6 UNITED STATES DISTRICT COURT 7 WESTERN DISTRICT OF WASHINGTON AT SEATTLE 8 UNITED STATES OF AMERICA, CASE NO. C15-102RSM 9 Petitioner, ORDER FOLLOWING COURT’S IN 10 CAMERA REVIEW v. 11 MICROSOFT CORPORATION, et al., 12 Respondents. 13 14 I. INTRODUCTION 15 Following Microsoft’s Brief Regarding Privileged Documents Still in Dispute (Dkt. 16 #140), the Court ordered in camera review of certain documents. Dkt. #185. Having reviewed 17 the documents at issue, the Court rules as follows. 18 II. BACKGROUND 19 The government is conducting an examination of Microsoft Corporation’s (“Microsoft”) 20 federal income tax liabilities for the taxable years 2004 to 2006. Dkt. #146 at ¶ 3. A primary 21 focus of the examination relates to cost sharing arrangements transferring ownership of 22 intellectual property between Microsoft’s foreign and domestic subsidiaries. Such transfers must 23 satisfy an “arm’s length standard,” requiring that trade between related affiliates to be “upon the 24 comparable terms and prices that those items would trade among unrelated parties.” Dkt. #140 1 at 8. The government believes that Microsoft’s cost sharing arrangements did not satisfy the 2 arm’s length standard and impermissibly shifted revenue out of the United States, both decreasing 3 Microsoft’s federal income tax liabilities and obtaining more favorable foreign tax treatment. 4 Microsoft maintains that certain documents responsive to the government’s summonses are 5 privileged or protected from disclosure.
6 Consideration of the documents requires a general understanding of cost sharing 7 arrangements and the Americas cost sharing arrangement. Prior to the events at issue, Microsoft 8 had a foreign subsidiary conducting manufacturing operations in Puerto Rico. See generally Dkt. 9 #146-7; Dkt. #143 at ¶ 16. The operation manufactured software CDs, licensing the software 10 from U.S. entities and returning royalty payments. Whether these pricing of the agreements 11 satisfied the arm’s length standard was often subject to IRS challenge. Dkt. #143 at ¶ 8. 12 Nevertheless, the structure afforded Microsoft favorable tax credits under tax code provisions 13 allowing “Puerto Rican affiliates to produce goods and sell the goods back to their U.S. 14 parents”—an incentive for U.S. companies to locate manufacturing operations in Puerto Rico.
15 Id. at ¶ 16. But the credit was being eliminated from the tax code and Microsoft appeared poised 16 to shutter its Puerto Rico operations. Dkt. #146-7 (internal planning document concluding that 17 while there were some negative consequences, Microsoft would save more than $5 million 18 annually by outsourcing production of software CDs). 19 Aware of the impending loss of favorable tax treatment, KPMG LLP (“KPMG”), an 20 accounting firm, recommended that “Microsoft should explore US deferral opportunities taking 21 advantage of the existing manufacturing operations in Puerto Rico.” Dkt. #146-8 at 3. 22 Representing that continuing operations in Puerto Rico would require “[f]ew operational 23 changes” and would provide Microsoft with “expertise in deferral strategies for the US market,” 24 KPMG presented Microsoft with several options for restructuring its Puerto Rico operations to 1 maintain some tax benefit. Id. KPMG also represented that it was the right firm to guide 2 Microsoft through the process as it had “significant experience . . . in the migration of [expiring 3 tax credit benefits] to new deferral structures” and had “successfully negotiated significant tax 4 holidays for U.S. companies with the Puerto Rican government.” Id. at 18. 5 Central to Microsoft’s options was the use of a cost sharing arrangement. The cost
6 sharing arrangement would allow Microsoft’s Puerto Rican affiliate to co-fund the development 7 of intellectual property and thereby acquire an ownership interest in that intellectual property. 8 Dkt. #143 at ¶ 18. The affiliate could then manufacture software CDs to sell back to Microsoft’s 9 distributors in the Americas. Because some of the intellectual property had already been 10 developed, the Puerto Rican affiliate would need to make a “buy-in payment” to retroactively 11 fund a portion of the development. Id. The transactions would be subject to the arm’s length 12 standard, presenting a balancing act between entering an arrangement that a third party would 13 enter and significantly disrupting or complicating Microsoft’s operations. 14 Microsoft was interested and retained KPMG to provide “tax consulting services” for a
15 “feasibility phase” which included “modeling the anticipated benefits of the [Intangible Holding 16 Company (“IHCo”)] over a ten-year period.” Dkt. #146-13 at 1–2. The feasibility phase was “to 17 allow [Microsoft] to develop the information necessary to decide whether moving forward with 18 an IHCo structure at this time is an advisable business decision.” Id. at 2. 19 Ultimately Microsoft did enter into cost sharing arrangements through technology 20 licensing agreements. Because those cost sharing arrangements were required by law to be arm’s 21 length transactions, the design and implementation details are a central focus of the government’s 22 examination. The government expresses skepticism that a third party would be likely to enter 23 into the agreements, thereby satisfying the arm’s length standard, because the agreements 24 contained several unique provisions. Dkt. #146 at ¶¶ 18–20. While many of the terms changed 1 before and afterward the agreements were to have been formed, they remained favorable for 2 Microsoft’s income tax liability. Id. at ¶¶ 9–11. The government believes that the transactions 3 were “designed and implemented for the purpose of avoiding tax.” Id. at ¶ 20.1 4 Microsoft maintains that nothing was abnormal about its actions. Microsoft argues that 5 transfer pricing disputes with the government were prevalent and, “[r]ecognizing the inevitability
6 of an [Internal Revenue Service (“IRS”)] challenge, Microsoft was determined to be adequately 7 prepared to defend these cost sharing arrangements.” Dkt. #140 at 6; see also Dkt. #143 at ¶ 23. 8 To this end, and because of the complexity of facts relevant to corporate international tax, 9 Microsoft employed KPMG “to help the lawyers provide legal advice” and to give its own tax 10 advice. Dkt. #140 at 1; Dkt. #143 at ¶¶ 7, 10. Mr. Boyle, then Microsoft’s Corporate Vice 11 President and Tax Counsel, maintains that the materials at issue were prepared for his use and 12 that they were “prepared in anticipation of an administrative dispute or litigation with the IRS 13 over the Puerto Rican cost sharing arrangement, the pricing of the software sales to Microsoft, 14 and other issues expected to be in dispute relating to those transactions.” Dkt. #143 at ¶ 23.
