United States v. BDO Seidman, LLP

This is the third appeal arising out of an effort by the Internal Revenue Service (“IRS”) to enforce administrative summonses against BDO Seidman, LLP (“BDO”), an accounting firm that allegedly failed to disclose potentially abusive tax shelters that it promoted. See United States v. BDO Seidman, 337 F.3d 802 (7th Cir.2003) (BDO ID; United States v. BDO Seidman, Nos. 02-3914 & 02-3915, 2002 WL 32080709 (7th Cir. Dec.18, 2002) (BDO I). The IRS now appeals the district court’s ruling that sustained BDO’s claim of attorney-client privilege with respect to a memorandum written by one of BDO’s employees. The IRS also appeals a separate ruling that sustained the tax practitioner and/or attorney-client privilege asserted by a number of BDO’s clients (“Intervenors”) with respect to 266 documents. The Intervenors cross-appeal the district court’s ruling that one document, Document A-40, fell within the crime-fraud exception to the attorney-client and/or tax practitioner privilege. For the reasons set for forth in this opin *809 ion, we affirm in part and vacate and remand in part.

I

BACKGROUND

A. The Enforcement Action

In September 2000, the IRS received information suggesting that BDO was promoting potentially abusive tax shelters without complying with the Internal Revenue Code’s (“IRC”) listing requirements for such tax shelters. See 26 U.S.C. §§ 6111(a), 6112(a) (2000); BDO II, 337 F.3d at 806. Potentially abusive tax shelters included those transactions defined as “tax shelters” under § 6111(c) and arrangements identified by regulation as potentially abusive under § 6112(b). 1 Organizers of any potentially abusive tax shelter were required to maintain a list of persons to whom an interest in the shelter was sold. See 26 U.S.C. § 6112(a) (2000). Additionally, organizers and sellers of § 6111(c) tax shelters were required to register the tax shelter with the IRS. See id. § 6111(a). Failure to follow these registration and list-keeping requirements was sanctionable by penalties. See id. §§ 6707, 6708. 2

The IRS commenced a compliance investigation into BDO’s alleged violations. The IRS issued twenty summonses commanding production of documents, testimony relating to the transactions and information on the identity of the clients who had invested in the transactions. BDO II, 337 F.3d at 805-06. When BDO resisted these summonses, the IRS petitioned the United States District Court for the Northern District of Illinois for enforcement. Id. at 806. BDO contended that the summonses could not be enforced because the investigation had no legitimate purpose. It also contended that the summonses were overbroad, issued in bad faith and sought information already in the IRS’ possession. Lastly, BDO submitted that the information sought was irrelevant to the investigation. Id. at 806. BDO further asserted that a number of the documents were protected by the attorney-client privilege, the tax practitioner privilege under 26 U.S.C. § 7525(a) or work product protection. BDO II, 337 F.3d at 806. The district court ruled that the IRS had issued the summonses in good faith and that enforcement would not constitute an abuse of process. It ordered BDO to produce all responsive documents except for those previously listed on privilege logs and submitted to the court by BDO for in camera inspection. Id. at 806-07.

BDO then notified its clients that it intended to produce documents that would reveal their identities to the IRS. In response, a number of clients sought to intervene as of right in order to assert the *810 tax practitioner privilege under 26 U.S.C. § 7525(a). 3 The district court denied the motions to intervene, holding that the tax practitioner privilege would not prevent disclosure of the clients’ names. See BDO II, 337 F.3d at 807. The clients appealed this denial to this court.

On December 18, 2002, we entered an order remanding the case to the district court to permit it to undertake an in camera inspection of the documents for which the would-be anonymous intervenors asserted a privilege. See BDO I, 2002 WL 32080709, at *1. We ordered the district court to make more extensive findings with respect to the claim of tax practitioner privilege for each document, taking into account the totality of the circumstances. Id. After conducting this in camera review, the district court determined that the tax practitioner privilege did not prevent disclosure of the clients’ identities. R.73 at 7-31. The clients again appealed, and we affirmed the district court’s ruling on the question of privilege and its denial of the motions to intervene. BDO II, 337 F.3d at 813.

