Privilege and confidentiality: confusing principles.

• Author: Karon, Robert I.

Privileged communications and confidentiality are important principles in the accounting profession, in general, and in tax practice, in particular. This subject and the efforts and considerations of the AICPA Tax Division in recommending a privilege for CPAs were discussed in the Tax Currents column in the February issue of The Tax Adviser, at 123-125.

Clients believe that anything they tell their CPA is privileged. They believe CPAs have the same privilege as attorneys. As far as confidentiality goes, clients feel their financial and tax affairs are very personal and should not be shared with anyone else without their permission. That much is true. The accounting profession mandates that practitioners respect and keep private their clients' financial affairs and tax affairs. But there is a big difference between privileged communications and confidentiality.

Confidentiality has ethical, professional and moral responsibilities associated with it. A CPA's most essential element is his integrity. If clients knew or felt that the CPA was not keeping their financial and tax information confidential, they would lose faith and credibility in him, which means lost clients, lost business and lost reputation. So, from a professional standpoint, guarding the confidentiality of client information is as sacred as the privilege between doctor and patient, or between clergyman and parishioner.

A privilege is a special treatment that protects certain confidential communications from being disclosed in a legal proceeding. The privilege under current law applies only to attorneys. All privileged communications are confidential, but not all confidential, but not all confidential communications are privileged. The CPA should fully understand the necessity of maintaining the confidential nature of a client's information.

In a criminal setting, in which a practitioner is advising his client to get a criminal tax fraud lawyer, comments such as "Don't tell me anymore", "What I don't know about you can't hurt me", "If I know that information I will have to professionally respond differently than if I didn't know that information" may be appropriate, until such time as the attorney/client privilege has been established.

In civil tax matters the rules are different. It is much better to know what clients are doing and thereby be able to advise them correctly. Practitioners want to have the choice of deciding whether to go forward and represent the client or not - if they believe there is a conflict of interest or a violation of ethical rules. They also would like the...