15 III. DISCUSSION 16 Pursuant to the internal revenue code, the Court previously granted the government’s 17 petition to enforce designated summonses issued to Microsoft and KPMG. Dkt. #107. Microsoft 18 continued to withhold 174 documents,2 claiming work product protection, attorney-client 19 privilege, and the federally authorized tax practitioner privilege set forth in 26 U.S.C. § 7525. 20
1 The government expresses further skepticism on the basis that the agreements effectively netted 21 the Puerto Rican entity $30 billion for the “routine” reproduction of CDs containing software and did not otherwise have a significant impact on Microsoft’s operations. Dkt. #146 at ¶¶ 15–20. 22
2 Of those, 169 documents remain at issue. The Court previously ordered that Microsoft need 23 not produce four documents identified as: MSTP9010845–MSTP9010924, MSTP9009093– MSTP9009106, MSTP9009065–MSTP9009078, and MSTP9009051–MSTP9009064. 24 Additionally, Microsoft voluntarily produced MSTP9001377–MSTP9001399. 1 As the party asserting that the documents are protected, Microsoft bears the burden of proving 2 that the protections and privileges asserted apply. Weil v. Inv./Indicators, Research & Mgmt., 3 Inc., 647 F.2d 18, 25 (9th Cir. 1981). Microsoft has not fully carried its burden here. 4 A. Work Product Protection 5 Microsoft asserts work product protection over 170 of the 174 documents at issue. The
6 work product doctrine protects documents and tangible things from discovery if they are prepared 7 in anticipation of litigation by a party, or a party’s representative. FED. R. CIV. P. 26(b)(3). Work 8 product protection prevents “exploitation of a party’s efforts in preparing for litigation.” 9 Holmgren v. State Farm Mut. Auto. Ins. Co., 976 F.2d 573, 576 (9th Cir. 1992) (quoting Admiral 10 Ins. Co. v. United States District Court, 881 F.2d 1486, 1494 (9th Cir. 1989)). The court first 11 considers whether the documents were created or obtained “in anticipation of litigation or for 12 trial.” See United States v. Richey, 632 F.3d 559, 567 (9th Cir. 2011) (quoting In re Grand Jury 13 Subpoena, Mark Torf/Torf Envtl. Mgmt. (Torf), 357 F.3d 900, 907 (9th Cir. 2004)). Secondarily, 14 the court considers whether the documents were created or obtained “by or for another party or
15 by or for that other party’s representative.” Id. 16 With documents serving dual purposes—for instance, supporting both litigation 17 preparation and the ordinary conduct of business—the court must further consider whether the 18 documents were created “because of” litigation. Id. at 567–68. That is, “taking into account the 19 facts surrounding their creation, their litigation purpose so permeates any non-litigation purpose 20 that the two purposes cannot be discretely separated from the factual nexus as a whole.” Torf, 21 357 F.3d at 910. 22 Upon the Court’s review, Microsoft does not establish that any of the documents at issue 23 here are protected by the work product doctrine. Most salient, the Court concludes that even if 24 the documents were created in anticipation of litigation, they all serve dual business and litigation 1 purposes. If dual purpose documents “only [] reflect the logistics or mechanics of implementing 2 business concepts,” they are likely to “have been created in essentially similar form irrespective 3 of the litigation.” United States v. ChevronTexaco, 241 F. Supp. 2d 1065, 1084 (N.D. Cal. 2002). 4 Microsoft, deciding to pursue these complex transactions, certainly would have considered the 5 tax consequences of the transactions and whether they complied with applicable tax provisions.
6 Indeed, the considerations appear entirely intertwined with Microsoft and KPMG structuring the 7 transactions to create the smallest tax liability possible. Absent the concurrent business decision 8 to explore the transactions, Microsoft would not have had any reason to anticipate litigation. 9 Here, Microsoft anticipated litigation because it was electing to take an aggressive tax 10 strategy that it knew was likely to be challenged by the government. From the Court’s 11 perspective, there is a significant difference between planning to act in a legally defensible 12 manner and in defending against an existing legal dispute. The record provides no indication 13 that Microsoft would have faced its anticipated legal challenges if Microsoft had not made the 14 decision to pursue the transactions. Fidelity Intern. Currency Advisor A Fund, L.L.C. v. United
15 States, 2008 WL 4809032 at *13 (D. Mass. April 18, 2008) (“The mere fact that the taxpayer is 16 taking an aggressive position, and that the IRS might therefore litigate the issue, is not enough” 17 to establish work product.”). Even presuming an operational need for the transactions, Microsoft 18 has not provided any reason it could not have planned the transactions in such an unfavorable 19 manner that it was effectively insulated from a tax challenge. Microsoft’s documents were not 20 created in anticipation of litigation. Rather, Microsoft anticipated litigation because of the 21 documents it created. 22 Microsoft’s arguments to the contrary are further undercut by the relationship between 23 the parties and the actions of the parties. Microsoft indicates that it “hired the best available legal 24 and tax advisors.” Dkt. #143 at ¶ 20. This included Baker & McKenzie, “a well known 1 international law firm that had successfully tried many of the leading transfer pricing cases,” for 2 “tax planning and litigation of [] tax cases and transfer pricing disputes.” Id. Microsoft also 3 engaged KPMG “to assist with tax advice.” Id.; Dkt. #144 at ¶ 20 (noting that Mr. “Boyle, a 4 lawyer, made plain that he was hiring KPMG to also help Microsoft prepare its defense to the 5 IRS’s challenge”). But Microsoft gives no indication that KPMG would represent it in the
6 anticipated litigation or that its apparent litigation counsel—Baker & McKenzie—directed 7 KPMG to create any documents necessary to an eventual litigation defense or for use at trial. 8 Torf, 357 F.3d at 907 (focusing on fact consultant was hired by attorney representing the party). 9 Rather, Microsoft represents that it was Mr. Boyle who directed KPMG to prepare 10 materials “in anticipation of an administrative dispute or litigation with the IRS over the Puerto 11 Rican cost sharing arrangement, the pricing of the software sales to Microsoft, and other issues 12 expected to be in dispute relating to those transactions.” Dkt. #143 at ¶ 23. That being the case, 13 the Court finds it odd that Microsoft did not protect many of the records it ostensibly created for 14 this very litigation. Dkt. #145 at 23 (noting that “the United States has discovered through this
15 proceeding that the records of several custodians, including [Mr.] Boyle himself, cannot be 16 located”); Dkt. #146 at ¶ 25. Microsoft, wholly anticipating this dispute would have acted 17 prudently in carefully maintaining the documents it created in anticipation of the dispute. 18 Lastly, the Court notes that Microsoft claims “by 2004, [it] was well aware of the IRS 19 challenging numerous companies’ transfer pricing . . . . [and] knew with certainty that 20 Microsoft’s transfer pricing would be under attack by the IRS.” Dkt. #143 at ¶ 15. Nevertheless, 21 Microsoft claimed work product protection for at least 16 documents that were created before 22 2004. Dkt. #141 at 22–24. Microsoft has not provided any other support for affording these 23 documents work product protection. 24 1 B. Attorney-Client Privilege 2 “The attorney-client privilege protects confidential disclosures made by a client to an 3 attorney in order to obtain legal advice . . . as well as an attorney’s advice in response to such 4 disclosures.” Branch v. Umphenour, 936 F.3d 994, 1005–06 (9th Cir. 2019) (citations omitted) 5 (omission in original). However, if a client seeks non-legal advice, for instance business advice,
6 the privilege does not apply. Richey, 632 F.3d at 566. Where communications serve dual legal 7 and business purposes, the court considers whether the “primary purpose” of a communication 8 was related to legal advice. Phillips v. C.R. Bard, Inc., 290 F.R.D. 615, 628–29 (D. Nev. 2013) 9 (noting trend of limiting Torf’s “because of” standard to the work product context).3 “Because 10 it impedes full and free discovery of the truth, the attorney-client privilege is strictly construed.” 11 United States v. Martin, 278 F.3d 988, 999 (9th Cir. 2002) (quoting Weil v. Inv./Indicators, 12 Research & Mgmt., Inc., 647 F.2d 18, 24 (9th Cir. 1981)). 13 Microsoft maintains that eight of the documents at issue are protected by attorney-client 14 privilege. For all eight, Microsoft maintains that the legal advice is from its in-house attorneys.
