Dist. Court, D. Idaho, CIV. 1:10-186 WBS, August 29, 2011: Orders production of landowner’s attorneys’ documents related to appraisal of conservation easement value, in suit by landowner against US.
The Peskys donated a conservation easement to The Nature Conservancy in 2002. The IRS refused their claim for a qualified conservation contribution tax deduction and assessed a deficiency. In 2008, the US brought an action against Mark Richey, the appraiser hired by the Peskys’ attorney, to enforce a summons to compel him to disclose his work file on the appraisal. Subsequently the Peskys paid the deficiency plus penalties. In 2009 the Idaho District Court found that the appraisal work file was protected by both the attorney-client privilege and the work-product doctrine, but the Court of Appeals for the Ninth Circuit, reversed and remanded in January 2011, holding that IRS’s summons was issued in good faith because it was issued before the Peskys paid the IRS assessment. The Circuit Court also found that “any communication related to the preparation and drafting of the appraisal for submission to the IRS was not made for the purpose of providing legal advice, but, instead, for the purpose of determining the value of the Easement” and therefore not subject to the attorney-client privilege, and was not prepared in anticipation of litigation and therefore not protected by the work-product doctrine. When the Peskys complied with the District Court’s order on remand, the case was terminated. The Peskys then sued the US in 2010 for a refund of taxes and penalty.
In the Peskys’ suit against the US, the IRS sought documents that are covered by the attorney-client or work-product privileges but as to which the IRS claimed the Peskys have impliedly waived the privileges. The District Court has held that the Peskys waived those privileges by alleging that they relied on the advice of counsel in support of their assertion of the “reasonable cause” exception to the tax penalties. The Court ordered the Peskys to produce all requested documents relevant to their assertion of the “reasonable cause” exception which they may rely upon at trial, and ordered that if the IRS wanted yet additional documents to be produced, the court would review those claims in camera and make a further determination. In response, the IRS demanded additional documentation relating to the appraisal services provided by Richey from the work file of the attorney who hired Richey. The Court has now ruled that the Peskys must produce those documents that “relate to selecting and engaging a ‘qualified appraiser’”.