In U.S. v. Kovel 296 F.2d 918 (2nd Cir. 1961), a law firm employed an accountant on its own staff. In the course of representing a client that was the target of a grand jury investigation for various income tax offenses the taxpayer conveyed information to the accountant, which the accountant communicated to an attorney in the firm to aid in the client’s defense. The government subpoenaed the law firm’s files on the grounds that the communications involving the accountant were not subject to the attorney-client privilege. The Second Circuit held that because the law firm’s use of an accountant to assist it in understanding the content of the client’s business facilitated attorney-client communication and the provision of sound legal advice, the accountant’s communication with both the attorney and the taxpayer were privileged.
A taxpayer with a potential criminal matter often requires both legal and accounting assistance to defend his or her case. Where the Attorney deems it advantageous for his or her client, the Attorney may engage the referring CPA under a Kovel Agreement to help him or her represent the client in the criminal tax matter. The Kovel arrangement generally assures that communications between the CPA and the client fall under the attorney client privilege and the work papers prepared by the CPA generally fall under the Attorney’s work product privilege by making the CPA and his or her staff an extension of the Attorney’s firm as to the common clients representation. A Kovel arrangement should be documented in writing, preferably through an engagement letter prepared by the attorney that evidences the accountant is working directly for the attorney.