After our decision affirming the district court’s denial of the anonymous clients’ motion to intervene, the Intervenors sought intervention as of right in order to assert a claim of privilege under the attorney-client privilege, tax practitioner privilege or work product doctrine with respect to 267 documents. The IRS filed a document titled “United States’ Concurrence in Intervenors’ Motions to Intervene and Challenge to Claims of Privilege” in which it argued that the district court should grant the motion, or, in the alternative, deny the claim of privilege. The IRS and the Intervenors also filed a joint motion in which the IRS consented to the intervention and the parties set forth a proposed briefing schedule. On July 15, 2004, the district court granted the Intervenors’ motion.

B. Intervenors’ Claims

The Intervenors asserted attorney-client privilege, tax practitioner privilege or work product protection with respect to 267 documents. The IRS submitted that the documents either were not covered by the tax practitioner privilege under the tax shelter exception found in 26 U.S.C. § 7525(b), as it existed at the time of the communications, or that the documents fell within the crime-fraud exception to both the attorney-client and tax practitioner privileges.

According to the IRS, BDO, in conjunction with other firms, had engaged in the practice of selling prepackaged tax shelters, the sole purpose of which was the unlawful attempt to evade tax liability. The district court determined that the IRS had failed to make a prima facie showing of crime or fraud that. would justify a blanket determination that all of the documents fell within the crime-fraud exception. R.178 at 16. The court noted that, just because the IRS characterized the transactions “as abusive and unlawful cookie cutter tax shelters,” such a characterization did not make them so. Id. at 17. The court added that the question of whether BDO and the Intervenors had violated the IRC was the ultimate issue in the IRS’ investigation and that a finding of fraud based solely on the IRS’ allegations “would place the proverbial ‘Cart before the Horse.’ ” Id. In a footnote, the district court added that, based on these same considerations, it could not hold that the Intervenors or BDO were engaged in tax shelters which would fall within the tax *811 shelter exception to the tax practitioner privilege. Id. at n. 6.

Although the district court was unwilling to apply the crime-fraud exception in blanket fashion, it proceeded to review each document in camera to determine whether individual documents fell within the crime-fraud exception. Id. at 18. In conducting the review, the district court looked to the totality of the circumstances to determine whether there was sufficient evidence of crime or fraud to bring a document within this exception. Id. at 23. To guide this evaluation, the district court identified eight non-exclusive, non-determinative “potential indicators of fraud” which it drew from arguments made by the IRS, from two other cases involving allegedly fraudulent practices by BDO and from an unrelated IRS enforcement action against another accounting firm. R.178 at 23. 4 Based on these cases and other factors that the IRS had submitted were indicative of fraud, the district court arrived at the following eight factors to guide its in camera review of each of the 267 documents:

(1) the marketing of pre-packaged transactions by BDO; (2) the communication by the Intervenors to BDO with the purpose of engaging in a pre-ar-ranged transaction developed by BDO *812 or [a] third party with the sole purpose of reducing taxable income; (3) BDO and/or the Intervenors attempting to conceal the true nature of the transaction; (4) knowledge by BDO, or a situation where BDO should have known, that the Intervenors lacked a legitimate business purpose for entering into the transaction; (5) vaguely worded consulting agreements; (6) failure by BDO to provide services under the consulting agreement yet receipt of payment; (7) mention of the COBRA transaction; and (8) use of boiler-plate documents.

R.178 at 23. The court further noted that the presence of these factors alone would not be sufficient to establish a prima facie case of fraud. See id. at 23-24. Rather, the potential indicators of fraud were intended to serve merely as guideposts. See id. at 24. The ultimate question of whether a prima facie showing of crime or fraud had been made with respect to a particular document was to be determined under the totality of circumstances.

Based on this review, the district court held that, with the exception of Document A-40, the IRS had failed to make a prima facie showing of a crime or fraud. Id. at 24. Thus, the district court upheld the Intervenors’ claim of privilege with respect to 266 of the 267 documents, although it did not specify which privilege (attorney-client or tax practitioner) applied to each document. See id. at 13-14, 29.

After finding prima facie evidence that Document A-40 fell within the crime-fraud exception, the district court permitted the Intervenors to provide an explanation that would negate the evidence of crime or fraud. Id. at 24. The Intervenors provided their explanation to the court and the IRS responded. On May 17, 2005, after finding the Intervenors’ explanation insufficient to rebut the prima facie evidence of crime or fraud, the district court ruled that Document A-40 fell within the crime-fraud exception to the tax practitioner or attorney-client privilege. R.190 at 10.

