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Can your CPA keep a secret? Be careful what you say

by on
in Small Business Tax

There are plenty of times that this publication cautions readers to consult with their tax pros. It’s usually sound advice. But you should be aware of certain limitations.

Strategy: Don’t tell your CPA any information you wouldn’t want the IRS to know. Although a 1998 law authorizes a “CPA-client privilege,” the privilege is hardly bullet-proof. It’s shot full of exceptions.

Significantly, the confidentiality part of the privilege doesn’t extend to communications concerning the preparation of your tax return. Nor does it offer any protection if you ever become embroiled in a criminal tax proceeding with the IRS. Furthermore, tax advice on state and local matters isn’t covered. The CPA-client privilege, to the extent it applies, is available only on the federal level.

Also, there are several situations where you might inadvertently waive your rights. For instance, you could lose the benefit of the privilege if you share the information with a third party.

Clearly, you must handle matters with your CPA with a great deal of sensitivity. The law hasn’t been tested much in the courts so the case law in this area is still evolving.

Tip: Talk to your CPA about what is covered and what isn’t. Have this conversation before you confide completely in him or her.

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