In sensitive civil or criminal tax matters, the answer is the Kovel letter, named after United States v. Kovel. This case stands for the proposition that you can get attorney client privilege with your accountant by having your lawyer hire the accountant.
Full Answer
As stated in Upjohn Co., 449 U.S. 383, 388 (1981), the purpose of the attorney-client privilege is to encourage “full and frank communication between attorneys and their clients.”. Even though the privilege was traditionally reserved for attorneys, as the world became more complex, the courts expanded privilege beyond attorneys to include ...
proposed rule of evidence 503 (also known as supreme court standard 503) established the general scope of the attorney-client privilege under federal common law: “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 …
EXECUTIVE SUMMARY : AS PROFESSIONALS WHO KNOW THEIR WAY through a financial tangle, CPAs can be invaluable in a fraud investigation-if they know the legal basics.. A CPA SHOULD ADVISE THE CLIENT to hire a lawyer if a fraud is suspected specifically to establish privilege of information.He or she should be prepared to work closely with and for the attorney to keep all …
 · If your business faces legal tax issues, you need to hire a tax attorney because they have a deeper understanding of the legalities in the U.S. tax system. Hire a tax attorney if you’re one of the unlucky 2.5% getting audited this year or if you’re dealing with any other tax controversies. Choose a tax lawyer when receiving notices of debt ...
The attorney-client privilege protects most communications between clients and their lawyers. But, according to the crime-fraud exception to the privilege, a client's communication to her attorney isn't privileged if she made it with the intention of committing or covering up a crime or fraud.
98, page 83). The new law extends the common-law attorney-client confidentiality privilege to most tax advice furnished to a client (or prospective client) by any individual authorized under federal law to practice before the IRS. This includes CPAs, attorneys, enrolled agents and enrolled actuaries.
BOTH COMMON AND FEDERAL LAW reject the idea of an accountant-client privilege like that which exists between attorneys and their clients. However, accountant-related communications still may be shielded from disclosure when an accountant acts as an agent for an attorney providing legal services.
Unlike the attorney-client privilege, the tax practitioner privilege does not apply in the context of criminal proceedings of any kind, whether they are situated in federal or state court. Hence, communications with your accountant can be used against your interests in any criminal proceeding.
In addition, the Sec. 7525 privilege does not apply to information or communications concerning tax return preparation, but it can apply to tax planning advice, tax consulting, and similar communications.
That is, the principle of confidentiality is to ensure that information received by the accountant must be kept in secrecy and respected in the course of duty. Unless obligated by law, an accountant should not disclose or use such information unless specific authority has been given.
The accountant is obligated to protect this information from unauthorized disclosure or public release. Because accountants comply with the confidentiality principle, clients feel free to speak frankly and reveal relevant facts regarding accounting issues, enabling the accountant to act in the client's best interest.
privilege statutes Other states, including Oklahoma, Florida and California, have passed evidentiary accountant-client protections that shield privileged communications in a manner similar to attorney-client privilege. 11 In these states, disclosure is protected from court order.
Accountants can receive an award as a whistleblower under the IRS program. They do not have any special internal reporting requirements. However, there are two restrictions on their ability to submit information and earn a reward.
Which of the following is most likely to violate the AICPA Code of Professional Conduct? Issuing the current year audit report when fees for the past year audit remain uncollected.
Is tax advice from accountants covered by privilege? As a starting point, privilege generally only attaches to communications within the solicitor and client relationship. This means that privilege does not attach to advice that accountants give on tax issues, even where the accountant has a law degree.
A. 1. The Kovel doctrine, set forth in United States v. Kovel, 296 F. 2d 918 (2d Cir. 1961), describes the parameters for the extension of the attorney-client privilege to non-attorney third parties.
A tax lawyer is a legal professional who graduated with a law degree and specialized in the very complicated world of tax law. A tax attorney must...
A CPA, or certified public accountant, does not have a law degree, but a five-year business degree. CPA programs require at least 150 hours of lear...
Trying to decide between hiring a tax attorney or a CPA? It depends on your business’s tax situation. Keep in mind that a tax attorney can do basic...
CPAs should mitigate the risk of inadvertent disclosure and eavesdropping from the use of electronic communications by minimizing use of cordless or cell phones to discuss privileged information.
ATTORNEY-CLIENT PRIVILEGE EXTENDS to accountants under the Kovel rule when a CPA acts at the direction of the lawyer to provide information for the client. Inadvertent disclosure of confidential information may lead to loss of the privilege.
