If your tax preparer or advisor is a tax attorney, certified public accountant or enrolled agent you are give confidentiality rights to have your personal information kept private even if requested for civil litigation. However, there are certain situations that could arise that would actually void this privilege and open you up to risks that you had not anticipated.
Errors That Void The Accountant Client Confidentiality Privileges
Some of the most common errors that could void your confidentiality privileges can actually be committed by you or your tax preparer. These errors include:
1. If you or your accountant includes information that was originally confidential onto your tax return, this would void the privilege of confidentiality. This happens because it is no longer only between you and your accountant. Since it has been shared with a third party, you would no longer be able to claim that the information was given in private with your accountant and no one else.
2. If you or your accountant were to include confidential information within any type of financial statements, this would be considered sharing the information with a third party and void the confidentiality privilege. This can go as far as any non-governmental filing that you can think of. If you share confidential information within those filings, it is no longer confidential according to the IRS.
3. If your accountant does not bill you specifically for a privileged engagement, this may be considered by the IRS to be information shared that was not suppose to be confidential. It is important to verify with your accountant that the confidential meeting was billed specifically to be confidential and not anything else.
4. It is important that your accountant actually separate normal files from privileged files in his office. The IRS wants to see a separation between what you and your accountant consider non-confidential and what you and your accountant consider confidential.
5. It may come as a surprise, but electronic files much be segregated as well. Computer files that your accountant has about confidential information must be separate from non confidential information files.
6. Even if your confidential information is separate from non confidential information, it must still be labeled and documented as confidential. Every piece of information that your accountant has on file that is confidential but not label as being confidential could be open to risk of having the IRS view it as non confidential.
7. If your accountant does not ask you for written consent to share your confidential information, this can void the privileged relationship of that information. Make sure that you verify that your accountant is not letting anyone else view your confidential information.
8. If you or your accountant were to share the information with any third party, this would void the accountant client confidentiality privilege. An example of this would be if you were to try and obtain a loan from a bank and you said something that was originally confidential between you and your accountant. The confidential information that you share with the bank would no longer be confidential.
9. If the IRS requests information or documents that were confidential but neither you nor your accountant told the IRS that they are confidential, this would waive the confidentiality privilege. If you don’t claim the information as confidential to the IRS, the IRS is not going to view it as confidential.
10. If your accountant were to allow his staff to access privileged files, this would actually void the confidential information enclosed inside the files. This is because the IRS does not want anyone beside you and your accountant to have access to any information claim as confidential.
11. If you were to be in a meeting with an accountant and you mixed both confidential information and non confidential information into the discussion, this could become a problem in regard to what is and is not confidential. It is better to have two separate and distinct meetings just to be on the safe side.
12. Your accountant can also not allow anyone else to manage an engagement that would be considered confidential. You must only engage in confidential discussions with your accountant and no one else.
Criminal Accountant Client Privilege
Remember that everything listed above involves only civil litigation and the accountant client privilege. When it comes to criminal investigations, there is little an accountant can keep confidential. It is best to seek the representation of an attorney when dealing with tax fraud and other tax crimes that you may be subject to.