1.Zain retained Linda, an accountant, to prepare his federal income tax return.
ID: 2745158 • Letter: 1
Question
1.Zain retained Linda, an accountant, to prepare his federal income tax return. In the course of preparing the return, Linda had several conferences with Zain, during which she made notes. In addition, Zain furnished Linda with a number of documents concerning transactions in which Zain had been involved. The Internal Revenue Service (IRS) ultimately brought suit against Zain, claiming that he had underpaid his actual tax liability by a substantial amount. The IRS arranged for a subpoena to be served on Linda. The subpoena purported to require her to produce, in court, Zain's documents and the notes she had made during conversations with Zain. Linda sought to resist the order on the basis that the conversations were held in confidence, for the purpose of preparing Zain's tax return, and that the notes were made and documents were delivered in furtherance of the same purpose. Linda claimed, therefore, that what the IRS sought was privileged information and that since neither she nor Zain had waived the privilege, she should not have to produce what the IRS sought. Is Linda's argument sound? Explain.
Apply an interesting concept from the chapter to a real-life situation.
Explanation / Answer
Yes, Linda's argument is sound as a subpoena is not a court order and NAPLIA and/or local legal should be contacted before complying with any request for information gathered or produced in connection with tax services.
Unless section IRC 7216 specifically permits the disclosure or use of tax information, a tax return preparer may not disclose or use a a taxpayer's tax return information prior to obtaining a consent from the taxpayer.
- Consent must be knowing and voluntary
- There are form and content requirements that all consents must adhere to
- There are limitations up on consents to disclose a taxpayer's social security number to a tax return preparer located outside the United States
Permitted Disclosures without consent (partial list):
- pursuant to other provisions of IRS Code or regulations
- officers or employees of the IRS
- for the preparation of a taxpayer's tax return
- to other preparers
- related taxpayers
- court & regulatory bodies
- attorney for the purpose of securing legal advice
- officer of the court
- corporate fiduciaries
- taxpayer's fiduciary
- employee of the Treasury dept for use in investigation of the tax return preparer
- quality or peer reviews
- to report the commission of a crime
- due to tax return preparer's incapacity or death
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