Seventh Circuit Appeals Court Orders BDO To Name Tax Shelter Investors

by Mike Godfrey, for LawAndTax-News.com, Washington

28 July 2003

A three-judge panel at the United States Court of Appeals for the Seventh Circuit on Wednesday ruled that accounting firm BDO Seidman must turn over the names of investors in tax shelters to the Internal Revenue Service.

The decision in the long-running dispute will likely have a detrimental impact on the relationship between tax advisers and their clients. Representatives of accounting firms and tax professionals have repeatedly argued that where the disclosure of a client's identity would reveal the nature of the communications between the firm and individual, the latter should be protected.

However, speaking to the New York Times on Thursday, Elliot H. Kajan of Kajan Mather & Barish in Los Angeles observed that:

'I don't think that investors are going to be able to hide behind some kind of privilege. Everything's going to have to come out, and they're just going to have to litigate the merits of particular tax investments.'

According to the NY Times, the court found that under the US tax code, BDO is obliged to keep records on tax sheltering arrangements, and to report to the IRS the indentities of investors in such schemes. This, the panel explained, means that investors in the tax shelters did not have 'an expectation of confidentiality in their communications with BDO,' as the accounting firm had argued.

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