In the

United States Court of Appeals
               For the Seventh Circuit

No. 08-3473

V ALERO E NERGY C ORPORATION,
in its own right and as successor to
Ultramar Diamond Shamrock Corporation,

                                                Petitioner-Appellant,
                                  v.


U NITED S TATES OF A MERICA,
                                                Respondent-Appellee.


             Appeal from the United States District Court
        for the Northern District of Illinois, Eastern Division.
             No. 06 C 6730—Matthew F. Kennelly, Judge.



     A RGUED F EBRUARY 18, 2009—D ECIDED JUNE 17, 2009




 Before R OVNER, E VANS, and T INDER, Circuit Judges.
  E VANS, Circuit Judge. In this appeal, Valero Energy
Corporation asks us to take a close look at the tax
practitioner-client privilege. Valero sought to protect
several documents under this privilege, and the result
was a mixed bag—some documents were shielded from
the Internal Revenue Service, while others were not.
2                                               No. 08-3473

Valero now contends that by reaching this decision, the
district court misconstrued not only the privilege, but
also an exception to the privilege, which grants the gov-
ernment access to certain documents when tax shelters
are promoted.
  Valero is a large company involved in crude oil
refining (it’s the largest refiner in the United States ac-
cording to its Web site) and oil-product marketing. The
Texas-based giant got even bigger in December 2001,
when it acquired Ultramar Diamond Shamrock Corpora-
tion (UDS), an oil company with Canadian subsidiaries.
This acquisition not only expanded Valero’s reach north-
ward, it also resulted in some pretty hefty tax savings.
Before the deal took place, UDS consulted with Ernst &
Young about restructuring and refinancing its Canadian
operations. Valero, in turn, called on its long-time advisors
at Arthur Anderson to review Ernst & Young’s plan and
provide further tax advice. At this time, the Canadian
currency was in a slump vis-à-vis the United States
dollar, and Valero took advantage. In 2002, shortly after
the acquisition was completed, Valero realized
$105 million in tax-deductible foreign currency losses
(under 26 U.S.C. §§ 987, 988) through a complicated series
of transactions implemented with Arthur Anderson’s
help. The transactions included the creation of spin-off
entities, several same-day wire transfers of cash, a large
distribution from one of the Canadian subsidiaries to a
United-States-based parent, re-classification of a
separate foreign subsidiary as a branch of Valero for
tax purposes, and the extinguishment of debt.
No. 08-3473                                              3

  This loss was big enough to catch the government’s eye,
and the IRS began investigating. The IRS eventually
issued a summons to Arthur Andersen, seeking all docu-
ments related to
   tax planning, tax research, or tax analysis, by or for,
   Ultramar Diamond Shamrock (including any of its
   subsidiaries or partnerships, both domestic and for-
   eign) and Valero Energy Corporation (including any
   of its subsidiaries or partnerships, both domestic
   and foreign) in connection with their 2001, 2002 and
   2003 Canadian and U.S. income taxes . . . .
Valero, as a third party, asked the district court to quash
the summons. See 26 U.S.C. § 7609(b). It argued that the
summons was overbroad and that many documents
were protected by either the work-product doctrine or
the tax practitioner-client privilege. The privilege
shields communications between a federally authorized
tax practitioner and her client “to the extent the com-
munication would be considered a privileged communica-
tion if it were between a taxpayer and an attorney.”
26 U.S.C. § 7525(a)(1). The government countered by
arguing that the scope of the summons was appropriate
and that even if the tax practitioner-client privilege ap-
plied, the documents were discoverable since they were
made in connection with the promotion of a tax shelter, a
statutory exception to the privilege. 

7525(b). The
government presented little evidence to back up this
claim and rested, instead, on Valero’s failure to deny
that saving on taxes was one of its motivations for the
2002 transactions.
4                                               No. 08-3473