15 See Chandola v. Seattle Housing Authority, Case No. C13-557RSM, 2014 WL 4685351, at *3 16 (W.D. Wash. Sept. 19, 2014) (noting necessity for increased scrutiny “where in-house counsel is 17 involved, as they often act in both a legal and non-legal business capacity” and requiring a “clear 18 showing that the speaker made the communication for the purpose of obtaining or providing legal 19 advice”). Two of the documents are responsive to the Designated Summons. See Dkt. #141 at 20 8. The six remaining documents are responsive to Related Summonses 2 and 3. See Dkt. #141 21 at 22–27. Having reviewed the documents at issue, the Court has concluded as follows: 22 23
3 See also Dolby Labs. Licensing Corp. v. Adobe Inc., 402 F. Supp. 3d 855 (N.D. Cal. 2019); In 24 re Premera Blue Cross Customer Data Sec. Breach Litig., 329 F.R.D. 656 (D. Or. 2019). 1 Designated Summons IDR IE-2209 (MSFT Documents)4 2 Document Bates Range: Privileged? Number 13 PMSTP0000027–PMSTP0000028 Partially Privileged 3 4 Document 13 is an email string between Mike Boyle and Steve Ballmer and is not 5 primarily seeking, providing, or relaying legal advice. However, the emails sent on 6 February 11 and 12, 2005, are primarily seeking, providing, or relaying legal advice. 7 Those privileged communications may be redacted from the string of otherwise non- 8 privileged communications. See Panattoni Const., Inc. v. Travelers Prop. Cas. Co. of 9 Am., Case No. C11-1195RSM, 2012 WL 6567141, at *2 (W.D. Wash. Dec. 14, 2012) 10 (requiring redaction of privileged communication from email string). 11 Document Bates Range: Privileged? Number 25 PMSTP0000015–PMSTP0000016 Yes 12 13 Document 25 is an email string discussing legal issues and primarily seeking, 14 providing, or relaying legal advice. 15 16 17 18 19 20 21 22 23
4 Referenced documents are identified in Microsoft’s privilege log for IDR IE-2209. See Dkt. 24 #141 at 8. 1 Related Summonses 2 & 35 Document Bates Range: Privileged? 2 Number 43 MSTP9011488–MSTP9011490 No
3 Document 43 is an email string discussing the legal structure of several Microsoft 4 entities. To the extent the communications are seeking, providing, or relaying legal 5 advice, they serve primarily a business purpose. Further, there is indication that the 6 information was to be shared instead of maintained confidentially. 7 Document Bates Range: Privileged? 8 Number 607 MSTP9001268–MSTP9001280 No
9 Document 607 is an email attaching slides for a presentation. Microsoft fails to 10 establish what, if any, information reflects “legal advice rendered by Kevin Fay.” 11 Further, and to the extent the documents are seeking, providing, or relaying legal 12 advice, they primarily serve a business purpose. 13 Document Bates Range: Privileged? 14 Number 736 MSTP9000904–MSTP9000916 No
15 Document 736 is an email attaching slides for a presentation that appear identical to 16 those of Document 607 and are not privileged for the same reasons. Additionally, the 17 email conveying the slides represent the slides as “[t]he numbers we showed to 18 Johncon,” further indicating that the document served a primarily business purpose. 19 20 21 22 23
5 Referenced documents are identified in Microsoft’s privilege log for Related Summonses 2 24 & 3. See Dkt. #141 at 22–27. 1 Document Bates Range: Privileged? Number 870 MSTP9013961–MSTP9013963 No 2 3 Document 870 is an email string that Microsoft asserts is privileged because if reflects 4 “legal advice from Brad DelMatto (Microsoft) regarding Puerto Rico tax grant.” Dkt. 5 #141 at 26. Microsoft fails to establish what, if any, information reflects “legal advice 6 from Brad DelMatto.” To the extent the documents are seeking, providing, or relaying 7 legal advice, they primarily serve a business purpose. Further, the document indicates 8 that the information may have been shared with third parties or not maintained 9 confidentiality. 10 Document Bates Range: Privileged? Number 881 MSTP9014965–MSTP9015024 Partially Privileged 11 12 Document 881 contains two planning documents, a reorganization “step plan” and a 13 “Step Plan and Illustrative Flow of Funds.” Following review, the Court finds that 14 MSTP9014965-MSTP9015022 is privileged as its primarily purpose is seeking, 15 providing, or relaying legal advice. The Court finds that MSTP9015023 and 16 MSTP9015024, a native 28 page excel file, are not privileged as, to the extent they are 17 seeking, providing, or relaying legal advice, they primarily serve a business purpose. 18 19 20 21 22 23 24 1 Document Bates Range: Privileged? Number 882 MSTP9007983–MSTP9007995 No 2 3 Document 882 is an email attaching two draft agreements, one reflecting a modification 4 by a Joseph Tyrrell, PricewaterhouseCoopers LLP accountant—a non-attorney third 5 party. Microsoft does not establish what, if any, information in the email is seeking, 6 providing, or relaying legal advice. To the extent the documents are seeking, providing, 7 or relaying legal advice, they primarily serve a business purpose. 8 9 C. Tax Practitioner-Client Privilege 10 The crux of this case is the applicability of the federally authorized tax practitioner 11 (“FATP”) privilege, which Microsoft claims for 164 of 174 documents. That privilege applies 12 to the communication of tax advice between a taxpayer and a “federally authorized tax 13 practitioner to the extent the communication would be considered privileged communication if 14 it were between a taxpayer and an attorney.” 26 U.S.C. § 7525(a)(1). But section 7525 does not
15 suggest “that nonlawyer practitioners are entitled to privilege when they are doing other than 16 lawyers’ work.” United States v. McEligot, No. 14-CV-05383-JST, 2015 WL 1535695, at *5 17 (N.D. Cal. Apr. 6, 2015) (quoting United States v. Frederick, 182 F.3d 496, 502 (7th Cir.1999)). 18 Equivalently, communications made primarily to assist in implementing a business transaction 19 are not protected by the tax practitioner privilege. See ChevronTexaco Corp., 241 F. Supp. 2d at 20 1076–78 (treating FATP privilege congruently with the attorney-client privilege). Rather, and 21 as with the attorney-client privilege, the primary purpose of the communication must be the 22 provision of tax/legal advice. 23 The Court’s conclusions as to the documents identified in Microsoft’s privilege logs are 24 set forth in Attachments A-D of this order. In general, where the Court has determined that a 1 document is privileged pursuant to section 7525, the Court has concluded that the document’s 2 primary purpose was to seek, provide, or relay tax/legal advice of a FATP. In general, where the 3 Court has determined a document is not privileged pursuant to section 7525, the Court has 4 concluded that to the extent the document seeks, provides, or relays tax/legal advice of a FATP, 5 that is not the document’s primary purpose. The Court includes further or additional explanation
6 where appropriate. 7 The Court’s consideration is inherently messy. See Valero Energy Corp. v. United States, 8 569 F.3d 626, 630 (7th Cir. 2009) (“Admittedly, the line between a lawyer’s work and that of an 9 accountant can be blurry, especially when it involves a large corporation like Valero seeking 10 advice from a broad-based accounting firm like Arthur Anderson.”). The parties’ broad 11 arguments are often of little help in the consideration of individual documents. Likewise, the 12 limited record before the Court makes it difficult to place each individual record—spanning 13 several years—in its proper context. But the Court also remains mindful that “it is nevertheless 14 the burden of the withholding party to demonstrate that the ‘primary purpose’ was the rendering
