Seth Breidbart wrote:

- quote -

The professional standards clearly allow the use of
"assistants" so it appears you could have someone else so
long as they were under your control (and a partner would
presumably have a duty as well). Since the responsibility
would remain with the original CPA I don't see any real
problem there.

Realize the argument is not based so much on the literal
reading of the rules on disclosure (which could be read to
limit), but interpreting those rules in conjunction with
other rules that make it clear that *some* disclosure inside
a firm is clearly contemplated.

In reality, the problem is going to occur when there is some
sort of misuse of the data and the original CPA attempts to
avoid civil liability at that point by arguing he/she didn't
do it, he/she had no idea that the new owner would do it and
therefore there should be no responsibility. That's when I
expect a plaintiff's attorney would turn to these rules to
get some liability to attach by arguing the disclosure would
never had occurred had the CPA asked his client about giving
the information to this bad actor.

--
Ed Zollars, CPA
Phoenix, Arizona

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- quote -

Suppose the CPA took on a partner; could the partner have
access to the CPA's records? (Presumably yes, else a CPA
could never hire an employee to help; nor would there be any
benefit besides shared rent to a partnership.) Then could
the original CPA retire (or die), leaving the records with
the remaining partner?

How fast could those transactions take place? (In reality,
I'd recommend a year or two of actual partnership, so that
clients would meet the new partner and be more likely to
stay with him; but in some particular case that might not be
feasible.)

Seth

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Ed Zollars, CPA <ezollar[at]mindspring.com> wrote:

- quote -

By the same token, many of the CPA practice "sales" that
I've observed were technically structured as a "merger" with
the subsequent "withdrawal" of the selling partner(s) after
(say) one year. However, I've NOT seen that technique used
when the sale of a storefront tax practice was involved.

MTW

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- quote -

Harlan,

You are so right about that! <G
Carol

What can one expect of a day that begins with getting out of bed.
Semper Gumby (Always Flexible)

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DonTheCPA wrote:

- quote -

I would note, though, that it's not terrible likely the IRS
would take any action on this one absent some other problem
being shown. The IRS has a limited budget for enforcement
matters and, unless there was some other problem to pushed
this violation up the list, it's likely they'd let this
pass.

As noted in another post, the provision in the IRC is a
criminal and not a civil one, so the client would likely
need to blaze his/her own trail in state court for damages
based on an implied clause in the agreement of
confidentiality.

That would raise two problems in court--first, getting your
theory of liability to fly. Then, second, showing actual
damages.

So, as a practical matter, I think you can saber rattle but
you aren't likely to have any realistic legal recourse
absent some problem actually arising.

--
Ed Zollars, CPA
Phoenix, Arizona

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Michael T Wing CPA wrote:

- quote -

Of course, like always you'd be subject to the more
restrictive of the two sets of rules in question.

- quote -

Not really, because of a technicality here--normally, when
the bank or other publicly held entity is acquired, the only
thing that initially changes is who the shareholders are.
The entity in question may then be merged into another
entity, but the legal obligations of the old entity continue
on with the new one so, officially, no transfer of private
information has occurred.

There *is* a problem we've seen, though, with the new
financial institution's privacy policy being different from
the original one.

- quote -

As a practical matter, it would seem this could be covered
relatively easily through an engagement letter for the "new"
CPA that would grant the right to the return information. As
well, as we are all aware, there are a number of issues
where the "attest" hat and the "tax" hat come into conflict
with each other <grin> .

- quote -

Given the heightened awareness of privacy issues out there
now, I would be more concerned about a violation of the
rules being used against the practitioner in a civil case
from a disgruntled former client. One of the ways to show
your negligence is to show you acted either in ignorance of
provisions of the IRC or openly in violation of those
provisions--and, heck, it seems you had to do one or the
other if you didn't ask permission to transfer the files.

That said, the structure would appear to be for the first
year to simply control the release of files conditioned on
the buyer receiving a signed engagement letter with the
client.

--
Ed Zollars, CPA
Phoenix, Arizona

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will5144[at]aol.com (Will5144) wrote:

- quote -

Being right is not always determined by how many people
agree with you.

I respect the others' opinions, but I answered what I
thought you were actually asking: --- Can he just give my
personal / private tax information to anyone he pleases?
That is the question I answered and feel that I answered
correctly. If that is not what you were asking, please set
me straight ! ! !

Now don't get me wrong. I AGREE with the others when they
speak of your past preparer's files being HIS & not yours.
I.E. - You can't force him to give you HIS files. HE can
keep them or destroy them - -but he CANNOT just give them to
someone else WITHOUT your permission. If he were a CPA, you
could just call the State Board of CPAs in your state and
get that same answer. In fact, THEY would notify the CPA of
that directly.

But, since he is not a professional preparer, I am afraid
you must deal with this on your own. Tell him you think it
is NOT proper for him to transfer your file and that he MUST
either destroy it or transfer it to someone you name. Also
tell him that if he refuses, you will take some action
against him.

