CPA-Client Confidentiality, the New Federal
Attorney-CPA (2000) Vol. 35, No. 3 p.6; Yarbrough, Donald A.

Under the Internal Revenue Service (IRS) Restructuring and Reform Act of 1998, taxpayers are accorded a privilege regarding written and verbal tax advice from a CPA, attorney, enrolled agents, and enrolled actuaries that are authorized tax practitioners. The privilege can be invoked in a non-criminal proceeding before the IRS or in a federal court but not in a state court, in criminal proceedings, before the Securities and Exchange Commission, or before the Federal Trade Commission. In order to guarantee the client understands the privilege and does not waive it inadvertently, the CPA must explain the privilege and its applications verbally and with a written letter. It is also advisable that the CPA insert an indemnity clause to advise the client of legal fees that he/she will be responsible for if the privilege clause is used by the CPA on behalf of the client. The letter should also explain how the client can inadvertently waive the rights accorded in the privilege. For example, if the tax advice given to the client by the CPA is overheard or told to a third party, the client has waived the tax advice privilege. The CPA must also maintain the confidentiality of tax advice and not relay it to anyone outside of office staff or the IRS without the consent of the client; otherwise, the CPA will face a malpractice suit. If the client decides to waive the privilege, the CPA must obtain a written waiver from the client. Both the CPA and the client should obtain legal advice about the privilege before invoking or waiving it in a non-criminal proceeding.


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