15 of legal advice on a document-by-document basis.” Phillips, 290 F.R.D. 615, 631 (D. Nev. 2013) 16 (citing In re Vioxx Prod. Liab. Litig., 501 F. Supp. 2d 789, 801 (E.D. La. 2007)). The Court 17 accordingly notes several considerations that have guided its analysis. 18 The Court was not greatly influenced by the government’s argument—supported by 19 several contemporaneous documents—that KPMG itself represented that it “was not providing 20 legal advice to Microsoft.” Dkt. #145 at 18 (citing to instances). This is too broad a 21 characterization to attribute to the general limitations KPMG placed on its advice. KPMG’s 22 consideration of the complex transactions from the tax perspective obviously did not obviate the 23 need for Microsoft to consider the transactions from additional legal perspectives. The Court has 24 1 not placed undue weight on KPMG’s admonition that Microsoft should pursue the advice of 2 additional specialists. 3 But the Court also is not persuaded by Microsoft’s conclusory argument, supported only 4 by counsel’s declaration, that KPMG provided only tax advice, “not business or non-legal 5 advice.” Dkt. #140 at 19 (citing Dkt. # 141 at ¶¶ 13–14); Dolby Labs. Licensing Corp. v. Adobe
6 Inc., 402 F. Supp. 3d 855, 866 (N.D. Cal. 2019) (“A vague declaration that states only that the 7 document ‘reflects’ an attorney’s advice is insufficient to demonstrate that the document should 8 be found privileged.”) (quoting Hynix Semiconductor Inc. v. Rambus Inc., No. 00-cv-20905- 9 RMW, 2008 WL 350641, at *3 (N.D. Cal. Feb. 2, 2008)). The nature of the advice was no doubt 10 constantly shifting. ChevronTexaco, 241 F. Supp. 2d at 1069 (noting that counsel provided legal 11 advice, assisted with implementation, and addressed legal issues that arose during 12 implementation). The Court’s consideration required more nuance as numerous legal, tax, 13 accounting, and business issues likely arose during Microsoft’s and KPMG’s extended 14 consideration of the complex transactions.6 Dkt. #140 at 28.
15 KPMG of course needed details of Microsoft’s operations to provide competent advice. 16 But this does not mean that that every fact disclosed to KPMG was in furtherance of obtaining 17 legal advice or that all advice primarily served a legal purpose. Dkt. #140 at 13 (Microsoft 18 highlighting KPMG’s need for factual detail “[t]o advise on all of these complex tax issues”). 19 Nor does it mean that all “business” documents lacked any legal analysis or were not premised 20
21 6 The possible exception is for documents conveying the advice of Joseph Tyrrell, an accountant for PriceWaterhouseCoopers LLP. The Government argues that Mr. Tyrrell was retained to 22 provide “accounting or financial services and not privileged advice.” Dkt. #145 at 12 n.6. On reply, Microsoft does not contest this characterization and makes no particularized showing as 23 to Mr. Tyrrell’s status. On this concession and in accord with the record, the Court finds that any advice provided by Mr. Tyrrell is not protected by the FATP privilege. Further, to the extent any 24 of the advice was privileged, it primarily served a business purpose. 1 on legal advice. Dkt. #145 at 13 (government indicating it seeks “documents addressing 2 transactional implementation, business advice, accounting advice, contract drafting and pricing 3 documents, and business structuring recommendations”). The Court’s consideration was not so 4 mechanical. Valero, 569 F.3d at 631 (legal analysis included “part and parcel with accounting 5 advice” is not entitled to privilege).
6 The Court therefore found it necessary to broadly consider the history of the project. 7 Certainly, the Court agrees with Microsoft that “[t]he fact that tax issues have commercial 8 consequences does not make them any less legal issues.” Dkt. #140 at 20 (citing Schaeffler v. 9 United States, 806 F.3d 34, 41 (2nd Cir. 2015) (tax issue was “a legal problem albeit with 10 commercial consequences” and the fact that large sums of money were at stake “does not render 11 those legal issues ‘commercial’”)). But similarly, Microsoft cannot expand its privileges and 12 protections merely because it has pursued business transactions requiring ongoing and complex 13 tax, legal, and business advice. Phillips, 290 F.R.D. at 630–31 (noting that highly regulated 14 industries cannot claim that all communications with counsel are privileged because of tangential
15 legal concerns). With little guidance outside of the extremes, the Court’s consideration of 16 individual documents sought to apply principles consistently throughout the course of these 17 complex and ever evolving transactions. 18 D. Tax Shelter Exception 19 Irrespective of whether individual documents are protected by the FATP privilege, the 20 government argues that the privilege does not apply here as the activities fall within the tax shelter 21 exception to the FATP privilege. By statute, the FATP privilege does not apply to written 22 communications “in connection with the promotion of the direct or indirect participation of the 23 person in any tax shelter (as defined in section 6662(d)(2)(C)(ii)).” 26 U.S.C. § 7525(b). In turn, 24 a “tax shelter” is defined to include any partnership, entity, plan, or arrangement “if a significant 1 purpose of such partnership, entity, plan, or arrangement is the avoidance or evasion of Federal 2 income tax.” 26 U.S.C. § 6662(d)(2)(C)(ii). 3 Following the Court’s review, the Court finds itself unable to escape the conclusion that 4 a significant purpose, if not the sole purpose, of Microsoft’s transactions was to avoid or evade 5 federal income tax. The government argues persuasively that the transactions served a primary
6 purpose of shifting taxable revenue out of the United States. Microsoft has not advanced any 7 other business purpose driving the transactions and one does not materialize from the record. 8 The only explanation Microsoft attempts is that it entered the cost sharing arrangements to 9 replace annual disputes over its licensing and royalty scheme. But this is not a reason for why 10 Microsoft needed or wanted this arrangement for business purposes. Instead, Microsoft noted 11 favorably that the transaction “should NOT have much impact on how we serve customers” and 12 that, while operational expenses were expected to increase by “$50 million over 10 years,” it 13 would result in “tax savings of nearly $5 billion over 10 years.” PMSTP0000028. With no real 14 impact on how customers were served, the tax savings appears to have driven the decision-
15 making process. Valero, 569 F.3d at 629 (expressing skepticism that “rigamarole” of 16 transactions was necessary restructuring rather than attempt to “avoid paying taxes”). 17 The Court is further left to conclude, after reviewing the records in camera, that all the 18 documents created by KPMG “promoted” the transactions. Other than the unadorned testimony 19 of Mr. Weaver and Mr. Boyle, Microsoft and the record provide no indication that the plans for 20 the transactions originated with Microsoft. Even where testimony is sparse on particulars, the 21 Court does not set it aside lightly. But the record before the Court leads to the conclusion that 22 KPMG originated and drove the structuring of the transactions and that but for its promotion, 23 Microsoft may not have pursued the same or similar transactions. Thereafter, and in furtherance 24 of the transactions, KPMG continued to address possible roadblocks and continued to tweak the 1 transactions to maximize—as far as possible—the revenue shifted while minimizing any 2 operational effects of the restructuring. KPMG’s advice did not, as Microsoft argues, “merely 3 inform a company about such schemes, assess such plans in a neutral fashion, or evaluate the soft 4 spots in tax shelters that [Microsoft] has used in the past.” Dkt. #177-1 at 10 (quoting Valero, 5 569 F.3d at 629) (quotation marks omitted).
