Posted on Oct 28, 2015 by J. David Johnson, IV
One of the first things I do when I get a new business client is to ask if they have a relationship with an accountant. With the client's permission, I'll call the accountant, introduce myself and open up the lines of communication between us.
You'll get better and more efficient representation when your accountant and lawyer work together, because so many business issues depend on the insight and experience of both. It's a big win to have everyone working together for you, right out of the box.
Some of the matters where lawyers and accountants will be an effective tandem include business valuations, employee benefit plans, ESOPs, sale of a business, estate and succession planning and especially in audits and tax controversies involving the Internal Revenue Service (IRS).
Extend attorney-client confidentiality to your accountant
The biggest win may be in the ability to extend attorney-client privilege to an accountant. Except in limited circumstances, a client's communication with an accountant is subject to discovery by the IRS. This stands in stark contrast to the client's relationship with a lawyer, where confidentiality on all matters is a bedrock principle.
When a client's attorney and accountant work together, the accountant's work product and communication can come under the umbrella of the attorney-client privilege. Called a Kovel arrangement, and named after a 1961 case that established this right, it provides a basis to shield an accountant's work product and communications from discovery.
Exercising this right can be tricky, however, and must be planned carefully by the attorney. Generally, the accountant has to work formally for the attorney – not directly for the client – and any historical work the accountant has done for the client is not covered retroactively by the privilege. If you are the subject of an audit or any enforcement action by the IRS, your attorney should assert this right early in the matter so that you have the freedom to discuss the case with an accountant without the fear that your communications could end up in the hands of the government.
Don't accept IRS audit results without a lawyer
While there isn't always a need to exercise the Kovel privilege, I recommend in almost any matter involving an audit or other significant controversy with the IRS that the lawyer and accountant work together. While the accountant will know more about how to arrive at the right numbers, you don't want to accept the Service’s findings during an audit without the counsel of an attorney who is familiar with the intricacies of tax law enforcement and taxpayer appeal rights.
What about managing the relationship between an attorney and accountant? In an ideal world, the client would quarterback the relationship, but that seldom happens. This responsibility usually falls to the attorney, and in most cases, the two professionals will recognize the appropriate boundaries. I have found that when the two disagree on a course of action, it's usually because one of them doesn't have the complete information.
Most lawyers and accountants are relieved to work with a professional who brings complementary experience and knowledge that will make their lives easier. As a lawyer with an accounting background, I appreciate the services that both bring to clients. I earned both an undergraduate and a master's degree in accounting at the University of South Carolina before heading across campus to the law school. After law school, I spent several years as a tax consultant at a Big Four accounting firm before deciding that the best way to combine my interest in the two fields was to work as a lawyer and use my knowledge of taxes to navigate complex transactions, as well as tax controversies and planning. I often work with colleagues at accounting firms, and from my experience, collaboration always brings better results for clients.
J. David Johnson IV is an attorney in Turner Padget’s Columbia, S.C. office who advises clients on complex tax and transactional issues, including estate planning, probate and trust administration, employee benefits matters and business valuations. He holds both law and accounting degrees, and earlier in his career was a tax consultant for one of the nation's largest accounting firms. He may be reached at (843) 656-4419 or by email at firstname.lastname@example.org.