Roz Marketing - November/December 2020


What Is a Kovel Agreement, and Why Should I Care About It?

While 99% of tax resolution cases are considered civil cases and are settled administratively, there will come a time when you are meeting with a prospective client and reviewing their most recent IRS notices and you stumble upon a letter addressed to the taxpayer from the Department of Justice regarding possible tax fraud or an audit. Or you realize that the prospective client has foreign bank accounts in his name and intentionally, or even unintentionally, never disclosed these on his tax returns. Anything you say at this point can be used against you in a criminal proceeding, as this case may be considered a criminal tax matter and you don’t have “privileged” communications like an attorney would. The accountant- client privilege under IRC Sec. 7525 is weak and will not cover you here. So, you might be wondering, what do you do if you’re in this situation? I’ve had dozens of these exact scenarios over the years. These types of cases are large-fee ones, and I did not want to see a potential client walk out the door, especially if I knew I could help them.

A Kovel Letter or Agreement can be the answer, as it places you under the umbrella of the attorney-client privilege. It’s an engagement letter between the lawyer, the accountant, and the client. And this why it’s important for you to establish a relationship with a criminal tax defense lawyer. Essentially, you are retained by the attorney to provide tax and accounting services, aka tax resolution services, to your client, thus extending the attorney-client privilege to you. Generally, the client will retain a lawyer. When I had my tax resolution practice, we used Bob McKenzie of Saul Ewing Arnstein and Lehr, LLP for all our Kovel cases. And, in turn, the lawyer retains you so you can work the case. The lawyer was always on standby in case we needed him. You should also have an engagement letter between you and the client. My point is this: Don’t be scared off and reject or refer the case out when you know you can help. Knowing how and when to use a Kovel Agreement will make you a better technician and increase your bottom line!

–Michael Rozbruch

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