On appeal the Ninth Circuit refused to extend privilege to the accountant because there was insufficient evidence to show the lawyer had commissioned CPA services to support the rendering of legal advice ( United States v. Gurtner ). Thus, if a practitioner provides business advice rather than litigation-related information for the attorney, no privilege attaches. Even litigation-specific information is unprivileged if it is incidental to business advice.
SCRAMBLERS AND ENCRYPTION TOOLS can substantially reduce the likelihood of waiver of privilege due to inadvertent disclosure but can be expensive ways to foil interception.
The Eighth Circuit Court of Appeals ruled that in applying Kovel it is inappropriate to distinguish between those on the client’s payroll and independent contractors such as CPAs. In the example of In re Bieter Co. the court set out principles applicable to determining whether privilege protected third-party communications. It said
For meetings involving you, client representatives and/or the attorney, take minutes noting the date, who is present, the subject and legal reason for the meeting and the confidentiality of the proceedings. It’s important to state the legal purpose; a court may ask whether the meeting would have been held if litigation had never been a prospect. If the answer is “yes,” the meeting likely will be viewed as having a business purpose. Be aware that in a corporation, only employees with essential information should be in attendance.
Not meeting them can result in loss of privilege—and can cause a legal strategy to fail. Today’s technology such as e-mail, voice mail, cell phones and faxes makes those conditions difficult to maintain. This article will discuss the framework in which attorney-client privilege extends to accountants and will suggest practical ways CPAs operating in a technological environment can avoid inadvertent disclosure of confidential information to preserve attorney-client privilege.
Now you should better understand the key differences between a tax attorney vs CPA. They both offer helpful tax services for your business , but a tax attorney wields greater power when dealing with serious tax issues.
A tax lawyer can advise your business on major decisions like whether to switch to an S-Corp from an LLC. They can also point out the potential liabilities and any overall structure protections. Their law license then allows them to complete the legal documents needed to make things happen.
A tax lawyer is a legal professional who graduated with a law degree and specialized in the very complicated world of tax law. A tax attorney must pass the bar in the state they wish to work just like any other lawyer. But what does a tax attorney do?
All tax attorneys help clients with dispute resolutions. They understand the intricate details of negotiating with the IRS and other financial institutions. They also can assist businesses with the legal aspects of tax preparation.
The most common fear is an audit, but that does not happen as often as you would think. Only about 2.5% of small businesses in the United States get audited every year.
The best time to hire a CPA is when you’re not dealing with any formal legal issues or extra-complicated tax matters. Choose a CPA when creating a basic financial plan for your business, or for your personal finances.
Choose a tax lawyer when receiving notices of debt collection. Or, if you get a letter from the IRS saying they’ve assigned a revenue officer to your account.
It was added in to the tax code (IRC Section 7525 (a) (1)) in 1998. But it is quite narrow, and is completely inapplicable to criminal tax cases. That makes it of little value. In contrast, attorney-client privilege is worth a great deal and provides enormous protections under the law.
The attorney-client privilege is strong precisely so that clients (in both civil and criminal cases) will be forthcoming with their lawyers. Accountants, however, don’t have this privilege. If you make statements or provide documents to your accountant, he can be compelled to divulge them no matter how incriminating.
The attorney is the client in a Kovel engagement so the accountant should address all correspondence to the lawyer. That means information acquired by an accountant under a Kovel agreement should be distinguished from information collected by the accountant as an auditor or in some other capacity.
You do not have attorney client privilege with your accountant. In contrast, if you tell a lawyer secrets (say you are hiding money offshore), the IRS cannot make your lawyer talk. The IRS generally can’t even make your lawyer produce documents. The attorney-client privilege is strong precisely so that clients (in both civil and criminal cases) will be forthcoming with their lawyers. Accountants, however, don’t have this privilege. If you make statements or provide documents to your accountant, he can be compelled to divulge them no matter how incriminating
But taxes are complex, and the line between creative tax planning and tax evasion isn't always clear. You do not have attorney client privilege with your accountant.
Opinions expressed by Forbes Contributors are their own.
Properly executed, this end run imports attorney-client privilege to the accountant’s work and communications. It is reasonably safe too, although it is true that there have been a few IRS lawsuits eroding it. For example, in United States v. Richey, the Ninth Circuit refused to protect an appraisal that a taxpayer, lawyer and accountant were trying to keep from the IRS. In United States v. Hatfield, the court forced disclosure of discussions between the lawyer and accountant. On the whole, however, the Kovel letter has withstood the test of time, and probably will for generations to come. The mere fact that a Kovel arrangement in place can make it unlikely that the IRS will push for disclosure around the edges. And having a Kovel agreement can make accountants more comfortable and more responsive as well.
