Or, you can log in or sign up using Forbes. Sign up|Log in Lee Sheppard, Contributor I write about tax and financial issues. The Tax Court Didn't Repeal Attorney-Client Privilegecomments, called-out Comment Now Follow Comments Following Comments Unfollow Comments Comment Now Follow Comments Following Comments Unfollow Comments No, the Tax Court didn’t repeal attorney-client privilege. Libertarians seem to have needed a Tax Day story, and they found it in the selective reading of a sensible Tax Court opinion based on settled law. The republic is safe. Get a grip. The court merely said that attorney-client privilege can be involuntarily waived in when a taxpayer puts subjective state of mind at issue in asserting an affirmative defense to tax shelter penalties. The case is AD Investment 2000 Fund LLC v. Commissioner, 142 T.C. No. 13 (2014). Do people have a right to plan to minimize their taxes? Of course they do. Judge Learned Hand wrote that “there is nothing sinister in so arranging one’s affairs as to keep taxes as low as possible . . . nobody owes any public duty to pay more than the law demands.” (Commissioner v. Newman, 159 F.2d 848 (2d Cir. 1947). Judge Hand’s statement presumes that the tax planning that the taxpayer did fulfills the requirements of the law. He was not declaring that the taxpayer had a right to make a wild bet on his tax return. The Son of BOSS tax shelter—which was the underlying shelter in the Tax Court case—was a wild bet against the house. Taxpayers take a chance when they enter packaged tax shelters sold to them by irresponsible tax professionals. And when there is no basis in law for the taxpayer’s return position, the taxpayer could be liable for shelter penalties. That is what happened in the Tax Court case, AD Investment 2000. Son of BOSS was a hokey shelter that didn’t work. It was very popular with folks who got instantaneously rich in the tech bubble and had big capital gains all in a single taxable year. It was heavily flogged by big accounting firms. Rich people are often naïve, and think tax practitioners can waive a magic wand to get them out of taxes. Many SOB cases have gone to court and lost on the merits. A SOB customer does not go to court to argue the merits of the shelter. Other taxpayers lost that argument already (Klamath Strategic Investment Fund v. United States, 472 F. Supp. 2d 885 (E.D. Tex. 2007)). A SOB customer only goes to court to get out of penalties. He knows the shelter doesn’t work and that he has to pay the tax and interest, eventually. The taxpayers who continue to fight SOB penalties cases generally have the resources to fight for a long time. The IRS offered a settlement to SOB customers a decade ago (Announcement 2004-46, 2004-21 IRB 964). Some customers didn’t take the settlement because they thought it was chintzy and could afford to litigate. AD Investment 2000 was a tax shelter penalties case involving the SOB shelter. The taxpayer asserted a “reasonable belief” affirmative defense to the IRS’s imposition of the substantial understatement penalty (a very large fine equal to 20 percent of the tax deficiency). As a defense against the tax penalty, the taxpayer argued that it had done its homework, had examined the law and the facts, and had concluded that the desired tax treatment was more likely than not to survive in litigation. That is one of the defenses to the penalty; the other is reliance on the advice of a tax professional, which is the more usual route. The taxpayer contended that because it was not explicitly relying on advice of counsel, it had not waived attorney-client privilege for lawyers’ opinions saying that the desired tax treatment was more likely than not to prevail. The taxpayer was a partnership, representing partners participating in a shelter. The individual whose state of mind was being evaluated was the managing partner. The IRS essentially argued that the opinions were necessary to determine whether the managing partner had really undertaken his own evaluation of the facts and law, or was just relying on what he read in the legal opinions. Here the IRS argued that the taxpayer waived any privilege that might exist by raising the issue (implicitly assuming that the lawyers’ opinions were privileged in the first place). Privilege can be waived at the drop of a pin. Privilege is easily waived in tax cases (U.S. v. El Paso Co., 682 F.2d 530 (5th Cir. 1982), cert. denied, 466 U.S. 944 (1984)). The question is whether the taxpayer put the opinion in play. The court held that the taxpayer had impliedly waived privilege when opening the issue of the managing partner’s state of mind. Fairness demanded that the IRS be allowed to see evidence of how the managing partner came by his asserted knowledge of the applicable law and the chances of success in litigation. Here is the sentence that got the libertarians’ undies in a twist: “When a person puts into issue his subjective intent in deciding how to comply with the law, he may forfeit the privilege afforded attorney-client communications. Please log in or sign up to comment. Forbes writers have the ability to call out member comments they find particularly interesting. Called-out comments are highlighted across the Forbes network. You'll be notified if your comment is called out. Originally trained as a lawyer, I specialize in cutting-edge financial issues, such as derivatives and hedge funds, and taxation of multinational corporations. As contributing editor of the tax journal Tax Notes for 30 years, I am one of the most widely read tax commentators in the world. I frequently speak on tax subjects. I have appeared on television shows such as 60 Minutes and Frontline, as well as in the documentaries We’re Not Broke, An Inconvenient Tax and American Made Movie. Tax Analysts, the publisher of Tax Notes and related publications, is a nonprofit publisher that provides the latest and most in-depth tax information worldwide. www.taxanalysts.com. The author is a Forbes contributor. The opinions expressed are those of the writer. Harold Hamm has transformed the U.S. oil industry. The great domestic energy boom, he says, is just beginning. Bloomberg Will Spend $50M To Fight The N.R.A. 2014 Forbes. 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