6 The obvious protest—and the one that both Microsoft and KPMG raise—is that any 7 adverse ruling by the Court will destroy the FATP privilege. First, Microsoft argues that the 8 transactions at issue were not tax shelters because they were just ordinary and accepted tax 9 structuring. Id. at 8–9; Dkt. #160 at 2. After all, “virtually any taxpayer who seeks tax advice 10 from an accounting firm is looking for ways to minimize his taxes or for assurance that he is 11 complying with the tax law.” Doe v. KPMG, L.L.P., 325 F. Supp. 2d 746 (N.D. Tex. 2004) 12 (quotation marks omitted). But the tax shelter exception turns, at least partly, on the purpose for 13 the transaction. See 26 U.S.C. § 6662(d)(2)(C)(ii). A tax structure may be a permissible method 14 to achieve a legitimate business purpose in one context and an impermissible tax shelter in
15 another. Valero, 569 F.3d at 632 (noting that “[o]nly plans and arrangements with a significant— 16 as opposed to an ancillary—goal of avoiding or evading taxes count” as tax shelters). The 17 Court’s reading is true to the statutory language and does not eliminate the privilege. 18 The Court also is not convinced that its common sense reading of “promotion” conflicts 19 with the statutory privilege. Microsoft relies on Tax Court opinions to argue that Congress did 20 not intend to implicate the “routine relationship between a tax practitioner and a client.” Dkt. 21 #177-1 at 9–10 (citing Countryside Ltd. P’ship v. Comm’r, 132 T.C. 347, 352 (2009); 106 Ltd. 22 v. Comm’r, 136 TC 67, 80 (2011)). From this, Microsoft puts great emphasis on the Tax Court’s 23 conclusion in Countryside that a “FATP was not a promoter, because he ‘rendered advice when 24 asked for it; he counseled within his field of expertise; his tenure as an adviser to the [client] was 1 long; and he retained no stake in his advice beyond his employer’s right to bill hourly for his 2 time.” Dkt. #177-1 at 10–11 (quoting Countryside, 132 T.C. at 354–55). But each case will 3 necessarily turn on its own facts. The Court does not read Countryside as setting forth a static 4 test, but as listing relevant considerations for that case. The existence of a routine relationship 5 between a FATP and a taxpayer is certainly a relevant consideration but should not extend the
6 privilege into the impermissible promotion of tax shelters. 7 In this regard, the Court finds the reasoning of the Seventh Circuit Court of Appeals in 8 United States v. BDO Seidman, LLP instructive. 492 F.3d 806, 822 (7th Cir. 2007). There the 9 court noted the similarities between the crime-fraud exception to the attorney-client privilege and 10 the tax shelter exception to the tax practitioner privilege. Id. In the crime-fraud context, the 11 Supreme Court has indicated that the need for privilege falls away “where the desired advice 12 refers not to prior wrongdoing, but to future wrongdoing.” Id. (quoting United States v. Zolin, 13 491 U.S. 554, 563 (1989) (emphasis in original)) (quotation marks and citation omitted). 14 Similarly, the Seventh Circuit viewed the tax shelter exception as vitiating the FATP privilege
15 once the privilege no longer served the goals of assuring full disclosure to counsel and 16 compliance with the law.7 Id. 17 This reasoning guides the Court’s determination that KPMG strayed into promotion of a 18 tax shelter. As noted previously, the transactions did not appear necessary to satisfy Microsoft’s 19 20
7 Notably, in this regard, this is not an area that Microsoft was required to explore. Consistent 21 with the attorney-client privilege, the FATP privilege’s “purpose is to encourage full and frank communication between [FATPs] and their clients and thereby promote broader public interests 22 in the observance of law and administration of justice.” Upjohn Co. v. United States, 449 U.S. 383, 389 (1981). Microsoft was not forced to take this position because of its business needs, 23 but rather was strategically positioning itself for a dispute it sought out. KPMG and Microsoft created the legal issue of their own accord and should not gain greater protection merely because 24 they chose to pursue a legally precarious transaction. 1 operational needs.8 KPMG did far more than flesh out or tweak Microsoft’s preliminary plans 2 where its expertise reasonably permitted it to do so. KPMG worked to make the transaction fit 3 both Microsoft’s existing operations and the relevant tax laws—a task that appeared, at times, to 4 create internal strife.9 But it did so only to promote Microsoft’s avoidance of tax liability and 5 the Court concludes that all of KPMG’s written communications were “in connection with
6 promotion” of a tax shelter. 26 U.S.C. § 7525(b). 7 The Court finds that this outcome also serves the public interest. “Our system of federal 8 taxation relies on self-reporting and the taxpayer’s forthright disclosure of information.” Valero, 9 569 F.3d at 633. “The practical problems confronting the IRS in discovering under-reporting of 10 corporate taxes, which is likely endemic, are serious.” United States v. Textron Inc. and 11 Subsidiaries, 577 F.3d 21, 31 (1st Cir. 2009). “The government’s power to compel disclosure of 12 relevant information is the flip side of” of self-reporting. Valero, 569 F.3d at 633. While 13 Congress has provided for certain communications to be treated as privileged, the privilege is not 14 absolute. Where, as here, a FATP’s advice strays from compliance and consequences to
15 promotion of tax shelters, the privilege falls away. 16 Lastly, the Court acknowledges that the record before the Court is limited. The Court’s 17 conclusions should not be overstated and is in no manner a consideration of the final merits of 18 this tax dispute. Id. at 634 (noting limited scope of opinion as the government was merely 19 seeking information and not yet lodging accusations). The record that is before the Court, 20 21