  There was no clear victor in this first dispute. The
district court concluded that the IRS issued the sum-
mons in good faith and that it was not overly broad. The
court rejected Valero’s claim of privilege under the work-
product doctrine but, after an in camera, document-by-
document review, sustained its claim of privilege
under the tax practitioner-client privilege. In doing so,
the court rejected the government’s argument regarding
the tax shelter promotion exception, noting that it failed
to meet its burden to prove the exception’s applicability
by simply relying on Valero’s silence. The court then
directed Valero to produce any documents withheld
based only on the overbreadth and work-product objec-
tions.
  This order resulted in a second round of document
production. Valero found new documents responsive to
the summons and sought to keep some of them out of the
grasp of the government by again asserting the tax
practitioner-client privilege. The government then filed a
motion to enforce the summons before the district court,
arguing, as it did before, that the privilege did not apply,
and if it did, the tax-shelter exception required Valero
to produce the documents. This time, though, the gov-
ernment acted with more gusto. It supported its argu-
ment with a detailed declaration from the IRS agent
conducting the investigation into Valero’s tax liabilities.
Attached to this declaration were several exhibits—
including e-mails, billing records, and minutes from
Valero’s board meetings—to bolster the contention that
one of the driving purposes behind the multitude of
transactions in 2002 was to avoid paying taxes. Valero
No. 08-3473                                               5

responded by asserting that Arthur Anderson was not
trying to sell or peddle a corporate tax shelter, and there-
fore the exception was inapplicable. It contended that the
rigamarole was necessary for paying off public debt,
saving some Canadian taxes, and restructuring the busi-
ness operations. The foreign currency losses, Valero
maintained, were a natural result of fulfilling these
goals. The government, however, poked holes in these
purported motivations, arguing that the savings in
United States taxes were much more substantial than
any savings in Canadian taxes and that Valero could
have achieved these purposed aims in a more direct
manner without triggering the foreign currency losses.
  The added support won over the district court. After
another round of in camera, document-by-document
review, the court rejected some of Valero’s claims of
privilege outright. The court did sustain the privilege
for other documents but held that some of these docu-
ments were discoverable since they fell within the excep-
tion for documents promoting tax shelters. This time, the
court reasoned, the government had met its burden. The
court found that it had laid a foundation in fact that
Arthur Andersen promoted (by providing input and
helping to organize) a multi-step plan, a significant pur-
pose of which was to avoid federal income taxes.
  Valero appeals this second ruling. It has combed
through the documents that the district court found
unprotected and has identified a subset that, it argues,
should have been privileged. We granted a stay, allowing
the contested documents to remain under seal, and Valero
6                                                 No. 08-3473

has provided a sealed appendix containing these docu-
ments for our review. Valero first attacks the district
court’s finding that a group of documents were not privi-
leged since they concerned “business or accounting
advice or state tax issues.” Valero argues that the district
court clearly erred in its assessment of 14 of these docu-
ments, emphasizing that they cover federal tax issues.
  We begin by noting that there is no general accountant-
client privilege. United States v. Frederick, 

, 500
(7th Cir. 1999). In 1998, Congress provided a limited shield
of confidentiality between a federally authorized tax
practitioner and her client. This privilege is no broader
than the existing attorney-client privilege. It merely
extends the veil of confidentiality to federally authorized
tax practitioners who have long been able to practice
before the IRS, see 5 U.S.C. § 500(c); 31 C.F.R. § 10.3, to
the same extent communications would be privileged
if they were between a taxpayer and an attorney. 26
U.S.C. § 7525(a)(1) (privilege does not apply in criminal
proceedings). Nothing in the statute “suggests that these
nonlawyer practitioners are entitled to privilege when
they are doing other than lawyers’ work . . . .” 

; see also United States v. BDO Seidman, 

, 810 (7th Cir. 2003) (BDO II). Accounting
advice, even if given by an attorney, is not privileged.
  This means that the success of a claim of privilege
depends on whether the advice given was general account-
ing advice or legal advice. Admittedly, the line between
a lawyer’s work and that of an accountant can be
blurry, especially when it involves a large corporation
No. 08-3473                                                   7

like Valero seeking advice from a broad-based accounting
firm like Arthur Anderson. But we have set some guide-
posts to help distinguish between the two. For starters, the
preparation of tax returns is an accounting, not a legal
service, therefore information transmitted so that it
might be used on a tax return is not privileged. In re
Grand Jury Proceedings, 

, 571 (7th Cir. 2000);

; United States v. Lawless, 

, 487 (7th Cir. 1983). On the other side of the
spectrum, communications about legal questions raised
in litigation (or in anticipation of litigation) are privileged.
In re Grand Jury 

; 

. Of course, there is a grey area between
these two extremes, but to the extent documents are
used for both preparing tax returns and litigation, they
are not protected from the government’s grasp. In re
Grand Jury 

; 

. This circumscribed reading of the tax practitioner-
client privilege is in sync with our general take on privi-
leges, which we construe narrowly because they are
in derogation of the search for truth. United States v.
Evans, 

, 1461 (7th Cir. 1997).
   On top of that, our review of the district court’s ruling
is deferential, and we will reverse only if it is clearly
erroneous. Findings regarding privilege are fact-intensive,
case-specific questions that fall within the district
court’s expertise, and, under these circumstances, “a
light appellate touch is best.” 

