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Attorney
Client Privilege Denied in
Preparation of Tax Returns!
If you think all your tax secrets are safe because you
went to your attorney first, who then gave the information to your accountant,
think again!
In a recent court case, Frederick, CA-7, on
April 15, 1999, an appellate court affirmed a denial of attorney-client
privilege or work-product privilege for documents created by an attorney
in connection with preparation of returns for taxpayers already under
investigation by IRS for other years.
The court described the documents as drafts of the returns
(including schedules), worksheets containing the financial data and
computations required for filling in the returns and related correspondence.
According to the court, [t]hese are the kinds of document[s] that accountants
and other preparers generate as an incident to preparing their clients’
returns, or that the taxpayers themselves generate if they prepare their
own returns, though in the latter case there is unlikely to be correspondence,"
Given that there is no common-law accountant’s or preparer’s
privilege (citing Arthur Young & Co., 465 U.S. 805, 53
AFTR2d 84-866 (1984), and Couch, 409 U.S. 322, 31 AFTR2d 73-477
(1973)), the taxpayer "must not be allowed, by hiring a lawyer
to do the work that an accountant, or other tax preparer, or the taxpayer
himself, normally would do, to obtain greater protection from government
investigators than a taxpayer who did use a lawyer as his tax preparer." This is not a new proposition- the appellate court cited its prior decision
in Lawless, 709 F.2d 485, 52 AFTR2d 83-5818 (CA-7, 1983), as
well as cases from the Fourth, Fifth and Eleventh Circuits.
You can no longer count on this layer of privilege to
protect you in all your dealings. It is best to audit proof your records
and remain bullet proof. That is why we use tax attorney/CPA Sandy Botkin.
How to Keep Your Business in the Top 5%!