Accountant's Work Product Protected from Disclosure
For the Work Product Doctrine to apply in tax cases the taxpayer must have truly and reasonably anticipated litigation with the Internal Revenue Service. Also, to be afforded protection, the materials must have been prepared with an expectation that they would be kept confidential, and not for the purpose of providing them to the IRS. Ordinarily, absent special circumstances, litigation with the Internal Revenue Service is not reasonably anticipated at the time of filing a Federal income tax return. The Work Product Doctrine does not apply to protect the pro forma tax preparation work papers of an accountant, unless they were not prepared in the ordinary course of business, but rather with an eye towards a concrete expectation of resolving a matter through litigation.
It is not necessary that a Notice of Deficiency first be issued or that a suit for refund have been commenced before litigation can be reasonably anticipated. In an income tax case involving the valuation of a charitable gift of a sculpture, the taxpayers received notice from the IRS Art Advisory Panel indicating that it had determined that the fair market value of the sculpture was substantially less than the amount of the charitable contribution deduction the taxpayers claimed on their Federal income tax return. The taxpayers' accountant informed them that he believed that they would have to litigate to challenge the IRS's position as to the fair market value of the sculpture. The Tax Court held that it was reasonable to anticipate litigation with the IRS after receipt of the Panel's notice, and therefore, materials prepared by the accountant after that date enjoyed work product protection. Bernardo v. Commissioner, 104 T.C. 677 (1995). Other courts have suggested that the Work Product Doctrine would be available to shield material from disclosure which had been prepared even before any hint of a communication from the IRS as to the existence of any potential dispute.
What makes Bernardo noteworthy is that the Tax Court formally recognized that Work Product protection, which traditionally had been within the sole domain of either attorneys or accountants who aided attorneys, may also be claimed independently by an accountant working directly for the taxpayer. The accountant in Bernardo was never engaged by the taxpayers' attorney, and the materials protected from disclosure were not prepared at the behest of taxpayers' counsel. Nevertheless, once the court was comfortable that there was sufficient proof of the potential for litigation, the accountant's work product was afforded the same safeguards from disclosure as those traditionally accorded to attorneys.
While Bernardo demonstrates that it is not necessary in all cases that an attorney be involved for the protection of the Work Product Doctrine to apply, the involvement of an attorney who would be available to litigate the matter with the IRS adds credibility to the claim that the taxpayer reasonably anticipated litigation with the IRS. In Bernardo, the taxpayers' accountant had prepared the income tax returns and represented the taxpayers both at the Examination Division and at the Appeals Division. The taxpayers' attorney, who did not appear before the IRS, was advising the taxpayers and the accountant during the IRS audit and was, presumably, prepared to litigate the matter in due course.
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