Tax Notes logo

9th Circuit Defers on Important Privilege Waiver Case

Posted on Jan. 2, 2018

US v Sanmina Corp considers whether by disclosing the existence of purportedly protected documents the taxpayer has waived various privilege claims it is asserting with respect to memos that its in house tax counsel prepared.

I will briefly describe the issue and the recent 9th Circuit unpublished opinion that remanded the case back to the trial court.

On its 2009 tax return, Sanmina had claimed about a half billion in a worthless stock deduction in one of its subsidiaries. The purportedly worthless sub had two related party receivables with an approximate $113 million book value. Notwithstanding the healthy book value, Sanmina claimed that the FMV of the receivables was zilch.

IRS examined Sanmina’s tax return and sent an information document request for documents that supported the deduction. Sanmina gave to IRS a valuation report from DLA Piper, its outside counsel. That report (not surprisingly) supported the taxpayer’s view that the receivables had no fair market value. Included in the report was a footnote that referenced internal memos that Sanmina’s tax counsel had prepared, one in 06 and the other in 09.

IRS asked for those two memos; Sanmina resisted, leading to IRS to summons them and bring an enforcement action when Sanmina did not comply. In 2015, the district court held that both memos were protected by attorney client and work product privilege and that the “mere mention” of the memos in the DLA Piper valuation report did not amount to the party’s waiving the privilege.

The government appealed, arguing that the 2006 memo was really not subject to the attorney client privilege because it was not a communication, as the taxpayer had failed to prove that when it was written it actually was circulated to anyone or the result of anyone in Sanmina seeking advice on the issue. It also argued that the 06 memo was not subject to the work product privilege because it was not prepared in anticipation of litigation, in part due to the time that elapsed between the writing of the memo and Sanmina taking the deduction. The government conceded that the 09 (but not the 06) memo was privileged, but argued that the cloak of protection was lost for both memos due to Sanmina having waived any privilege when it served up the DLA Piper valuation report that relied on and mentioned both memos.

The government on appeal based its waiver argument on two different approaches. First, the government argued that on a careful read of the DLA Piper report it was apparent that the report itself was heavily dependent on the two memos, notwithstanding that their existence was only specifically mentioned in a footnote in the report. Second, the government argued that under the Federal Rules of Evidence it was improper for the taxpayer to selectively waive the privilege when there are documents “that concern the same ‘subject matter’ that ought in fairness to be considered together.”

The 9th Circuit’s brief unpublished opinion vacated the earlier district court order and remanded the case back to the district court, with its opinion emphasizing that the district court should have done more in terms of analyzing the memos themselves:

Our resolution of this case would be greatly facilitated by a more informed analysis from the district court. More specifically, we prefer the district court review the documents in camera and reconsider its ruling on the asserted privileges following its review of the pertinent documents.


This dispute has been festering for close to three years. How much disclosure beyond acknowledging existence to trigger a waiver of privilege is an interesting issue, as is the reach of privilege on an internal memo that a taxpayer’s in house counsel wrote years before the taxpayer claimed the deduction in question.

Additional Links:

Video and audio link to oral argument at 9th Circuit

District Court decision

Miller & Chevalier tax blog coverage of case (including links to briefs)

Subject Areas / Tax Topics
Copy RID