Page 270 - 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
partnership. The partnership and not the partners normally should be the holder of the attorney-client privilege; however communications between the partnership’s counsel and the partners may be privileged, with the partnership the holder of the privilege. The law in the area of privilege and closely-held entities is developing, and a court might determine that communications between partnership counsel and the partners are privileged under the theory of a collective client or some related theory.
“Federally authorized tax practitioner” means attorneys, certified public accountants, enrolled agents, and enrolled actuaries as defined in Circular 230. The privilege has not yet been extended to the partnership representative. A partnership representative who is not an attorney, certified public accountant, enrolled agent, or enrolled actuary does not appear likely to have privilege in its communications with the partnership or with the partners. The lack of privilege may severely restrict communications between the partnership representative and partnership management and the partners. The lack of privilege for the typical partnership representative may cause the partnership to select an accountant or attorney as its partnership representative in order to secure privilege.
The question of privilege and Section 7525 is an important question that should be considered by Congress in connection with the new partnership audit rules. The partnership audit rules make the partnership representative the sole representative of the partnership is dealing with the Internal Revenue Service. The partnership representative can fulfill the role that otherwise might be left to partnership accountants or counsel. The Section 7525 privilege represents an important privilege that facilitates candid confidential communications between accountants and the partnership in the context of a partnership audit. These confidential communications are not subject to discovery by the Internal Revenue Service or the Justice Department. This same level of confidentiality apparently does not extend to communications between the partnership representative and the partnership.
© Terence Floyd Cuff and Jerald David August, 2016
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