.
And as is the case with any privilege, the one seeking
its protection must carry the burden of showing that it
applies. United States v. BDO Seidman, LLP, 

,
8                                               No. 08-3473

822 (7th Cir. 2007) (BDO III). The narrowness of the tax
practitioner-client privilege, our deferential standard of
review, and the allocation of the burden of proof all
pose high hurdles for Valero. Obstacles, as it turns out,
Valero is unable to overcome.
  Valero’s contention that the documents consist of
federal tax advice misses the mark. As we’ve noted, there
is no general privilege between a federal tax practitioner
and her client—it’s not enough that the communications
raised federal tax topics. Many of these documents
consist of worksheets containing financial data and esti-
mates of tax liability, while others discuss deductions
and the calculations of gains and losses. These documents
contain the type of information generally gathered to
facilitate the filing of a tax return, and such accounting
advice is not covered by the privilege, 

, whether or not the information made it on the
tax returns filed by Valero, 

. Still
other documents raise issues about Valero’s inventory
methods, compensation packages, or general structure,
and analyze how they affect tax computations. While
these documents contain some legal analysis, it comes
part and parcel with accounting advice, and is therefore
also open to the government. In re Grand Jury 

. Simply asserting that the documents
discuss federal tax issues does not convince us that the
district court clearly erred in finding them discoverable.
  Next, Valero contends that nine other documents should
be privileged because the district court, in its view,
wrongly concluded that they were accessible because they
No. 08-3473                                                 9

consisted of internal documents passed amongst the
accountants and not the client. This argument, however,
misconstrues the district court’s order. The district
court concluded that several memoranda and notes to
the file written by the accountants were not privileged
because they “do not reflect a communication between a
client and a tax practitioner for the purpose of providing
federal income tax advice.” (emphasis added). In fact, in
other parts of its order (as Valero itself notes) the district
court extended the privilege to cover internal documents
that did not involve the client. The order is a bit vague
as to why certain documents fell outside of the privilege.
But one can hardly blame the court—providing too much
detail could spill the beans about the documents, even
before Valero could ask for a stay. Regardless, Valero
has not presented any convincing arguments to over-
turn the ruling. It again asserts that the documents did
in fact discuss federal tax issues. But as we have
already stated, that alone is not enough.
  Although we consider the applicability of the privilege
here to be a close question with regard to some of the
documents, our review is highly deferential, and Valero’s
arguments fall short of this demanding standard.
Having reached this conclusion, we need only quickly
address Valero’s final contention with regards to these
documents. It maintains that the district court abused its
discretion by failing to afford Valero an opportunity to
bolster its claim of privilege in either an ex parte hearing
or by propounding sealed, written questions. While
testimony from those who produced the documents
in question may be necessary to evaluate a claim of privi-
10                                               No. 08-3473

lege, In re Grand Jury 

, it is not
always required. Here, the district court had adequate
information to evaluate the claim of privilege after re-
viewing the documents themselves, and we find no
abuse of discretion in its course of conduct.
   The more interesting question raised by this appeal
concerns an exception to the tax practitioner-client privi-
lege. As we’ve noted, Valero’s claim of privilege wasn’t a
complete bust. The district court agreed that Valero met
its initial burden as to some of the documents but
ordered a subset to be released after it concluded that
they fell into a statutory exception to the privilege. The
privilege does not cover any written communications
with a corporate representative or agent “in connection
with the promotion of the direct or indirect participation
of the person in any tax shelter . . . .” 

