Protecting Communications With Accountants
| Publication year | 2011 |
| Pages | 69 |
| Citation | Vol. 40 No. 6 Pg. 69 |
2011, June, Pg. 69. Protecting Communications With Accountants
June 2011
Vol. 40, No. 6 [Page 69]
Tax Law
Tax Law articles are sponsoredby the CBA Taxation Law Section to provide timely updates and practical advice on federal, state, and local tax matters of interest to Colorado practitioners.
Article Editors
Adam Cohen, Denver, of Holland and Hart LLP-(303) 295-8000, acohen@hollandhart.com; Steven Weiser, Denver, of Levin and Weiser, LLC-(303) 504-4242, sweiser@lw-law.com
About the Author
Jennifer E. Benda is an associate with Baker and Hostetler LLP, where she focuses her practice on tax litigation and controversy-jbenda@bakerlaw.com.
This article reviews important case law addressing whether attorney communications with accountants are protected communications. It also discusses new IRS disclosure requirements and whether any attorney-accountant communications related to the creation of those disclosures may be protected.
Attorneys and accountants depend on each other's expertise in a variety of situations. Commonly, an attorney will consult with an accountant to get an explanation of the financial complexities of a case so that the attorney can effectively render legal advice. Accountants often consult with attorneys to understand legal issues related to accountant-prepared disclosures, such as those required in financial statements or tax returns. Certain communications between attorneys and accountants are privileged and, thus, protected from discovery in the event of litigation.
In 1961, the U.S. Court of Appeals for the Second Circuit in U.S. v. Kovel(fn1) extended the attorney-client privilege to a client's communications with an accountant working with the client's attorney. Since then, privileged communications with accountants have been narrowly definedby case law. It is important for attorneys and accountants to know what communications are privileged and how to protect the privilege, especially in light of Schedule UTP, Uncertain Tax Positions Statement, which the IRS will require for 2010 returns.(fn2) Schedule UTP contains new and extensive disclosure requirements.(fn3)
This article explores how the courts have applied the Kovel opinion andexamines other protections available for communications not coveredby the attorney-client privilege. The authorities discussed in this article provide the legal framework within which practitioners should work as they assist with tax return disclosures and endeavor to protect their confidential communications.
Attorney-Client Privilege Generally
The attorney-client privilege exists when: (1) legal advice is sought; (2) the legal advice is sought from a professional legal advisor; (3) the communication relates to the legal advice sought; (4) the communication is intended to be confidential; (5) the communication is between the client and the attorney (or an agent for the attorney); and (6) the client has not waived the privilege.(fn4) Whether the attorney-client privilege applies to direct communications between an attorney and the client is fairly straightforward when the only parties to the communication are the attorney and the client. Whether the attorney-client privilege extends to situations in which a third party is introduced to the communication, such as an accountant acting independently or as an agent for the attorney, is less clear.
Accountants Working With Attorneys: The Kovel Decision
There are several obvious reasons communications with accountants might not be privileged. An accountant's reports often are not confidential in nature because there is an expectation that the accounting information will be disclosed in financial statements, published for the public at large, or disclosed on a tax return that is filed with the Internal Revenue Service (IRS). Reports prepared in the regular course of business for the purposes of creating such disclosures are not expected to remain confidential and, therefore, are not privileged. To be protectedby the attorney-client privilege, an accountant's report or communication must be intended to be confidential and must relate to the legal advice the client seeks from the attorney.(fn5)
In Kovel, the Second Circuit Court of Appeals determined that a...
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