IRS Suffers Blow In Tax Shelter Case

by Mike Godfrey, Tax-News.com, Washington

05 April 2005

The Internal Revenue Service has suffered a legal blow in its effort to prove that accounting firm, BDO Seidman marketed questionable tax shelters after a judge ruled that the company did not have to turn over documents relating to tax services sold to its clients.

In a judgement dated last Wednesday (March 31), Judge James F. Holderman, of the Federal District Court for the Northern District of Illinois wrote that the IRS had failed to prove that Chicago-based BDO Seidman had acted illegally by selling the tax services in question, and therefore was not required to hand over the 267 documents requested by the government.

In doing so, judge Holderman agreed with the firm’s argument that the documents were protected by attorney-client privilege, work product privilege and tax practitioner privilege under a 1998 law giving accountants the same confidentiality protection as lawyers.

The case centred on a tax shelter known as ‘Cobra’ or ‘currency options bring reward alternatives’ which the IRS formally outlawed in 2000.

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