In most circumstances, no. The absence of an accountant-client privilege in federal proceedings is one of the most practically significant privilege gaps that practitioners under investigation fail to account for.
Federal common law does not recognize a general accountant-client privilege. The communications between a practitioner and their accountant or financial advisor about tax matters, billing practices, financial records, and business operations are not privileged in federal court absent a specific statutory provision creating a privilege or a specific arrangement under which the accountant is acting as an agent of the practitioner’s attorney.
The Scope of the Gap
The absence of an accountant-client privilege means that the government can subpoena the practitioner’s accountant and compel testimony about every communication the accountant had with the practitioner concerning the financial matters the investigation addresses. The accountant can be asked what the practitioner told them about cash receipts, about prescription volumes, about the sources of specific deposits, and about any other financial matter relevant to the investigation. The accountant can produce all records they prepared for the practitioner and all documents the practitioner provided to them. None of those communications are privileged.
In IRS Criminal Investigation cases and in healthcare fraud cases with significant financial components, the practitioner’s accountant is one of the government’s most valuable witnesses. The accountant knows the financial reality of the practice from the inside, prepared the tax returns that reflect the income from the prescribing operations, and received communications from the practitioner about financial matters that the practitioner may have believed were confidential.
The Kovel Arrangement
One mechanism for extending attorney-client privilege protection to accountant communications is the Kovel arrangement, established by the Second Circuit’s decision in United States v. Kovel in 1961. Under Kovel, an accountant retained by and working under the direction of the practitioner’s attorney, for the purpose of assisting the attorney in providing legal advice, may be treated as the attorney’s agent, and communications between the client and the accountant within that structure may be protected by the attorney-client privilege.
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(212) 300-5196The Kovel arrangement requires specific conditions: the accountant must be retained by the attorney, not the client; the accountant’s work must be directed toward assisting the attorney in rendering legal advice; and the arrangement must be established before the communications in question occur. An accountant who was retained by the client for ordinary tax and financial purposes cannot retroactively be converted into a Kovel accountant by the subsequent retention of an attorney who supervises some of the accountant’s work.
Tax Practitioner Privilege
26 U.S.C. 7525 provides a limited privilege for communications between a taxpayer and a federally authorized tax practitioner, including enrolled agents and CPAs, in non-criminal tax proceedings. The privilege is modeled on the attorney-client privilege and protects advice given in the course of the tax practitioner’s authorized practice to the same extent that attorney communications would be protected.
The Section 7525 privilege has significant limitations in the opioid fraud context. It applies only in non-criminal federal tax proceedings. It does not apply in criminal investigations, including IRS Criminal Investigation proceedings. It does not apply in criminal prosecutions, even if the communications involved tax advice. For a practitioner under criminal investigation for opioid fraud that also involves unreported income, the Section 7525 privilege provides little protection in the proceedings where protection matters most.
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The practitioner who has discussed the financial dimensions of the practice with their accountant, who has provided their accountant with information about cash receipts from controlled substance prescriptions, and who has received advice from their accountant about how to characterize that income, has had conversations that the government can access through the accountant’s compelled testimony. The assumption that those conversations are protected in the same way as conversations with an attorney is an assumption that federal law does not support.
Practical Steps
The practitioner under investigation should ensure that all communications about the financial dimensions of the investigation occur through counsel, not through the accountant. Financial analysis needed for the defense, including review of tax returns, billing records, and financial statements, should be conducted by a forensic accountant retained by and working under counsel’s direction, within a Kovel arrangement that extends the attorney-client privilege to that analysis. Communications about the financial matters under investigation should be routed through counsel rather than through the practitioner’s regular accountant, whose prior communications are already accessible to the government.
