Can My CPA Be Subpoenaed for ERC Records

Can My CPA Be Subpoenaed for ERC Records

Yes. Your CPA can be subpoenaed for your ERC records. They can be compelled to turn over every document in their possession related to your Employee Retention Credit claim. They can be required to testify about every conversation you had with them about your eligibility, your calculations, your concerns, your questions. The confidentiality you assumed existed between you and your accountant does not work the way you think it does.

This is one of the most dangerous misconceptions in tax matters. People believe that talking to their CPA is like talking to their lawyer. They think those conversations are protected. They assume the documents they gave their accountant are safe from government seizure. These assumptions are wrong. And in ERC fraud investigations, these wrong assumptions can lead directly to federal prison.

Understanding what your CPA can and cannot protect is essential if you are facing an ERC investigation. The rules are counterintuitive. The protections are narrower than most people realize. And the testimony your CPA can provide may be the most damaging evidence the government obtains against you.

The Privilege That Doesn’t Exist

Many taxpayers believe their communications with CPAs are protected by something like attorney-client privilege. They are fundamentally mistaken. There is no general federal accountant-client privilege. The Supreme Court considered creating one and declined. The protections you assume exist simply do not.

This is not a technicality. In criminal tax investigations, your CPA can be compelled to testify about everything. Every conversation you had about your ERC claim. Every document you provided. Every statement you made. Every question you asked. Every warning they gave you that you ignored. None of it is protected by any privilege comparable to what attorneys enjoy.

The consequences of this reality are severe. When you talked to your CPA about whether your business qualified for the ERC, you were creating a witness. When you asked questions about eligibility requirements, you were creating evidence of your mental state. When you expressed concerns or doubts and then proceeded anyway, you were building the governments case for willfulness.

Some states have accountant-client privilege statutes, but these state-law protections dont apply in federal investigations. Federal courts follow federal privilege law. And federal law provides essentially no protection for accountant-client communications in criminal matters. The confidentiality you thought you had was an illusion.

Section 7525 – The Half Protection

Congress did create something called the federally authorized tax practitioner privilege in Section 7525 of the Internal Revenue Code. This provision extends attorney-client privilege protections to communications between taxpayers and certain tax professionals, including CPAs. When people hear about this, they assume they are protected. They shouldnt.

Section 7525 is riddled with exceptions that swallow the rule. First, it only covers tax advice. It dosent cover tax return preparation. The actual preparation of your ERC claim – the calculations, the worksheets, the forms – none of that is protected even under Section 7525. Only advice about tax matters qualifies.

Second, and far more importantly, Section 7525 does not apply in criminal matters. The moment your ERC situation crosses from civil audit to criminal investigation, the privilege disappears. The protection evaporates precisely when you need it most. All those conversations that might have been protected in a civil audit become fair game for criminal prosecutors.

This creates a dangerous trap. Your CPA may believe they have privilege protection. They may have told you your communications were confidential. They may have operated under that assumption for years. But when IRS Criminal Investigation Division shows up, none of that matters. Section 7525 provides no shield against criminal subpoenas.

The practical effect is that CPAs have almost no ability to protect client communications when criminal charges are possible. The privilege Congress created looks substantial on paper but provides minimal protection in the situations where protection matters most.

The 7216 Paradox

IRC Section 7216 prohibits tax preparers from disclosing your tax return information without your written consent. This sounds protective. It creates a false sense of security.

Under Section 7216, your CPA cannot voluntarily share your records with anyone. They cannot call up the IRS and offer information about your ERC claim. They cannot respond to informal requests for documents. Without your specific written authorization, your tax return information is supposed to stay confidential.

But a government subpoena changes everything. When the IRS or a federal grand jury issues a subpoena for your CPA’s records, Section 7216’s prohibition against disclosure no longer applies. Your CPA must comply. They dont need your consent. They dont need to notify you first. The law that prohibits disclosure has an explicit exception for government compulsion.

This paradox catches many people off guard. They hear that their CPA cant disclose their information without consent. They conclude their records are safe. What they dont understand is that consent is irrelevant when the government issues legal process. The subpoena is not a request. It is a demand backed by the power of the courts.

Some CPAs will attempt to protect clients by initially citing Section 7216 as a reason they cannot comply. This is proper procedure. But it only delays the inevitable. The government can obtain a court order compelling production. Once that happens, the CPA has no choice. Your records will be produced regardless of your wishes.

