IRS Office of Professional Responsibility Director Stephen Whitlock recently reminded tax professionals that in situations where a client is a party in civil litigation regarding a non-tax matter, a preparer should not disclose, pursuant to a subpoena, client tax returns or the associated workpapers used or obtained in connection with the preparation of those returns except:
· After obtaining the client’s written consent to the disclosure; or
· Upon receipt of a valid court order requiring disclosure of the client’s tax returns to an attorney representing an opposing party in a lawsuit filed by or against the preparer’s client or former client.
We note that the Rules of Conduct of the Texas State Board of Public Accountancy (Section 501.75) contain substantially similar restrictive rules limiting any disclosure of client information and a CPA’s workpapers, whether or not tax related, and include specific provisions as to when disclosure is permissible.
Because of the general authority of an attorney issued subpoena, despite the applicability of these types of restrictions on disclosures, if the CPA ignores the subpoena he/she does so at considerable legal risk. The CPA should consider whether to seek legal counsel. However, the CPA or his/her attorney should inform the attorney issuing the subpoena that he/she is prohibited by federal law, IRC Section 7216 (or state law), from complying with the subpoena. These federal rules and the parallel state rules prohibit disclosure of tax returns, tax return information or any other confidential client information without the taxpayer’s (client’s) consent unless an exception applies. The preparer or his/her counsel should notify the attorney to, instead, obtain a court order signed by a judge for the records. If necessary, the CPA or his/her counsel may need to file a motion to quash the subpoena or take other appropriate legal action to protect the CPA from adverse legal action.