Kovel Agreement Sample

However, there are methods to protect communication between taxpayers and accountants. Such a method is called the Kovel agreement. Under this agreement, the taxpayer appoints a tax lawyer, who in turn uses the services of a tax advisor. If done correctly, federal courts have recognized that communications between these parties are not subject to disclosure, under the theory that such communications are protected by solicitors` privilege. Since the Kovel decision sixty years ago, federal courts have had many opportunities to clarify the requirements of a Kovel agreement. In general, those decisions concluded that the onus was on the taxpayers to prove the existence of a Kovel agreement. In addition, these federal decisions have revealed that content is often important. For example, Kovel agreements failed if: (1) the accountant did not have a separate agreement with the lawyer; (2) the contractual agreement stipulates that the taxpayer (and not the lawyer) is the client; and (3) the tax advisor requested payment for services directly from the taxable person. [ix] In many civil cases, the Kovel agreements may not make sense. But, as noted above, Kovel agreements have their place in effective tax defense, especially when there is an ongoing or potential criminal investigation against the taxpayer. In such cases, the taxpayer should ensure that a Kovel agreement has been concluded before malicious communications are sent to an accountant or CPA. Auditors and auditors should also hire representatives if criminal tax issues arise and no Kovel agreement has been reached. Solicitor-client privilege is the oldest common law privilege recognized by the courts.

And the Kovel Agreement is created under this privilege. According to solicitor-client privilege, communication between lawyers and their clients is generally not subject to disclosure. [ii] The objective of solicitor-client privilege is clear: to promote full and open communication between lawyers and their clients, thereby promoting broader public interests in accordance with the law and the administration of justice. [iii] This overview covers both the common law doctrine of solicitor-client privilege and the more recent legal law of client-accounting privilege. In addition, this overview deals with the Kovel case and the general requirements of a Kovel agreement. [v] See Von Bulow v. Von Bulow, 811 F.2d 136, 146 (2d Cir. 1987).

In general, there is a limited privilege between an accountant/CPA and his client. The accountant`s privilege is very limited and does not extend to anything criminal. The purpose of issuing a Kovel is to fill the gap in confidentiality between a client and a CPA in tax matters. Kovel`s letter was introduced as a result of the case of United States v. Kovel. Solicitor-client privilege protected the client`s confidentiality between the lawyer and the client. The crucial element of privilege is that the communication is confidential in order to obtain legal advice from the lawyer. If it is not a legal opinion, but only an accounting service is sought..

or if the opinion sought is that of the accountant and not that of the lawyer, there is no privilege. [viii] Just because a lawyer uses a Part 3 accountant to provide tax services and issues a kovel letter does not mean that he or she grants general privilege to the lawyer. [iv] See U.S. v. Adlman, 68 F.3d 1495 (2nd Cir. 1995). Nor does it offer privacy protection for legal matters that would otherwise have been protected if the communications had been made to a lawyer. Rather, Kovel is used so that the client can communicate with the CPA or accountant, and the accountant can help convey technical questions to the lawyer – not the other way around. There is a correct way to issue a Kovel letter and a wrong way to issue a Kovel letter. Unfortunately, the wrong way can have a serious impact on customer privacy.

These discussions are not privileged, but they would have been if the communication had been made directly to the lawyer (and usually to the lawyer`s in-house staff). Since this is not a question of legal law, other courts are not necessarily required to take the same view unless the facts are identical. Even if you meet most of the basic requirements that seem necessary to receive a letter, it`s no guarantee that confidentiality will extend to the accountant. The client may feel ashamed and only provide information they deem relevant, rather than feeling safe telling the whole story. Kovel`s letter is a creation of a federal appellate court and is not a legal law. A Kovel letter is not a legal law and can be rejected by the courts. We often inherit cases from less experienced lawyers who have significantly exaggerated their experience in offshore disclosure to their clients. The CPA and the client then engage in legal discussions about the matter as it is in human nature. The protection (provided it is not rejected by the court) is very limited: these lawyers send general transfers to CPAs and external accountants for the preparation of tax returns under the false pretext of a letter from Kovel. In offshore disclosure, Kovel is used in the rare cases where the applicant has extremely complex foreign accounting material involving foreign companies. .