Can I Hold Client Records for Unpaid Fees?
The question as to whether or not a New Jersey licensed CPA (practitioner) must fulfill a records request by or for a client who has unpaid fees requires a review of several sources. The AICPA Code of Professional Conduct (AICPA Code) and the Regulations Governing Practice Before the Internal Revenue Service, referencing 31 C.F.R. §10.28, (Treasury Circular 230) both defer to state accountancy law and regulations.
In New Jersey, a practitioner may not withhold “client records” for unpaid fees (N.J.A.C. 13:29-3.16 (b)). Though this New Jersey regulation provision does not specifically define the meaning of “client records,” its meaning can be reasonably inferred, as detailed below. Where ambiguity exists, it is our position that deference should be made to the client to satisfy the records request (even in the case of unpaid fees) in order to safeguard against potential violation of the law and/or disciplinary action.
Fulfilling one’s duties under the Acts Discreditable Rule (§1.400.001) requires practitioners to appropriately fulfill records requests as set forth in §1.400.200. This section includes four types of records (§1.400.200.01):
- “Client-provided records” are defined as “belonging to the client” and provided to the member by the client.
- “Member-prepared records” are records the member was “not specifically engaged to prepare and that are not in the client’s books and records or are otherwise not available to the client.” Examples include adjusting entries and supporting schedules that the member prepared as part of an engagement.
- “Member’s work products” are deliverables per the terms of the engagement, such as tax returns.
- “Working papers” are all other items prepared “solely for purposes of the engagement” and can be prepared by the member or the client.
Interestingly, the AICPA Code states that “member-prepared records” and “member’s work products” may be withheld if fees are due (§1.400.200.07). The AICPA Code, however, specifically defers to state regulatory bodies — such as members’ state board(s) of accountancy — if more restrictive language exists on the topic of records requests. (§1.400.200.05) Indeed, New Jersey does have more restrictive language.
New Jersey Law and Regulations
The New Jersey statute itself is silent with respect to unpaid fees (N.J.S.A. 45:2B-66 “Disposition of Records”).
The New Jersey State Board of Accountancy Regulations (N.J.A.C. 13:29-3.16(b)), however, provide explicit guidance with respect to unpaid fees, stating that, “a licensee or the licensee’s firm shall not withhold client records for the non-payment of fees for services performed.” [Emphasis added.] It does not explicitly define “client records,” yet provision (a) in the same section infers that client records would include:
- A copy of a tax return of the client
- A copy of any report, or other document, issued by the licensee to or for such client
- Any accounting or other records belonging to, or obtained from or on behalf of, the client which the licensee removed from the client’s premises or received for the client’s account, but the licensee or the licensee’s firm may make and retain copies of such documents when they form the basis for work done by the licensee
- A copy of the licensee’s or his or her firm’s working papers, to the extent that such working papers include records which would ordinarily constitute part of the client’s books and records, and are not otherwise available to the client (N.J.A.C. 13:29-3.16(a))
Treasury Circular 230
Treasury Circular 230 contains additional guidance for those authorized to practice before the IRS, including CPAs. It requires a practitioner to return “…any and all records of the client that are necessary for the client to comply with his or her Federal tax obligations” (31 C.F.R. §10.28 “Return of Client Records”).
In the event of a fee dispute, §10.28 defers to state law if that law permits withholding a “client’s records” because of a fee dispute and requires only that “…those records that must be attached to the taxpayer’s return.” Yet, as noted above, a conservative reading of the law in New Jersey would suggest that a practitioner is not permitted to withhold any client records, even in the event of a fee dispute.
Lori A. Buza
Lori A. Buza, J.D., is an attorney at law, N.J. & D.N.J Cts., chair of the Department of Accountancy & Business Law and full professor of business law at Saint Peter's University.
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This article appeared in the July/August 2019 issue of New Jersey CPA magazine. Read the full issue.