The Kovel Privilege: How Does it Work?

By Sharon L. McCarthy
CPA Journal
June 2015 Edition

A client’s communications with an accountant enjoy a limited privilege under the Tax Code. In non-criminal tax matters, that privilege applies to any communication that “would be considered a privileged communication if it were between a taxpayer and an attorney” [IRC section 7525(a)(1)]. In the criminal context, however, no such privilege applies to communications between an accountant and a client, except when the accountant assists an attorney in providing legal advice to a client. This has been well-established law since 1961, when the Second Circuit Court of Appeals decided United States v. Kovel [296 F.2d 918 (2d Cir. 1961)].

This article will describe the basis for the Kovel privilege in the criminal tax context, the types of communications covered by the privilege, and the steps that should be followed to ensure that the privilege will be upheld if, for example, an accountant is subpoenaed to testify before a grand jury. Basis for Kovel Privilege Louis Kovel was a former IRS agent who worked at a tax law firm, where he assisted the firm’s attorneys in representing clients with tax issues. Kovel was subpoenaed to testify before a Manhattan federal grand jury that was investigating one of the firm’s clients. Although the law firm informed the prosecutor that Kovel, an employee, had worked under the attorneys’ direct supervision in representing the client and therefore could not reveal privileged communications, the prosecutor’s position was that the attorney-client privilege did not extend to a non-attorney. The judge agreed, and instructed Kovel to answer all questions put to him in the grand jury. Kovel answered some, but not all, of the prosecutor’s questions in the grand jury, again asserting that he was bound by the attorney-client privilege not to reveal his client’s confidences. Kovel was held in contempt and sentenced to one year in prison.

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