Responding to Subpoenas and Summonses: What Accounting Firms Should Consider and When to Ask for Help

By Ralph G. Picardi, Esq., Picardi LLC, and John Raspante, CPA, McGowanPRO – October 2, 2023
Responding to Subpoenas and Summonses: What Accounting Firms Should Consider and When to Ask for Help

Accounting firms are constantly being dragged into contact with the judicial system because of the lawsuits and investigations that confront their clients. The resulting subpoenas and summonses served on accounting firms, referred to collectively as “subpoenas” for the balance of this article, are growing in both frequency and severity. Below is a framework within which to consider the issues presented by subpoenas and the most effective strategies for addressing those issues. Please note that this framework in its most general form, so that firms, in consultation with their attorneys and malpractice insurance companies, can add refinements to conform with the laws specific to the industries and jurisdictions within which they practice.

Basic Principles

Later in this article, we will distinguish between simple and complex subpoenas; the simple ones being those that present no material compliance issues or risk (for which the firm would need little, if any, assistance) and the complex ones being those that present at least one complicating factor and heightened risk (for which the firm would benefit from the assistance of legal counsel). For all subpoenas, however, it is wise for firms to adhere to the following basic principles, which are effective tools for assessing levels of complexity and achieving overall risk management.

  • Centralize the process. Whether your firm is large or small, and whether it is spread across multiple offices or concentrated in a single office, it is essential that it centralize the process of responding to subpoenas. To centralize in this context is to eliminate the autonomy of individual owners and employees over subpoenas that relate to “their” clients by designating a single person or committee within the firm (the “designee”) to be the exclusive authority on the subject. The designee should adopt, communicate and enforce strict rules concerning how the firm will proceed from the moment it is served with the subpoena to the final act of compliance. One such rule should be that all subpoenas be routed promptly to the designee. Another should be that no responsive actions will be taken except under the direction of the designee. By these means, the firm will be able to bring all its resources to bear on the process, as necessary, and to manage its risks in a consistent and well-reasoned manner.
  • Don’t delay. Missing the response date for a subpoena can lead to negative legal consequences for the firm, including, among other things, a charge of obstruction of justice or contempt, monetary sanctions and/or the loss of the ability to assert a privilege or other objection. Responding hastily at the eleventh hour can lead to mistakes, which could be damaging or embarrassing to the firm. Accordingly, every owner and employee of the firm should be trained to recognize a subpoena and forward it to the designee immediately upon receipt (depending upon circumstances, a subpoena may be served by various means, including constable, sheriff or certified mail, and may be received by anyone associated with the firm).
  • Communicate with your client. In most jurisdictions, service of a subpoena is sufficient to override the need for client consent before disclosing confidential client information to a third party. In other words, in most jurisdictions, if you are unable to obtain your client’s prior consent (either because your client is unavailable or is unwilling to give it), the existence of a properly served subpoena provides the legal basis to make the requested disclosure. Note: there are some states that do not recognize such a “subpoena exception” to the need for prior client consent, and the Internal Revenue Code (IRC) imposes its own limitations on the process when the subpoena seeks tax return information; we will discuss those complicating factors below in greater detail. Nevertheless, whenever you are served with a subpoena, we recommend that you reach out to your client or former client (the “client”) to discuss the matter — unless the subpoena admonishes you not to do so, as may occur in the context of certain criminal investigations, which we also discuss below in greater detail. By discussing the matter with the client and asking for consent, even when you do not need to obtain it, you can assess the client’s attitude toward your production of the requested information and ascertain whether the client intends to raise any objections by means of a motion or otherwise.
  • Stay within the bounds of the subpoena. As we’ve noted, in many jurisdictions the existence of a subpoena provides you with the legal cover you need to produce confidential client information to a third party in the absence of prior client consent. But just as a client’s consent may be subject to limits, so too is the cover provided by the subpoena. The protection will only exist for information that is within the scope of the subpoena. If you stray beyond the scope of the subpoena and produce information that has not been requested, you will have breached your duty of confidentiality and may become the target of a claim by your client (or complaint to the state board of accountancy). Accordingly, do not respond to a subpoena by automatically producing everything you have in your files concerning the subject client. Read the subpoena closely, understand what you are being asked to produce and only produce the information that is fairly requested given the language used.
  • Don’t produce privileged documentation. There are instances, however, when information requested by the subpoena should not be produced. You should not produce information that is subject to a privilege or similar protection. The most common examples would be information protected by the attorney-client privilege or the work-product immunity. Both examples relate to communications with or work performed for attorneys. For that reason, as you review documents in preparation for a production, you should red flag any that constitute correspondence to or from an attorney, or work performed under the direction of an attorney. That does not mean that all such documents must be withheld and made the subject of an objection (it is likely that only correspondence with your own attorneys and documents generated in the context of a litigation support engagement will warrant such treatment), but the presence of such documents probably constitutes a complicating factor to be considered more closely in consultation with legal counsel, as discussed below .

