Application of Accountant-Client Privilege in Federal Courts

No accountant-client privilege exists under federal law and state-created privilege has not been recognized in federal cases.    However, accountant-client communications are privileged if they meet the traditional requirements of the attorney-client privilege.[i]

Under federal law, “federally authorized tax practitioner” (or FATP) means an individual authorized under federal law to practice before the Internal Revenue Service.  The Federally Authorized Tax Practitioner Privilege, defined in an amendment to the Internal Revenue Code made by the Internal Revenue Service Restructuring and Reform Act of 1998 is as follows:

“With respect to tax advice, the same common law protections of confidentiality which apply to a communication between a taxpayer and an attorney shall also apply to a communication between a taxpayer and any federally authorized tax practitioner to the extent the communication would be considered a privileged communication if it were between a taxpayer and an attorney.“

In Ferko v. NASCAR, 218 F.R.D. 125 (E.D. Tex. 2003), the court held that attorneys may disclose client information to accountants in order to represent their client more effectively. When an attorney hires an accountant or financial professional for a specific purpose that relates significantly to the disputed communications or documents at issue, any documents disclosed to such a professional and any communications regarding those documents are privileged.

Federal courts follow common law in matters involving “federal question” jurisdiction or federal administrative proceedings, rather than state statutes creating an accountant-client privilege.  However, in diversity jurisdiction cases federal courts apply state law, usually the law of the state in which the court sits.

[i] Cavallaro v. United States, 284 F.3d 236, 246 (1st Cir. Mass. 2002)

Inside Application of Accountant-Client Privilege in Federal Courts