intrusion into the attorney-client relationship and is plainly abusive.”

While the firm acknowledged that the identity of clients is not generally covered by attorney-client privilege, it noted an exception where disclosure of a client’s identity would in and of itself result in the disclosure of confidential communications. Accordingly, the firm argued that the IRS, due to its previous investigation, had specifically identified the content of legal advice the firm had provided to its clients, and that the exception applied because disclosure of the clients’ identities would enable the IRS to link that legal advice to specific clients, thereby resulting in the disclosure of confidential communications.

The district court rejected the firm’s attorney-client privilege argument, noting “blanket assertions of privilege are disfavored.” The court also pointed out that the firm could have asserted privilege with respect to documents responsive to the summons as long as such claims were supported by a privilege log detailing the foundation for the claims, but the firm had never produced any such privilege log.

Narrow Exception Inapplicable

The Fifth Circuit affirmed the district court’s ruling, concluding that the IRS’s John Doe summons did not violate attorney-client privilege. In issuing its ruling, the Court explained that the firm failed to defend its argument because it did not establish that the requested information contained “a confidential communication, between [the firm] and a client, made with the client’s “primary purpose” having been “securing either a legal opinion or legal services, or assistance in some legal proceeding.””

The Court further noted that the summons did not state that the IRS knew the particular nature of the legal advice provided by the firm, nor did it only seek the identities of clients who had received a particular kind of legal advice. Instead, the summons sought the identities of all of the firm’s clients for whom the firm had established foreign accounts or entities, and the Court noted that it was not clear what confidential communications could be inferred from the disclosure of the clients’ identities alone.

Therefore, the Fifth Circuit held that the firm’s clients’ identities are not “connected inextricably with a privileged communication”, and, therefore, the “narrow exception” to the general rule that client identities are not protected by the attorney-client privilege is inapplicable. As such, the firm possessed no basis to refuse the IRS’s John Doe summons.