Then, if he does refuse, get an attorney to write him a
letter telling him the same thing. If all of that fails, I
would contact the IRS to report to them what has transpired.

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- quote -

Given the time lapse the newsgroup has suffered lately,
you're just now getting other opinions, and plenty of them
to boot.

You see for instance I agree on the privacy issue, and
equate your case with a medical doctor's files, especially
in today's medical privacy climate. that was one tough set
of rules they passed there for them.

Cheer$,
Harlan Lunsford, EA in LA

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Ed Zollars, CPA wrote:

(most snipped here)
- quote -

That's about the whole kit n kaboodle of it, Ed. You cut
right to the bone, there. IF I ever retire, and sell out,
this will be my policy too.

Cheer$,
Harlan Lunsford, EA in LA

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- quote -

And IF this were 1996, I would agree with you, Carol.
For that is always the way it was.

But now with the Gramm Bleacchjjhhh! Lively act, whatever,
the rules have changed, as pointed out by Ed above.
I think we are absolutely forbidden to sell these copies.

And even if I sold my corporation which owns the records, I
would also take the pains to get clients' permissions to
make the transfers.

Cheer$,
Harlan LUnsford, who is not walking up that mountain
tomorrow after all. (heh! heh! let them puzzle over
that one)

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Ed Zollars, CPA <ezollar[at]mindspring.com> wrote:

- quote -

I think you are ~technically~ correct about that. However,
if that ~is~ correct, then there are many "criminals"
amongst us. <g> (In fact, I had lunch with a table full of
'em at a recent CPE event. I suppose, in the future, I'll
have to ask some questions before I choose my seat. <g> )

I would love to see a "pure" case where misdemeanor charges
were brought against a practitioner for transferring records
pursuant to a bona fide sale of practice. By "pure," I mean
where there was no other hanky-panky involved.

Speaking as a CPA, I see some additional complicating
issues. Under my state's accountancy rules, it IS
permissible to transfer records pursuant to a bona fide sale
of practice (in effect, it is an "exception" to disclosure
restrictions). I believe the FTC rules allow a similar
exception (otherwise, consider the problems that
merging/reorganizing banks and insurance companies would
face). Further, as a CPA, it might be practically
~impossible~ to purge transferred files of ALL federal tax
information. Consider, for example, financial statement
workpapers related to tax accrual issues, etc.

(Parenthetically, I wonder what happens when your mortgage
loan is "sold" to another lender or servicing company?
Presumably your file, including copies of tax returns, is
transferred. Do you have the right to object???)

So, I don't think this issue is quite as clear as it might
first appear. However, that said, I think a tax practitioner
would be "nuts" to transfer files without offering some kind
of an "opt-out" provision, even though applicable laws and
regulations (other than, arguably, the IRC) might not
specifically call for an opt-out option in this particular
situation.

MTW

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- quote -

Doctors have been selling practices and sending records to
the purchaser for years without getting consent. I know for
a fact that my medical records were sent to a new doctor
without my consent and he destroyed them without my consent.
He never even notified me that he had plans to destroy them.

Carol

If you awoke to find yourself a success, you weren't asleep.
Semper Gumby (Always Flexible)

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- quote -

We had an accounting client come by a few years ago to pick
up his file. I could not give him our file but did give him
copies of what we had. He *thought* we kept originals of
the bank statements, cancelled checks, etc (because the
estranged wife told him we had them, not her). I actually
opened up the folder and showed him everything we had,
making him copies of every bit of it. Again, as this poster
stated, the file in our office was not the clients to have.

Carol

If you awoke to find yourself a success, you weren't asleep.
Semper Gumby (Always Flexible)

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- quote -

I was told in an ethics class that it is a criminal, not
civil, violation of the IRC to release tax returns to others
without specific written authorization. I've never
researched the issue, and can't provide a cite, but the
instructor was the attorney/CPA who represents most
attorneys and CPAs in the Houston area in disciplinary
matters before the State Board of Public Accountancy and the
State Bar. As a matter of practice, my partners and I do
not release any tax returns to third parties without
specific written authorization.

By specific written authorization, I mean a document that
states what is being released, to whom it is being released,
and why it is being released. The authorization also states
that it is intended to comply with requirements of the IRC.
We do not, under any circumstances, release returns to
anyone without having the authorization in hand in advance
of the release.

I do not know if there are IRC exceptions for the sale of a
practice; to the best of my knowledge, there are sale of a
practice exceptions under the CPA ethics rules. When we
bought a couple of practices in 2001, we prepared release
forms for the sellers to provide to their clients. Most of
the releases were returned to us. A few of the clients
asked for their records. The sellers gave us the files of
the clients who did not provide the releases. In some
cases, those clients became our clients. In other cases, we
neve heard from the clients at all.

While you are correct in believing that the old accountant
should need your authorization, this is a "principle vs.
practice" issue. The simplest solution is to decide whether
or not you want your files released to the new accountant.
If you decide that you don't, write to the old accountant
and tell him not to release your files. Since he is neither
an EA nor a CPA, your only recourse would most likely be
with IRS.

