                         132 T.C. No. 17



                     UNITED STATES TAX COURT



COUNTRYSIDE LIMITED PARTNERSHIP, CLP HOLDINGS, INC., TAX MATTERS
                PARTNER, ET AL.,1 Petitioners v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket Nos. 3162-05, 22023-05,     Filed June 8, 2009.
                 2176-08, 2178-08.



          R has moved to compel production of documents. Ps
     object, claiming that the documents are protected from
     disclosure by, among other privileges, the so-called
     federally authorized tax practitioner (FATP) privilege
     described in sec. 7525(a), I.R.C. We have determined
     that the FATP privilege applies, subject to R’s right
     to show the privilege does not apply. To do that, R
     must show that the requested documents are written
     communications in connection with the promotion of



     1
       Cases of the following petitioners are consolidated
herewith: Countryside Limited Partnership, CLP Holdings, Inc.,
Tax Matters Partner, docket No. 22023-05; CLP Promisee L.L.C.,
WMC Realty Corp., Tax Matters Partner, docket No. 2176-08;
Manchester Promisee L.L.C., AMW Realty Corporation, Tax Matters
Partner, docket No. 2178-08.
                               - 2 -

     corporate tax shelters and, thus, that the exception in
     sec. 7525(b), I.R.C., to the FATP privilege applies.

          1. Held: Ps have the burden of proving the
     preliminary facts necessary to establish the FATP
     privilege; R has the burden of proving the preliminary
     facts necessary to establish the exception.

          2. Held, further, the meeting notes in question
     not communicated to anyone are not a written
     communication that can satisfy that element of the sec.
     7525(b), I.R.C., exception.

          3. Held, further, the written minutes in question
     are not within the sec. 7525(b), I.R.C., exception
     because R failed to show that the FATP promoted a
     corporate tax shelter.



     Richard A. Levine and Elliot Pisem, for petitioners.

     Jill A. Frisch, for respondent.



                              OPINION


     HALPERN, Judge:   These consolidated cases are partnership-

level actions based on petitions filed pursuant to section 6226.2

We have issued a report granting participating partner Arthur M.

Winn’s motion for partial summary judgment in docket No. 3162-05,

Countryside Ltd. Pship. v. Commissioner, T.C. Memo. 2008-3.

Respondent has by two similarly styled motions (Nos. 1 and 2, the

motions) moved to compel production of documents in docket No.

3162-05.   Petitioners object to the motions, claiming that the


     2
       All section references are to the Internal Revenue Code of
1986, as amended (the Code).
                               - 3 -

documents are protected from disclosure by either the

attorney-client privilege or the so-called federally authorized

tax practitioner (FATP) privilege described in section 7525(a).

We have resolved by order all issues with respect to the motions

except that, with respect to certain documents described infra,

we have determined that the documents contain privileged

communications, protected from disclosure by the FATP privilege,

but subject to respondent’s right to show that the exception to

the FATP privilege in section 7525(b) applies.   Section 7525(b),

as applicable to the privileged documents, provides that the FATP

privilege does not apply to written communications in connection

with promoting corporate participation in a tax shelter.   For the

reasons stated infra, we determine that the documents here in

question were not such communications.

                            Background

     The documents responsive to motion No. 1, a series of 16

documents all entitled “Estate Planning Meeting Minutes” (the

minutes), constitute a cumulative chronicle of communications, in

part confidential, from clients, including Countryside Limited

Partnership (the partnership), to their attorneys for legal

advice or to Timothy Egan (Mr. Egan), whom we have found to be an

FATP, for tax advice, or from those individuals back to their

clients.   The entries in the minutes begin March 28, 2001, and
                               - 4 -

end February 11, 2003.3   The document responsive to motion No. 2

is two pages of handwritten notes (the notes) made by Lawrence H.

Curtis (Mr. Curtis), a member of the partnership, recording

confidential communications regarding tax advice received during

a meeting with, among others, Mr. Egan.

                            Discussion

I.   Section 7525

      Section 7525(a)(1) provides a limited privilege, equivalent

to the attorney-client privilege, to communications regarding tax

advice between a taxpayer and any FATP.   Section 7525(b), as

applicable to communications made before October 22, 2004,4



      3
       The title “Estate Planning Meeting Minutes” is a misnomer,
in that, by 2001, the meetings regularly involved a wide range of
matters affecting various business entities, including many
topics unrelated to estate planning.
      4
       With respect to communications made after Oct. 21, 2004,
sec. 7525(b) provides as follows:

           SEC. 7525(b). Section Not To Apply to
      Communications Regarding Tax Shelters.--The privilege
      under subsection (a) shall not apply to any written
      communication which is--

                (1) between a federally authorized tax
           practitioner and--

                     (A) any person,

                     (B) any director, officer, employee,
                agent, or representative of the person, or

                     (C) any other person holding a capital
                or profits interest in the person, and
                                                    (continued...)
                                 - 5 -

provides as follows:

           SEC. 7525(b). Section Not To Apply to
      Communications Regarding Corporate Tax Shelters.–-The
      privilege under subsection (a) shall not apply to any
      written communication between a federally authorized
      tax practitioner and a director, shareholder, officer,
      or employee, agent, or representative of a corporation
      in connection with the promotion of the direct or
      indirect participation of such corporation in any tax
      shelter (as defined in section 6662(d)(2)(C)(iii)).