After the district court issued its final ruling with respect to Document A-40, the Court of Appeals for the Second Circuit reversed the decision of the United States District Court for the Southern District of New York in Denney v. Jenkens & Gilchrist, 340 F.Supp.2d 338 (S.D.N.Y.2004). See Denney v. BDO Seidman, L.L.P., 412 F.3d 58, 66 (2d Cir.2005). The Intervenors moved for reconsideration under Rule 60(b) of the Federal Rules of Civil Procedure, arguing that, because the district court had relied on Denney when establishing the factors that would guide its in camera review of each document, the court should reexamine its earlier ruling. R.210 at 2-3. The district court denied the motion, holding that the Second Circuit’s decision did not affect the controlling law in this case. Id. at 3. The court added that its finding of prima facie evidence of crime or fraud was based on the totality of the circumstances, an inquiry guided, but not controlled, by the eight factors it previously had identified. Id. at 6.

C. BDO’s Privilege Claims

While its clients were seeking to intervene to protect their claims of privilege, BDO asserted its own claims of attorney-client privilege and work product protection with respect to 110 documents. The IRS responded that the documents were neither protected attorney-client communications nor work product, and, even if they were, the documents fell within the crime-fraud exception. R.127 at 2. After conducting an in camera inspection of each document, the district court determined that 103 of the documents were within the attorney-client privilege and that one other document, though not covered by the attorney-client privilege, fell within the work product doctrine. Id. at 3-9. However, *813 the court concluded that six documents, as submitted to the court in redacted form, were not within the attorney-client privilege and ordered their disclosure as so redacted. Id. at 7. Based on the same in camera review, the district court found no evidence that the communications in 104 documents protected by the attorney-client privilege or work product doctrine were made to further a crime or fraud. Id. at 10.

One of the 104 documents that the district court had found to fall within the attorney-client privilege was a memorandum written by Michael Kerekes (“Ker-ekes Memorandum”). Kerekes was a lawyer and partner at BDO. In August 2000, he wrote a memorandum to BDO’s outside counsel, David Dreier, a tax attorney with the law firm of White & Case LLP, requesting legal advice on pending IRS regulations. In January 2001, Donna Guerin, an attorney at the law firm of Jenkens & Gilchrist, received a copy of the memorandum under circumstances that remain the subject of dispute. 5 At the time attorney Guerin received the Kerekes Memorandum, Jenkens & Gilchrist did not represent BDO, but these two entities, one an accounting firm and the other a law firm, serviced jointly clients on the same or related matters. According to attorney Guerin, she received the letter from BDO as input into an opinion letter regarding tax shelters that Jenkens & Gilchrist was preparing for both BDO and their common clients. Although BDO and Jenkens & Gilchrist subsequently were co-defendants in civil litigation, see, e.g., Denney v. Jenkens & Gilchrist, 340 F.Supp.2d 338, there was no litigation pending against BDO or Jenkens & Gilchrist at the time attorney Guerin received the Kerekes Memorandum.

After the district court’s ruling on BDO’s claim of privilege for the 110 documents, the IRS received the Kerekes Memorandum from Jenkens & Gilchrist in response to a subpoena. Upon viewing the memorandum, the IRS requested the court reconsider its privilege ruling with respect to the Kerekes Memorandum. The IRS asserted that the document fell within the crime-fraud exception to the attorney-client privilege or, alternatively, that the privilege had been waived. Based on its prior in camera review of the document, the district court rejected the IRS’ claim that the Kerekes Memorandum fell within the crime-fraud exception. R.180 at 3-4. The court noted that, even though the contents of the Kerekes Memorandum were new to the IRS, they were not new to the court, and it had considered the arguments presented by the IRS in its prior in camera review of the Kerekes Memorandum. The district court further held that disclosure of the Kerekes Memorandum to attorney Guerin did not waive BDO’s claim *814 of privilege because the memorandum related to a common legal interest shared by BDO and Jenkens & Gilchrist and therefore fell within the common interest doctrine. Id. at 6. The district court added that it would reach the same conclusion even if the common interest doctrine did not apply because it had found ample precedent to sustain the privilege as an unintentional disclosure. Id.