Complicating Factors

After following the basic principles outlined above, you may have noted circumstances that cause you confusion or even concern. Theses “complicating factors” should not be ignored. They are precisely the issues that distinguish a simple subpoena from a complex one. And it’s the complex subpoena that warrants closer scrutiny, usually with the input of legal counsel. We will summarize the most common complicating factors in this section of the article.

  • Is there sufficient time to respond? As noted above, you should not delay in the face of a subpoena, which will contain a deadline. However, even without delay, you may encounter issues that make compliance by the deadline unlikely or impossible. Due to the volume of documents involved, the availability of personnel, the turnaround time of an outside copy service or the need to address other complicating factors, you may simply need more time. In most cases, the attorney that served the subpoena will be willing to extend the time for responding, and a brief telephone discussion (followed by a confirming letter or email) will resolve your dilemma, but not always. In those cases where you are unable to reach an accommodation, you should seek legal counsel. Your lawyer may be better positioned to persuade the other lawyer to grant the extension of time or can file the appropriate motion with the court to protect your interests.
  • Is testimony required? Not all subpoenas or summonses are the same. Some seek only the production of documents (e.g., a subpoena duces tecum) while others seek testimony as well (at deposition or trial). Some may appear to seek documents and testimony but, upon closer review, state that you may produce documents in lieu of a personal appearance (as in the case of many keeper-of-records subpoenas). It is important to read the subpoena closely to understand what you are being asked to do. If, from your close read of the subpoena, you conclude that your personal appearance is required at a deposition, trial or other hearing, we recommend that you seek legal counsel. Accountants generally should not attend depositions without legal counsel; that representation should come from an attorney that has been retained to protect your interests alone. In many cases (when the subpoena is served by a party opposed to your client), your client’s attorney will offer to represent you at the deposition, but we do not recommend accepting that offer. Separate counsel is best. And even when you will not be permitted the direct assistance of counsel (e.g., while testifying as a non-party witness at a trial or before a grand jury), the input of legal counsel in preparation for that testimony will allow you to better understand how your upcoming testimony may impact your risk exposure.  
  • Is there an accountant-client privilege issue? We’ve noted that most, but not all, states provide a subpoena (and summons) exception to the general rule against disclosing confidential client information without your client’s prior consent. It is, therefore, important to understand your state’s law on this point well before you receive your next subpoena. If you find that your state has an accountant-client privilege law that does not permit you to respond to a subpoena (or certain types of subpoenas or summonses) in the absence of prior client consent, then you should always consult legal counsel when you are served with legal process of this kind or, at least, after you have sought and failed to obtain the requisite client consent. Your attorney will help you evaluate whether the particular subpoena at issue fits within an exception to your state’s law (perhaps because it is issued by a federal authority) and will be able to file or serve on your behalf any necessary objections if the issues cannot be resolved through discussion with the other attorney.
  • Is tax return information demanded? Privilege is not the only basis for objecting to a subpoena. The IRC provides another. Under IRC §7216 and accompanying regulations, an income tax return preparer is prohibited from making disclosure of “tax return information” (as that term is defined in the statute) to a third party without first obtaining written client consent in a very specific form. Although those legal provisions provide an exception for court orders (a subpoena is not a court order) and certain types of subpoenas (e.g., grand jury subpoenas and those issued by defined governmental authorities), they do not provide a blanket exception for all subpoenas. Many attorneys regularly take the position that an ordinary subpoena served in the context of a civil action between private litigants is not within a §7216 exception and, therefore, does not enable an income tax return preparer to produce tax return information without the requisite prior written consent of the taxpayer-client. In such cases, you may need to assert an objection to the subpoena. Because of the complexities presented by subpoenas seeking production of tax return information, we recommend that you seek legal counsel when confronting them.
  • Is the proceeding private or public, civil or criminal? Not all subpoenas are created equal. Generally speaking, and with the understanding that all subpoenas are concerning (and to be taken very seriously), those served in the context of private civil lawsuits are less concerning than those served by federal, state and local authorities in the course of civil proceedings, which are, in turn, less concerning than those served by criminal investigators and prosecutors — and for obvious reasons. A poorly handled response to a private civil subpoena could result in a claim for damages. A poorly handled response to a civil or criminal subpoena served by a governmental entity, on the other hand, could result in a fine or worse: institution of criminal proceedings against you (e.g., on a charge of obstruction of justice or on the same or similar charges confronting the initial target(s) of the criminal proceeding). Accordingly, when the government is involved, the subpoena is, by definition, complex, and the intervention of legal counsel (perhaps criminal defense counsel) on your behalf is advisable.
  • Does your client object to the subpoena? Even if you see no factor complicating the response to a pending subpoena and consider the process to be a simple one, your client may feel differently. After all, the real objective of a subpoena served on an accountant is to obtain client information. The targeted files and knowledge may belong to you, but the client or clients whose information is sought will have a genuine stake in its disclosure outside of the zone of confidentiality that is the accountant-client relationship. For that reason, whenever you are served with a subpoena, we advise giving written notice to the affected client, unless the subpoena instructs otherwise (as may be the case in the context of a criminal or other governmental investigation). When giving notice to your client, you should attach a copy of the subpoena (even though the client or its attorney may already have one) in order to avoid any misunderstanding, and you should invite the client’s comments, even consent, with respect to the disclosures you are being commanded to make (even if you believe the client’s consent is not needed). By going through such an exercise, you can gauge the client’s state of mind concerning the disclosure, which could range from resignation to mere annoyance to concern over confidentiality to outright objection, and it could include threats of retaliation against you. The greater the client’s concerns over the disclosure, the greater the need for assistance of legal counsel in moving forward with your response.

