IRS Probe of Law Firm Was 'Pretext' Improperly Aimed at Obtaining Information on Client
Federal Appeals Court Rules
Washington, DC (September 14, 1995) -- Ruling on an issue of huge importance to law firms across the nation, a federal appeals court in Boston yesterday affirmed a lower court finding that "the IRS's purported probe of [a] law firm's tax-related affairs was a hoax" designed to obtain financial information about one of the firm's clients without going through procedures established by Congress "specifically to protect the civil rights, including the privacy rights, of taxpayers."
"We take no pleasure in upholding a finding that government actors constructed a pretext to avoid due compliance with statutorily prescribed requirements," declared the U.S. Court of Appeals for the First Circuit in upholding the judgment of the federal district court in U.S. v. Gertner. The IRS brought the action against former criminal defense lawyer Nancy Gertner -- now a sitting federal judge -- to compel her to reveal information on fee payments made by one of her clients. The appeals court agreed that the IRS abused the procedures for subpoenaing law firm records in order to avoid having to convince a court that it had sufficient evidence to suspect the firm's client of wrongdoing. The trial court had also held that the fee payment information sought by the IRS was protected by the attorney-client privilege.
"This is a great victory for criminal defense lawyers, who have been maligned and harassed by the IRS in its ceaseless craving to pry from them privileged information on clients," commented NACDL First Vice President Gerald B. Lefcourt, a prominent New York City attorney who represented Judge Gertner at both the trial and appellate levels. "This is the second federal circuit to hold that the government has been acting unethically while targeting attorneys who are acting entirely ethically on behalf of their clients," he said.
"The IRS has to obey the law just like the rest of us -- and they need to factor the constitutional rights of American citizens into their policies for enforcing cash transaction reporting requirements," noted NACDL President Robert Fogelnest, also a New York City attorney. "Judge Gertner was meticulous in her observance of her ethical duties and constitutional responsibilities to her client and her statutory obligation to the IRS, but their high-handed tactics make it impossible to reconcile these conflicting duties," he added.
Lefcourt, who also chairs NACDL's task force on IRS' cash transaction reporting requirement, is himself suing the IRS for refund of an "intentional disregard" penalty in the amount of $25,000 assessed against him last year for declining to disclose client fee payment information.
Copies of the decision in U.S. v. Gertner are available from NACDL.