7525(b)(2)
(emphasis added). Valero disputes the court’s finding
by attacking its interpretation of the statutory exception.
Few courts have examined this exception and none have
squarely addressed the question that Valero raises
here: namely, what exactly does it mean to promote a
tax shelter?
  The parties have plucked two different definitions of
promotion out of the dictionary. Valero, seeking to narrow
the application of the tax shelter exception, contends
that promotion means the “active furtherance of sale of
merchandise through advertising or other publicity.”
Valero takes it a step further and urges us to consider the
tax practitioner’s merchandise to be prepackaged, tax-
shelter products. Since Arthur Anderson provided Valero
No. 08-3473                                               11

with an individualized tax reduction plan, not a one-size-
fits-all scheme, Valero contends that the documents are
beyond the government’s reach. The government,
unsurprisingly, reads promotion more expansively to
mean “furtherance” or “encouragement” and asks us to
affirm the district court’s decision to release the docu-
ments under the tax-shelter exception.
   A statute is not ambiguous simply because one of its
words is susceptible to two meanings. When inter-
preting a statute we must read it as a whole, as opposed
to looking at single words in isolation, see United States v.
Morton, 

, 828 (1984), and doing so here goes
a long way to resolving this controversy. Valero’s reading
of the statute creates an unnecessary conflict. While
Congress left promotion up to judicial interpretation, it
took care to define tax shelter by explicit reference to
another section of the tax code. For purposes of the ex-
ception, a tax shelter is “(I) a partnership or other entity,
(II) any investment plan or arrangement, or (III) any other
plan or arrangement, if a significant purpose of such
partnership, entity, plan, or arrangement is the avoidance
or evasion of Federal income tax.” 26 U.S.C.
§ 6662(d)(2)(C)(ii). Nothing in this definition limits tax
shelters to cookie-cutter products peddled by shady
practitioners or distinguishes tax shelters from individual-
ized tax advice. Instead, the language is broad and en-
compasses any plan or arrangement whose significant
purpose is to avoid or evade federal taxes. See BDO 

(noting that the tax shelter exception
is broad “but such breadth does not make the text am-
biguous”). By advocating such a narrow definition of
12                                                No. 08-3473

promotion, Valero is, through the back door, proposing a
definition of tax shelters at odds with the text of the
statute. We decline to read such a contradiction into
the statute. This definition of tax shelter is broad and
could, as Valero points out, include some legitimate
attempts by a company to reduce its tax burden. But it
is not our place to tinker with the unambiguous defini-
tion provided by Congress. And even under this defini-
tion, tax shelters are not boundless. Only plans and
arrangements with a significant—as opposed to an ancil-
lary—goal of avoiding or evading taxes count.
  But Valero goes further and argues that accepting the
definition of promotion put forth by the district court
would effectively read the word out of the statute by
granting the government access to any documents con-
nected to a tax shelter. And if that’s the case, Valero
urges, the exception will swallow the privilege. We dis-
agree. Promotion, even under the broader reading, limits
the exception to written communications encouraging
participation in a tax shelter, rather than documents
that merely inform a company about such schemes,
assess such plans in a neutral fashion, or evaluate the
soft spots in tax shelters that a company has used in the
past. In fact, the district court’s ruling here belies Valero’s
alarmist argument. Even operating under a broad defini-
tion of promotion, the court sustained some of Valero’s
claims of privilege. The district court’s understanding
of promotion does place limits on the exception, just not
the limits that Valero wants.
  This same observation also undermines Valero’s
reliance on United States v. Textron Inc. and Subsidiaries,
No. 08-3473                                                   13

(D. R.I. 2007). The Textron court is
among the few to have examined the scope of the tax-
shelter exception, and thus, even though Textron is not
binding authority, it deserves a close look. In that case,
the IRS sought tax-accrual work papers prepared by
Textron’s in-house accountants and lawyers. Those
papers identified items on tax returns susceptible to
challenge by the IRS and estimated, in percentage
terms, Textron’s chances of prevailing in any litigation
over those issues. Textron refused to release the work
papers, arguing that they were protected by the tax
practitioner-client privilege (among others). The govern-
ment countered by contending that the work papers were
fair game under the tax-shelter exception. The district
court, however, disagreed with the government,
reasoning that the work papers reflected opinions “re-
garding the foreseeable tax consequences of transactions
that, already, had taken place, not future transactions
they were seeking to promote.” 

