VALUATIONS PLAY A CRITICAL ROLE IN BUSINESS, TAX, and wealth transfer planning, and are often the culmination of work from several of the client’s professional advisors. With the results of a professional valuation being subject to outside scrutiny, practitioners should understand the limits of attorney-client privilege and work-product protection in this context and structure engagements to preserve confidentiality where it genuinely advances legal advice. For CPAs partnering with counsel, the practical question is when valuation work is truly in service of legal advice and when it constitutes ordinary-course business analysis. WHAT’S PROTECTED Attorney-client privilege protects confidential communications when given to provide legal advice and, under certain circumstances, can extend to non-attorneys whose involvement is necessary to deliver that advice. This principle arose in the Second Circuit’s decision in United States v. Kovel, which compared certain non-attorney roles (i.e., an accountant) to interpreters assisting attorneys in understanding client communications so they can provide legal advice. In light of Kovel, attorneys began engaging other professionals on their client’s behalf through “Kovel letters,” which establish the professional’s role in the engagement in an attempt to extend attorney-client privilege to the communications between the attorney and the other professional. The protection provided under Kovel examines the substance of the engagement: the non-attorney must be engaged to facilitate legal advice, not to provide independent business advice or routine accounting services. For CPAs and other professionals engaged by attorneys on behalf of a client, this means routing valuation-related factual development through counsel only when it is genuinely necessary to enable legal advice, rather than for ordinary business purposes. The work-product doctrine can be broader in scope, shielding materials prepared by or for counsel in reasonable anticipation of litigation. In valuation services contexts, however, this threshold is often difficult to meet. Some adversarial administrative proceedings may qualify, but ordinary IRS examinations are frequently viewed as non-litigation planning settings, making the showing highly fact specific. As a result, many planning stage valuations, particularly those created to support transactions or tax filings, may fall outside classic work-product protection. WHAT ISN’T Kovel does not provide a blanket privilege to client consultants. Courts often view valuation work as business, not legal, so privilege extends only when the professional’s role is truly necessary for legal advice—not merely performing independent valuation services. Simply calling an appraiser a “Kovel consultant” is not sufficient on its own to take advantage of this protection. This is especially relevant in estate, tax, and wealth-transfer planning. Valuations prepared to support gift or estate tax positions are often completed well before any controversy exists. Even though practitioners may reasonably expect scrutiny, courts frequently characterize such valuations as part of the ordinary course of planning, not as litigation-driven work product. Additionally, once a matter goes to court and the appraiser or other professional has been designated a “testifying expert,” communications and materials shared with that expert are generally discoverable to the extent considered in forming opinions. By contrast, consulting-only experts (never designated to testify) COUNSELOR’S CORNER LIMITATIONS OF PRIVILEGE IN Valuation-Driven Planning BY NATHAN G. PATTERSON & HALEY FAUST LEISE, KOLEY JESSEN 10 Nebraska CPA
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