Protecting a taxpayer's privileges.

• Author: Dellinger, Kip

Preserving legally recognized "privileges" that shield what was said between client and accountant from compelled disclosure is a fundamental duty of the CPA tax professional. Generally, this desire for privilege is to prevent a tax authority--for example, the IRS--from accessing communications and related work product, such as written advice, analysis, and recommendations, between the taxpayer and the tax adviser pertaining to a tax issue in dispute. Thus, it is critical that the CPA understand the privileges that are available to a client-taxpayer when communicating with a tax professional.

The scope of those tax privileges, however, is limited at best and nonexistent in many situations. Consequently, in the course of tax practice, the CPA should be ever vigilant in recognizing when to refuse to listen or to stop listening to a client and refer the client to tax legal counsel to prevent possible harm to the client. This includes, of course, both written communications such as email and oral discussions. It is important to note that the many state accountancy laws that address "client confidentiality" do not provide privilege protection regarding tax authority inquiries--that is, confidentiality and privilege protections are different creatures in the law, a fact that is sometimes misunderstood by both the client and the tax adviser.

A lack of knowledge on the part of the CPA of the nature of a client's "privileges" with regard to communications with a tax adviser, or a lack of thoughtfulness with regard to communications between the CPA and the tax client that otherwise should be "off limits" because it is outside the scope of the CPA-client privilege, may result in significant harm to the client should the CPA be compelled to reveal communications to the tax authority or to a court. This problem is exacerbated by the fact that taxpayers often believe their communication with a CPA is subject to privilege similar to a communication with an attorney. Consequently, as a matter of course, the CPA should advise the taxpayer of limitations that apply to what the client might otherwise believe is "privileged."

While the attorney-client privilege does not extend to the CPA, it is necessary to understand that privilege in order to understand and apply any related type of privilege that may apply to client-CPA communications and related limitations.

Elements of the attorney-client privilege

Basically, the privilege belongs to the client, but the...