Petitioners have the burden of proving the preliminary facts

necessary to establish the privilege; respondent has the burden

of proving the preliminary facts necessary to establish the

exception.   See United States v. BDO Seidman, L.L.P., 492 F.3d

806, 821 (7th Cir. 2007).   Petitioners have met their burden, and

the question before us is whether respondent has met his burden.

II.   Arguments of the Parties

      Respondent argues that the section 7525(b) exception applies

and that the minutes and notes do not embody privileged

communications because

      the series of Countryside transactions that are the
      subject of this litigation[5] * * * are a “tax shelter”


      4
       (...continued)
                (2) in connection with the promotion of the
           direct or indirect participation of the person in
           any tax shelter (as defined in section
           6662(d)(2)(C)(ii)).
      5
       In Countryside Ltd. Pship. v. Commissioner, T.C. Memo.
2008-3, under the heading “Facts on Which We Rely”, we described
much of the series of transactions that is the subject of this
litigation. At the most general level, the series of
transactions involves Federal tax questions associated with
                                                   (continued...)
                                    - 6 -

       as defined in section 6662(d)(2)(c)(iii) * * * and the
       documents withheld by Petitioners are in connection
       with the promotion of the participation of Petitioners’
       corporate general partners in the transactions.

       Petitioners argue that the section 7525(b) exception does

not apply because respondent has failed to provide evidence of

several elements necessary to that provision’s application: viz,

(1) the promotion of (2) a corporation’s participation in (3) any

tax shelter, and, in the case of the notes, (4) a written

communication.        Petitioners argue that respondent’s failure to

provide evidence that all the elements of section 7525(b) have

been satisfied renders the provision inapplicable.

III.       Analysis

       A.     Introduction

       We agree with petitioner that, for the FATP privilege not to

apply because of the application of the section 7525(b)

exception, respondent must produce evidence that all the elements

of the exception are satisfied.       Cf. United States v. BDO

Seidman, L.L.P., supra at 821 (“[P]roponent of the tax

practitioner privilege must establish each element”.).

       The elements of the section 7525(b) exception are not free

of interpretative difficulties.       See, e.g., id. at 822-828

(“Scope of the Tax Shelter Exception”); Valero Energy Corp. v.



       5
      (...continued)
distributions by the partnership in redemption of interests of
its members.
                                  - 7 -

United States, No. 06 C 6730 (N.D. Ill., Aug. 26, 2008)

(corrected memorandum opinion and order) (“‘Promotion’ of tax

shelter”).    In no report have we addressed section 7525(b).   In

this report, we need go no further than to consider the elements

of “promotion” and “written communication”.    We shall start with

the latter.    We shall in each case assume that respondent has

shown that the other elements necessary for the application of

the section 7525(b) exception have been satisfied, but we do so

only to isolate the element we are considering.

     B.   Written Communication

     As stated supra, the notes consist of two pages handwritten

by Mr. Curtis recording confidential communications regarding tax

advice received during a meeting with, among others, Mr. Egan.

Respondent’s argument that the notes are a written communication

is succinct:    “Written notes of oral communications are ‘written

communications’ under any plausible construction.”    Petitioners’

response is also succinct; i.e., the plain meaning of “written

communications” requires some transmission of written material

from one person to another.    Petitioners state, and respondent

does not contradict them, that Mr. Curtis did not share his notes

with any other person.

     We have examined the notes, and they are just that, notes;

they are neither a verbatim record of an oral communication nor

anything resembling that.    They appear to be nothing more than
                                 - 8 -

the holographic record of the salient points of a discussion.      We

conclude that information was communicated to and perhaps by Mr.

Curtis, but not, in this case, in writing.     The Court of Appeals

for the Seventh Circuit said in United States v. BDO Seidman,

L.L.P., supra at 827:     “Because the [section 7525(b)] exception

is limited to written communications, oral communications between

a tax practitioner and the corporate agent remain within the

general rule of privilege.”    Although the Court of Appeals was

not addressing the question we address here concerning notes of

an oral communication, we think the distinction that court drew

is relevant to the question we face.     The notes were not

communicated to anyone.    Therefore, they do not constitute a

written communication that can satisfy that element of the

section 7525(b) exception.    The FATP privilege accorded to the

notes is not subject to the exception in section 7525(b).

