Kovel Doctrine – Expanded Privilege

Kovel Doctrine – Expanded Privilege

Kovel Doctrine – Expanded Privilege

Kovel Doctrine - Expanded Privilege
Kovel Doctrine – Expanded Privilege

In handling complex financial transactions, particularly those with significant tax implications, attorneys often need the advice and assistance of accountants to competently represent their clients. Accountants help lawyers understand the financial and tax implications in a variety of transactions, but are particularly helpful in tax-advantaged transactions, sometimes referred to as tax shelters. Absent such assistance, attorneys would be forced to proceed without a complete understanding of the tax implications and risks of a particular transaction. The advice and assistance of an accountant, however, is valuable only to the extent that an attorney can have “full and frank” discussions with an accountant without fear that such communications will be discovered by outsiders, particularly the Internal Revenue Service (IRS).

Forty years ago, in the landmark case of United States v. Kovel,’ the Second Circuit extended the attorney-client privilege to include communications an attorney has with an accountant to assist the attorney in understanding the client’s financial information. In that case, the court analogized the accountant’s role to that of an interpreter. The law is well-established that if an attorney needs an interpreter to understand his client, the presence of the interpreter will not vitiate the attorney-client privilege. According to the Second Circuit, the tax laws can be as incomprehensible as a foreign language to many lawyers; “[h]ence the presence of an accountant… while the client is relating a complicated tax story to the lawyer, ought not to destroy the privilege …. “,

The attorney-client privilege, however, is valuable only to the extent it is predictable. Any uncertainty in the law will render the privilege virtually worthless because no competent attorney would engage in confidential communications with a client or a representative of a client unless he was certain the privilege would apply. Despite the holding in Kovel, certainty no longer exists with regard to communications between and among a client, the client’s attorney, and the client’s accountant. Over the past four decades, courts have repeatedly narrowed the holding in Kovel. As a result, there is very little protection left for communications with accountants, and the little protection remaining is often confusing and unpredictable.

The opinion in Kovel and supporting materials follow on this page.

United States of America, Appellee, v. Louis Kovel, Defendant­ appellant, 296 F.2d 918 (2d Cir. 1961)


Privileged Communications with Accountants: The Demise of United States v. Kovel
The Auditor’s Need For The Client’s Detailed Information
vs.The Client’s Need to Preserve the Attorney-Client Privilege and Work Product Protection:
The Debate, The Problems, and Proposed Solutions

Chicken, Eggshell – Reverse Eggshell

Kovel Doctrine – Expanded Privilege

Additional Issues – Civil vs. Criminal Audit

Internal Revenue Manual – Badges of Fraud