Accountants and the attorney-client privilege.

Accounting concepts are a foreign language to some lawyers in almost all cases and to almost all lawyers in some cases." As financial litigation becomes more complex, this often-quoted statement helps explain why attorneys sometimes need to use the services of accountants. Litigation support has become so much a part of the accounting profession that the American Institute of CPAs Code of Professional Conduct defines the practice of public accounting as including "litigation support services." For many lawyers, the need to consult a CPA is particularly acute when they work with financial statements, determine a client's net worth, try to understand a business' books and records or handle tax matters.

An issue raised about the attorney-accountant relationship is whether use of an accountant's services will jeopardize communications and work otherwise protected by the attorney--client privilege. This issue is grounded in the rejection of an accountant-client privilege by both common and federal law as well as the possibility that such communications may result in the waiver of an attorney-client privilege (see Berkowitz, 355 ESupp. 897, affd 488 E2d 1235, and Sidney Samuels, 155 F.R.D. 195 [N.D. Cal. (1994)]). From an accountant's perspective, the inability to protect communications and work product from disclosure threatens client candor and the CPA's ability to deliver quality services.

Despite the rejection of a federal accountant-client privilege, accountant-related communications still may be shielded from disclosure when an accountant acts as an agent for an attorney providing legal services (Judson, 322 E2d 460 [9th Cir. (1963)]). Extending the attorney-client privilege to accountants in this way is intended to enhance open and candid communications and to enable clients to obtain sound legal advice. Recognition that the attorney-client privilege may apply to accountant communications and work product is evident in both the Internal Revenue Manual and Treasury Circular 230. Both say essentially that an accountant need not reveal information he or she in good faith reasonably believes to be privileged.

This article examines the possible extension of attorney-client privilege to accountants, and some related planning considerations. Knowing when to raise privilege is vital to CPAs not only to serve a client's best interests, but also to avoid unnecessary legal liability.