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Limitations of the Attorney-Client Privilege Under Section 7525 of the Internal Revenue Code


In addition to the false expectation of confidentiality created by the section 7525 privilege, there is no defining what happens when the privilege is waived, or found to not be applicable. Case in point, if a matter converts from a non-criminal tax proceeding before the IRS or in a federal court, does that mean that the privilege is lost as to all communications had between the taxpayer and their non-attorney? Or does the distinction of privilege terminate for all communications going forward from the point of loss of the privilege?

The purpose of section 7525 was to provide taxpayers the same protection of privacy regardless of the tax adviser selected. The reasoning being that if the tax adviser is authorized to practice before the IRS, the level of privacy afforded to communications between the taxpayer and the tax adviser should be the same regardless of the "specific professional classification of the adviser."20

Consequentially, the exceptions to the application of the privilege under section 7525 swallow the privilege. Whether it is the limitation that the privilege only applies against the IRS, in non-criminal proceedings, and only in certain venues, these limitations impede the very purpose of the privilege: to provide the same privacy protection afforded to communications between a client and their attorney.

Suggestions for improving section 7525 include eliminating the current limitations placed on the 7525 privilege, thus making it the statutory counterpart to the common law attorney-client privilege. Placing the statutory privilege on equal ground as the common law privilege would provide guidance to practitioners in understanding and complying with the privilege. This guidance would stem from current interpretation and case law that is present for the common law privilege. With such a framework in place, potential pitfalls that currently plague the 7525 privilege could be avoided.

Despite the fanfare over the inception of an attorney-client privilege under section 7525, tax practitioners would be well advised to counsel their clients on the significant limitations to the privilege. The current limitations and inherent pitfalls found within Section 7525 may lead one to eventually question whether we are better off without the privilege than with it.



Stratton, ABA Finally Opposes.

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