Privileges and Protections
Retaining an attorney comes with special privileges and protections that are not usually available when engaging other professionals.Attorney-Client Privilege
The attorney-client privilege is one of the oldest privileges that protect confidential communications in the United States. “Its purpose is to encourage full and frank communication between attorneys and their clients, and thereby promote broader public interests in the observance of law and administration of justice.” Upjohn Co. v. United States, 449 U.S. 383, 389 (1981). Not all communications between a client and his or her attorney are privileged. Courts generally afford protection if the communication is made: (1) in confidence, (2) for the purpose of obtaining legal advice, and (3) to a professional legal advisor. The privilege may be waived due to voluntary or inadvertent disclosure to third parties. There are also exceptions to the privilege. For example, communications made to obtain advice on the best way to commit a crime or fraud are not privileged.Work Product Doctrine
The work product doctrine protects documents and other materials prepared or collected by an attorney in preparation for litigation from disclosure to third parties. The purpose of the doctrine is to prevent opposing parties from gaining access into an attorney’s legal strategy. A court may require disclosure of such materials “[w]here relevant and non-privileged facts remain hidden in an attorney’s file and where production of those facts is essential to the preparation of one’s case[.]” Hickman v. Taylor, 329 U.S. 495, 511 (1947). It is, however, difficult to overcome the work product protection, because the opposing party must show that it cannot obtain similar material through another avenue without undue hardship.Kovel Letter
While there is no accountant-client privilege under the common law, some communications between an accountant and a client may be privileged under the attorney-client privilege if the accountant is acting as an agent of the attorney. This agency theory comes from U.S. v. Kovel, 296 F.2d 918 (2d Cir. 1961), in which the Second Circuit held the attorney-client privilege should not be destroyed where a non-attorney employed by the lawyer or client is involved in communications that are made in confidence for the purpose of obtaining legal advice from the lawyer. “If what is sought is not legal advice but only accounting service... or if the advice sought is the accountant's rather than the lawyer's, no privilege exists.” Id. at 922.
An accountant is often retained with respect to the services provided by our firm. We understand the importance of maintaining communications confidential as we represent clients in sensitive tax situations. Therefore, any time a client’s accountant is involved in a matter, we prepare a Kovel letter to be signed by the attorney and the client’s accountant to keep communications confidential.Federally Authorized Tax Practitioners
Section 7525 of the Internal Revenue Code grants protection to communications between a taxpayer and a federally authorized tax practitioner made for tax advice, so long as the communication would be confidential had it been made between a client and his or her attorney. A federally authorized tax practitioner includes attorneys, CPAs, enrolled agents, and any other individual authorized to practice before the IRS.
The Section 7525 privilege, however, is not as protective as the attorney-client privilege in two significant ways:
- The Section 7525 privilege does not apply in criminal tax matters. Therefore, if you are seeking representation in a criminal tax audit or in a criminal tax defense matter, you should retain a knowledgeable tax attorney, like the tax attorneys at the Ben-Cohen Law Firm.
- The Section 7525 privilege does not apply to state or local tax matters, unless the state or local authority has adopted it or established its own tax preparer-client privilege. California allows the Section 7525 privilege to be asserted in noncriminal tax matters before the Franchise Tax Board and State Board of Equalization. Revenue and Taxation Code secs. 7099.1(a)(2), 21028(a)(2). However, unlike the attorney-client privilege, you cannot assert the Section 7525 privilege in any other state matter, like a divorce proceeding.
While the privileges and protections that come with retaining an attorney are advantageous, some may feel that a CPA will be more knowledgeable about accounting concepts. By retaining the Ben-Cohen Law Firm, you do not need to choose, as we provide our clients with the unique skill sets of a tax attorney and a CPA. Attorney and CPA Pedram Ben-Cohen has extensive large-firm experience handling sophisticated tax matters and is also a Certified Taxation Law Specialist, certified by the State Bar of California Board of Legal Specialization.