8 See MSTP9007983-MSTP9007995 (Microsoft identifying an after-the-fact business purpose 22 for the transaction but still expressing concern over whether arm’s length parties would enter into such an agreement). 23
9 See ESI0023474 (KPMG struggling internally to identify good faith legal arguments and 24 agreeing that its advice to Microsoft was supportable). 1 however, leads to the conclusion that the government should be afforded additional information 2 as to the nature of the transactions at issue. 3 IV. CONCLUSION 4 Having reviewed the relevant briefing, the documents provided for in camera review, and 5 the remainder of the record, the Court hereby finds and ORDERS:
6 1. Microsoft Corporation shall provide the documents still in dispute in accordance with the 7 Court’s Order within seven (7) days. 8 2. This matter is now CLOSED. 9 DATED this 17th day of January 2020. 10 A 11 RICARDO S. MARTINEZ 12 CHIEF UNITED STATES DISTRICT JUDGE
16 17 18 19 20 21 22 23 24 Case 2:15-cv-00102-RSM Document 187 Filed 01/17/20 Page 21 of 41
Attachment A
Designated Summons* IDR IE-2209 (MSFT Documents) Doc. Number Bates Range Privileged under § 7525? Additional Explanation Disclose? 4 PMSTP0000036- Partially Privileged To the extent the document is seeking, Partially PMSTP0000058 providing, or relaying tax/legal advice from a FATP, it primarily serves a business purpose. However, the page bates stamped PMSTP0000046 is privileged, as it is primarily seeking, providing, or relaying tax/legal advice from a FATP, and may be redacted. 13 PMSTP0000027- Not Privileged Microsoft does not establish what, if any, advice Yes PMSTP0000028 from a FATP was involved. 16 PMSTP0000029- Not Privileged Microsoft does not establish what, if any, advice Yes PMSTP0000037 from a FATP was involved. 18 PMSTP0000017- Not Privileged Microsoft does not establish what, if any, advice Yes PMSTP0000025 from a FATP was involved. 25
* Referenced documents are identified in Microsoft’s privilege log for IDR IE-2209. See Dkt. #141 at 8. ORDER – 21 Case 2:15-cv-00102-RSM Document 187 Filed 01/17/20 Page 22 of 41
Attachment B
KPMG Central Files Privilege Log† Doc. Number Bates Range Privileged under § 7525? Additional Explanation Disclose? 11 Microsoft 0000132– Privileged. Tax Shelter Exception Applies Yes Microsoft 0000144 13 Microsoft 0000103– Not Privileged. To the extent the document is seeking, Yes Microsoft 0000126 providing, or relaying tax/legal advice from a FATP, it primarily serves a business purpose. 15 Microsoft 0000130– Privileged. Tax Shelter Exception Applies Yes Microsoft 0000131 24 Microsoft 0000253– Privileged. Tax Shelter Exception Applies Yes Microsoft 0000255 25 ESI0000181– Privileged. Tax Shelter Exception Applies Yes ESI0000181_20 26 Microsoft 0001831– Privileged. Tax Shelter Exception Applies Yes Microsoft 0001850 27 Microsoft 0003928– Privileged. Tax Shelter Exception Applies Yes Microsoft 0003951
† Referenced documents are identified in Microsoft’s privilege log for KPMG Central Files. See Dkt. #141 at 10. ORDER – 22 Case 2:15-cv-00102-RSM Document 187 Filed 01/17/20 Page 23 of 41
28 Microsoft 0000128– Privileged. Tax Shelter Exception Applies Yes Microsoft 0000129 29 ESI0000191– Privileged. Tax Shelter Exception Applies Yes ESI0000191_22
ORDER – 23 Case 2:15-cv-00102-RSM Document 187 Filed 01/17/20 Page 24 of 41
Attachment C
KPMG Personal Files Privilege Log‡ Doc. Number Bates Range Privileged under § 7525? Additional Explanation Disclose? 141 ESI0102078- Privileged Tax Shelter Exception Applies Yes ESI0102078_4 242 ESI0075521 Not Privileged Yes 243 ESI0075522- Not Privileged Yes ESI0075522_35 285 ESI0071771- Not Privileged Yes ESI0071771_2 303 ESI0076042- Privileged Tax Shelter Exception Applies Yes ESI0076042_3 311 ESI0073078- Privileged Tax Shelter Exception Applies Yes ESI0073078_4 434 ESI0075679 Privileged Tax Shelter Exception Applies Yes 435 ESI0075680- Privileged Tax Shelter Exception Applies Yes ESI0075680_7 436 ESI0022547- Privileged Tax Shelter Exception Applies Yes ESI0022547_8
‡ Referenced documents are identified in Microsoft’s privilege log for KPMG Personal Files. See Dkt. #141 at 12–20. ORDER – 24 Case 2:15-cv-00102-RSM Document 187 Filed 01/17/20 Page 25 of 41
437 ESI0022548- Privileged Tax Shelter Exception Applies Yes ESI0022548_11 451 ESI0022549- Privileged Tax Shelter Exception Applies Yes ESI0022549_12 452 ESI0022550- Privileged Tax Shelter Exception Applies Yes ESI0022550_13 453 ESI0022551- Privileged Tax Shelter Exception Applies Yes ESI0022551_12 461 ESI0023530- Privileged Tax Shelter Exception Applies Yes ESI0023530_11 479 ESI0022552- Privileged Tax Shelter Exception Applies Yes ESI0022552_14 480 ESI0022584- Privileged Tax Shelter Exception Applies Yes ESI0022584_2 501 ESI0073823- Privileged Tax Shelter Exception Applies Yes ESI0073823_2 580 ESI0072383 Privileged Tax Shelter Exception Applies Yes 581 ESI0072384- Privileged Tax Shelter Exception Applies Yes ESI0072384_13 582 ESI0072385- Privileged Tax Shelter Exception Applies Yes ESI0072385_2 ORDER – 25 Case 2:15-cv-00102-RSM Document 187 Filed 01/17/20 Page 26 of 41
583 ESI0072386- Privileged Tax Shelter Exception Applies Yes ESI0072386_13 584 ESI0075851- Privileged Tax Shelter Exception Applies Yes ESI0075851_2 585 ESI0075852- Privileged Tax Shelter Exception Applies Yes ESI0075852_13 586 ESI0075853 Privileged Tax Shelter Exception Applies Yes 587 ESI0075854- Privileged Tax Shelter Exception Applies Yes ESI0075854_13 592 ESI0022583 Privileged Tax Shelter Exception Applies Yes 671 ESI0072283 Privileged Tax Shelter Exception Applies Yes 672 ESI0072284- Privileged Tax Shelter Exception Applies Yes ESI0072284_12 680 ESI0022709- Privileged Tax Shelter Exception Applies Yes ESI0022709_2 681 ESI0022710- Privileged Tax Shelter Exception Applies Yes ESI0022710_2 691 ESI0022444 Privileged Tax Shelter Exception Applies Yes 694 ESI0022711- Privileged Tax Shelter Exception Applies Yes ESI0022711_2 ORDER – 26 Case 2:15-cv-00102-RSM Document 187 Filed 01/17/20 Page 27 of 41
