Page 3 - The Confidentiality of a Client's Tax Return Information: Provisions Tax Preparers Must Remember

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COLUMNS I Tax Practice & Procedure

account, and act upon it, in performing As with section 7216, the basis of the Interpretation 1.700.060 takes the posi-
accounting services for another client, AICPA’s rule is that a CPA must obtain tion that, if a CPA complies with a
but only if— client consent before disclosing the request from a third party that may
n the tax return information is or may be client’s tax return information to third result in the disclosure of the client’s
relevant to the subject matter of the parties. This rule, however, applies to any information to others, even without the
accounting services for the other client, and information obtained from a client that client being specifically identified by
n consideration of the tax return infor- is not available to the public, as opposed name, confidentiality is threatened. If
mation is necessary for the proper per- to information that is furnished in con- the client information is considered con-
formance of the accounting services for nection with tax return information under fidential, a CPA would be in violation
the other client [Treasury Regulations IRC section 7216, thus potentially cov- of the AICPA’s rule for disclosing or
section 301-7216-2(h)(2)]. ering a broader category of information. using information in this way unless the
Like the Treasury Regulations, the client specifically consents, preferably
The AICPA Confidential Client AICPA’s rule addresses the use of third- in writing.
Information Rule party service providers, such as e-file
CPAs must not only be familiar with providers, but it is more stringent. AICPA Rules to Live By
IRC section 7216 and its regulations, Rule Interpretation 1.700.040 presumes Although IRC section 7216 and
but also with the AICPA’s Code of that confidentiality under the rule is threat- Treasury Regulations section 301.7216-
Professional Conduct section ened whenever a CPA uses a third-party 2 are complex, tax return preparers must
1.700.001, the “Confidential Client service provider. Consequently, a CPA become familiar with these provisions,
Information Rule,” which differs from should either enter into a contract with the and CPAs must be familiar with the
section 7216 in some respects. It is sig- third-party service provider specifically to Confidential Client Information Rule,
nificant that Treasury Regulations sec- maintain the confidentiality of the covered since violations can be prosecuted as
tion 301.7216-2(h) uses the term “con- taxpayer information, or obtain consent a federal crime, result in fines, and
sistent with applicable legal and ethical from the client before disclosing tax return result in disciplinary measures under
responsibilities” in connection with dis- information to the provider. Circular 230 or the AICPA Code of
closures that may be made only by In contrast to the Treasury Professional Conduct. q
CPAs or attorneys—recognizing that Regulations’ authorization of a tax
these professionals may face additional return preparer’s production of a statis- Caroline Rule, JD, is a partner at
ethical requirements. tical compilation of data, AICPA Rule Kostelanetz & Fink LLP, New York, N.Y.

70 OCTOBER 2019 / THE CPA JOURNAL