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Ethics Opinion 214

Disclosure to Internal Revenue Service of Name of Client Paying Fee in Cash

Applicable Code

  • DR 4-101(B), Rule 1.6(a) (A Lawyer Shall Not Knowingly Reveal a Confidence or Secret of the Lawyer’s Client Nor Use a Confidence or Secret of the Client to the Client’s Disadvantage.)
  • DR 4-101(C)(3), Rule 1.6(d) (A Lawyer May Reveal Confidences or Secrets When Permitted Under Disciplinary Rules or Required by Law or Court Order.)

This Inquiry raises an important issue concerning the confidentiality of client names requested to be disclosed under government reporting requirements.

The Inquirer, a law firm, represented a client in connection with drug related criminal charges to which the client has pleaded guilty, been sentenced and served his term of incarceration. In partial payment of the firm’s outstanding bill for services, the client remitted in excess of $12,000 in cash. In accepting the cash payment, the firm explained to the client that the firm would be required to submit Form 8300, Report of Cash Payments Over $10,000 Received In a Trade or Business, to the Internal Revenue Service. At the client’s insistence, the firm agreed to withhold the client’s name from Form 8300. The firm advised the client, however, that the Internal Revenue Service might seek to compel disclosure of the client’s name, and he agreed to accept financial responsibility for the firm’s efforts in resisting disclosure. The client, however, still owes a substantial amount to the firm from its prior representation of him.

More than a year after submitting the redacted Form 8300, the firm was served with an administrative summons, directing the firm’s managing partner to appear before an IRS Revenue Agent to give testimony and to produce for examination the following information relating to the Form 8300:

The unredacted, unaltered, originals of all records related to or associated with the attached Form(s) 8300 filed by you, including but not limited to accounting records, cash receipts journals, bank records, escrow account records, payment records, contracts, which contain the following information necessary to complete the attached Form(s) 8300:

1.  The complete name(s), address(es), business or occupation(s) and social security or taxpayer identification numbers(s) of any and all clients (whether individual(s) and/or organization(s)) for whom the transaction(s) reported were completed.
2.  The complete name(s), address(es) and taxpayer identification number(s) of any and all individuals conducting the reported transaction(s), if different from the information in item number 1.
3.  The passport number(s) and country(ies) of origin and/or alien registration number(s) and country(ies) of origin for all foreign individual(s) or organization(s) who conducted the transaction(s) or for whom the transaction(s) was/were completed.
4.  Any other identifying data for the individual(s) or organization(s) who conducted the transaction(s) or for whom the transaction(s) was/were conducted.

The firm has refused to comply with the summons pending the Committee’s resolution of this Inquiry, which raises three questions:

1.  Whether the firm is obligated pursuant to its ethical responsibilities to withhold from the IRS the client’s identity notwithstanding the pending summons from the IRS?
2.  If so, what is the extent of that obligation? Does it include an obligation to file an action seeking to quash the summons, to be held in contempt, or to appeal any adverse decision by an IRS administrative tribunal or by a district court?
3.  In what way, if any, does the client’s failure to meet his financial obligations affect the firm’s obligation to litigate these issues on his behalf?

DR 4-101(B) of the Code of Professional Responsibility provides that a lawyer shall not knowingly “reveal a confidence or secret of his client.” DR 4-101(C)(2) allows disclosure of “[c]onfidences and secrets when permitted under Disciplinary Rules or required by law or court order.” Similar rules apply under Rule 1.6 of the District of Columbia Rules of Professional Conduct (effective January 1, 1991).

In Opinion No. 180 (March 17, 1987), the Committee summarized its prior opinions relating to the disclosure of client information to governmental authorities, stating “[t]he consistent rule we have followed is that, in the absence of on-going criminal activity, a lawyer may not voluntarily compromise the client’s position.” In Opinion No. 99 (January 28, 1981), the Committee stated that where there is a “colorable basis” for asserting that statements made to an attorney are confidences or secrets protected from disclosure by DR-4-101, “the lawyer must resolve the question...in favor of preserving the confidentiality of the disclosures.” Accord Opinion No. 186 (October 20, 1987).

Opinion No. 124 (March 22, 1983) involved facts similar to those presented here. In the course of a routine audit of a law firm’s federal tax returns, the IRS auditor was provided a record of the firm’s receipts with the clients’ names deleted. The auditor then requested the firm to provide the clients’ names. The firm had represented members of Congress under circumstances the disclosure of which, the firm believed, could be damaging to the Members’ careers. It requested guidance as to whether under these circumstances it could accede to the auditor’s request.

