updated 2:13 PM CEST, Jul 7, 2020

Court upholds Texas ruling calling for names of law firm's clients behind certain offshore bank accounts, foreign entities

A U.S. court has upheld an an earlier court ruling that a U.S. law firm must disclose to the Internal Revenue Service the names of its clients who are behind offshore bank accounts and foreign entities.

The ruling will be seen by some legal experts as evidence that the IRS is becoming more aggressive in its pursuit of information that some might regard as being protected by legal privilege, recent published reports indicate.

The April 24 ruling concerned a so-called "John Doe" summons directing the Dallas, Texas-based Taylor Lohmeyer Law Firm PLC "to provide information about clients who used [its] services to create and maintain foreign bank accounts and entities", according to a Justice Department statement outlining the case.

It said that in addition to upholding the earlier court's enforcement of the summons, the U.S. Court of Appeals for the Fifth Circuit had "rejected the law firm’s 'blanket' claim that all responsive materials were protected by the attorney-client privilege".

The court "explained that revealing the fact that the clients participated in specific types of transactions would not necessarily reveal any confidential communication of legal advice protected by the attorney-client privilege", the Justice Department statement continued.

It added: "U.S. taxpayers seeking to hide their assets often utilize the services of professional service providers who may be unaware of their clients’ true goals.

"This action is part of ongoing efforts by the United States to stop persons from using foreign financial accounts and entities to evade taxes.

"Courts have previously approved John Doe summonses allowing the IRS to identify individuals using offshore accounts to evade their U.S. obligations." 

In a comment piece published on the Bloomberg Tax website around two weeks before the Taylor Lohmeyer ruling was published, Kat Gregor, Elizabeth Smith and Monica Mleczko, of the international law firm Ropes & Gray LLP, cited the Taylor Lohmeyer case among four that they said "illustrate the [IRS's] growing zeal and mixed success" in pursuing "potentially priviledged information from taxpayers and their advisers". 

"Attorney-client privilege may seem sacrosanct, but it is not the bulwark against discovery that both attorneys and clients have come to expect," they write.