Recent court rulings may allow the IRS to have access to Massachusetts consumers’ tax documents that were previously privileged. While the old rules allowed the IRS to access information from accountants regarding their clients, information given to attorneys was typically considered part of the attorney-client privilege. Accountants did have a loophole for keeping information confidential and out of the possession of the IRS when a tax lawyer hired an accountant, thus making this information part of the attorney-client umbrella.
However, the IRS has filed several lawsuits that are changing the rules regarding these privileges. In a Ninth Circuit case, the court ruled that an appraisal could not be kept from the IRS by the taxpayer, lawyer and accountant. In another case, the court required a lawyer and accountant to disclose their discussions.
In yet another notable case, a divorce attorney who faced federal tax evasion charges was required to reveal her tax records to the IRS, and her own tax attorneys were required to turn over the records that they had also. The court held that her tax records were not properly protected by the attorney-client privilege. The court issued a subpoena that required an accountant to hand over check ledgers, billing information, credit card statements, day planners and other documents and items that she had given to the accountant in order to prepare her tax return.
A tax attorney can explain the tax rules and any recent changes in the laws that could affect privileged information. By explaining this information, an attorney may be able to shield a client from revealing information to accountants that could be used against him or her.
Source: Forbes.com, “Court Holds IRS Can Get Key Tax Records Even Held by Your Lawyer,” Robert W. Wood, Jan. 21, 2013