How Safe is my Information with my Attorney?
The bottom line is, if the IRS is conducting a criminal investigation, your records and statements to your tax attorney are safe. However, the same is not true for Enrolled Agents and CPAs where, in a criminal investigation, your Enrolled Agent or CPA can be subpoenaed before a grand jury and made to testify against you!
Here’s how this works. Accountants and tax audit attorneys are often requested by the IRS, through the use of a summons, to produce books and records that might have a bearing on the tax liability of their clients. Refusal to comply with the summons is often based on a claim of privileged communications between accountant and client, or attorney and client. Which one can actually protect you and your paperwork, the accountant or the attorney? If you said “attorney,” you are right. Please read why below.
The privilege available to attorneys is different from that applied to accountants and, the claim of attorney-client privilege is sustained. The U.S. Supreme Court has held that, in the case of pre-existing documents transferred to an attorney, the attorney-client privilege exists only if certain conditions are met. These are: the taxpayer is (or was seeking to become) a client of a licensed member of a state bar; the information in the documents was made in confidence to the attorney; communication was made to obtain legal advice; and the documents have been privileged in the client’s hands, either at common law or under the Fifth Amendment protection against self-incrimination.
Documents prepared by an attorney are protected by the attorney-client privilege, although the privilege must be claimed on a document-by-document basis. The U.S. Supreme Court has decided, under the facts of a specific case, that a company did not have to disclose questionnaires prepared by its general counsel (attorney) and distributed by him to corporate officers and employees during the course of his investigation of possible illegal payments to foreign governments.
In the same case, the Supreme Court also gave a limited protection for attorney-work product (i.e., material prepared in anticipation of litigation). Notes and memoranda prepared by the attorney during interviews with the officers and employees were also not discloseable. The government’s showing that it had substantial need for the material, and that it could be obtained without substantial hardship, was insufficient to permit disclosure.
The Tax Court has held that the attorney-client privilege does not protect from discovery communications between a taxpayer’s accountant and the taxpayer’s attorney where the accountant was hired as the taxpayer’s primary representative for an audit. On the other hand, the Tax Court, citing a prior appellate court decision, noted that, had the attorney been hired as the taxpayer’s primary representative and the accountant been hired to assist the attorney, the attorney-accountant communications would have been protected.
Accountants and Other “Federally Authorized Tax Practitioners” (Enrolled Agents)
The IRS Restructuring and Reform Act of 1998 expanded the protection of confidentiality to certain communications with accountants and other federally authorized tax practitioners to the same extent as the common-law protection accorded to communications with an attorney. The privilege applies in any non-criminal tax proceeding. But beware, if the proceeding you’re involved in is a criminal investigation then your CPA or Enrolled Agent can be forced to testify against you and forced to turn over your confidential records!
The bottom line? If there is even the slightest indication of IRS criminal wrong-doing, you’d better use a lawyer. Anything you tell me, Andrew Gordon, remains confidential as I am a tax audit attorney. Not so with other “tax professionals.”