In an unpublished opinion in United States v. Servin (No. 2-16-cv-05615), the Third Circuit upheld the enforcement of a summons against a Pennsylvania attorney. This case does not break new ground but serves as a reminder of the power of the IRS summons and the limitations of the attorney-client privilege. Mr. Servin did receive some relief from the summons so his efforts in contesting it were not entirely without success.
Mr. Servin must owe a decent amount of taxes since his case is in the hands of a revenue officer. Today, taxpayers often must owe in excess of $100,000 to have their case handled by a revenue officer, although that amount can vary based on location and other factors. I have commented before that having a revenue officer assigned to your case is like getting concierge service because you have a knowledgeable individual to work with to resolve the issues rather than having to deal with the Automated Collection Site (ACS); however, my comment was somewhat tongue in cheek because having a revenue officer assigned to your case, particularly if you are not working to resolve the matter, can cause a taxpayer many problems as the knowledgeable revenue officer uses the powerful collection tools at the disposal of the IRS. Here, the taxpayer feels the effect of having his account assigned to a revenue officer rather than to ACS.
This case involves a collection summons which seeks to obtain from him information that would allow the IRS to collect the outstanding liability. Specifically, the revenue officer wants from him information about which clients owe him so that the revenue officer can send a levy to these individuals and businesses in order to collect the outstanding taxes Mr. Servin has not voluntarily paid. The summons requests Mr. Servin’s current client list, including names and addresses of all of the clients and a list of his cases that will be settling or have settled within a specified time period, including names and addresses of the parties to the case (who would also be persons the revenue officer would levy.) Undoubtedly, having levies served on all of your clients and opposing parties would not enhance Mr. Servin’s business. Preventing that from happening would protect his business and professional interest, in addition to client confidentiality which is why we have this summons case on which to report.
Mr. Servin does not contest that the IRS meets the general Powell standards for issuing the summons. The meet the Powell requirements, the government must show that the summons: (1) is issued for a legitimate purpose; (2) seeks information that may be relevant to that purpose; (3) seeks information that is not already within the IRS’s possession; and (4) satisfies all administrative steps required by the Internal Revenue Code. United States v. Powell, 379 U.S. 48, 57-58 (1964). He argues narrowly based upon the defense of attorney-client privilege. Unfortunately for Mr. Servin, the Third Circuit has pre-existing precedent on the issue of using the attorney-client privilege to protect client identities from summons enforcement in the case of United States v. Liebman, 742 F.2d 807 (3d Cir. 1984). The precedent does not favor the outcome he seeks. The Third Circuit precedent is similar to precedent that exists in other circuits.
The general rule does not permit an attorney to protect client names and addresses from summons enforcement based on attorney client privilege. The Third Circuit finds that Mr. Servin fails to identify any circumstances that would cause his case to fall out of the general rule and allow him to shield his client information. The Pennsylvania Rules of Professional Conduct do not prevent this disclosure despite his desire to use those rules and his citation to them.
He does win a partial victory because the court modifies the summons to eliminate the name of individuals that have not yet settled but will settle in the future. This victory reflects the concerns that the IRS limit its intrusion into client information of an attorney. The IRS does not often or lightly summons attorneys for client information. The revenue officer who wants to summons an attorney must persist in order to obtain permission to do so. Summonsing an attorney results in reviews by both Chief Counsel and Tax Division lawyers before the summons is allowed. IRM 5.17.6.14 & 15 discusses some of the special issues related to summonses issued to attorneys. The reason that the IRM requires much higher level of review of summonses issued to attorneys stems from the very matter at issue in this case. The IRS recognizes the sensitivity of client information and does not want to let revenue officers run loose in seeking this information. So, it wants a review before it seeks enforcement. The IRS also does not like to issue summonses that it does not enforce since doing so undermines the authority of its summonses. This causes it to require review of summonses in sensitive areas.
Here, the revenue officer seeks information that the attorney cannot protect. The summons victory may cause Mr. Servin to full pay the liability in order to avoid having levies issued to many of his clients. If so, the summons itself may serve as a very valuable collection tool. If it does not cause Mr. Servin to full pay the liability, his clients and many individuals in his community may be about to learn about their attorney’s tax compliance or tax dispute. It is possible that he could still contest the liability and prove that he does not owe. It’s hard, however, to unring the bell and explain to a host of people that he did not owe when they receive a levy seeking payment of the liability which is why this is a very sensitive matter even if the names are not protected by attorney-client privilege.
The discussion of the relationship between Pennsylvania’s Rules of Professional Conduct serves as an important reminder that those rules too have limits, especially when they run into a valid investigation of an attorney’s conduct. PA Rule of Professional Conduct 1.6 is broader than the attorney client privilege; it provides that “A lawyer shall not reveal information relating to representation of a client unless the client gives informed consent, except for disclosures that are impliedly authorized in order to carry out the representation.”
Servin claimed “in the absence of the client’s informed consent the lawyer must not reveal information relating to the representation – moreover a presumption exists against such disclosure.”
The opinion notes however that the Rules of Professional Conduct are not relevant in the court’s consideration of whether to enforce a summons; rather those rules relate to a state’s possible disciplinary proceedings against a lawyer. Comments to PA Rule 1.6 specifically provide that the scope of the rule is limited by substantive law, and numerous PA cases provide that the Professional Conduct Rules do not govern or affect the application of the attorney-client privilege.