Kovel Letters Not being Used or Misunderstood in Offshore Disclosures

Recently, I have been noticing that many accounting firms are not using or are improperly utilizingKovel letters to protect their client’s interests in offshore voluntary disclosures.  The Kovel letter, named after a case by the same name, is a letter from a client’s attorney to the client’s accounting firm that extends the attorney-client privilege to the accounting firm, in anticipation in litigation.  

Essentially, a Kovel letter hopefully prevents an accounting firm hired by a taxpayer from being subpoenaed by the government and testifying against the very taxpayer they were hired to assist.  Many accounting firms are attempting to complete voluntary disclosures on their own, without the assistance of counsel, and without the protection of the Kovel letter and therefore, the attorney-client privilege.  Obviously, this exposes both the accounting firm and the taxpayer to additional liability.