II

DISCUSSION

The IRS timely appealed the district court’s ruling with respect to the Kerekes Memorandum. The IRS contends that BDO waived any claim of privilege with respect to the memorandum when it disclosed the document to attorney Guerin. The IRS submits that the common interest doctrine does not apply because the communication was not made in anticipation of litigation. It further contends that the disclosure was voluntary, and, therefore, BDO cannot claim that the privilege is preserved because any disclosure was inadvertent. Alternatively, the IRS contends that the district court erred by not reconsidering its ruling that there was no evidence of crime or fraud in connection with the Kerekes Memorandum after it found such evidence with respect to Document A-40.

The IRS also appeals the district court’s ruling that the tax shelter exception to the tax practitioner privilege, 26 U.S.C. § 7525(b) (2000), does not apply to the 267 documents for which the Intervenors claimed the privilege. The IRS contends that the burden was on the Intervenors to prove that the tax shelter exception did not apply, a burden the IRS claims the Intervenors did not meet.

The Intervenors cross-appeal the district court’s finding of prima facie evidence of crime or fraud with respect to Document A-40. The Intervenors submit that the district court’s finding was in error because the IRS failed to make a prima facie showing of each element of a particular crime or common law fraud.

A. The Kerekes Memorandum

We first shall address whether the district court erred in sustaining BDO’s claim of attorney-client privilege under the common interest doctrine and in rejecting the IRS’ position that the Kerekes Memorandum fell within the crime-fraud exception to the attorney-client privilege.

We review all necessary findings of fact and all applications of law to fact in connection with the district court’s ruling on a privilege claim for clear error. See United States v. Frederick, 182 F.3d 496, 499 (7th Cir.1999) (application of law to fact); United States v. Evans, 113 F.3d 1457, 1461 (7th Cir.1997) (findings of fact). We shall reverse only if, on review of the entire evidence, we are “left with the definite and firm conviction that a mistake has been committed.” Malachinski v. Comm’r, 268 F.3d 497, 505 (7th Cir.2001) (quoting Coleman v. Comm’r, 16 F.3d 821, 824 (7th Cir.1994)) (internal quotation marks omitted). On the other hand, the scope of a privilege is a question of law that we review de novo. See BDO II, 337 F.3d at 809. We review a district court’s decision regarding the crime-fraud exception for an abuse of discretion. United States v. Al-Shahin, 474 F.3d 941, 946 (7th Cir.2007).

In federal courts, except when state law supplies the applicable rule of law, the attorney-client privilege is “governed by the principles of the common law as [it] may be interpreted by the courts of the United States in the light of reason and experience.” Fed.R.Evid. 501. Although it ultimately was not adopted by Congress, the rule of attorney-client privilege promulgated by the Supreme Court in *815 1972 as part of the Proposed Federal Rules of Evidence has been recognized “as a source of general guidance regarding federal common law principles.” In re Grand Jury Investigation, 399 F.3d 527, 532 (2d Cir.2005); see also 3 Jack B. Weinstein & Margaret A. Berger, Weinstein’s Federal Evidence § 503.02 (Joseph M. McLaughlin, ed., 2d ed.2006). Proposed Rule 503 provided:

A client has a privilege to refuse to disclose and to prevent any other person from disclosing confidential communications made for the purpose of facilitating the rendition of professional legal services to the client, (1) between himself or his representative and his lawyer or his lawyer’s representative, or (2) between his lawyer and the lawyer’s representative, or (3) by him or his lawyer to a lawyer representing another in a matter of common interest, or (4) between representatives of the client or between the client and a representative of the client, or (5) between lawyers representing the client.

See Proposed Fed.R.Evid. 503(b), 56 F.R.D. 183, 236 (1972). Put simply, in order for the attorney-client privilege to attach, the communication in question must be made: (1) in confidence; (2) in connection with the provision of legal services; (3) to an attorney; and (4) in the context of an attorney-client relationship.

The purpose of the privilege is to “encourage full disclosure and to facilitate open communication between attorneys and them clients.” EDO II, 337 F.3d at 810. Open communication assists lawyers in rendering legal advice, not only to represent their clients in ongoing litigation, but also to prevent litigation by advising clients to conform their conduct to the law and by addressing legal concerns that may inhibit clients from engaging in otherwise lawful and socially beneficial activities. See Frederick, 182 F.3d at 500. The cost of these benefits is the withholding of relevant information from the courts. BDO II, 337 F.3d at 811.