695 ESI0022865- Privileged Tax Shelter Exception Applies Yes ESI0022865_2 696 ESI0022866- Privileged Tax Shelter Exception Applies Yes ESI0022866_12 697 ESI0023481- Privileged Tax Shelter Exception Applies Yes ESI0023481_3 700 ESI0023486- Privileged Tax Shelter Exception Applies Yes ESI0023486_3 710 ESI0073098- Privileged Tax Shelter Exception Applies Yes ESI0073098_3 742 ESI0103221- Privileged Tax Shelter Exception Applies Yes ESI0103221_11 743 ESI0103222 Not Privileged Yes 744 ESI0103223- Privileged Tax Shelter Exception Applies Yes ESI0103223_11 746 ESI0075770 Privileged Tax Shelter Exception Applies Yes 747 ESI0075771- Privileged Tax Shelter Exception Applies Yes ESI0075771_13 782 ESI0073099 Not Privileged Li, Lei is not a FATP. Yes Microsoft does not establish what, if any, advice from a FATP is involved. ORDER – 27 Case 2:15-cv-00102-RSM Document 187 Filed 01/17/20 Page 28 of 41
846 ESI0075671 Not Privileged Yes 847 ESI0075672- Not Privileged Microsoft does not establish how, if at all, this Yes ESI0075672_10 document related to advice it received from a FATP. Rather, it appears to be a case study for internal discussion. 875 ESI0023474- Privileged Tax Shelter Exception Applies Yes ESI0023474_2 876 ESI0023475- Privileged Tax Shelter Exception Applies Yes ESI0023475_25 897 ESI0115353- Privileged Tax Shelter Exception Applies Yes ESI0115353_4 898 ESI0115354- Privileged Tax Shelter Exception Applies Yes ESI0115354_28 899 ESI0115355- Privileged Tax Shelter Exception Applies Yes ESI0115355_2 909 ESI0115356- Privileged Tax Shelter Exception Applies Yes ESI0115356_3 910 ESI0115357- Privileged Tax Shelter Exception Applies Yes ESI0115357_30 911 ESI0023562- Privileged Tax Shelter Exception Applies Yes ESI0023562_4 ORDER – 28 Case 2:15-cv-00102-RSM Document 187 Filed 01/17/20 Page 29 of 41
964 ESI0074922- Privileged Tax Shelter Exception Applies Yes ESI0074922_4 974 ESI0016472- Privileged Tax Shelter Exception Applies Yes ESI0016472_5 975 ESI0016473- Privileged Tax Shelter Exception Applies Yes ESI0016473_25 1078 ESI0070901 Privileged Tax Shelter Exception Applies Yes 1101 ESI0070733 Privileged Tax Shelter Exception Applies Yes 1102 ESI0070734- Privileged Tax Shelter Exception Applies Yes ESI0070734_14 1103 ESI0070735- Privileged Tax Shelter Exception Applies Yes ESI0070735_11 1104 ESI0070736- Privileged Tax Shelter Exception Applies Yes ESI0070736_25 1193 ESI0023457- Privileged Tax Shelter Exception Applies Yes ESI0023457_3 1326 ESI0101879 Privileged Tax Shelter Exception Applies Yes 1327 ESI0101880- Privileged Tax Shelter Exception Applies Yes ESI0101880_2 1328 ESI0077106- Privileged Tax Shelter Exception Applies Yes ESI0077106_13 ORDER – 29 Case 2:15-cv-00102-RSM Document 187 Filed 01/17/20 Page 30 of 41
1329 ESI0066748 Privileged Tax Shelter Exception Applies Yes 1330 ESI0066749- Privileged Tax Shelter Exception Applies Yes ESI0066749_13 1331 ESI0066750 Privileged Tax Shelter Exception Applies Yes 1332 ESI0066751- Privileged Tax Shelter Exception Applies Yes ESI0066751_19 1337 ESI0023506 Privileged Tax Shelter Exception Applies Yes 1338 ESI0023507- Privileged Tax Shelter Exception Applies Yes ESI0023507_2 1339 ESI0023508- Privileged Tax Shelter Exception Applies Yes ESI0023508_3 1352 ESI0023625 Privileged Tax Shelter Exception Applies Yes 1353 ESI0023626- Privileged Tax Shelter Exception Applies Yes ESI0023626_22 1360 ESI0067194 Privileged Tax Shelter Exception Applies Yes 1361 ESI0067195- Privileged Tax Shelter Exception Applies Yes ESI0067195_22 1364 ESI0070655 Privileged Tax Shelter Exception Applies Yes 1365 ESI0070656- Privileged Tax Shelter Exception Applies Yes ESI0070656_22 ORDER – 30 Case 2:15-cv-00102-RSM Document 187 Filed 01/17/20 Page 31 of 41
1383 ESI0070862 Privileged Tax Shelter Exception Applies Yes 1384 ESI0070863- Privileged Tax Shelter Exception Applies Yes ESI0070863_22 1407 ESI0023509- Privileged Tax Shelter Exception Applies Yes ESI0023509_2 1433 ESI0065442 Privileged Tax Shelter Exception Applies Yes 1434 ESI0065443- Privileged Tax Shelter Exception Applies Yes ESI0065443_20 1476 ESI0023569- Privileged Tax Shelter Exception Applies Yes ESI0023569_3 1477 ESI0023570 Privileged Tax Shelter Exception Applies Yes 1485 ESI0092050- Privileged Tax Shelter Exception Applies Yes ESI0092050_3 1486 ESI0092051 Privileged Tax Shelter Exception Applies Yes 1492 ESI0092047- Privileged Tax Shelter Exception Applies Yes ESI0092047_4 1497 ESI0066300- Privileged Tax Shelter Exception Applies Yes ESI0066300_5 1503 ESI0065490- Privileged Tax Shelter Exception Applies Yes ESI0065490_4 ORDER – 31 Case 2:15-cv-00102-RSM Document 187 Filed 01/17/20 Page 32 of 41
1524 ESI0092092 Privileged Tax Shelter Exception Applies Yes 1553 ESI0065557- Not Privileged Microsoft does not establish how, if at all, this Yes ESI0065557_3 document related to advice it received from a FATP. 1554 ESI0065558- Not Privileged Yes ESI0065558_3 1555 ESI0065559- Not Privileged Yes ESI0065559_2 1556 ESI0065560 Not Privileged Yes 1557 ESI0065561- Not Privileged Yes ESI0065561_22 1558 ESI0065562- Not Privileged The government argues that Van Orman’s work Yes ESI0065562_46 related to creating a “process narrative” of the foreign entity’s business and accounting operation. See Dkt. #145 at 13. Microsoft does not contest the allegation. 1559 ESI0065563- Not Privileged Yes ESI0065563_39 1613 ESI0070332- Not Privileged Appears related to billing as opposed to advice Yes ESI0070332_3 of a FATP. ORDER – 32 Case 2:15-cv-00102-RSM Document 187 Filed 01/17/20 Page 33 of 41
