Opinion
18290-18 330-19
10-27-2023
ROBERT KNUDSEN AND ESTATE OF SHARON KNUDSEN, DECEASED, CHARLES W. BUCHTA, EXECUTOR, Petitioners v. COMMISSIONER OF INTERNAL REVENUE, Respondent
ORDER
Albert G. Lauber Judge
These "micro-captive" insurance cases involving petitioners' 2014-2016 tax years are set for trial at a special session of the Court beginning on March 18, 2024, in Reno, Nevada. The principal issues are whether petitioners are entitled to deduct alleged "insurance premiums" paid (through S corporations they controlled) to two offshore entities; whether petitioners received taxable dividends from those entities; whether petitioners are liable for a 40% accuracy-related penalty under section 6662(i) [ ; and whether petitioner wife's estate is entitled to relief from joint and several liability section 6015.
Unless otherwise indicated, statutory references are to the Internal Revenue Code, Title 26 U.S.C., in effect at all relevant times, and Rule references are to the Tax Court Rules of Practice and Procedure.
Petitioners contend that Craig Campbell, an attorney, provided services to them (directly or through entities he controlled) and persuaded them to set up the alleged "insurance companies." Respondent and petitioners served subpoenas on Mr. Campbell seeking (among other things) documents relating to the commission splits and consulting fees received by him (or his entities), as well as engagement letters, powers of attorney, or other documents authorizing him to represent petitioners.[ By Order served September 11, 2023, we granted the parties' joint motion for a document subpoena hearing.
When issuing their subpoenas, petitioners did not waive the attorney-client or work product privileges, but retained the right to assert privilege with respect to any documents produced by Mr. Campbell.
Mr. Campbell did not move to quash the subpoenas. The hearing was held on October 11, 2023, and Mr. Campbell appeared, represented by counsel. He produced no documents at the hearing, asserting that he could not comply due to the attorney-client privilege.
On October 24, 2023, the parties filed a joint Motion to Enforce Subpoenas, seeking an order enforcing the subpoenas issued to Mr. Campbell by petitioners and respondent. A litigant may issue a subpoena to an interested third party to command that person "to produce the books, papers, documents, electronically stored information, or tangible things designated therein . . . ." Rule 147(a), (b). Individuals served with such a subpoena must comply with its commands. Estate of Nail v. Commissioner, 59 T.C. 187, 189-90 (1972) (citing Blair v. Oesterlein Co., 275 U.S. 220 (1927)). Upon motion, the Court may quash or modify a subpoena if it imposes an "undue burden," meaning a burden that outweighs the value of the subpoenaed information to the serving party. See Amazon.com, Inc. v. Commissioner, T.C. Memo. 2014-245, 108 T.C.M. (CCH) 588, 590; Rule 147(b).
Mr. Campbell has not filed a motion to quash or modify the parties' subpoenas. He is an interested third party because, in some capacity, he advised petitioners about the micro-captive insurance transactions and may have a financial or reputa-tional stake in the outcome of this litigation. And the information sought appears relevant to the issues presented by these cases, including whether petitioner wife was advised about the transactions in a manner that could affect the availability of relief under section 6015. See Zaentz v. Commissioner, 73 T.C. 469, 471 (1979) (noting that the standard of relevancy is liberal and that our Rules permit discovery of any material relevant "to the entire 'subject matter' of the case" (quoting Rule 70(b)).
Mr. Campbell cannot assert the attorney-client privilege as a sword to withhold documents from petitioners if they are his former clients. See Ariz. R. Prof. Conduct 1.16(d) ("Upon the client's request, the lawyer shall provide the client with all of the client's documents, and all documents reflecting work performed for the client."); State v. Sucharew, 66 P.3d 59, 64 (Ariz.Ct.App. 2003) (attorney-client privilege "belongs to the client"); see also State v. Hoslinger, 601 P.2d 1054, 1058 (Ariz. 1979). And to the extent Mr. Campbell served petitioners as a business or financial advisor, as opposed to an attorney supplying legal advice, the attorney-client privilege is simply irrelevant. See In Re Grand Jury Subpoena Duces Tecum Dated September 15, 1983, 731 F.2d 1032, 1037 (2d Cir. 1984) (holding that a lawyer acting as a business or economic advisor is not protected under attorney-client privilege).
We will accordingly grant the Motion at this time insofar as it seeks enforcement of the subpoenas issued by petitioners. When Mr. Campbell produces the requested documents to petitioners, they shall immediately produce those documents to respondent's counsel. If petitioners seek to withhold from respondent any documents produced by Mr. Campbell, they shall supply a privilege log setting forth the justification for any and all claims of privilege. See Bernardo v. Commissioner, 104 T.C. 677, 683-84 (1995); Pac. Mgmt. Grp. v. Commissioner, T.C. Memo. 2015-97, 109 T.C.M. (CCH) 1505, 1506 ("A privilege log must set forth facts that establish, as to each document, each element of the claimed privilege." (citing Chevron Corp. v. Weinberg Group, 286 F.R.D. 95, 98 (D.D.C. 2012)); see also Rule 147(e)(2). If respondent, after reviewing the documents produced to him by petitioners as described above, believes he is entitled to receive additional documents from Mr. Campbell, respondent may renew his Motion to Enforce his subpoena.
Upon due consideration, it is
ORDERED that the joint Motion to Enforce Subpoenas, filed October 24, 2023, is granted, in that Mr. Campbell shall produce to petitioners' counsel, on or before November 16, 2023, the documents requested in petitioners' subpoenas. It is further
ORDERED that, in addition to regular service, the Court shall serve a copy of this Order on Craig Campbell as follows:
Craig Campbell
1853 E. Brown Road
Mesa, AZ 85203
Craig Campbell
2539 N. Whiting
Mesa, AZ 85213
Craig Campbell
20645 North Prima Road, Suite 160
Scottsdale, AZ 85255