Page 266 - The TEFRA Partnership Audit Rules Repeal:

ALI CLE Live Video Webcast / “The TEFRA Partnership Audit Rules Repeal: Partnership and Partner Impacts” June 7, 2016, Jerald David August and Terence Floyd Cuff
c. Presence of Centralized Management; the LLC or the Limited Partnership
Where a lawyer represents a corporation (or other business entity that has a form of centralized management), the attorney’s client is the corporation itself and not its directors, officers, or shareholders. However, confidential communications made by one or more representatives to the corporation’s lawyer may be privileged, e.g., within the Upjohn subject matter standard. In representing a corporation the attorney’s client is the entity and not its directors, officers or shareholders. But confidential communications made by those representatives to the corporation’s attorney may be privileged.
d. Unincorporated Entities
Where a legal entity has its own organizational and operational integrity, such as an limited liability company or a limited partnership, the lawyer is also, just as like with a corporation, deemed to represent the entity and not the individual members of the entity per se. Communications between the members of the entity and legal counsel for the entity may be privileged and the entity, of course, is the holder of the privilege under this “traditional” entity approach.148
e. Another View: The Entity is Not the Client.
Some commentators have argued for a more broad-based piercing of the privilege in closely-held entities. They contend that in the closely-held corporation the attorney represents all the shareholders and, therefore, there is no confidential information that should be protected in any dispute between management and shareholders, whether or not the shareholders are also directors. However, in most instances, a shareholder in a closely-held corporation who has brought suit against the management of the corporation and seeks to discover communications between the corporation and its attorney will be precluded from obtaining such information. Typically, the court will follow the “entity is the client” rule and deem the entity’s communications with its attorney privileged, unless waived.149
148 For an excellent examination of the attorney-client privilege and closely held business entities, see Santoni, “Application of the Attorney-Client Privilege to Disputes Between Owners and Managers of Closely-Held Entities,” 31 Creighton L. Rev. 849 (1998).
149 Moore v. Commissioner, T.C. Memo. 2004-259 (application of the attorney-client privilege involving the representation of an LLC). In Moore, the court was asked to respond to the petitioner’s claim that her membership interest in a surgicenter that had allegedly underreported its taxable income for 1999 and 2000, the years in issue, did not exceed 2%. In
© Terence Floyd Cuff and Jerald David August, 2016
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