The Committee held in Opinion No. 124 that “whenever a client requests nondisclosure of the fact of representation, or circumstances suggest that such disclosure would embarrass or detrimentally affect any client, the fact of the firm’s representation of that client is a client ‘confidence’ or ‘secret’ subject to the protections accorded by the other provisions of Canon 4.” The firm could not therefore voluntarily accede to the auditor’s request. Furthermore, the Committee held, “. . . if the IRS does issue a summons, the inquirer’s firm may not automatically comply with it. Rather, the firm remains under an ethical obligation to resist disclosure until either the consent of the client is obtained or the firm has exhausted available avenues of appeal with respect to the summons.” Only after the firm is ordered by a court to disclose the names of its clients may it do so.

The client in this case has requested that the firm withhold his name from the Internal Revenue Service; moreover, as in Opinion No. 124, disclosure of the client’s name to the Internal Revenue Service could “embarrass or detrimentally affect” the client.1

An important difference between this case and Opinion No. 124, however, is that the name of the firm’s client is not sought under the IRS’ general authority to examine “relevant and material” books and records. See 26 U.S.C. § 7602(a)(1). Section 6050I of the Internal Revenue Code, the statutory authority for Form 8300, is narrowly and specifically drawn to require disclosure of the names and other identifying information of persons making cash payments in excess of $10,000 received in the course of a trade or business. Civil and criminal penalties are available to enforce its provisions. See 26 U.S.C. §§ 6721, 6724(d) and 7203. Section 06050I is, therefore, a “law” which may justify disclosure of client confidences or secrets under DR 4-101(C)(2) in an appropriate case.

It does not necessarily follow that disclosure of the client’s name is “required by” section 6050I in this case or other similar cases. Under the present state of the law, substantial good faith arguments exist as to whether law firms are a “trade or business” within the meaning of section 6050I.2 and whether Congress intended the statute to override traditional lawyer-client confidentiality3 Until these and any other questions regarding the coverage of section 6050I in a particular case are resolved definitively by the courts, our prior Opinions are clear that a firm may not ethically disclose the name of its client on Form 8300 without the client’s consent4

Furthermore, since the IRS’ administrative summons is intended to obtain the information withheld from Form 8300, the firm may not voluntarily disclose the client’s name in response to the summons.

Our prior Opinions also address the firm’s second question regarding the extent of the duty to resist compelled disclosure of client confidences and secrets. In Opinion No. 14 (January 26, 1976) we were asked to define the extent of an attorney’s duty to protect the confidentiality of a former client’s records subpoenaed by a grand jury. We stated that “it is the lawyer’s ethical duty to a former client to assert on the former client’s behalf every objection or claim of privilege available to him when to do so might be prejudicial to the client.” In Opinion No. 124, involving IRS, we stated that “the attorney must assert in the pending proceeding the client’s interests in nondisclosure.” See also Opinion No. 99 (January 28, 1981) (“inquirer’s obligation is to assert before the grand jury the confidentiality of those statements. . . .”); Opinion No. 180 (absent the client’s consent to disclosure, the attorney “must assert the confidentiality of the documents and information”). Thus, if the IRS files an action to enforce its summons, the firm must assert the client’s objections to disclosure5

Our prior Opinions are not entirely clear as to whether a lawyer who is ordered by a court to disclose client confidences or secrets may comply immediately with this order or must seek review of a higher court. In Opinion No. 124, we said with respect to an IRS subpoena that the firm could not comply until it had obtained its clients’ consent or “exhausted available avenues of appeal with respect to the summons.” It is not clear, however, whether the Committee intended the word “appeal” to mean a court’s initial review of the agency’s decision or a higher court’s review of an initial judicial order. Our other opinions in this area suggest that the lawyer need not appeal an initial judicial order to a higher court, although he or she must allow the client an opportunity to do so. In Opinion No. 14, for example, we stated that “the attorney is . . . free to comply with whatever directive the trial court gives.” (Emphasis added.) In Opinion No. 83 we stated that an attorney “is not obliged to run the risk of being held in contempt of court because of the client’s desire that confidences and secrets not be disclosed.” And, in Opinion No. 180 we stated that “if attorney is ordered by a court to disclose the client information, he must not make disclosure until he has given the client an opportunity to appeal the order to a higher tribunal.” (Emphasis added.)

