Given the importance of the attorney-client privilege in a criminal case, perhaps the best reason that a CPA should not represent a taxpayer in a potential criminal matter is that no confidentiality privilege exists between accountants and clients when it comes to criminal matters. Many CPAs mistakenly believe that their client communications are protected when representing an audited client. This is partially true where they did not prepare the original returns being audited.
Congress enacted Internal Revenue Code section 7525, the so-called “accountant privilege,” in 1998, which extended the common law attorney-client privilege to tax advice furnished by a federally authorized tax practitioner; however, that confidentiality privilege for accountants may only be asserted in noncriminal tax matters. The dilemma occurs once that examination turns criminal where the CPA can find themselves compelled to divulge all the client’s previously discussed secrets to the IRS under the IRS’s subpoena power. Moreover, communications surrounding the preparation of the original return being audited are never privileged (even where the original return was prepared by an attorney) given that a tax return is a public disclosure and thus no expectation of confidentiality surrounded the communications at issue.
The 6th Circuit court of appeals has held that statements made in a civil examination may be admitted as evidence in a subsequent criminal prosecution. In U.S. v. Rutherford, 555 F.3d 190 (6th Cir. 2009), the defendants were represented by a CPA when the civil interviews were being conducted. Because the case was not handed over to a criminal tax attorney at the phase where the CPA should have realized that the taxpayers were in need of legal representation, the taxpayer’s ability to protect his constitutional rights were weakened. Ultimately the statements made during the civil audit while the client was represented by a CPA, led directly to the taxpayer’s criminal prosecution.
