How to Handle Requests for Tax Information from Individuals Associated with a Client

by Kenneth Heaslip, CPA, Cullari Carrico, LLC – February 5, 2019
How to Handle Requests for Tax Information from  Individuals Associated with a Client

Requests made to owners of businesses related to the furnishing of tax returns or portions of tax returns can be challenging. The owners of a client’s business may be partners, shareholders or members of the entity, and ownership percentages can vary from a small percentage to a majority owner.

In many cases, the CPA has previously provided the client with a copy of a tax return but another owner would like to have a copy. That person often approaches the CPA after being unsuccessful with getting it from the client.

Before evaluating the request, it is important to consider the following:

Engagement Letter

Does the engagement letter state who is entitled to receive copies from the CPA? The engagement letter is the document that governs the terms of the engagement, including client and CPA responsibilities. A well-written engagement letter will define which individual is the client’s representative and who the CPA will deliver the work to. It will also include the uses of that work.

Once a person is designated, the CPA should only share “work product” with that person.

Absent a designated person, the CPA can consider the representative to be:

  • The person who signs the engagement letter,
  • The person who delivers information to the CPA, or
  • The person the CPA considers to be the representative.

It is important to note that the designated person may not be an officer or an owner of the company. In those cases, the CPA will have to be careful because the officer or owners will believe they have rights that are not given to them in the engagement letter.

IRC Section 7216

This Code section limits the use and disclosure of tax information by tax practitioners. The Internal Revenue Code has strict rules related to the disclosure of tax information, including copies of the tax return. IRC Section 7216(a)(1) states:

General rule Any person who is engaged in the business of preparing, or providing services in connection with the preparation of, returns of the tax imposed by chapter 1, or any person who for compensation prepares any such return for any other person, and who knowingly or recklessly discloses any information furnished to him for, or in connection with, the preparation of any such return…shall be guilty of a misdemeanor, and, upon conviction thereof, shall be fined not more than $1,000, or imprisoned not more than 1 year, or both, together with the costs of prosecution.

Obviously, providing a tax return to a wrong person can have severe consequences. Under the regulations in Sec 7216, whenever a preparer releases a copy of the return a special disclosure must be sent to, and signed by, the client. Failure to follow the specific rules outlined in the regulation could result in criminal prosecution.

AICPA Code of Professional Conduct

This is the defining document for CPAs controlling confidential information and shows how to respond to record requests by clients.

While the IRS Circular 230 and other code sections do not specifically define the client, the most definitive document will be the AICPA Code of Professional Conduct. There are two interpretations within the Code of Professional Conduct that are important to note, ET 0.400.07, Definition of Client, and ET 1.400.200, Records Requests.

Client is defined as:

Any person or entity, other than the member’s employer that engages a member or member’s firm to perform professional services (engaging entity) and also, a person or entity with respect to which a member or member’s firm performs professional services (subject entity). When the engaging entity and the subject entity are different, while there is only one engagement, they are separate clients.

In most cases, the client is considered to be the business entity, not individuals within that entity.

Regarding requests for records, the records that need to be furnished can be confusing. ET 1.400.200 states:

Unless a member and the client have agreed to the contrary, when a client makes a request for member-prepared records or a member’s work products that are in the member’s custody or control and that have not previously been provided to the client...The member should provide member-prepared records relating to a completed and issued work product to the client, except that such records may be withheld if fees are due to the member for that specific work product. (NOTE: NJ and most other state laws prohibit withholding the records due to outstanding fees)

Most CPAs are aware of the codes, but the important issue is who has the right to request and receive the records. As noted, a well-written engagement letter will determine this. The records request interpretation above refers to the engagement letter in saying “unless the member and the client have agreed to the contrary.” Absent such an agreement, the default will be that the member provides the records to the client. The Code of Professional Conduct further emphasizes that point in ET 1.400.200:

.09 A member who has provided records to an individual designated or held out as the client’s representative, such as the general partner, majority shareholder, or spouse, is not obligated to provide such records to other individuals associated with the client.

.11 A member who is required to return or provide records to the client should comply with the client’s request as soon as practicable but, absent extenuating circumstances, no later than 45 days after the request is made.

It is important to note that ET 1.400.200.09 includes singular references. The CPA is not required to provide records to multiple entities. That entity is designated in the engagement letter. Absent such reference, the client representative, general partner, majority shareholder, or spouse will be the default. The CPA has no obligation to deliver copies to any other person and to do so, may be held liable for improper disclosure of such returns under both the AICPA Code of Conduct and the IRC 7216.

It is common that the person requesting the records will argue that he/she is entitled to the information. That may be correct; but they are entitled to the information from the entity, not the CPA.


Kenneth A. Heaslip

Kenneth A. Heaslip

Kenneth Heaslip, CPA, MBA, MS, CGMA, is a director at Cullari Carrico, LLC as well as a discussion leader for The Loscalzo Institute. He is past president of the NJCPA’s Essex Chapter, a former NJCPA vice president and is currently a member of the NJCPA State Taxation, Federal Taxation, Nonprofit, Governmental Accounting & Auditing, and Accounting & Auditing Standards interest groups as well as the Student Programs & Scholarships and Professional Conduct committees.