The trend of our prior decisions is supported by the new Rules of Professional Conduct. Comment 26 to Rule 1.6 states:

If a lawyer is called as a witness to give testimony concerning a client, absent waiver by the client, paragraph (d)(2) requires the lawyer to invoke the privilege when it is applicable. The lawyer may comply with the final orders of a court or other tribunal of competent jurisdiction requiring the lawyer to give information about the client. But a lawyer ordered by a court to disclose client confidences or secrets should not comply with the order until the lawyer has personally made every reasonable effort to appeal the order or has notified the client of the order and given the client the opportunity to challenge it.

In light of our prior decisions and Comment 26, we conclude that the law firm here may comply with a final judicial order enforcing an IRS summons without seeking appellate review of that order, but only after giving its client notice of the court’s order and a reasonable opportunity to seek review independently of the firm.6

Finally, in response to the firm’s third question, the fact that the client is in arrears in his payments to the firm does not relieve the firm of its basic ethical obligation to resist disclosure in response to the IRS summons. The Committee has consistently held that DR 4-101(c) prohibits disclosure of confidences and secrets of a former client. See, e.g., Opinion Nos. 14, 58, 96, 99, 124, 175, 180, 186. In none of these opinions was there any suggestion that the Committee envisioned that the lawyer would be compensated by the former client for his or her efforts in protecting against disclosure. Indeed, in two of our previous decisions, the client was currently represented by other counsel at the time that the information was demanded and we nevertheless found an obligation on the part of the former attorney to resist disclosure. See Opinion Nos. 14, 83. The ethical obligation of lawyers to protect the confidences and secrets of their clients is not a matter of contract between the lawyer and client; the obligation arises because “confidentiality is essential to the role of the lawyer in the administration of justice,” Opinion No. 180, and because, under Canon 1, every lawyer has a duty “to assist in maintaining the integrity and competence of the legal profession."7

Inquiry No. 90-4-18
Adopted September 18, 1990


1. The government, for example, may prosecute a taxpayer for failing to report income by demonstrating that the defendant’s net worth is so substantial that it may be inferred that he or she received income that was not reported to the IRS. E.g., Holland v. U.S., 348 U.S. 121 (1954); United States v. Citron, 783 F.2d 307 (2d Cir. 1986).
2. The American Bar Association and other lawyers’ organizations urged the IRS to include an exception for attorney’s fees in the regulations issued under Section 6050I. The IRS refused. See 51 F.R. 31610 (September 4, 1986).
3. The identity of an attorney’s client and information regarding the payment of attorneys’ fees generally are not protected from forced disclosure by the attorney-client privilege. See, e.g., In re Semel, 411 F.2d 195 (3rd Cir. 1969); U.S. v. Fenlag, 434 F.2d 596 (6th Cir. 1970); In re Grand Jury Proceedings (Rabin v. U.S.), 896 F.2d 1297 (11th Cir. 1990). Exceptions to this rule have been recognized, however, where the values promoted by the privilege outweigh the need for disclosure of the client’s identity. See, e.g., Baird v. Koepher, 279 F.2d 623 (9th Cir. 1960); Tillotson v. Boughner, 350 F.2d 663 7th Cir. 1965); NLRB v. Harvey, 349 F.2d 900 (4th Cir. 1965); In re Grand Jury Proceedings (U.S. v. Jones), 517 F.2d 666 (5th Cir. 1975); In re Grand Jury Investigation No. 83-2-35, 723 F.2d 447 (6th Cir. 1983).
4. The Professional Responsibility Committee of the Chicago Bar Association has similarly concluded that an attorney should not reveal the name of a client to the IRS in Form 8300 because the application of the statute to attorneys is unclear. Docket No. 86-2 (5-11-88).
5. In appearing and asserting the client’s objections to disclosure, the firm is serving, in effect, as a witness in the proceeding. Whether the firm must go further and act as an advocate for the client’s position will depend upon a number of circumstances including whether the client or former client has been notified of the proceeding and whether the client or former client has been able to retain separate counsel to advocate his or her interests in the proceeding. Where the client or former client is unable to participate because he or she is incarcerated, incapacitated or unable to afford separate counsel, the firm may have an obligation to act as an advocate for the clients or former client.
6. A duty to appeal the order may exist, however, where the client is unable to act. See supra note 5.
7. It is possible that a lawyer may have an action against a current or former client who refuses to pay for such services although having the means to do so, especially where, as here, the representation with respect to disclosure has previously been agreed to by the client. This is a question of law which is beyond the jurisdiction of this Committee.