How it works
Confidential communications between a client and an attorney for the purpose of obtaining legal advice are privileged: the attorney cannot be compelled to disclose them, and neither can the client. The federal tax practitioner privilege for accountants under Section 7525 is narrower: it does not apply in criminal matters, does not cover tax shelters, and can be lost when the accountant prepares the return. A Kovel arrangement extends the attorney’s privilege to an accountant working under the attorney’s direction.
Why it matters
An accountant can be compelled to testify about what you told them. An attorney generally cannot. When a matter involves unreported income, foreign accounts, an audit, or a deadline, that difference is the reason to speak with the attorney first and bring the accountant in under the engagement.
Example
A taxpayer tells his CPA he deliberately left 100,000 dollars of crypto gains off his return. In a later criminal investigation, the CPA can be subpoenaed to repeat that. Had he told an attorney, the conversation would be protected.
Related: Kovel agreement, eggshell audit. Read more: the first thing you should say.
