The Value of Attorney Client Privilege with Your Tax Lawyer

The Value of Attorney Client Privilege with Your Tax Lawyer

Attorney client privilege is a concept from the law of evidence that protects communications made between a client and his or her attorney. A client can claim this privilege to prevent the attorney from being forced to testify or produce evidence that is protected under this rule. This encourages the client to be forthcoming with all the information the attorney needs to represent the client’s interests.

Communications with accountants and tax preparers may also be privileged, but these privileges are much more limited than the attorney client privilege. There are situations where accountants and tax preparers can be forced to testify as a witness against their own clients.

Attorney Client Privilege Offers the Most Protection

A tax preparer privilege, IRC Section 7525(a)(1), was added to the IRS code in 1998, but does not apply to criminal tax cases.  That means if your accountant is holding documents or information for you, he or she can be required to produce them. The tax preparer privilege also doesn’t apply to state tax matters, or to “tax shelters.” Because of these limitations, clients who are concerned about even the possibility of   criminal tax charges or dealing with state tax issues may decide to work only with an attorney.

So what if your tax lawyer isn’t also your tax preparer, as is usually the case? United States vs. Kovel in some cases provides for the same attorney client privilege between your accountant and your tax lawyer.

The Kovel Rule

Under the Kovel rule, you may hire a tax lawyer who can then hire a tax preparer working on your behalf and as a sub-contractor to your attorney, thereby extending attorney client privilege to the tax preparer. The Kovel rule is predicated on the assumption that communications with the accountant are “made in confidence for the purpose of obtaining legal advice from the lawyer.”

Limits to Attorney Client Privilege

There are limitations to what’s covered by attorney client privilege. The underlying information is not covered just because its contents has been communicated to an attorney. So if you’ve given tax documents to your attorney, the records may still be subpoenaed from you, but any communications with your attorney will be protected.

Information that has been disclosed to third parties may also fall outside the protection of attorney client privilege. 

To protect communications regarding your tax controversy to the fullest extent possible, you will need to hire a tax lawyer.

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