Q: Are conversations with my accountant or tax attorney privileged and confidential?
A: There is no simple answer to this question and, certainly, whether communications with your accountant are privileged or not may be at the heart of any court proceedings or hearings before the IRS. Some states recognize an accountant-client privilege while others do not. The federal government does not recognize a general accountant-client privilege.
However, communication with your lawyer is privileged and protected. That's one advantage to having a tax attorney represent you before the IRS rather than an accountant. The federally authorized Tax Practitioner Privilege law contained in the Internal Revenue Code provides that conversations between a taxpayer and a federally authorized tax practitioner are privileged as long as they would be considered privileged if they took place between a taxpayer and his or her attorney. This exception is limited to federal tax proceedings and only to conversations with an attorney, CPA, enrolled agent, or enrolled actuary, not tax preparers or anyone else.
However, if you owe back taxes or need tax relief from other IRS problems, be aware that even where the privilege is recognized, there are exceptions, and the privilege may be waived by, for example, even inadvertent disclosure to third parties or inclusion on a tax return. And you may have to disclose otherwise privileged communications if you end up suing your CPA.
If you are intent on establishing privileged communications regarding your tax issues, your safest route is to use a tax attorney to establish the well-recognized attorney-client privilege. If your attorney then contacts an accountant to help interpret or understand your financial situation, the communications between them will be privileged as well, as long as they are not disclosed to a third party, which will break the privilege. Note, however, that accounting advice given by your attorney, or the simple preparation of a tax return by your attorney, will not be privileged.
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