Washington (March 1, 2004) -- Efforts by BDO Seidman clients to intervene in an Internal Revenue Service action against the firm have hit a dead end, as the Supreme Court declined to review a Seventh Circuit decision in favor of the IRS.

The IRS action, to compel BDO to disclose the clients' identity as investors in potentially abusive tax shelters, was cited by the clients as a violation of the statutory tax advisor-client privilege.

The Seventh Circuit indicated that the statutory privilege under Code Section 7525 is co-extensive with the attorney-client privilege, which ordinarily does not protect the identity of a client. The clients failed to show that they came within a limited exception to the rule: that the identity of a client may be privileged in the rare circumstance that so much of an actual confidential communication has been disclosed that merely identifying the client will effectively disclose that communication.

According to the Seventh Circuit, disclosure of the clients' identities would simply disclose only that they participated in one of the 20 types of tax shelters described in the initial summonses.

"We're not surprised by the decision, because the Supreme Court takes very few tax cases," said Steven Brown, the Chicago attorney representing the unnamed clients. "But we're very disappointed, because we're still dealing with the aftermath. We're fighting the same fight on behalf of clients of law firms, and we hope the lower courts take a different tack when they think through the repercussions of seeking client lists from law firms."

-- Roger Russell

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