Recognizing the inherent tension between the beneficial goals of the attorney-client privilege and the courts’ right to every person’s evidence, the courts have articulated the following principles to inform our analysis of the scope of the common interest doctrine:

(1) “[C]ourts construe the privilege to apply only where necessary to achieve its purpose.” Id.

(2) Only those communications which “reflect the lawyer’s thinking [or] are made for the purpose of eliciting the lawyer’s professional advice or other legal assistance” fall within the privilege. Frederick, 182 F.3d at 500.

(3) Because one of the objectives of the privilege is assisting clients in conforming their conduct to the law, litigation need not be pending for the communication to be made in connection to the provision of legal services. See United States v. Schwimmer, 892 F.2d 237, 243-^14 (2d Cir.1989).

(4) Because “the privilege is in derogation of the search for truth,” any exceptions to the requirements of the attorney-client privilege “must be strictly confined.” In re Grand Jury Proceedings (Thullen), 220 F.3d 568, 571 (7th Cir.2000).

Although occasionally termed a privilege itself, the common interest doctrine is really an exception to the rule that no privilege attaches to communications between a client and an attorney in the presence of a third person. See Robinson v. Texas Auto. Dealers Ass’n, 214 F.R.D. 432, 443 (E.D.Tex.2003). In effect, the common interest doctrine extends the attorney-client privilege to otherwise non-confidential communications in limited circumstances. For that reason, the common interest doc *816 trine only will apply where the parties undertake a joint effort with respect to a common legal interest, and the doctrine is limited strictly to those communications made to further an ongoing enterprise. See Evans, 113 F.3d at 1467. Other than these limits, however, the common defense doctrine does not contract the attorney-client privilege. Thus, communications need not be made in anticipation of litigation to fall within the common interest doctrine. 6 Applying the common interest doctrine to the full range of communications otherwise protected by the attorney-client privilege encourages parties with a shared legal interest to seek legal “assistance in order to meet legal requirements and to plan their conduct” accordingly. See In re Regents of the Univ. of California, 101 F.3d 1386, 1390-91 (Fed.Cir.1996). This planning serves the public interest by advancing compliance with the law, “facilitating the administration of justice” and averting litigation. Id. at 1391. Reason and experience demonstrate that joint ven-turers, no less than individuals, benefit from planning their activities based on sound legal advice predicated upon open communication.

Having determined that BDO is not barred from asserting attorney-client privilege under the common interest doe-trine simply because it was not shared under the threat of litigation, we next shall determine whether the district court’s ruling on BDO’s claim of privilege was clearly erroneous. The district court recognized that the scope of the common interest doctrine is limited to a common legal interest to which the parties formed a common strategy. See R.180 at 6. The district court concluded that BDO and Jenkens & Gilchrist, acting as joint venturers, shared a common legal interest “in ensuring compliance with the new regulation issued by the IRS,” id., and in making sure that they could defend their product against potential IRS enforcement actions.

There was, moreover, sufficient evidence to support the district court’s determination in this regard. The Kerekes Memorandum originally was addressed to BDO’s outside counsel, White & Case, and it sought advice on a legal question. At the time attorney Guerin received the Kerekes Memorandum, BDO and Jenkens & Gilchrist jointly serviced a number of common clients with respect to certain tax products. According to Guerin, Robert Greisman, a partner at BDO, sent her the memorandum as part of BDO’s effort to coordinate with Jenkens & Gilchrist a common legal position that BDO and Jenkens & Gilchrist would communicate later to these common clients. 7

*817 Nonetheless, the IRS asserts that, because the purpose of the communication was to coordinate the content of the message to their common clients, the communication between BDO and Jenkens & Gilchrist was not made for the purpose of securing advice with respect to a common legal interest and, therefore, was not within the scope of the common interest doctrine. However, even if the ultimate reason for sharing the Kerekes Memorandum was to advance the joint interests of BDO and Jenkens & Gilchrist in their representations to their common clients, it does not follow that the communication itself was not made to secure legal advice with respect to a common legal interest. Communications do not cease to be for the purpose of receiving legal services just because the recipient intended to use the fruits of the legal services to guide its relations with customers. In essence, through the memorandum, two joint venturers, BDO and Jenkens & Gilchrist, undertook a consultation between their respective in-house counsel and BDO’s outside counsel with respect to the legality of the proposed financial course of action they would recommend to their common clients. This effort, as the district court recognized, was clearly within the scope of the common interest doctrine.

