7th Circuit Affirms District Court in Valero Tax Workpapers Case

The 7th Circuit today resoundingly affirmed the district court in Valero Energy Corp. v. United States, No. 08-3473 (7th Cir. June 17, 2009):

In this appeal, Valero Energy Corporation asks us to take a close look at the tax practitioner-client privilege. Valero sought to protect several documents under this privilege, and the result was a mixed bag—some documents were shielded from the IRS, while others were not. Valero now contends that by reaching this decision, the district court misconstrued not only the privilege, but also an exception to the privilege, which grants the government access to certain documents when tax shelters are promoted. ...

We close by noting what this opinion does not do. At this early stage, we are not evaluating the propriety of Valero’s tax-reduction plan. The IRS only wants access to documents, it is not (in this appeal) asking Valero to pay anything. It is not pointing any fingers. The government’s burden to overcome the privilege is relatively light—it need only show that there is some foundation in fact that a particular document falls within the taxshelter exception. We affirm the district court’s holding that the IRS has met this burden and leave for another day any other issues which may percolate out of this squabble between Valero and the government.