Couch v. United States

In 1973, the Supreme Court decided a case called Couch v. United States that remains controlling law today. The case involved a taxpayer whose records were in her accountants possession. When the IRS summoned those records, she argued they were protected by the Fifth Amendment privilege against self-incrimination.

The Supreme Court rejected this argument. The Fifth Amendment protects you from being compelled to incriminate yourself. But your accountant is not you. When you give records to your accountant, you surrender possession of those documents. Compelling your accountant to produce records dosent compel you to do anything. You are not being forced to testify against yourself. Your accountant is being forced to produce documents you voluntarily gave them.

This ruling has devastating implications for anyone under investigation. Every document you gave your CPA is fair game:

• Your bank records
• Your payroll data
• Your calculations
• Your notes
• Your correspondence

All of it can be obtained through a summons to your accountant.

Couch also means you cannot prevent production by claiming the records would incriminate you. The Fifth Amendment privilege is personal. Only you can assert it. Your accountant cannot assert your Fifth Amendment rights on your behalf. And even if the records would be incriminating to you, that dosent protect them when they are in someone elses possession.

The lesson from Couch is stark. Once you hand documents to your accountant, you have lost control of them. You cannot take them back. You cannot prevent their production. You have effectively placed them in a location where the government can access them without your cooperation.

The Kovel Arrangement

There is a way to obtain genuine attorney-client privilege protection for accounting work. But most people discover it too late to help them. The solution is called a Kovel arrangement, named after a 1961 Second Circuit case.

Under the Kovel doctrine, if an attorney hires an accountant to assist in providing legal advice to a client, the accountant’s communications can be covered by the attorney-client privilege. The accountant functions as an extension of the attorney. Their work product supports the attorney’s legal advice. The privilege extends to cover what would otherwise be unprotected accountant-client communications.

The catch is that the arrangement must be structured correctly from the beginning:

• The attorney must hire the accountant
• The accountant must be working under the attorneys direction
• The purpose must be to assist the attorney in providing legal advice, not just to do accounting work

If you hire a CPA directly, then later hire an attorney, you cannot retroactively make your CPA’s prior work privileged. The Kovel doctrine dosent reach backward. All those conversations you had with your CPA before retaining an attorney remain unprotected. Only work done under the Kovel umbrella qualifies for privilege protection.

This is why sophisticated taxpayers facing potential tax problems hire attorneys first and have the attorney engage the accountant. It is also why most ERC fraud defendants have already lost – they hired CPAs or ERC promoters directly, and now those communications are available to prosecutors. The order matters. And by the time most people learn this, the order is already wrong.

The 20-Day Warning

When the IRS summons records from a third party like your CPA, they must give you notice. Under IRC Section 7609, you are entitled to receive notification that your records have been summoned. You have 20 days from the date the notice is mailed to take action.

This 20-day window is critical. During this period, you can petition to quash the summons under IRC 7609(b)(2). You can intervene in any enforcement proceedings. You can raise objections and assert any applicable privileges. If you fail to act within 20 days, your window closes.

Twenty days is not much time. You need to find an attorney. The attorney needs to evaluate your situation. They need to research grounds for challenging the summons. They need to prepare and file a petition. All of this must happen within 20 days from when the notice was mailed – not from when you received it. If the mail is slow or you are out of town, you may have even less time.

If you miss the deadline, your CPA will be required to comply with the summons. Your records will be produced. Your opportunity to challenge the summons will be gone. This is why anyone who receives notice of a third-party summons needs to treat it as an emergency.

Challenging a summons is not always successful. The IRS has broad authority to obtain records. Courts generally enforce IRS summonses unless there is a compelling reason not to. But there are grounds for challenge – if the summons is overly broad, if privileged materials are included, if proper procedures werent followed. An experienced attorney can evaluate whether a challenge makes sense in your situation.

The Willfulness Witness

Criminal tax fraud requires the government to prove willfulness. They must show you knew what you were doing was wrong. This is one of the most difficult elements to prove because it requires establishing what was in your mind when you filed your ERC claim.

Your CPA is often the governments best witness on willfulness.

Think about the conversations you had with your CPA about your ERC claim. Did you ask whether your business really qualified? Did you express doubts about whether the shutdown was severe enough? Did you question whether your gross receipts had actualy declined by the required percentage? Did your CPA warn you about potential problems? Did you proceed anyway?

