Peoria firm wants IRS summons for client fund records quashed

Bethany Krajelis Jun. 28, 2012, 10:49am

A Peoria law firm has asked a federal court to quash a summons from the Internal Revenue Service that seeks two years worth of records related to its Interest on Lawyers Trust Account.

Lawyers in every state use IOLTA accounts to hold their client's funds while a case is pending. The client can get the interest earned on their money if it's large enough. Many states, including Illinois, use IOLTA to help fund legal aid providers.

In its petition filed Monday in the U.S. District Court for the Central District of Illinois, Davis & Campbell contends that the IRS summons "is overly broad and burdensome" to the firm, which focuses its practice on business matters and has offices in Chicago and Washington D.C.

The firm argues that the summons "violates the privacy interests of all of the clients it serves through IOLTA and "attempts to invade attorney-client privilege."

"The summons is improper on its face," the firm asserts in its petition. "It seeks confidential information in which petitioners' clients have an expectation of privacy recognize by Illinois law. It is therefore unduly intrusive of petitioners' clients' private banking records."

While the summons indicates that it is issued in the matter of Robert W. Smiley Jr., the firm says the summons demands the production of all IOLTA records concerning client transactions from its account at Regions Bank for a period of 25 months, as well as records that show the source and destination of the funds.

The summons, which was sent to the bank on June 5 and a copy was mailed to the law firm, seeks various documents related to the firm's trust account from Jan 1, 2009, to Jan. 31, 2011, including its monthly bank statements and all deposits, withdrawals, credits and debits more than $5,000, as well as letters of credits, wire transfers and money orders.

Although the summons lists Smiley as an audit target, the firm argues the IRS failed to limit its request to Smiley or state a purpose for the issuance in the summons. The IRS, the firm asserts, "bears the burden of showing that its audit is conducted for a legitimate purpose, and that the information and documents sought are relevant and material to a specified and recognized legitimate purpose."

Because the summons goes beyond a request for documentation on Smiley's funds and seeks information about the firm's account as a whole, Davis & Campbell contends the summons "needless and unlawfully impinges upon and interferes with petitioner's attorney-client relationships, duty to keep confidences, and privacy interest of all of its clients, all for no apparent legal purpose."

The firm's petition asks the federal court to promptly schedule oral arguments in the case and then quash the summons and award any other relief the court deems appropriate.

David E. Jones of Hinshaw & Culberton in Peoria submitted the petition on behalf of Davis & Campbell. Ambrose V. McCall, also of Hinshaw & Culbertson, entered his appearance as the petitioner's attorney on Wednesday.

The firm's petition was sent to Regions Bank's legal processing department, a revenue agent at the IRS and U.S. Attorney General Eric Holder. A memorandum of law supporting the petition was also filed with the court last week.

U.S. District Court for the Central District of Illinois case number 12-1206

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