If that investigation does not provide appropriate clarification, the CPA would alert the client to his or her concerns in an effort to rectify the issue. If the client refuses to engage in discussion or to take appropriate action, the CPA would need to consider whether to discontinue the client relationship.
Ethics rule would require CPAs to discuss suspected illegal acts with clients. On March 10, 2017, the AICPA Professional Ethics Executive Committee (PEEC) issued an exposure draft of a new rule requiring CPAs to take certain actions if they know or suspect that a client is engaging in illegal acts. This column addresses how this new rule may impact ...
The "Confidential Client Information Rule" set forth in ET Section 1.700.001 of the AICPA Code of Professional Conduct provides that nonpublic confidential client information obtained by a CPA during the course of providing professional services cannot be disclosed to third parties unless the CPA obtains specific client consent for the disclosure. An example would be when the CPA prepares tax returns for the client, and the client subsequently directs the CPA to provide a copy of them to a potential lender to the client's business — consent would be required prior to providing the returns. There are exceptions to this client consent rule where the CPA is complying with a validly issued subpoena or summons, is complying with laws and regulations, is participating in certain professional practice reviews or investigations, or is a defendant in administrative or legal proceedings. In these cases, consent is not required prior to providing the requested information.
The member is required to discuss the illegal or suspected illegal conduct with the appropriate level of client management or those charged with governance of the client to which the member has access. If the member determines that the illegal or suspected illegal conduct is significant, and client management or those charged with governance of the client refuse to take appropriate steps to address the matter, the member must consider whether withdrawal from the engagement or client relationship is necessary, or whether he or she needs to take further, more seriousaction.
The new AICPA proposal has its origin in a pronouncement issued in July 2016 by the International Ethics Standards Board for Accountants (IESBA) titled Responding to Non-Compliance With Laws and Regulations. As a member of the International Federation of Accountants (IFAC), the AICPA is required to adopt IESBA rules with appropriate consideration of local rules andregulations.
6713 and 7216 also impose strict confidentiality requirements on tax return preparers, including CPAs, regarding the use or disclosure of any information provided by a taxpayer in connection with the preparation of a tax return unless the taxpayer provides informed written consent.
As a member of the International Federation of Accountants (IFAC), the AICPA is required to adopt IESBA rules with appropriate consideration of local rules and regulations. The AICPA proposal provides that, when a member, including a CPA tax practitioner, encounters a client engaged in illegal or suspected illegal conduct during the course ...
If an attorney becomes a fact witness in his own case, he may be required to resign as counsel. While conversations between an attorney and his clients, and, to a lesser extent, clients’ “agents” may be privileged, interviews of witnesses or other third parties by the lawyer are not.
“If a lawyer for an organization knows that an officer, employee or other person associated with the organization is engaged in action, intends to act or refuses to act… [In] violation of law which reasonably might be imputed to the organization, and is likely to result in substantial injury to the organization, then the lawyer shall proceed as is reasonably necessary in the best interest of the organization.”
Given the ever-increasing risks of investigations gone awry, why engage an investigator at all? Because thorough preparation is an ethical responsibility.
Legal and Ethical Responsibility for the Conduct of Third Parties: Actions of third parties acting under an attorney’s direction, such as investigators, can be imputed to the law firm or organization in the context of attorney ethics.
Pursuant to the FDPPA, someone must have a “permissible purpose” as defined in the statute to obtain motor vehicle information, must keep records of this data and may be required to disclose the names of all to whom this information was disseminated.
Recording (or mechanical overhearing) a conversation or intercepting an electronic communication without the consent of at least one party is a Class E Felony under New York Penal Law Sec. 250.05
Thus, it is imperative to know whether the conduct of your investigator is, or is not, violating the law.
The attorney-client privilege shields confidential communications between an attorney and his client, made during the course of a professional relationship for the purpose of facilitating the rendition of legal services. The party asserting the privilege has the burden of proving each element of the privilege and that it has not been waived. Typically, the presence of a third-party destroys the privilege because confidentiality is lacking. However, where counsel needs assistance from other experts, the privilege extends to such third parties, hired as an agent of the attorney or client to facilitate the rendition of legal services.
No matter what career path a dual-licensed Attorney-CPA follows, ...
However, if the advice sought is the accountant’s rather than the lawyer’s, the privilege does not apply. Consequently, if a client communicates first with his accountant and later consults his attorney on the same matter, there is no privilege. The lesson here is clear.
However, if the advice sought is the accountant’s rather than the lawyer’s, the privilege does not apply. Consequently, if a client communicates first with his accountant and later consults his attorney on the same matter, there is no privilege. The lesson here is clear. If possible, hire an attorney who is dual-licensed as a CPA to ensure that all of your communications are privileged.