The district court’s findings do not leave us “with the definite and firm conviction that a mistake has been committed.” Malachinski, 268 F.3d at 505 (quoting Coleman, 16 F.3d at 824) (internal quotation marks omitted). The district court’s finding that the communication of the Kerekes Memorandum to attorney Guerin was within the common interest doctrine was not clearly erroneous. Further, because the privileged status of communications falling within the common interest doctrine cannot be waived without the consent of all of the parties, Jenkens & Gilchrist’s subsequent voluntary disclosure of the Kerekes Memorandum in response to the IRS’ subpoena did not waive BDO’s claim of privilege. See John Morrell & Co. v. Local Union 304A of the United Food & Commercial Workers, AFL-CIO, 913 F.2d 544, 556 (8th Cir.1990); In re Grand Jury Subpoenas (89-3 & 89-4, John Doe 89-129), 902 F.2d 244, 248 (4th Cir.1990); see also Advisory Committee’s Note, Proposed Fed.R.Evid. 503(b), 56 F.R.D. 183, 239 (1972). 8 , 9

*818 B. Document A-40

We now address whether the district court erred when it held that the Interve-nors could not assert a privilege with respect to Document A-40 because the document fell within the crime-fraud exception to the attorney-client and tax practitioner privileges. We review a district court’s decision regarding the crime-fraud exception for an abuse of discretion. Al-Shahin, 474 F.3d at 946.

The crime-fraud exception places communications made in furtherance of a crime or fraud outside the attorney-client privilege. United States v. Zolin, 491 U.S. 554, 563, 109 S.Ct. 2619, 105 L.Ed.2d 469 (1989). The exception is based on the recognition that the privilege necessarily will “protect the confidences of wrongdoers.” Id. at 562, 109 S.Ct. 2619. This cost is accepted as necessary to achieve the privilege’s purpose of promoting the “broader public interests in the observance of law and the administration of justice.” Id. (quoting Upjohn Co. v. United States, 449 U.S. 383, 389, 101 S.Ct. 677, 66 L.Ed.2d 584 (1981)) (internal quotation marks omitted). However, when the advice sought relates “not to prior wrongdoing, but to future wrongdoing, ” the privilege goes beyond what is necessary to achieve its beneficial purposes. Id. at 562-63, 109 S.Ct. 2619 (quoting 8 John Henry Wigmore, Evidence In Trials At Common Law § 2298 (John T. McNaughton rev. 1961)) (internal quotation marks omitted) (emphasis in original).

To invoke the crime-fraud exception, the party seeking to abrogate the attorney-client privilege must present prima facie evidence that “gives colour to the charge” by showing “some foundation in fact.” Al-Shahin, 474 F.3d at 946 (quoting Clark v. United States, 289 U.S. 1, 15, 53 S.Ct. 465, 77 L.Ed. 993 (1933)) (internal quotation marks omitted). The party seeking to abrogate the privilege meets its burden by bringing forth sufficient evidence to justify the district court in requiring the proponent of the privilege to come forward with an explanation for the evidence offered against it. See United States v. Davis, 1 F.3d 606, 609 (7th Cir.1993). The privilege will remain “if the district court finds [the] explanation satisfactory.” Id.

BDO and the Intervenors would require the party seeking to abrogate the attorney-client privilege to make out a prima facie case of each element of a particular crime or common law fraud to invoke the crime-fraud exception. Such a burden is inconsistent with our requirement that the *819 party seeking to abrogate the privilege need only “give colour to the charge” by showing “some foundation in fact.” Al-Shahin, 474 F.3d at 946 (quoting Clark, 289 U.S. at 15, 53 S.Ct. 465) (internal quotation marks omitted). The approach advocated by BDO and the Intervenors reflects the view of some circuits, which require enough evidence of crime or fraud to support a verdict in order to invoke the crime-fraud exception. See In re Feldberg, 862 F.2d 622, 625 (7th Cir.1988). We expressly have rejected that approach. See id.

