In 1998, Congress enacted a limited privilege for tax advice that extends the same common law protections of confidentiality that apply to communications between a taxpayer and an attorney to communications between a taxpayer and any “federally authorized tax practitioner”. IRC § 7525(a)(1).  Thus, if the communication would be considered privileged if it was between a taxpayer and an attorney, then so too will it be privileged if it is between the taxpayer and a federally authorized tax practitioner. IRC § 7525(a)(3)(A). The term, “federally authorized tax practitioner” applies to any individual who is authorized to practice before the IRS. For example, it includes CPA’s, enrolled agents, and enrolled actuaries.

Unfortunately, while highly praised at the time of its enactment, the 7525 privilege does not provide much protection for communications between an accountant and his client. Most importantly, the privilege is not available when it is needed the most – during a criminal investigation or prosecution. Indeed, if an investigation is or is about to turn criminal, anything said by the taxpayer to his account will not be privileged.

However, that does not mean that discussions between a taxpayer and his accountant that are, shall we say, “sensitive in nature” – i.e., because they involve fraudulent admissions that are potentially incriminating – are never privileged. Indeed, such discussions can be privileged, but only if the accountant is a “Kovel accountant”.

In delivering legal services, an attorney will often need the assistance of non-lawyers who will become privy to confidential information. For example, paralegals and other assistants in the lawyer’s firm will become privy to sensitive information. Disclosures of information to these individuals will not constitute a waiver of the privilege.

In addition to in-house assistance, attorneys may also find it helpful to engage professionals outside the firm. In tax cases, attorneys routinely hire outside accountants. The lawyer may want the accountant to meet with the client and obtain information directly from him, and cloak that information in the attorney-client privilege just as if the lawyer obtained it directly from the client.

The traditional method by which that is done, at least in a tax practice, is through an arrangement where the lawyer engages the accountant to become part of the legal team. This arrangement was approved, and the attorney-client privilege was held to extend to the accountant, in the case of United States v. Kovel, 296 F.2d 918 (2d Cir. 1961).

Here, as in many areas of the law, it is critical that if you are going to retain an accountant, you do it correctly. First, the only way to bring the accountant under the cloak of the attorney-client privilege is through consummating a Kovel agreement.

Second, as a matter of procedure, the attorney should engage the Kovel accountant, rather than the client. This ensures that the accountant is working for the lawyer, and not for the client.

Third, it is essential that a new accountant, rather than the client’s existing accountant, be hired. The reason has to do with controlling the flow of information and, specifically, putting up legal barriers to the IRS’s access to information that might harm the client. Of course, it is only natural that the client will want to use his existing accountant. And he’ll list any one of a number of seemingly “good” reasons. For example, the client is comfortable with him, they presumably have a good relationship, there are budgetary concerns, and the accountant is up to speed with everything.  However, that is precisely the problem. In preparing the original return, the preparer had access to information and documents that are usually not privileged. In a criminal investigation, the IRS can get to that information.  In other words, it might be difficult to distinguish between what the accountant learned outside the Kovel engagement and what he learned only within the scope of the Kovel engagement. Because only the latter is protected by the attorney-client privilege, this is clearly not a risk worth taking. For that reason, it is best for the lawyer to start out fresh and hire an independent accountant.

Whether and when to answer questions from the IRS, or whether to stand on your 5th Amendment rights, are questions that only a tax fraud lawyer can help you answer. Your financial well being, as well as your personal freedom may depend on the right answers. If you or your accountant even suspects that you might be subject to a criminal or civil tax fraud penalty, the experienced tax attorneys of the Law Offices Of Jeffrey B. Kahn, P.C. located in Los Angeles, San Francisco and San Diego and elsewhere in California can determine how to respond to these inquiries and formulate an effective strategy.

Description: Working with a tax attorney expert in criminal tax defense and civil tax controversies is the best way to assure that your freedom is protected and to minimize any additional amount you may owe to the IRS.

Most States recognize an accountant-client privilege where if you tell your accountant something the accountant should not be compelled to reveal what was discussed to the government or third parties. A major exception where this privilege does not apply is where the discussion involves potential criminal actions or criminal issues. In the tax field this could be where you are hiding money offshore, failed to disclose foreign bank accounts, did not report all worldwide income on your income tax returns or filed false returns with overstated deductions.

But thanks to attorney-client privilege, if you tell your lawyer about any of these problems, the IRS cannot make your lawyer talk or produce any documents or notes made by your lawyer. The theory behind the privilege is to encourage clients or potential clients (in both civil and criminal cases) to be forthcoming with their lawyers and get the advice needed to make an informed decision.

Because an accountant may still be needed to resolve your tax matter that has criminal repercussions or criminal exposure in sensitive tax matters, there is a tool that the tax attorney uses to extend the umbrella of the attorney-client privilege to the accountant. That tool is called a Kovel letter, named after a famous case of United States v. Kovel. The way this works is that your tax lawyer hires the accountant. The legal effect is that the accountant is still doing your tax accounting and return preparation but reporting as a subcontractor to your lawyer. Properly executed, it imports attorney-client privilege to the accountant’s work and communications.

If you are fence-sitting and can’t decide whether to disclose your past foreign account noncompliance to the IRS or if and how you should come forward to the IRS to correct previously filed false tax returns, you should not have discussions with your accountant about these issues. Instead speak with a tax attorney whom you can be forthcoming with and have the protections of confidentiality and exemption from disclosure to the government or other third parties.

Even if you end up not engaging that attorney, your conversation is still protected.

