Zain retained Linda, an accountant, to prepare his federal income tax return. In the course of preparing the return, Linda had several conferences with Zain, during which she made notes. In addition, Zain furnished Linda with a number of documents concerning transactions in which Zain had been involved. The Internal Revenue Service (IRS) ultimately brought suit against Zain, claiming that he had underpaid his actual tax liability by a substantial amount. The IRS arranged for a subpoena to be served on Linda. The subpoena purported to require her to produce, in court, Zain's documents and the notes she had made during conversations with Zain. Linda sought to resist the order on the basis that the conversations were held in confidence, for the purpose of preparing Zain's tax return, and

Question

that the notes were made and documents were delivered in furtherance of the same purpose. Linda claimed, therefore, that what the IRS sought was privileged information and that since neither she nor Zain had waived the privilege, she should not have to produce what the IRS sought. Is Linda's argument sound? Explain.

What will be an ideal response?

Answer 1

Linda's argument is not sound. Even if a state recognizes some sort of accountant-client privilege, the federal courts generally do not do so. This is particularly true in income tax matters. Many states have statutes that grant protection to accountants' working papers and also to conversations, letters, and memorandums between accountants and their clients. However, federal courts do not always recognize such state statutes. For example, a privilege of confidentiality has not, in the past, been recognized in federal tax cases. An accountant may be forced by a subpoena to make available to the IRS working papers involving a client who is being investigated. The accountant may also be forced to testify about the client's records and about conversations that the accountant had with the client.