## Facts

- The IRS received information suggesting BDO Seidman, LLP was promoting potentially abusive tax shelters without complying with tax-shelter registration and list-keeping obligations under 26 U.S.C. §§ 6111 and 6112.
- Under the applicable statutory scheme, certain tax-shelter organizers had to register shelters and maintain lists identifying investors, subject to penalties for noncompliance.
- The IRS issued 20 administrative summonses to BDO seeking materials across 20 categories of tax-shelter transactions, including investor identities and participation information.
- The United States filed a summons-enforcement action; the district court ordered BDO to comply.
- After BDO informed certain clients it intended to produce responsive documents, unnamed clients moved to intervene (as John Doe, Jane Doe, Richard Roe, and Mary Roe) to prevent disclosure.
- The proposed intervenors asserted that the federally authorized tax practitioner–client privilege under 26 U.S.C. § 7525 protected identifying information showing they sought tax-shelter advice from BDO and participated in particular transactions.
- The district court denied intervention, concluding § 7525 did not protect the clients’ identities in these circumstances.

## Issues

1. Whether the unnamed clients had a colorable privilege claim under 26 U.S.C. § 7525 sufficient to permit intervention in the IRS summons-enforcement proceeding.
2. Whether § 7525 extends to protect client identities and tax-shelter investor/list information sought under the IRS’s §§ 6111–6112 regulatory scheme.

## Decision

- The Seventh Circuit affirmed the denial of the motions to intervene.
- The court held the proposed intervenors lacked a colorable claim that § 7525 protected their identities or their participation in the identified tax-shelter transactions.
- Because no colorable privilege was shown, the intervenors lacked a legally protectable interest warranting intervention to block production.

## Legal Principles

- Section 7525 protects confidential communications between a taxpayer and a federally authorized tax practitioner for the purpose of obtaining tax advice, and its scope is no broader than the attorney–client privilege on which it is patterned.
- The privilege generally protects communications, not the fact of representation, client identity, or participation in a transaction; identity is protected only in narrow situations where disclosure would necessarily reveal a confidential communication.
- Statutory tax-shelter disclosure and list-keeping duties under §§ 6111 and 6112 limit any reasonable expectation that investor identities and related list information will remain confidential as privileged material.
- In an IRS summons-enforcement proceeding, intervention to assert privilege requires at least a colorable claim that the materials sought are privileged.

## Conclusion

The court held that § 7525 does not ordinarily shield tax-shelter investor identities or list-related information demanded through IRS summonses under §§ 6111–6112, and the proposed intervenors could not intervene because their privilege theory did not present a colorable basis to block disclosure.


United States v. BDO Seidman, LLP, 337 F.3d 802 (7th Cir. 2003)