     C.   Promotion

     Respondent argues:    “The * * * facts show that Mr. Egan was

promoting the Countryside transactions.”     In support of that

claim, respondent alleges, among other things, that Mr. Egan

played a “substantial role in structuring Countryside and similar

transactions” and “was involved in organizing, structuring and

assisting with respect to tax shelter transactions known as basis
                               - 9 -

swaps for Winn-controlled partnerships and corporations.”6

Petitioners respond:   “Mr. Egan, a longstanding tax advisor to

Petitioners and to other members of the Winn Organization,

performed precisely the kind of one-on-one tax advice and

counseling that is the antithesis of a ‘promotional’

relationship.”

     Petitioners support their claim with respect to Mr. Egan’s

relationship to what we shall call “the Winn organization” with

excerpts from his deposition taken by respondent in these cases.

In those excerpts, Mr. Egan testifies to the following.   He began

his relationship with the Winn organization in 1982, when he was

a second-year staff accountant at an accounting firm asked to

review a tax return.   He is now a tax partner at

PricewaterhouseCoopers (PWC) servicing the Winn organization

account.   He prepares tax returns for the Winn organization

entities, the Winn family trusts, Mr. Winn himself, his family

members, and corporate general partners (generally S

corporations).   Presently, 70 percent of his work for the Winn

organization involves tax compliance (i.e., return preparation),

with the balance encompassing tax planning, answering questions,

and responding to notices and inquiries from Federal and State



     6
       By the term “Winn-controlled partnerships and
corporations”, respondent refers to various entities (including
the partnership) in which Arthur Winn and his associates held an
interest.
                               - 10 -

tax officials.   The Winn organization is billed pursuant to

engagement letters at a fixed fee for tax compliance work; for

all other work, the organization is billed by the hour (hours

expended times a rate, pursuant to a schedule provided to the

organization).   Winn organization personnel consult him with

respect to the tax implications of the organization’s real estate

transactions.    He provides tax advice with respect to both

contemplated and completed transactions.    He has telephone

conversations with Winn organization personnel once or twice

weekly and meets with them once or twice monthly.    He provided

tax advice on various alternatives that Winn organization

personnel considered in connection with the partnership

redemptions and associated transactions that are under review in

these consolidated cases.    He had previously made similar

recommendations to the Winn organization in connection with

similar transactions.   Advising clients with respect to the tax

aspects of partnership redemptions is a regular part of his

practice, and he has been providing advice to clients (including

the Winn organization) on that subject for his entire career.      In

formulating the advice here under examination, he applied

knowledge as to the tax consequences of partnership redemptions

that he believes are well known among partnership tax

professionals.   In formulating that advice, he did not rely on

any generic prototypes, descriptive materials, or files
                                - 11 -

maintained by PWC.   He had recourse to tax specialists in the PWC

national office in Washington, D.C., who help him understand

complex provisions of the Internal Revenue Code and associated

regulations, but he received from them no descriptive materials

regarding the tax structure in issue here.

     In pertinent part, section 7525(b) provides that there is no

FATP privilege with respect to any “written communication * * *

in connection with the promotion of * * * [corporate

participation] in any tax shelter”.      (Emphasis added.)    The term

“promotion” is not defined in section 7525(b).      A commonly used

dictionary contains alternative meanings, including

“Encouragement of the progress, growth, or acceptance of

something; furtherance” and “Advertising; publicity”.        The

American Heritage Dictionary of the English Language 1403 (4th

ed. 2000).   The verb “promote” is alternatively defined to mean

“To urge the adoption of” and “To attempt to sell or popularize

by advertising or publicity”.    Id.     Other courts considering the

meaning of the term “promotion” in section 7525(b) have reached

different answers.   Compare United States v. Textron Inc., 507 F.

Supp. 2d 138, 148 (D.R.I. 2007) (the term applies to the peddling

of prepackaged tax shelters) with Valero Energy Corp. v. United

States, No. 06 C 6730 (N.D. Ill., Aug. 26, 2008) (corrected

memorandum opinion and order) (the term applies “to a person who

organizes or assists in organizing a tax shelter”).      There
                               - 12 -

appears to be sufficient ambiguity in the meaning of the term

that we are justified in looking to legislative history.7

     Section 7525 was added to the Code by the Internal Revenue

Service Restructuring and Reform Act of 1998, Pub. L. 105-206,

sec. 3411(a), 112 Stat. 750.   Section 7525(b), as enacted in

1998, was added in conference between the House of

Representatives and the Senate on the Senate’s amendment to H.R.

