What is an “Eggshell Audit?”
An eggshell audit is a civil audit where the representative (accountant or lawyer) becomes aware that there is potential tax fraud. The hope is that these audits do not break and go criminal, hence the “eggshell” nature of the audit. The goal of these audits is to satisfy the auditor without tipping them, off to the potential tax fraud.
What is a “Kovel” Accountant?
In 1961 the case of United States v. Kovel created what is now the “Kovel Accountant” doctrine, which is that an accountant working for an attorney is covered by the attorney-client privilege and any of that accountant’s work product is deemed to be the work product of the attorney and not discoverable by the Government. As a tax attorney who focuses on taxpayer representation, once we have placed an accountant under a Kovel letter anything from that point forward is under our attorney-client privilege.
What about the “Accountant’s privielege under Internal Revenue Code (IRC) Section 7525?
The privilege created under IRC section 7525 allows a similar privilege to accountants provided that the matter is civil and not criminal. The accountants privilege does not extend to criminal matters, which means that the taxpayer’s accountant who learns of the taxpayer’s fraud may be subpoenaed and beome the Government’s star witness against their own client.
At Convicer & Percy, (www.convicerpercy.com) we always recommend that the accountant get us involved as early as possible. The sooner we are involved in the case the better the result usually is for the taxpayer.
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Attorney Eric L. Green is Of Counsel to the law firm of Convicer & Percy, LLP in Glastonbury, Connecticut (www.convicerpercy.com), where he focuses his practice in civil and criminal taxpayer representation before the IRS and state tax authorities, business planning and estate planning. He represents clients in Western Massachusetts and all of Connecticut. Attorney Green is currently the vice chair of the Closely held Business Tax Committee of the American Bar Association, and is on the Executive Committee of the Connecticut Bar Association’s Tax Committee. He can be reached at egreen@convicerpercy.com.