Whether and when to answer questions from the IRS, or whether to stand on your 5^th Amendment rights, are questions that only a tax fraud lawyer can help you answer. Your financial well being, as well as your personal freedom may depend on the right answers. If you or your accountant even suspects that you might be subject to a criminal or civil tax fraud penalty, the experienced tax attorneys of the Law Offices Of Jeffrey B. Kahn, P.C. located in Los Angeles, San Francisco and San Diego and elsewhere in California can determine how to respond to these inquiries and formulate an effective strategy.

Description: Working with a tax attorney lawyer is the best way to assure that your freedom is protected and to minimize any additional amount you may owe to the IRS.

It’s hard to think of a less romantic topic than tax planning but if you and your honey are considering to “tie the knot” here are some tax consequences that you should be aware.

Marriage Penalty or Marriage Bonus?

In particular, the test is geared toward telling you whether you’ll pay a marriage penalty or get a marriage bonus. Because married filers have different tax brackets than single filers, you can’t assume that your tax liability after you marry will be the sum of the taxes from your individual returns. Some of the important factors involved include the following:

• Couples where both spouses work are more likely to owe more in taxes than they would if they weren’t married, because once you get above the 15% bracket, thresholds for higher tax rates on joint filers are less than double the rate thresholds for single filers.

• Single-earner families, on the other hand, are more likely to get a marriage bonus, because the working spouse gets to take advantage of deductions and exemptions for the non-working spouse, and the family gets to enjoy lower tax rates on more overall income.

• For high-income taxpayers, marriage can be especially costly because special provisions like exemption and deduction phaseouts and the Medicare surcharge tax start applying at levels that aren’t much higher for couples than they are for singles. For instance, the Medicare surcharge applies to singles with incomes of more than $200,000 and couples earning $250,000.

Also, don’t think you can beat the penalty by choosing the married-filing-separately option. Spouses who file separately get less favorable treatment than singles as many of the exclusions and deductions are evenly split.

Given the complexity of this area, one would be best served by seeking tax counsel to make sure that you are getting the maximum tax benefits.  Contact the Law Offices Of Jeffrey B. Kahn, P.C. with locations in Los Angeles and elsewhere in California.

Description: Let the tax attorneys of the Law Offices Of Jeffrey B. Kahn, P.C. resolve your IRS tax problems and make sure you are fully utilizing all benefits under the tax laws so that you are paying the least amount of tax.

Unfortunately, this is a trap that so many taxpayers full into.

Revenue Officers are by definition “Collection Officers” for the IRS. Revenue Officers are assigned to accounts to collect back taxes. The Revenue Officer is working for the government’s best interest to collect the taxes that are owed as quickly as possible and to have the account paid in full.  That being the case – who is protecting your interest?

Revenue Officers have the authority to initiate IRS wage garnishment. A Revenue Officer can also enact an IRS levy of bank accounts, file federal tax liens, and even seize assets.

I have heard in many cases where taxpayers would say to me, I have no problem dealing with the Revenue Officer myself because he or she is so friendly and sweet to me and even seems to care about my situation.  But then a month or so later the same taxpayer will come back to me in tears that the same Revenue Officer has levied their bank account or garnished their wages.  That’s when they say I should have listened to you and let your firm deal directly with the IRS.

By retaining a tax lawyer from the Law Offices of Jeffrey B. Kahn, P.C. with locations in Los Angeles and other parts of California, a taxpayer gains the service and expertise of tax professionals who deal directly with Revenue Officers. Once our law firm is retained and is on record as the Power of Attorney, the assigned Revenue Officer must deal directly with our office, instead of with the taxpayer. Our objective, when dealing with a Revenue Officer, is to identify the appropriate means of resolving the taxpayer’s account given all facts, circumstances and law and to prevent the IRS from taking any inappropriate collection activity.

Description: The Law Offices Of Jeffrey B. Kahn, P.C. has helped many people avoid collection action by the IRS and State tax agencies. Working with a tax attorney in Los Angeles or elsewhere in California is the best bet for reducing or eliminating the amount you owe.

Now here is a fact that is not so widely known – the National Football Association which you figure makes a ton of money is recognized by the IRS as a tax-exempt entity.  You heard me right – the National Football League does not pay income taxes as any for-profit-company would.

Section 501(c)(6) of the Internal Revenue Code provides for the exemption from  tax entities which are not organized for profit and no part of the net earnings of which inures to the benefit of any private shareholder or individual.

Those entities are specifically:

1. business leagues,
2. chambers of commerce,
3. real estate boards,
4. boards of trade and
5. professional football leagues.

It’s obviously notable that only professional football leagues are included here, as opposed to all sporting leagues.

It seems inconceivable that the NFL is not “engaging in a regular business of a kind ordinarily carried on for profit”.  How are their efforts to maximize profits any different than those of Major League Baseball, the National Basketball Association or the National Hockey League?

Well professional football leagues were not always included in this list.  This change dates back to 1966, when the tax code was amended to give a professional football league tax-exempt status in order to facilitate the merger of the NFL and the old American Football League.

So one may ask – if I go on NFL.com and order super bowl tickets, can I claim a charitable deduction? Well the tax law states that when you make a donation to a charity and receive a benefit back, the amount deductible is only the excess of your contribution over the benefit you receive. Also, your charitable deduction cannot include the value of any benefits you received from the charity.  An example would be where you paid $200 to attend a charitable ball for which the charity states that the value of the ticket is $75.  In such an instance your charitable deduction would be $125.

Description: The Law Offices Of Jeffrey B. Kahn, P.C. want to help you avoid increases in taxes in IRS audits over charitable giving. Learn some tips from a leading tax attorney in Los Angeles.