Legal advice privilege in the taxation context: disconnected ethical regimes for lawyers and tax advisers in the United States and New Zealand

Legal professional privilege requires confidential communications between lawyer and client to remain confidential unless the privilege is waived by or on behalf of the client. Where communications are privileged, the client may legally refuse to disclose documents containing those communications and may refuse to answer questions regarding them and the lawyer is obliged to refuse to disclose such documents or answer such questions. The rationale for legal professional privilege is that it encourages candour between client and lawyer. This candour allows a lawyer to give the most accurate and relevant advice which promotes the wider public interest of compliance with relevant laws and regulations and the administration of justice. Legal professional privilege encompasses what is known as legal advice privilege. This form of privilege generally applies only to communications between lawyer and client; however, there are jurisdictions where legal advice privilege has been extended, to an extent, beyond lawyers to tax advisers. For both tax lawyer and tax adviser ethical issues emerge because claims that communications are covered by privilege have an ethical dimension to them. Judgements around whether communications are covered by the relevant privilege regime, the advisers’ duty to the client and any actual or perceived duty to the tax system all play a role. Provisions in relevant professional codes of conduct and the effect of both the regulatory rules and behaviour of tax agencies also play a large part in informing decisions around privilege claims. This article critically examines these various themes and their potential impact on ethical behaviour through comparative analysis of the differing approaches and regulatory regimes in the United States and New Zealand. Both are common law jurisdictions where legal professional privilege rules have evolved from English common law principles and where a form of privilege for non-lawyer tax advisers has been created. Comparative analysis between lawyers and non-lawyer tax advisors within each jurisdiction and between jurisdictions reveals disconnections in the ethical landscape and an area where reform could improve standards of behaviour. A new approach demonstrating improved clarity and coherence is proposed.