Dick DeGuerin, the outstanding Houston criminal defense lawyer, is taking on the fight against the IRS over the issue of how much information on our clients do lawyers have to turn over to the IRS.

"The case raises issues concerning the relationship between attorneys and their clients, such as how far does the attorney-client privilege go when it's time to report income to the IRS? Is a lawyer required to identify the source of legal fees in all instances or can such information be protected under the attorney-client privilege? And should a lawyer be assessed penalties for failing to disclose a client's identity when the attorney reasonably believes the client's identity is protected?"

"Section 6050I requires any person engaged in a trade or business who receives more than $10,000 in cash in one transaction (or two or more related transactions) to file Form 8300, which reports the transaction and identifies the name, address and taxpayer identification number of the person from whom the cash was received as well as the amount, date and nature of the transaction. "

We're weighing in on this one because we have strong feelings.

Criminal defense organizations and brave individual lawyers battled with the IRS for years over this. We lobbied Congress to get an exception for lawyer/client fees, to no avail.

It wasn't that lawyers didn't want to disclose the amount received or pay taxes on it. The objection lay in their belief that by identifying a client who paid a large cash fee for representation in a criminal case, they were setting the client up for further investigation and possibly another prosecution.

Just as problematic is the client who has not yet been charged with a crime but is under investigation or worried about becoming the target of an investigation. By identifying the client as the payor of a substantial cash legal fee, are we providing the "last link" in a chain of incriminating evidence that could result in that client's indictment? We think so.

As Houston lawyer George W. Connelly Jr., chairman of the tax controversy and litigation section at Chamberlain, Hrdlicka, White, Williams & Martin, who spent 15 years as a trial lawyer with the IRS, puts it,

"If you've ever seen a Form 8300, the amount of information stops just short of how tall the person is and what color their eyes are and what their ethnic derivation is. You've got name, rank, serial number, are they acting as a nominee for someone and so forth."

But after years of litigation in the 1990's, and a few differing federal district court opinions, the circuit courts of appeal weighed in, and the defense lawyers' position was doomed.

Most lawyers just stopped taking cash to avoid what they viewed as the Government's attempt to make them rat on their clients. Others kept taking cash and and gave the IRS the requested identifying information about their clients.

Kudos to Dick DeGuerin and his partner Lewis Dickson for taking on the IRS on this issue. They declared the cash fees, paid the tax but withheld the requested information about their clients. They paid a $25,000.00 penalty to the IRS to be able to have standing to sue the IRS in federal court to get it back. The IRS is now seeking over $400k in penalties from the firm for all the 8300 forms they filed in 1995.

The rules are that if the failure to file properly is shown to be due to "reasonable cause" as opposed to "willful neglect," the penalty for each filing is only $50.00. So even if an attorney intentionally disregards the reporting requirement, he will not be subject to any penalty if he can show reasonable cause for noncompliance. DeGeurin's firm filed every form required, and responded to every later IRS inquiry, with a written explanation of its belief there was reasonable cause to withhold the information.

"...The central issues in the case are whether the attorneys' failure to provide information on the Form 8300s by claiming attorney-client privilege amounted to intentional disregard of their filing obligations and whether the penalties should be waived because they had reasonable cause for omitting the information. "

On Aug. 5, in Dick DeGuerin and Lewis Dickson v. United States of America, U.S. District Judge Sim Lake of the Southern District of Texas denied both sides' motions for summary judgment and set a trial date of Sept. 13.

Dick and Lewis are being represented by a litigation team from Foreman DeGeurin Nugent & Gerger. a firm headed by Dick's equally esteemed and formidable brother, Mike DeGeurin. The "Foreman" in the firm name stands for Percy Foreman, the legendary Texas criminal defense lawyer, now deceased, whom both brothers worked with years ago.

Our money is on Dick--in the form of a check, of course.