Practitioners routinely rely on Kovel* engagements to provide Section 7525 privilege cover for communications with CPAs and preparers in advising clients. But not all communications are thus protected, as Judge Ronald L. (“Ingenuity”) Buch shows us in Desmond McGuire & Cory Lynne Brame, et al., Docket No. 25461-16, filed 3/20/25.

Third-party disclosure is a waiver.

Tax prep advice, as distinct from tax law advice, is not legal advice, therefore not privileged, so the Kovel blanket doesn’t cover. “Exhibit 140-J is an email chain containing attorney-client privileged legal advice that was forwarded to an accountant by petitioners for the purposes of tax return preparation. Attorney-client privilege is waived if privileged communications are disclosed to a third party. Petitioners received communications from their attorney that was privileged legal advice. However, the disclosure of the advice to a third party, their accountant, for purpose of return preparation, which is not subject to privilege, is a waiver of the attorney-client privilege that previously attached to the communication. Petitioners argue that the disclosure of the legal advice to their accountant does not constitute a waiver of attorney-client privilege because it was pursuant to a Kovel arrangement. See Kovel, 296 F.2d at 922. The disclosure to the accountant was not in furtherance of the legal advice, rather it was disclosed to assist in tax return preparation. Kovel does not apply in this circumstance, and petitioners waived attorney-client privilege with their disclosure of Exhibit 140-J.” Order, at p. 4.

Taishoff says this is an ambush. Clients routinely tell their preparers what their lawyers told them. In my experience over 58 years, no client asks and pays for legal advice to satisfy an unslaked thirst for abstract legal knowledge or to make a gift to my retirement fund, but to solve the client’s real and present problem. This ruling eviscerates any possible use the client can make of their trusty attorney’s advice for which presumably they paid serious money.

Likewise, State tax advice isn’t covered by Section 7525. Id., as my expensive colleagues would say (but what use their clients are to make of said expensive advice I cannot tell.).

Here be dragons.

* https://law.justia.com/cases/federal/appellate-courts/F2/296/918/131265/