2676, 105th Cong., 2d Sess. (1998), which was enacted as Pub. L.

105-206.   The conferees defined a tax shelter as “any

partnership, entity, plan, or arrangement a significant purpose

of which is the avoidance or evasion of income tax.”     H. Conf.

Rept. 105-599, at 269 (1998), 1998-3 C.B. 747, 1023.     They added:

“The Conferees do not understand the promotion of tax shelters to

be part of the routine relationship between a tax practitioner

and a client.   Accordingly, the Conferees do not anticipate that

the tax shelter limitation will adversely affect such routine

relationships.”   Id.

     We are satisfied, in view of excerpts from respondent’s

deposition of Mr. Egan, the truth of which respondent does not


     7
       “This Court’s function in the interpretation of the Code
is to construe the statutory language so as to give effect to the
intent of Congress.” Merkel v. Commissioner, 109 T.C. 463, 468
(1997), affd. 192 F.3d 844 (9th Cir. 1999); see United States v.
Am. Trucking Associations, 310 U.S. 534, 542 (1940). “Where the
statute is ambiguous, it is well established that we may look to
its legislative history and to the reason for its enactment.”
Merkel v. Commissioner, supra at 468-469; see United States v.
Am. Trucking Associations, supra at 543-544.
                               - 13 -

question, that Mr. Egan has had a long, close relationship with

the Winn organization, preparing returns, assisting with tax

planning when asked, answering questions when asked, and

responding to notices and inquiries from Federal and State tax

officials.   His advice with respect to the partnership

redemptions and associated transactions under review in these

cases was furnished (as was similar advice with respect to

similar transactions) as part of a long-standing, ongoing, and,

hence, routine relationship with the Winn organization.     Mr. Egan

provided tax advice to the Winn organization when requested to do

so, and his advice here followed the same regular course of

procedure as did his other tax advice, including tax advice

related to partnership redemptions.     His employer, PWC, had no

stake in the outcome of the transactions under review in this

case other than in the continued retention of the Winn

organization as a client.    It did not receive a fixed fee or a

fee based on a percentage of some claimed tax saving.     It was

paid by the hour pursuant to a rate schedule for Mr. Egan’s time

in rendering his advice, just as it was for the other services

outside of return preparation that he rendered to the Winn

organization.

     Respondent has focused on Mr. Egan as “promoting the

Countryside transactions.”    We read the conferees’ statements

quoted above as distinguishing tax advice given in the course of
                              - 14 -

a relationship such as that between Mr. Egan and the Winn

organization from the “promotion” of a client’s participation in

a tax shelter.   There may be a point at which an FATP’s actions

cross the line, and will no longer be encompassed within the

routine relationship between an FATP and his client and will

amount to tax shelter promotion.   Respondent has, however, failed

to show us that Mr. Egan’s communications with the Winn

organization with respect to the partnership redemptions and

associated transactions before us crossed that line.   He rendered

advice when asked for it; he counseled within his field of

expertise; his tenure as an adviser to the Winn organization was

long; and he retained no stake in his advice beyond his

employer’s right to bill hourly for his time.   Respondent has

failed to show us that he crossed the line from trusted adviser

to promoter.8


     8
       Sec. 6111(d) provides that confidential corporate tax
shelters are subject to the tax shelter registration rules of
sec. 6111. A confidential corporate tax shelter is a transaction
for which, among other things, the tax shelter promoters may
receive fees in excess of $100,000. Sec. 6111(d)(1)(C). For
purposes of sec. 6111(d), the term “promoter” is defined as a
person “who participates in the organization, management, or sale
of the tax shelter.” Sec. 6111(d)(2). While in 1998, in sec.
7525(b), Congress cross-referenced sec. 6662(d)(2)(C)(iii), now
(ii), for the definition of the term “tax shelter” applicable to
sec. 7525(b), neither in sec. 7525(b) nor in the conference
committee report did Congress cross-reference sec. 6111(d)(2)
with respect to the meaning of the term “promotion” in sec.
7525(b). We draw no inference as to the meaning of the term
“promotion” in sec. 7525(b) from the particularized meaning of
the term “promoter” in sec. 6111(d)(2). For the same reason, we
                                                   (continued...)
                              - 15 -

      Because Mr. Egan was not a promoter with respect to the

Countryside transactions, communications between Mr. Egan and the

Winn organization, including the minutes at issue in motion No.

2, remain privileged.

IV.   Conclusion

      On the premises stated, we will deny the motions.


                                    An appropriate order will be

                               issued in docket No. 3162-05.




      8
      (...continued)
draw no inference as to the meaning of that term from the
description in sec. 6700(a) of persons promoting abusive tax
shelters.
