The rules on providing client records

Suppose a CPA who prepared a client’s tax returns receives a request from the client that the CPA transfer all of the client’s tax records to a new firm. The client includes the appropriate Sec. 7216 consent to disclose authorization to transfer the records. What are the CPA’s responsibilities and obligations?

Multiple authorities must be considered. First, the CPA should refer to Circular 230, Regulations Governing Practice Before the Internal Revenue Service (31 C.F.R. Part 10), Section 10.28, which states that a “practitioner must, at the request of a client, promptly return any and all records of the client that are necessary for the client to comply with his or her Federal tax obligations.”

Records of the client are defined by Section 10.28(b) as “all documents or written or electronic materials provided to the practitioner or obtained by the practitioner in the course of the practitioner’s representation of the client, that preexisted the retention of the practitioner by the client.” Records of the client include materials that were prepared by the client or a third party, such as an investment manager or a bank or a brokerage firm, and provided to the practitioner to prepare the requisite tax returns.

The term “records” also covers any return, schedule, appraisal, or any other document prepared by the practitioner that was presented to the client with respect to a prior representation if such document is necessary for the taxpayer to comply with a current federal tax obligation. The term does not include any return, schedule, or any other document prepared by the practitioner if the practitioner is withholding the document pending the client’s performance of a contractual obligation to pay fees with respect to the document.

In addition, the CPA should consider the AICPA Code of Professional Conduct, specifically ET Section 501.02, Acts Discreditable, Interpretation 501-1, “Response to Requests by Clients and Former Clients for Records.” Under this section, when a client or former client requests that the client’s records either be sent to the client or forwarded to another CPA, a member’s failure to comply with the request would constitute a violation of this interpretation. “Client-provided records,” as defined in this interpretation, are “accounting or other records belonging to the client that were provided to the member, by or on behalf of, the client, including hardcopy or electronic reproductions of such records.” As can be seen, the definition of records for purposes of Interpretation 501-1 is much broader than the definition used in Circular 230.

In addition, AICPA members are encouraged to comply with the rules and regulations of authoritative regulatory bodies, such as the member’s state board of accountancy, when the member performs services for a client and is subject to the rules and regulations of such regulatory body.

For a detailed discussion of the issues in this area, see “Current Tax Return Disclosure Issues Involving Sec. 7216,” by Thomas J. Purcell III, CPA, J.D., Ph.D.; Barbara Bond, CPA; and Gerard H. Schreiber Jr., CPA, in the August 2013 issue of The Tax Adviser.

—Alistair M. Nevius, editor-in-chief

Also look for articles on the following topics in the August 2013 issue of The Tax Adviser:

• The annual tax software survey results.
• A discussion of planning for the net investment income tax.
• An analysis of the home office deduction safe harbor.