Joel Berry, CPA
Sugar Land, Texas

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"Rufus Leaking" <djmangin[at]aol.comrufus> wrote:

- quote -

This is the response with which I agree. There is a legal
obligation on the part of the accountant to retain the files
for at least the open years. If there are basis issues,
typically, but not mandatory, the files are retained
indefinitely.

The client gets his/her copy of the return at the time of
delivery along with the return of any original documents
provided to the preparer.

Whether the practice is sold, the practitioner passes away
or just shuts down, it is a courtesy to the clients to
advise them as to where their open year records will be
stored. Of course an accountant purchasing the business
hopes the clients will transition; there is usually a sale
adjustment for those who do not. But the records will still
be stored with the new accountant.

The good news is, you know where to go for copies in the
event you misplace yours.

And as a side note, why not give the new accountant a try?
If I were to sell my practice, I would choose someone with
similar style and work ethic as mine for the sake of my
clients. He/she may be better than someone you pick out of
the book. You can make your decision to continue or bail
before the predecessor does anything for you; you really do
have ultimate control over this change.

--
Sincerely,
Joanne

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Shagnasty wrote:

- quote -

I don't think there's a "sale of the practice" exemption to
IRC Section 7216, nor do I recall one in the AICPA Code of
Professional Ethics applicable to CPAs (a code that most
states follow, as well as often having their own
confidentiality statutes or regulations applicable to CPAs).

That said, I think the names and contact information
likely can be transferred without the client's permission,
but other information obtained as the result of the tax
engagement would seem to be subject to special treatment.

Now, as I noted, the IRC portion of this might be irrelevant
if the practice was sold by transfer of stock in a
corporation--in that case, arguably the same entity still
holds the information. From the ethics standpoint, the
issue wouldn't be quite as clear, since that would seem to
apply to the individual CPA (most rules apply to the
individual and not the firm).

--
Ed Zollars, CPA
Phoenix, Arizona

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Wayne Brasch wrote:

- quote -

Well, in most states the records would be the preparer's
property and not that of the client (presuming they were
copies, workpapers, etc. and not the original records).
However, IRC Section 7216 would prohibit the unauthorized
disclosure of tax return information (and it's a criminal
act to knowingly or recklessly violate that provision). So
I would suggest that unless the preparer had explicit
written permission as required by the regulations, he/she
*probably* couldn't transfer the data.

I say probably because things would get a bit "muddy" if we
had a corporation whose stock was sold--there, in theory,
the same entity now has the information. That is, every
time H&R Block share are sold that's not a new entity--nor
would it be if some other entity bought all of HRB's
outstanding shares. But that new entity would still face
the same restrictions we all do on using that information
(again subject to criminal penalties).

As well, the privacy policy published by the preparer under
the Graham, Leach, Bliley provisions would also have to be
respected, since that would likely be considered a contract
(client agreed to have you perform return based on those
representations).

If the preparer is a CPA or attorney, there's likely state
regulatory hurdles that need to be cleared as well. Both
professions have ethical rules that prohibit the disclosure
of confidential client information--and this look like that
sort of stuff <grin> .

In addition, a CPA, EA or attorney would need to worry about
potentially privileged documents (with the attorney having
broader worries <grin> ) and whether they would unilaterally
break privilege if they transferred information to this
third party (especially if that party is not a federally
authorized tax practitioner under the law).

Most likely the preparer *could* disclose the client list,
but nothing more, without client permission. If the client
elected to use the new preparer and gave permission in
writing, the files could be transferred at that point. But
I think anything short of that would be a violation of
federal law.

--
Ed Zollars, CPA
Phoenix, Arizona

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- quote -

It doesn't quite work that way, at least not here in MN.
Other than any original, client provided documents in the
file, any workpapers, copies of returns, etc are the
property of the accountant.

Same as if a client says he is changing to another preparer
and wants "his" file. It's not his it is the property of the
preparer.

Unless there's a subpoena involved, no one, not even the
client gets anything original from the files. I'll gladly
photocopy, gratis, anything a client wants or needs from the
file, but it isn't his to claim

Dave

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"Will5144" <will5144[at]aol.com> wrote:

- quote -

It is my understanding that a CPA can sell his practice and
all records in his files to the buyer.

You can go to the buyer and ask him for your tax returns.
He might refuse, but if the prior owner consents to the
release of the records, the new owner would probably give
them to you since obviously he isn't going to retain you as
a client.

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- quote -

Well, Don, of the five responses, you are the only one who
feels my accountant needs my ok before sending my tax
returns to a stranger. I would have thought your opinion is
the correct one, but the others seem to feel my tax returns
can be sent to anybody he feels like sending them to, even
if they are not professionals covered by any code of
conduct. Does not seem right to me. (I know, as some have
said, I can run right over there and tell him not to do it.
That's not the point. There's a privacy issue here, and I
think he SHOULD need my authorization before he sends my tax
returns ANYWHERE! In his letter to me, he did not even ask
for my ok; he just said my records will be at the new
accountant's office.)

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