Academic journal article Journal of Accountancy

IRS Restructuring Act Includes CPA/client Privilege

Academic journal article Journal of Accountancy

IRS Restructuring Act Includes CPA/client Privilege

Article excerpt

The landmark Internal Revenue Service Restructuring and Reform Act of 1998, which President Clinton signed into law on July 22, 1998, includes a provision that creates a confidentiality privilege between clients and the CPAs who represent them before the IRS in most matters.

The provision gives taxpayers uniform confidentiality protection for most tax advice they receive from CPAs and other federally authorized tax practitioners in noncriminal matters before the IRS. It also applies in cases before the federal court in which a federal tax authority is involved. It would not curb the ability of the IRS to investigate criminal behavior or to obtain information necessary to determine whether a tax return is correct.

The IRS currently has broad authority under Internal Revenue Code section 7602 to summon any information the agency believes is relevant to an examination. While tax advice received from an attorney is often protected under common-law privilege, the IRS can compel disclosure of the same advice if it is received from a CPA or an enrolled agent or from an attorney who is providing advice in the role of a tax practitioner rather than that of a legal adviser.

"CPAs often provide clients with a list of options when planning a tax strategy," said Les Brorsen, managing director, government relations, Ernst & Young, Washington, D.C. "The IRS can obtain the list of options, as well as the CPA's evaluations of the options, under a summons and use it against the taxpayer during an examination," said Brorsen. "Under the new law, that list would be protected in most cases to the same extent it could be protected under the attorney-client privilege. …

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