October 2012
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In this issue

Achieving Success

A client received audit notices from 15 States that had engaged a third-party contingency fee auditor. Read More


Guest Contribution

This month, we’re pleased to present the contribution (“Can We Subpoena Their Workpapers?”) from one of our business partners, J. Brooke Spotswood, Esq. of Spotswood Law Offices based in Gloucester, Virginia.

Can We Subpoena Their Workpapers?

Will this become a new approach for states as audits become more contested? Can the accountant’s (or consultant) written advice be used against the company that hired them? If you think this is outrageous and far-fetched - the answer is yes to outrageous, but no to far-fetched. The IRS has tried this tactic with mixed success.

Many lawyers protect the accountant’s advice under a Kovel arrangement. Named for the successful taxpayer in an audit, the mechanics are simple: the lawyer, not the company, hires the accounting firm which reports directly to the lawyer. Then, the lawyer reports the combined advice (the accountant’s and his own) to the client-company.

Why is this necessary? The corporate client has a broad privilege of confidential communication with counsel, a privilege which is far more extensive than the accountant-client privilege. The theory under the U.S. vs. Kovel decision, 296 F.2d 918 (2d Cir. 1961), is that the lawyer needs the accountant to translate certain information in order to help him represent the client.

As long as the accountant’s advice is necessary and strict procedures are maintained, the workpapers and advice should stay covered under attorney-client privilege. We recommend that all attorneys representing clients in unclaimed property or escheat audit defense use this Kovel arrangement, in order to adequately protect the client-company in case of future litigation.

Brooke Spotswood has provided various corporate clients with unclaimed property strategic planning and audit advice for over thirty years. He is the co-author of a leading treatise on escheat and unclaimed property law. Learn more www.spotswoodlaw.com

States Receive Record Amounts of Unclaimed Property

While states work to locate owners of unclaimed funds, the state treasuries hold billions of dollars that is reported annually by various businesses. For example, the state of Connecticut is currently holding $602 million of unclaimed property. The state received $73 million of unclaimed property in 2012 and returned a record amount of $83 million during the same year to 18,381 owners. Some states like Wisconsin are holding over $411 million in safe keeping, while New York is holding $12 billion and California is holding $6 billion. With the October 31 and November 1 reporting due dates just round the corner, record levels of unclaimed property across the United States will end up in the state treasuries. Read more

Josiah S. Osibodu, CPA
Managing Partner - Consulting Services
E-mail: Josiah@MoyerOsibodu.com
Kathleen H. Moyer
Managing Partner - Compliance Services
Cell: 609.412.0866
E-mail: Kathy@MoyerOsibodu.com