Attorney-Client Privilege and the Kovel Rule

Attorney-Client Privilege and the Kovel Rule Attorney-Client Privilege and the Kovel Rule Youve probably heard the phrase on TV or in the movies, even if youve thankfully never found yourself in the predicament of needing a lawyer to defend your rights. Attorney-client privilege, also sometimes called lawyer-client privilege, is the provision in the law that says that what you tell your lawyer stays between you and your lawyer. He cant be forced to testify as to what you said. He doesnt have to provide his notes of the conversation in the discovery process- the part of a lawsuit that involves both sides having a legal obligation to share all information thats pertinent to the case. Lawyer-client confidentiality is an offshoot of this provision. Lawyer-Client Privilege vs. Confidentiality   Lawyer-client confidentiality isnt quite the same as lawyer-client privilege, although its based on the same premise. Confidentiality refers to an attorneys legal obligation not to divulge what his client tells him. Doing so is an ethics violation and could lead to disciplinary sanctions, unless the client gives his lawyer his informed consent to go ahead and speak. The client can waive his right to lawyer-client privilege as well.   The Kovel Rule   The Kovel Rule is an extension of the legal principles of lawyer-client privilege and confidentiality. In addition to lawyers,  it also extends to other professional experts who might be involved in a case, such as an accountant  who is consulted by the client or indirectly through the clients attorney. These experts might include financial advisors or financial planners. The rule takes its name from Louis Kovel, an IRS agent who later joined a law firm that specialized in tax cases. He lent his expertise in tax accounting to case preparation and client representation. In 1961, Kovel was sentenced to prison for refusing to answer questions in court about discussions he had with a client. He believed that those conversations were protected by the principle of lawyer-client privilege, and an appeals court agreed with him. His conviction was overturned. Challenges to the Rule   All the same, the IRS has won several key decisions in the federal courts, limiting the extent of the protections afforded to clients under the Kovel Rule. The upshot is that clients are becoming less frank in their discussions with tax counsel, which, in turn, makes it more difficult for these attorneys, accountants, and other professionals to give them sound and accurate advice. A 2010 case established the precedent that the Kovel Rule does not apply to charges involving criminal activities such as fraud and tax evasion. The Takeaway   The bottom line is that an accountants advice in a tax case is not automatically protected by the principles of confidentiality  and privilege, regardless of the intent of the Kovel Rule. The rule might afford some slight protection or at least a blurring of the line if the accountant has been formally engaged in writing by the attorney. But ensuring that the Kovel Rule is upheld typically requires much more detailed legal maneuvering. Some states are more protective of accountant-client discussions than the federal government, but keep in mind that the IRS has historically taken a hard and firm stand against this rule and can probably be counted on to challenge it, particularly when serious charges are involved.