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What Is a Kovel Agreement

Schaeffler v. United States15 shows how courts analyze the privilege of the common interest and the importance of an agreement of common interest in the tax context. Schaeffler was involved in the restructuring of the Schaeffler Group – a German company whose shares are 80% owned by a US citizen – and in the refinancing of debts held by a syndicate of banks following the 2008 financial crisis.16 In many civil cases, Kovel agreements may make no sense. But, as noted above, Kovel agreements have their place in effective tax defense, especially when there is an ongoing or potential criminal investigation against the taxpayer. In such cases, the taxpayer should ensure that a Kovel agreement has been concluded before malicious communications are sent to an accountant or CPA. Auditors and auditors should also hire representatives if criminal tax issues arise and no Kovel agreement has been reached. This means that the information that an accountant acquires under a Kovel agreement must be distinguished from the information that the accountant has collected as an auditor or in another capacity. Keep things as separate and well documented as possible. This may include, to the extent possible, the use of another accounting firm for audit or other work. Since the Kovel decision sixty years ago, federal courts have had many opportunities to clarify the requirements of a Kovel agreement.

In general, those decisions concluded that the onus was on the taxpayers to prove the existence of a Kovel agreement. In addition, these federal decisions have revealed that content is often important. For example, Kovel agreements failed if: (1) the accountant did not have a separate agreement with the lawyer; (2) the contractual agreement stipulates that the taxpayer (and not the lawyer) is the client; and (3) the tax advisor requested payment for services directly from the taxable person. [ix] This overview discusses both the common law doctrine of solicitor-client privilege and the more recent legal law of client-accounting privilege. In addition, this overview deals with the Kovel case and the general requirements of a Kovel agreement. Solicitor-client privilege is the oldest common law privilege recognized by the courts. And the Kovel Agreement is created under this privilege. Such a method is called the Kovel agreement.

Under this agreement, the taxpayer appoints a tax lawyer, who in turn uses the services of a tax advisor. If done correctly, federal courts have recognized that communications between these parties are not subject to disclosure, under the theory that such communications are protected by solicitors` privilege. The application of the common interest privilege does not require ongoing litigation; Instead, communications made during an “ongoing joint venture and to promote the business” are protected. 13 The courts have held that the documentation of the existence of the common legal interest and the agreement on the preservation of the confidentiality of joint communications in an agreement of common interest are relevant for the analysis of the applicability of the common interest privilege.14 The Schaeffler Group commissioned legal advisers and an audit firm to advise on the assessment and minimisation of the tax consequences of the Restructuring and refinancing. Knowing that the transactions would likely be subject to IRS review.17 As part of the refinancing and analysis of the tax implications, the Schaeffler Group provided the consortium with documents containing privileged tax advice pursuant to an agreement of common interest.18 The IRS subsequently subpoenaed the documents containing the tax legal advice. The Schaeffler Group revoked the subpoena and withheld the documents on the basis of the attorney`s common interest privilege and the lawyer`s work product doctrine.19 The crucial element of the privilege is that the disclosure be confidential in order to obtain legal advice from the lawyer. . . .

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    What Is a Kovel Agreement