## Facts

- Taxpayers donated a 21-foot granite sculpture (*Omphalos*) to the Massachusetts Bay Transportation Authority and claimed a $593,000 charitable-contribution deduction for 1986.
- Because their 1986 contribution base under I.R.C. § 170 was zero, the claimed deduction produced carryover charitable-contribution deductions for 1987–1989.
- The IRS issued a notice of deficiency disallowing the carryover deductions for 1987–1989; alternatively, it asserted any allowable 1986 deduction was limited to $100,000.
- The IRS valuation position relied on conclusions associated with the IRS Art Advisory Panel, a group of volunteer art experts whose review sessions are not public.
- In discovery, the taxpayers sought internal Art Advisory Panel materials (e.g., notes, memoranda, and other deliberative records related to valuing the sculpture).
- The IRS sought production of certain taxpayer documents, including materials involving the taxpayers’ accountant related to return preparation and the valuation dispute.
- The opinion resolved cross-motions to compel discovery and did not decide the correctness of the charitable-contribution deduction amount.

## Issues

1. Whether internal IRS Art Advisory Panel documents are protected from discovery by executive privilege, including the deliberative-process privilege, and whether segregable factual material must be produced.
2. Whether accountant-related documents in the taxpayers’ possession are protected by the attorney–client privilege based on the accountant’s asserted role in facilitating legal advice.
3. Whether some accountant-related documents are protected by the work-product doctrine as materials prepared because of anticipated litigation.

## Decision

- The court held that Art Advisory Panel materials reflecting predecisional deliberations, evaluations, and recommendations were protected by the deliberative-process component of executive privilege and generally were not discoverable.
- The court required production only to the extent non-privileged, purely factual information could be reasonably segregated from privileged deliberative content.
- The court held that the attorney–client privilege did not generally shield the accountant’s documents, because the accountant’s work largely involved tax compliance, return preparation, and valuation rather than necessary translation of communications for legal advice.
- The court recognized that some accountant-related materials could be protected by the work-product doctrine if prepared because of anticipated litigation, particularly where they revealed counsel’s or agents’ mental impressions or litigation strategy.
- The cross-motions to compel were granted and denied in part consistent with these privilege rulings.

## Legal Principles

- Deliberative-process privilege protects predecisional, deliberative intra-agency communications (including recommendations and evaluative commentary) to preserve candid internal discussion and decisionmaking quality.
- Deliberative-process privilege generally does not protect purely factual material that is reasonably segregable from deliberative content.
- Attorney–client privilege is narrowly construed and typically does not extend to communications involving third parties such as accountants unless the third party is necessary to facilitate the provision of legal advice and confidentiality is maintained.
- Work-product protection can apply to documents prepared by or for a party or its representatives (including non-lawyer agents) when created because of anticipated litigation; opinion work product receives stronger protection than ordinary factual work product.
- Even where work product applies, discovery of ordinary work product may be permitted upon a showing of substantial need and inability to obtain the substantial equivalent without undue hardship, subject to protection of mental impressions and legal theories.

## Conclusion

The Tax Court’s discovery rulings protected IRS Art Advisory Panel deliberative materials under the deliberative-process privilege (with possible disclosure of segregable facts), rejected broad attorney–client privilege claims over accountant files, and allowed work-product protection for accountant materials prepared because of anticipated litigation, especially those reflecting litigation strategy or mental impressions.


Bernardo v. Commissioner, 104 T.C. 677 (1995)