1614 ESI0070334- Privileged Tax Shelter Exception Applies Yes ESI0070334_18 1618 ESI0065154- Not Privileged Relates to creation of slides for a presentation to Yes ESI0065154_2 “release lab operations people” 1621 ESI0023520- Not Privileged Yes ESI0023520_2 1622 ESI0023521 Not Privileged Yes 1625 ESI0065172- Not Privileged Relates to creation of slides for a presentation to Yes ESI0065172_3 “release lab operations people” 1626 ESI0065173 Not Privileged Yes 1627 ESI0065174- Not Privileged Yes ESI0065174_6 1630 ESI0065129- Privileged Tax Shelter Exception Applies Yes ESI0065129_4 1632 ESI0065131- Privileged Tax Shelter Exception Applies Yes ESI0065131_3 1638 ESI0067817- Privileged Tax Shelter Exception Applies Yes ESI0067817_2 1639 ESI0067818- Privileged Tax Shelter Exception Applies Yes ESI0067818_2 ORDER – 33 Case 2:15-cv-00102-RSM Document 187 Filed 01/17/20 Page 34 of 41
1641 ESI0065125- Privileged Tax Shelter Exception Applies Yes ESI0065125_5 1642 ESI0065126- Privileged Tax Shelter Exception Applies Yes ESI0065126_4 1647 ESI0066663- Privileged Tax Shelter Exception Applies Yes ESI0066663_5 1648 ESI0066665- Privileged Tax Shelter Exception Applies Yes ESI0066665_4 1650 ESI0065122 Privileged Tax Shelter Exception Applies Yes 1651 ESI0065225- Privileged Tax Shelter Exception Applies Yes ESI0065225_2 1660 ESI0101619 Privileged Tax Shelter Exception Applies Yes 1661 ESI0101620- Privileged Tax Shelter Exception Applies Yes ESI0101620_16 1676 ESI0066978 Not Privileged Yes 1677 ESI0066979- Privileged Tax Shelter Exception Applies Yes ESI0066979_19 1678 ESI0070794 Not Privileged Yes 1679 ESI0070795- Privileged Tax Shelter Exception Applies Yes ESI0070795_19 ORDER – 34 Case 2:15-cv-00102-RSM Document 187 Filed 01/17/20 Page 35 of 41
1775 ESI0070999 Not Privileged Yes 1776 ESI0023432 Not Privileged Yes 1779 ESI0023435- Privileged Tax Shelter Exception Applies Yes ESI0023435_20 1787 ESI0067061- Privileged Tax Shelter Exception Applies Yes ESI0067061_4 1792 ESI0023431- Privileged Tax Shelter Exception Applies Yes ESI0023431_4 1795 ESI0070796- Privileged Tax Shelter Exception Applies Yes ESI0070796_3
ORDER – 35 Case 2:15-cv-00102-RSM Document 187 Filed 01/17/20 Page 36 of 41
Attachment D
Related Summonses 2 and 3 Privilege Log§ Doc. Number Bates Range Privileged under § 7525? Additional Explanation Disclose? 19 MSTP9005207- Privileged No MSTP9005208 25 MSTP9003447- Not Privileged FATP is only copied on the initial email. Yes MSTP9003450 Microsoft does not establish what, if any, advice from a FATP was involved. 43 52 MSTP9011632- Not Privileged Unclear who created and received document. Yes MSTP9011641 May be an underlying tax/legal basis, but Microsoft does not establish what, if any, advice from a FATP was involved. 56 MSTP90005180- Not Privileged Even to the extent any portion of this document Yes MSTP9005200 is privileged, it has previously been disclosed to the government. See Dkt. #146-50.
§ Referenced documents are identified in Microsoft’s privilege log for Related Summonses 2 & 3. See Dkt. #141 at 22–27. ORDER – 36 Case 2:15-cv-00102-RSM Document 187 Filed 01/17/20 Page 37 of 41
57 MSTP9013588- Partially Privileged Privileged = MSTP9013589-MSTP9013594. Partially MSTP9013621 Not Privileged = MSTP9013588; MSTP9013595-MSTP9013621. May be an underlying tax/legal basis, but primarily serves a business purpose. 65 MSTP9003243- Not Privileged Microsoft does not establish what, if any, advice Yes MSTP9003255 from a FATP was involved. Much of the document relates to foreign taxation. Document appears related to § 6662 reporting. 77 MSTP9011465- Partially Privileged Privileged = MSTP9011465-MSTP9011469; Partially MSTP9011486 MSTP9011483-MSTP9011486.
Not Privileged = MSTP9011470- MSTP9011482. May be an underlying tax/legal basis, but Microsoft does not establish what, if any, advice from a FATP was involved. 83 MSTP9011301- Privileged No MSTP9011321 ORDER – 37 Case 2:15-cv-00102-RSM Document 187 Filed 01/17/20 Page 38 of 41
157 MSTP9002194- Partially Privileged Privileged = MSTP9002206-MSTP9002212. Partially MSTP9002212 Not Privileged = MSTP9002194- MSTP9002205. Microsoft does not establish what, if any, advice from a FATP was involved. 159 MSTP9001769- Partially Privileged Privileged = MSTP9001807-MSTP9001820; Partially MSTP9001852 MSTP9001846-MSTP9001852.
Not Privileged = MSTP9001769- MSTP9001806; MSTP9001821-MSTP9001845. Microsoft does not establish what, if any, advice from a FATP was involved. Much of the document relates to foreign taxation. 167 234 MSTP9004694- Not Privileged Appears to be slides for a “pitch” meeting and Yes MSTP9004755 to have been shared with both E&Y and KPMG.
ORDER – 38 Case 2:15-cv-00102-RSM Document 187 Filed 01/17/20 Page 39 of 41
271 MSTP14914988- Partially Privileged Privileged = MSTP1491539-MSTP1491547; Partially MSTP1491552 MSTP1491550; MSTP1491552.
Not Privileged = MSTP1491498- MSTP1491538; MSTP1491548-MSTP1491549; MSTP1491551. 369 382 MSTP9003351- Not Privileged Appears to have been shared externally and Yes MSTP9003403 appears related to foreign taxation. 395 MSTP9008197- Privileged No MSTP9008198 496 MSTP9011294- Privileged No MSTP9011300 607 736 792 794 795 ORDER – 39 Case 2:15-cv-00102-RSM Document 187 Filed 01/17/20 Page 40 of 41
802 MSTP9008023- Partially Privileged Privileged = MSTP9008030. Yes MSTP9008042 Not Privileged = MSTP9008023- MSTP9008029; MSTP9008031-MSTP9008042. Tax Shelter Exception Applies 818 MSTP9000068- Privileged Tax Shelter Exception Applies Yes MSTP9000081 845 MSTP9013964- Privileged To the extent this document is privileged, Yes MSTP9013965 privilege has been waived by sharing the document with an outside party (joseph.p.tyrell@pwc.com), primarily serving a business purpose. 852 MSTP9009330- Not Privileged Even to the extent any portion of this document Yes MSTP9009332 is privileged, it has previously been disclosed to the government. See Dkt. #146-54. 864 MSTP9000009- Privileged Tax Shelter Exception Applies Yes MSTP9000010 866 MSTP9008011- Privileged Tax Shelter Exception Applies Yes MSTP9008012 870 881 ORDER – 40 Case 2:15-cv-00102-RSM Document 187 Filed 01/17/20 Page 41 of 41
882 MSTP9007983- Not Privileged Microsoft does not establish what, if any, advice Yes MSTP9007995 from a FATP was involved.
ORDER – 41