Yikes, Tax Court! So . . . do you really think clients should pay 💲 💲 for
#taxnirvana?
✅Tax attorneys know that clients take what we tell them and "spill that tea" 🫖 with their tax preparers. If you think your client is coming to you just to bask in your knowledge seeking a state of
#tax nirvana 🧘 . . . nope. 🙄
🛡️Most people also understand that the
#attorneyclientprivilege protects confidential communications between attorneys and clients if made for the purpose of obtaining or giving legal advice. Armed with that privilege, a client may refuse to disclose and stop others from disclosing those confidential communications.
🛡️Perhaps fewer people are familiar with the weaker IRC §7525 tax practitioner-client privilege. Basically, 🛑non-state🛑-tax-law-advice between a taxpayer and a federally authorized tax practitioner may receive the “same common law protections of confidentiality which apply to a communication between a taxpayer and an attorney” under IRC §7525. Here “tax advice” does not include tax compliance or business advice.
➡️ Both attorney client privilege and IRC §7525 may be waived upon disclosure of the information to a third party.
✅ Then we have Kovel agreements: counsel (engaged by client for legal services) engages a non-attorney tax professional as a specialist to support client service. A proper Kovel agreement extends the protection otherwise limited to attorney-client interactions to the non-attorney tax professional.
Sounds like: “Wow! 🤯 Client will be able to keep even more communications from being disclosed to third parties.” Not so fast . . .
🤔A recent Tax Court ruling should ring some alarm bells when it comes to whatever all of that above means now. In the case, clients try to assert privilege for a number of docs related to a
#microcaptiveinsurance arrangement.
🤔They maintain that their email to their accountant, which disclosed legal advice, is not a third-party waiver because of Kovel.
🤔The court is clear that tax prep advice is not the same animal as tax law advice and is simply not privileged (meaning Kovel won’t cover it). According to the court: “The disclosure to the accountant was not in furtherance of the legal advice, rather it was disclosed to assist in tax return preparation. Kovel does not apply in this circumstance, and petitioners waived attorney-client privilege with their disclosure of Exhibit 140-J.”
Taxplaining🎙️
@taxcreditlawyer