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Attorney-client privilege is a legal concept that protects confidential communications between attorneys and clients that are made for the purpose of obtaining or giving legal advice. The privilege, which is owned by the client, is intended to encourage full and candid communications between attorneys and their clients without the fear that such communications will be disclosed to a third party.
Such an arrangement does not automatically extend to a client speaking with their CPA, but there can be a way around this for clients with sensitive matters to discuss. By engaging with legal counsel first, who in turn executes a Kovel agreement with the CPA, the client and legal team can get privileged tax and accounting expertise.
Similar to a CPA firm’s engagement letter with its client, a Kovel agreement between counsel and the CPA governs the services between the parties. Before signing the agreement, the CPA should review the document with their own counsel and consider the following:
- The scope of services in a Kovel agreement generally states that counsel is engaging the CPA to assist in providing legal services to the counsel’s client and will often specify the client and the matter at issue.
- A Kovel agreement should state that it is counsel’s responsibility to direct the CPA’s services, and the CPA takes instruction from counsel for all aspects of the engagement.
- A Kovel agreement typically states that the workpapers created by the CPA firm belong to the attorney in order to maintain privilege. However, the CPA firm should be able to retain its own copies.
- As the CPA is working solely at the direction and supervision of counsel, counsel should be primarily responsible for liability and/or indemnity claims made by the client or third parties if the matter is not resolved to the client’s satisfaction.
- A Kovel agreement should identify the party responsible for the payment of the CPA’s fees, which, in most cases, is the client.
- A Kovel agreement may be signed by the client, in addition to counsel and the CPA, especially if the client is responsible for payment of the CPA’s fees.
For additional information on what kinds of engagements may require a Kovel agreement, speak with your ShindelRock tax professional [2] or an attorney.