United States District Court, W.D. Washington, Seattle
ORDER FOR IN CAMERA REVIEW OF DOCUMENTS STILL IN
RICARDO S. MARTINEZ CHIEF UNITED STATES DISTRICT JUDGE.
matter comes before the Court upon Respondent Microsoft
Corporation's (“Microsoft”) Brief Regarding
Privileged Documents Still in Dispute. Dkt. #140. For the
reasons discussed herein, the Court ORDERS Microsoft to
submit the majority of the documents still in dispute to the
Court for in camera review.
Court previously set forth the procedural and factual
background to this action and incorporates it by reference
herein. See Dkt. #107 at 2-5.
summary, in December 2014 the government filed a petition
with the Court requesting an order to enforce Microsoft's
compliance with a designated summons served by the Internal
Revenue Service (“IRS”) on October 30, 2014. Dkt.
#1 at 1. The designated summons was served as part of the
IRS's examination of Microsoft's federal income tax
liabilities for the taxable periods ending on June 30, 2004,
June 30, 2005, and June 30, 2006. Id. ¶ 4. On
November 17, 2014, the IRS also served KPMG LLP
(“KPMG”), an accounting firm, with a third-party
summons. See Case No. 2:14-mc-136-RSM, Dkt. #1
¶¶ 7-8. During the tax years in question, Microsoft
hired KPMG to assist in restructuring Microsoft's related
foreign entity in Puerto Rico. See Dkts. #144 ¶
10, #140 at 13, and #145 at 6-10. The government alleges that
with KPMG's help, Microsoft designed and implemented a
cost sharing arrangement with its newly structured Puerto
Rican entity. See Dkt. #145 at 6-14. On November 19
and 20, 2014, the IRS served Microsoft with two additional,
related summonses. See Case Nos. 2:14-mc-133-RSM,
Dkt. #1, and 2:14-mc-143-RSM, Dkt. #1. These summonses are
all related to the IRS's examination of cost sharing
agreements Microsoft entered into with its Puerto Rican
affiliate, and with its Asian affiliate. See Dkt.
#1 ¶ 10. The IRS is examining these cost sharing
arrangements to determine the accuracy of Microsoft's
federal income tax obligations for the tax years in question.
Id. ¶¶ 21-22.
November 20, 2015, the Court granted the government's
petitions to enforce the IRS's summonses. Dkt. #107 at
17. Soon after, the parties stipulated that
“notwithstanding the Court's denial of
Microsoft's common defenses to enforcement of the
document summonses, specific document production requests
remain in dispute.” Dkt. #110 at 2. Microsoft was thus
“afforded an opportunity to brief specific objections
tailored to specific document production requests[.]”
Id. Microsoft now objects to disclosing a number of
documents responsive to the IRS's summonses. See
is withholding 174 documents from production. Id. at
7. Microsoft is withholding the majority of the documents in
dispute based on the federally authorized tax practitioner
privilege and/or the work production protection. See
Dkt. #141, Exs. A-D. The attorney-client privilege is
asserted for twelve documents. Id. ¶¶
9-11. To support these assertions, Microsoft has produced
four privilege logs. Dkt. #141, Exs. A-D. Each privilege log
lists the documents withheld from production for each of the
four summonses served by the IRS. See id. (privilege
logs titled “Designated Summons Privilege Log, ”
“KPMG Central Files Privilege Log, ” “KPMG
Personal Files Privilege Log, ” and “Related
Summonses 2 and 3 Privilege Log”). The government
disputes the applicability of the privileges and protection
asserted by Microsoft, and requests production of the
documents withheld. See Dkt. #145. In the
alternative, the government requests that the Court conduct
an in camera review of the disputed documents to
determine if the asserted privileges actually apply.
Court addresses the propriety of the asserted privileges and
the work product doctrine in turn.
Federally Authorized Tax Practitioner Privilege
7525 of Title 26 of the United States Code effectively
extends the attorney-client privilege to “federal
authorized tax practitioner[s].” A “federally
authorized tax practitioner” is “any individual
who is authorized under Federal law to practice before the
Internal Revenue Service if such practice is subject to
Federal regulation under section 330 of title 31, United
States Code.” 26 U.S.C. § 7525(a)(3)(A).
Communications between a taxpayer and a “federally
authorized tax practitioner, ” are protected “to
the extent the communication would be considered a privileged
communication if it were between a taxpayer and an
attorney.” Id. § 7525(a)(1). This limited
privilege does not extend to anything other than a
lawyers' work. United States v. BDO Seidman, 337
F.3d 802, 810 (7th Cir. 2003) (“[T]he § 7525
privilege is no broader than that of the attorney-client
privilege . . . .”); United States v.
Frederick, 182 F.3d 496, 502 (7th Cir. 1999). This
privilege is thus limited to the scope of the attorney-client
privilege, and courts “look to the body of common law
interpreting the attorney-client privilege to interpret the
§ 7525 privilege.” BDO Seidman, 337 F.3d
at 810; Valero Energy Corp. v. United States, 569
F.3d 626, 630 (7th Cir. 2009) (“This privilege is no
broader than the existing attorney-client privilege.”).
The tax practitioner privilege applies to communications made
in confidence and “the confidences [must] constitute
information that is not intended to be disclosed by the [tax
practitioner].” BDO Seidman, 337 F.3d at 811.
Accordingly, “the success of a claim of [the tax
practitioner] privilege depends on whether the advice given
[is] general accounting advice or legal advice.”
Valero, 569 F.3d at 630. An exception to the tax
practitioner privilege does not protect written
communications connected to the promotion of participation in
tax shelters. 26 U.S.C. § 7525(b).
contends the tax practitioner privilege applies to 164
documents withheld because each of these documents
purportedly reflects a confidential communication between
Microsoft and its tax advisors for the purpose of seeking tax
advice. Dkt. #140 at 15-21. To support this assertion,
Microsoft argues it has made a prima facie showing
of the propriety of this privilege through its submission of
four privilege logs. Id. at 18. Microsoft argues
these privilege logs comport with the requirements found to
satisfy a prima facie showing of the attorney-client
privilege in the Ninth Circuit. Id. at 18 (citing
and quoting In re Grand Jury Investigation, 974 F.2d
1068, 1071 (9th Cir. 1992)). Microsoft further contends the
documents asserting this privilege all “reflect core
tax advice, ” not business or non-legal advice. Dkt.
#140 at 19-20.
government disagrees with Microsoft's assertion of the
tax-practitioner privilege, and argues that Microsoft's
privilege logs “are deficient in several
respects” and fail to satisfy Microsoft's prima
facie burden. Dkt. #145 at 15-16. However, even if this
burden is satisfied, the government argues Microsoft cannot
establish the tax-practitioner privilege applies because the
accountants hired by Microsoft provided business instead of
tax advice. To support this argument, the government cites to
documents produced in response to its summonses which appear
to indicate that at least one accounting firm, KPMG, was not
providing Microsoft with legal advice. Id. at 17-19
(quoting Dkt. #146, Exs. 13 and 27). However, if the Court
finds the tax-practitioner ...