Government Plans to Subpoena Accountants Engaged in Kovel Arrangements

Attorneys are not always fluent in accounting.  Thus, accountants are often retained by a client’s attorney to assist them in rendering advice to the client.  In the seminal case United States v. Kovel, the Second Circuit Court of Appeals held that communications made by a client to an accountant retained by his attorney will be shielded under the attorney-client privilege.

The government recently announced its intention to subpoena accountants in criminal tax cases.  Though it is too early to determine the exact reach of the government’s proclamation, it appears that the government intends to examine whether and to what extent a Kovel arrangement is in place.  Accordingly, attorneys and accountants working under a Kovel arrangement should review those arrangements to ensure that their written agreement is within the strictures of Kovel, and that the actual work being performed on the ground is consistent with that written agreement.

In particular, practitioners should be extremely careful when entering into Kovel arrangements with a client’s historical accountant.  It may be preferable, in fact, to avoid such an arrangements altogether.  That way, there is no ambiguity as to whether communications made to the accountant were made pursuant to an historical arrangement or a Kovel arrangement.

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