Textron thus
stands for the rather uncontroversial principle that you
can’t promote participation in something once the deed
is already done. While the court did mention that the



1
  The district court went on to find that Textron waived the
privilege by releasing the work papers to its outside accoun-
tants, and the First Circuit reviewed the case without discussing
the tax practitioner-client privilege. United States v. Textron
Inc. and Subsidiaries, 

(1st Cir. 2009) (addressing
claims regarding work-product doctrine). The First Circuit
has since vacated this decision and will rehear the case en banc.
United States v. Textron, No. 07-2631 (1st Cir. Mar. 25, 2009).
14                                             No. 08-3473

Textron accountants were not “peddlers of corporate tax
shelters,” 

does Valero little good since
there is a fundamental difference between the docu-
ments Textron sought to shield from the government and
those that Valero seeks to protect. Valero’s documents
concern the structure of (what was then) future trans-
actions, not those that have already taken place.
  What’s more, the district court’s definition of “promo-
tion” jibes with the IRS’s broad summons power. 26 U.S.C.
§ 7602(a). Our system of federal taxation relies on self-
reporting and the taxpayer’s forthright disclosure of
information. The government’s power to compel disclosure
of relevant information is the flip side of that coin. The
summons power is the looming threat that helps keep
the taxpayer honest, and the more honest taxpayers
there are, the more equitably the tax burden is shouldered.
Because the IRS’s investigatory power is a linchpin in
our system, courts are reluctant to restrict it “absent
unambiguous directions from Congress.” United States v.
Arthur Young & Co., 

, 816 (1984) (citations
omitted); see also BDO 

. The privilege
chips away at the IRS’s summons power: we will not
broaden it by narrowly interpreting exceptions without
clear direction from Congress. The word “promotion” is
not a clear enough signal to place such a limit on the
IRS’s summons power.
  Perhaps anticipating this conclusion, Valero turns to
the legislative history of the tax-shelter exception to
bolster its argument. For starters, since the statute is
unambiguous we need not turn to the legislative history
No. 08-3473                                               15

to interpret its meaning. BDO 

. But
even if we were to consider it, it would do little to
support Valero’s position. The strongest endorsement for
Valero’s argument comes from Senator Connie Mack, who
stated during a conference committee that the exception
should be “narrow” and target “written promotional and
solicitation materials used by the peddlers of corporate
tax shelters.” 144 Cong. Rec. S7667 (1998). But the view
of one senator cannot trump the unambiguous statutory
text. See Barnhart v. Sigmon Coal Co., 

, 457
(2002); Brill v. Countrywide Home Loans, Inc., 

,
448 (7th Cir. 2005) (“[W]hen the legislative history stands
by itself, as a naked expression of ‘intent’ unconnected to
any enacted text, it has no more force than an opinion
poll of legislators—less, really, as it speaks for fewer.”).
Valero also points to Senator Daniel Moynihan’s com-
ments expressing dismay at the confusion that would, in
his view, arise from the privilege and its exception. Senator
Moynihan thought that the privilege would be “a right
that most taxpayers will never be eligible to assert, and
many will be surprised to learn about [its] limitations.” 144
Cong. Rec. S7621 (1998). Senator Moynihan, although
implying support for a broader privilege, highlighted
the narrowness of the privilege as written in the statute.
His statement does Valero more harm than good.
  Finally, Valero points to the conference report which
clarifies that “the promotion of tax shelters [is not a] part
of the routine relationship between a tax practitioner and
a client,” and should not “adversely affect such routine
relationships.” H.R. Rep. No. 105-199 at 269 (1998). A
conference report, unlike the words of a single senator,
16                                                No. 08-3473

is often a good record of Congress’s intent, Bassiouni v.
F.B.I., 

, 716 (7th Cir. 2006), but the report does
not go nearly as far as Valero contends. The report does
nothing to confine the exception to actively marketed tax
shelters or prepackaged products. In fact, in the same
paragraph relied upon by Valero, the report reiterates the
breadth of the definition of tax shelters to include “any
partnership, entity, plan, or arrangement a significant
purpose of which is the avoidance or evasion of income
tax.” H.R. Rep. No. 105-599 (1998).
  We close by noting what this opinion does not do. At
this early stage, we are not evaluating the propriety of
Valero’s tax-reduction plan. The IRS only wants access to
documents, it is not (in this appeal) asking Valero to
pay anything. It is not pointing any fingers. The govern-
ment’s burden to overcome the privilege is relatively
light—it need only show that there is some foundation
in fact that a particular document falls within the tax-
shelter exception. BDO 

. We affirm the
district court’s holding that the IRS has met this burden
and leave for another day any other issues which may
percolate out of this squabble between Valero and the
government.
 Accordingly, the judgment of the district court is AFFIRMED.
The partial stay of the district court’s judgment is dissolved.




                            6-17-09