Failure to file your tax returns and tax evasion are offences punishable in the criminal courts. Understanding this, the delinquent taxpayer who chooses to come forward through a voluntary disclosure, to confess and redress the situation is wise to do so only from the protection of lawyer-client privilege.
An audit is another situation where, if significant discrepancies are found, a criminal prosecution can be instituted or gross negligence penalties levied.
The confidentiality of lawyer-client privilege enables taxpayers to openly discuss their serious tax discrepancies or evasion with their lawyer. Because of this legal protection, the CRA cannot compel your lawyer to reveal any information.
Accountants cannot offer such confidentiality. They can be compelled to reveal client information. Accountants can also be required to testify in the tax or criminal court against their own clients.
MORE IS NOT ALWAYS BETTER
But it can get even worse! Where an accountant is also qualified as a lawyer and represents a client in a tax evasion, failure to file matter, or in an audit that subsequently turns criminal, the courts may hold that related accounting work paper(s) done by the hybrid lawyer/accountant and discussion(s) about accounting matters with the client are not protected under solicitor-client privilege. In this situation, it can easily be argued that it is not clear in what capacity the accountant/lawyer is acting. This actually happened in an American tax case. There, the IRS successfully forced the hybrid accountant/lawyer to divulge his accounting papers and explain them in court – all to the detriment of his client.
Can this happen in Canada? The following opinion from an eminent Canadian criminal lawyer confirms that it is equally likely to happen here.
“Where an individual holds dual qualifications, as an accountant/lawyer, the client may convey information to him/her in the context of a legal proceeding. There would be a significant risk that solicitor/client privilege would vanish in circumstances where the hybridpractitioner attempts to give such advice. The reason for this is simple; for example, if conducting practice from an accounting firm, the receipt of information and the giving of advice in a legal context would blur, potentially to the point of extinction, the doctrine of solicitor/client privilege. The practitioner cannot split his brain between advice that is strictly or business or accounting related and that which is legal advice. I cannot be retained as an accountant and provide any legal opinion even if I am also qualified as a lawyer. When the line will be drawn between information received and advice given as an accountant versus as a lawyer will often be impossible to determine. If retained as a lawyer, I cannot use another part of my brain (the accounting side), and claim solicitor/client privilege for work conducted by me, in this context, of an accounting nature.
Accordingly, there are genuine risks to the doctrine of solicitor/client privilege when advice is sought and received from hybrid practitioner. Many clients will not understand this risk, often until it is too late, and confidential information they thought they were conveying to a professional, is compelled to be produced to Revenue Canada.”
Tax delinquents must understand that your accountant can be forced to testify against you. Even worse, in the case of the hybrid lawyer/accountant, more may not be better and, if the hybrid practitioner does any accounting work, can actually harm the client.
© The foregoing provides only an overview and does not constitute legal advice. You are cautioned against making any decisions based on this material alone. Rather, specific legal advice should be obtained in the context of your own particular circumstances.