Privacy Principles for Accountants

CPA Journal, The, May 2008 by Hildebrand, Mary J, Savare, Matthew

* Types of nonpublic personal information the accountant collects;

* Types of such information that the accountant discloses;

* Parties to whom the accountant discloses such information;

* Circumstances under which the accountant discloses such information;

* The policy regarding sharing information of former clients; and

* The practices for protecting such information.

An accountant who drafts and disseminates a privacy policy should comply with it. A breach of a privacy policy, even an unintentional one, can expose the accountant to claims of breach of contract, negligence, or unfair and deceptive trade practices.

IRC and Treasury regulations. IRC section 7216 prohibits tax preparers from "knowingly" or "recklessly" disclosing or using tax-related information other than in connection with the preparation of the return. The statute provides for fines and possible imprisonment for such violations. Disclosures pursuant to a court order or to third parties assisting in the processing of the return are permissible. Currently, there are no requirements to inform a client that a third-party provider, including an overseas provider, is being used. Similarly, IRC section 6713 imposes a $250 civil penalty for each improper use or disclosure of client information, with the total penalty not to exceed $10,000 for any person for a calendar year.

Treasury Department regulations enacted pursuant to the IRC permit accountants to disclose or use tax return information for three discrete reasons, provided the client signs a formal written consent (26 CFR section 301.7216-3). First, the regulations permit accountants to use tax return information to solicit from their clients additional non-IRS services that they provide to the general public [26 CFR section 301.7216-3(a)(1]. The regulations provide three examples of when such a consent is required [see 26 CFR section 301.7216-3(c)]. Examples of such services include refund anticipation loans, balance due loans, mortgage loans, mutual funds, IRAs, and life insurance. The request for this type of consent must be made before the taxpayer receives his completed return, and if the taxpayer refuses to give consent, no follow-up request may be made. second, the regulations allow accountants to disclose tax return information to such third parties, including marketers, as the taxpayer may direct [26 CFR section 301.7216-3(a)(2)]. Finally, with the proper consent, accountants may disclose or use the tax return information from one client to aid in the preparation of a tax return for another client [26 CFR section 301.7216-3(aX3)].

As provided for by 26 CFR section 301.7216-3(b), the accountant must obtain a separate written consent signed by the client for each separate use or disclosure. The consent must contain the following information:

* Name of the tax return preparer;

* Name of the taxpayer;

* Purpose for which the consent is being furnished;

* Date on which such consent is signed;

* Statement that the tax return information may not be disclosed or used by the tax return preparer for any other purpose; and