We therefore must determine whether the district court abused its discretion in determining that the IRS had come forward with sufficient evidence to give color to its charge that Document A-40 was a communication in furtherance of a crime or fraud. The district court engaged in a document-by-document, in camera inspection of all 267 documents for which the Intervenors claimed a privilege to determine whether they fell within the crime-fraud exception. R.178 at 18. In determining whether there was prima facie evidence of criminal or fraudulent activity, the court looked at the totality of the circumstances, including the eight “potential indicators of fraud” discussed above. 10 See id. at 23. Based on the totality of circumstances, the district court found no prima facie evidence of crime or fraud with respect to 266 of the documents, a ruling that the IRS does not challenge.

Applying the same totality of the circumstance approach, the district court found prima facie evidence of crime or fraud with respect to Document A-40 and instructed the Intervenors to come forward with an explanation that would rebut the evidence. Id. at 24. The Intervenors responded and the IRS provided further evidence to rebut the Intervenors’ response. After considering all of the evidence, the district court concluded that the Intervenors had failed to rebut the prima facie showing of crime or fraud. R.190 at 10.

The Intervenors now challenge the district court’s ruling. First, the Intervenors point to the decision of the United States Court of Appeals for the Second Circuit in Denney v. BDO Seidman, L.L.P., 412 F.3d 58 (2005), which reversed Denney v. Jenk-ens & Gilchrist, one of the cases from which the district court derived its potential indicators of fraud. 11 See Denney v. BDO Seidman, 412 F.3d at 66. The Second Circuit’s decision in Denney v. BDO Seidman does not draw into question the district court’s totality of the circumstances analysis in this case.

In Denney v. BDO Seidman, the Second Circuit held that the District Court for the Southern District of New York had erred *820 when it concluded, without factual support in the record, that the parties had agreed that their agreements were mutually fraudulent. Denney v. BDO Seidman, 412 F.3d at 66. The Second Circuit’s decision did not address whether facts such as mention of the COBRA transaction, vaguely worded consulting agreements or failure to provide services under the consulting agreements, i.e., the factors that the district court in the present case derived from Denney v. Jenkens & Gilchrist, would be indicative of fraud. Moreover, the district court in the present case did not place dispositive weight on any one of the “potential indicators of fraud,” nor did the court limit its analysis to the eight potential indicators. R.190 at 5.

The remainder of the Intervenors’ challenge asserts that the IRS could not defeat the Intervenors’ claim of privilege under the crime-fraud exception because the IRS had failed to allege a particular offense or the elements of common law fraud, and, in any event, the Intervenors had come forward with rebuttal evidence showing a legitimate purpose underlying the transactions in question. As we already have noted, our case law does not require a party seeking to invoke the crime-fraud exception to allege a particular offense or to make a prima facie showing with respect to each element of common law fraud. The IRS only was required to present sufficient evidence to “give colour to the charge” that the communication was made in furtherance of a crime or fraud by showing “some foundation in fact.” Al-Shahin, 474 F.3d at 946 (quoting Clark, 289 U.S. at 15, 53 S.Ct. 465) (internal quotation marks omitted).

After concluding that there had been a prima facie showing that Document A-40 was a communication made in furtherance of a crime or fraud, the district court gave the Intervenors the opportunity to explain the communication. The Intervenors offered an explanation, but the district court did not find it satisfactory. Nor was the district court required to find the explanation satisfactory. Thus, the district court did not abuse its discretion when it concluded that the IRS had made a prima facie showing of crime or fraud which the Intervenors failed to explain satisfactorily.

C. Tax Practitioner Privilege

We now shall address whether the district court correctly applied the tax practitioner privilege found in § 7525 to the facts of this case. Prior to 2004, § 7525 provided:

§ 7525. Confidentiality privileges relating to taxpayer communications (a) Uniform application to taxpayer communications with federally authorized practitioners.—

(1) General rule.—With respect to tax advice, the same common law protections of confidentiality which apply to a communication between a taxpayer and an attorney shall also apply to a communication between a taxpayer and any federally authorized tax practitioner to the extent the communication would be considered a privileged communication if it were between a taxpayer and an attorney.

(2) Limitations. Paragraph (1) may only be asserted in—