Retaining Counsel — Subpoena Coverage

For those subpoenas that do not present any complicating factors, which we have termed “simple” in this article, you may be able to navigate the compliance process without incident on your own, without the need for guidance by legal counsel. If, however, you would feel more comfortable having the input of legal counsel, we encourage you to reach out for such assistance. And, as we have noted above, if the subpoena confronting you presents a complicating factor, making it “complex,” we recommend that you consult with legal counsel throughout the process.

How you retain legal counsel is another issue. Your firm may be large enough to have in-house counsel, in which case the needed legal guidance is readily available (although it may still be necessary to consult with outside specialists depending on the issue presented). Alternatively, your firm may have a continuing relationship with outside counsel or may have independent attorneys with whom it consults from time to time. In either case, such counsel may be a valuable resource to your firm as it wrestles with the issues surrounding a given subpoena, albeit for a fee. If, on the other hand, your firm has been fortunate enough not to need the assistance of legal counsel in the past and has no ready relationships upon which to draw, service of a complex subpoena would be sufficient cause to seek out and retain counsel for the first time. By whatever means your firm retains counsel, it should do so early in the process and as soon as the need for assistance becomes apparent.

For many firms, their professional liability insurance policy will include a benefit that will make retention of legal counsel less complicated and expensive than it could otherwise be. We will refer to that benefit as “subpoena coverage,” and you should ask your agent or broker whether your firm has it (and if not, whether and how your firm can get it). If your firm has subpoena coverage, it is likely entitled to have its insurer appoint a local attorney, at the insurer’s expense (without application of the firm’s deductible), to guide the firm through the process of responding to the subpoena. Although you can expect the subpoena coverage to be subject to a limit (e.g., $25,000), most incidents of this kind generate fees well below that limit. In order to invoke your firm’s subpoena coverage, you will need to make a written report of the incident to the insurer, a process with which your agent or broker can usually assist you. And to ensure that you are maximizing the usefulness of the benefit, you should initiate the reporting process as early as possible.

Following the basic principles and being alert to the complicating factors discussed above will empower your firm to apply its risk management tools when it comes into contact with the judicial process by means of subpoenas. Retention of legal counsel is not always necessary in these instances but should always be a consideration. If your insurer provides a risk management hotline, that service can help you distinguish between simple and complex subpoenas and help you decide whether the direct involvement of legal counsel is warranted (whether by means of subpoena coverage or independently). And your agent or broker can help you understand whether and the extent to which invoking subpoena coverage will impact your firm upon renewal of its professional liability insurance policy (it is our understanding that a firm’s occasional resort to its subpoena coverage is not likely to have an adverse impact).

The statements and opinions in this article are intended solely for general educational purposes, to give the reader a broad outline of the legal provisions discussed. They are not intended to provide specific legal, accounting or other professional advice for use in connection with the reader’s jurisdiction, practice or clients. The author makes no representations or warranties as to their technical accuracy or compliance with any law or professional standard and assumes no responsibility to correct or update them for any reason, including changes in any law or professional standard. Before taking any action in connection with the legal provisions discussed, the reader should consult the actual text of those provisions and obtain specific legal and/or accounting advice. 

John F. Raspante

John F. Raspante

John F. Raspante, CPA, MST, CDFA, is the director of risk management for McGowanPRO. He is a member of the NJCPA Accounting & Auditing Standards Interest Group and the Content Advisory Board.

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Ralph G. Picardi

Ralph G. Picardi, Esq., is the principal of Picardi LLC, a legal and consulting services firm. Before practicing law, Ralph was a CPA.