By ROBERT W. WOOD
With all the talk of undisclosed foreign bank accounts and coming clean to the IRS, there?s renewed buzz about an age-old topic: what tax information can the IRS get?� Under the U.S. Constitution, you can?t be made to testify against yourself.� You can assert your Fifth Amendment rights and decline to answer IRS questions, even in front of a judge.�
But documents are a different story.��If you have documents?such as foreign bank account records?the IRS can obtain them with a summons, subpoena or search warrant.� That may make you wonder if you aren?t better off with sensitive information in the hands of your lawyer.� That?s especially true if you?ve considered a quiet disclosure.�
Thanks to attorney-client privilege, if you confess to a lawyer you?re hiding income or assets offshore the IRS can?t make the lawyer talk.� The IRS can?t even make your lawyer produce your documents with a summons or subpoena. See Latest Foreign Account Prosecution Fuels Fears.� Such are the basics of the attorney client-privilege.�
That should impact how you handle your case.� If you ask your lawyer to obtain your foreign bank records, your lawyer can?t be forced to hand them over to the IRS.� In contrast, if you obtain your own foreign bank records, they?re fair game.� �
Accountants, however, don?t have this privilege.� If you make statements or provide documents to your accountant, he can be compelled to divulge it no matter how incriminating it is. �The accounting profession lobbied for its own privilege in the 1990s, and a�statutory ?tax preparation? privilege was added in 1998 (IRC��Section�7525(a)(1)).� However,�it is inapplicable to criminal tax cases so is of little value.
In sensitive tax matters, the answer to this quandary for the last 50 years has been the Kovel letter.� Named after United States v. Kovel, it works like this: Your tax lawyer hires an accountant to work for him on your case.� In effect, the accountant is doing your tax accounting and return preparation, but reporting as a subcontractor to your lawyer.
Properly executed, this end-run imports attorney client privilege to the accountant?s work and communications.� However, recent IRS lawsuits are eroding this well-established principle.�
In United States v. Richey, the Ninth Circuit Court of Appeals refused to protect an appraisal that a taxpayer, lawyer and accountant were trying to keep out of IRS hands.� In United States v. Hatfield, a federal court in New York also cut back on Kovel, forcing disclosure of discussions between the lawyer and accountant.
Kovel is still good law and the practice remains widespread.� But additional precautions, such as more rigid direction from the lawyer to the accountant and segregation of accounting and legal files, are good ideas.
For more, see:
Tax Amnesty: IRS�Voluntary�Disclosure�Part Deux
How Do you Opt Out Of IRS Voluntary Disclosure?
IRS Updates�Voluntary�Disclosure�Amnesty: What You Should Know�
IRS�Voluntary�Disclosure�A Mistake For Some�
Robert W. Wood practices law with Wood & Porter, in San Francisco.� The author of more than 30 books, including Taxation of Damage Awards & Settlement Payments (4th Ed. 2009, Tax Institute), he can be reached at wood@woodporter.com.� This discussion is not intended as legal advice, and cannot be relied�upon for any purpose without the services of a qualified professional.
No comments:
Post a Comment