The IRS Pits Lawyers Against Their Clients

AT first the news was shocking: A respected federal judge in Boston had been sued by the Justice Department for alleged tax-law violations that hinted at money laundering. Was this another corruption scandal?

But most lawyers believe that United States district-court Judge Nancy Gertner is acting both ethically and honorably in refusing to divulge to the Internal Revenue Service the names of certain clients she represented as a prominent Boston trial lawyer before she was appointed to the bench this year. Citing attorney-client privilege and Massachusetts legal-ethics rules that protect clients' confidentiality, Ms. Gertner insists that she won't identify former clients who made three sizable cash payments to her in 1991 and 1992, unless a court orders her to reveal the names.

Defenders of Gertner and other lawyers in the same boat say the government's demand for the clients' names violates the Constitution, intrudes on the special relationship between lawyers and clients, deters people from seeking responsible counsel from ethical attorneys, and could force lawyers to furnish evidence against people who have retained them on a basis of trust.

Under the US tax code, banks, businesses, and professionals who receive cash payments of $10,000 or more must file Form 8300 with the IRS, describing the transaction and disclosing the payer's name. The requirement, enacted by Congress in 1984 as part of a deficit-reduction act, helps the IRS collect taxes on the large, and generally hidden, cash economy. But law-enforcement agencies quickly saw uses for the reporting requirement to track down drug pushers and other criminals who need to launder greenbacks.

A few years ago the IRS began cracking down on attorneys - primarily criminal-defense lawyers - who, the government said, failed to comply fully with the revenue code.

Gertner, like numerous other lawyers, reported the cash fees (two payments of $25,000 and one of $15,000) on Form 8300 and paid the required income taxes, but she withheld the clients' names. So now the judge has become a defendant.

According to Gerald Lefcourt, a New York lawyer and co-chair of the National Association of Criminal Defense Lawyers (NACDL) 8300 Task Force, the government's suit against Gertner appears to be part of a systematic campaign targeting lawyers. Litigation over the Form 8300 issue is going on around the country, Mr. Lefcourt says, and federal courts in New York, Florida, and Tennessee have ordered criminal-defense attorneys to cough up the names of cash-paying clients.

There has been another ominous development for lawyers: In some recent 8300 disputes, the IRS has directly assessed administrative penalties of between $25,000 and $100,000, rather than seeking court orders against attorneys for noncompliance.

Lawyers say the government crackdown puts them in an untenable position. If they fail to disclose clients' names, they may face lengthy litigation and hefty penalties. But if they voluntarily comply with the IRS request, they could be sued by clients and disciplined for violations of legal ethics. Ethics codes in all states prohibit lawyers from disclosing client confidences, and in at least nine states, including Massachusetts, bar associations have explicitly advised lawyers not to disclose clients' names on 8300 Forms without a court order.

Many lawyers, and not just those in the criminal-defense bar, say that compelling attorneys to provide the state with information that can be used against their clients violates fundamental American concepts of fairness and the right to counsel.

``Most Americans believe that they should be able to privately seek out legal advice and that, unless they choose to disclose that fact, it shouldn't be used against them,'' says Gerry Goldstein, a defense lawyer in San Antonio and president of the NACDL. ``Before long, lawyers will have to issue an `attorney general's warning' sort of like the surgeon general's warning on cigarettes: Consulting a lawyer could be dangerous to your safety.''

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