Every one of those conversations can be used to prove you knew the claim was questionable. If you asked whether you qualified, that shows you werent certain you did. If your CPA expressed concerns, that shows you were on notice of problems. If you ignored warnings, that shows deliberate disregard of the truth. Your CPA remembers these conversations. And now they will testify about them.

The government dosent need to prove you knew with certainty that your claim was fraudulent. They need to prove you acted willfully – that you either knew the claim was false or were deliberately indifferent to whether it was true. Your conversations with your CPA can establish both actual knowledge and willful blindness.

This is why so many criminal tax cases turn on accountant testimony. The accountant was there. They heard what you said. They know what questions you asked. They remember what warnings they gave. And unlike your attorney, they cannot refuse to testify.

The Detailed Notes Disaster

Good CPAs keep detailed records. They document client meetings. They memorialize conversations. They note client instructions and decisions. This is professional practice. It is what responsible accountants are supposed to do.

In an ERC investigation, those detailed records become a roadmap for prosecutors.

Everything your CPA wrote down can be subpoenaed. Their notes from meetings with you. Their summaries of phone conversations. Their emails responding to your questions. Their internal memos about your file. If it exists in their records, the government can obtain it.

The more thorough your CPA was, the more evidence the government has. A CPA who documented that you asked about eligibility requirements has created evidence of your mental state. A CPA who noted they advised against filing has created evidence you ignored professional advice. A CPA who recorded your instructions to maximize the claim has created evidence of intent.

This is deeply ironic. You wanted a careful, thorough accountant. You wanted someone who kept good records. Those same qualities that made them a good accountant make their records devastating evidence. There professionalism becomes your problem.

There is nothing you can do about records that already exist. You cannot ask your CPA to destroy them – that would be obstruction of justice. You cannot tell them to lose certain files – that would be evidence tampering. The records exist. They will be produced. And prosecutors will use them.

When Your CPA Becomes a Defendant

Your CPA might not just be a witness. They might be a defendant.

If your CPA prepared your fraudulent ERC claim, they face potential criminal liability too. Tax preparers who knowingly file false claims can be prosecuted. CPAs who participated in ERC fraud schemes are facing charges. Your trusted advisor may be in as much trouble as you are.

This creates a dangerous dynamic. A CPA facing criminal exposure has enormous incentive to cooperate with the government. Federal sentencing guidelines reward cooperation. A CPA who testifies against clients can receive reduced charges or a lighter sentence. Your accountant may conclude that there best path forward is to become a government witness.

A cooperating CPA is particularly dangerous to clients. They understand the scheme. They can explain how the fraud worked. They can identify which clients were involved. They can provide testimony about specific conversations and instructions. They know where the bodies are buried because they helped bury them.

You cannot prevent your CPA from cooperating. You cannot ask them not to talk to the government – that could be obstruction. You cannot offer them money to stay quiet – that could be witness tampering. If they decide cooperation is in there interest, there is nothing you can do to stop them.

Understanding this dynamic is important for assessing your own situation. If your CPA is facing potential charges, assume they will cooperate. Assume they will tell the government everything. Assume your conversations are no longer confidential. Plan your defense accordingly.

Protecting Yourself Going Forward

If you are facing an ERC investigation and have not yet been contacted by the IRS, there are steps that can still help.

First, retain an attorney immediately. Any future communications should go through your attorney. If accounting work needs to be done, have your attorney retain the accountant under a Kovel arrangement. This wont protect prior communications, but it protects future ones.

Second, do not contact your CPA about the investigation without your attorneys guidance. Conversations between you and your CPA are not privileged. Anything you discuss could become evidence. Let your attorney manage all communications with your accountant.

Third, do not ask your CPA to alter, destroy, or hide any records. This would be obstruction of justice. It would make your situation dramatically worse. The records exist and will be produced. Accept this reality.

Fourth, if you receive notice of a third-party summons to your CPA, treat it as an emergency. You have 20 days to act. Contact an attorney immediately. Evaluate whether there are grounds to challenge the summons. Missing this deadline eliminates your options.

Fifth, understand that your CPA may become a government witness. Plan your defense assuming that everything you told your accountant will be revealed. This is not paranoia – it is reality. Your conversations were never protected the way attorney conversations are.

The relationship between taxpayers and their accountants is based on trust. But that trust does not create legal protection. Your CPA can be subpoenaed. They can be compelled to testify. They may cooperate voluntarily if facing their own exposure. Understanding these realities is the first step toward dealing with them effectively.