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arushi_13
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Posted: 12 Jul 2009 at 12:42 \| IP Logged

According to the ethical standards of the profession, which of the following acts generally is prohibited?
a. Accepting a contingent fee for representing a client in connection with obtaining a private letter ruling from the
Internal Revenue Service.
b. Retaining client records after the client has demanded their return.
c. Revealing client tax returns to a prospective purchaser of the CPA's practice.
d. Issuing a modified report explaining the CPA's failure to follow a governmental regulatory agency's standards
when conducting an attest service for a client.

Correct ans: b

I understand why the correct answer is b but on page R7-52 in the PASS KEY it is given that a CPA cannot disclose his Working Papers related to a client to a purchaser of CPA's practice. Also I think it does fall under Rule 301 : Confidential Client information not to disclose client information to the purchaser of CPA's business without the written consent of the client.

Thanks.

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roswellpodsquad
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Posted: 12 Jul 2009 at 13:09 \| IP Logged

From what I remember the tax preparer CAN reveal client returns to
prospective purchasers w/out the client consent and have the purchaser
sign something saying that they will not disclose any of the information. It
also has to do with the wording. The CPA CANNOT TURN OVER workpapers
to prospective purchasers.

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Nan - Louisiana
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Posted: 12 Jul 2009 at 17:51 \| IP Logged

roswellpodsquad wrote:

From what I remember the tax preparer CAN reveal client returns to prospective purchasers w/out the client consent and have the purchaser sign something saying that they will not disclose any of the information. It also has to do with the wording. The CPA CANNOT TURN OVER workpapers to prospective purchasers.

Do you have a reference for this? Based on what I have found, effective 12/18/08, I believe you are incorrect concerning your statement on tax preparers.

I got this excerpt from the IRS website at http://www.irs.gov/efile/article/0,,id=188390,00.html

Section 7216 Updated Rules for Tax Preparers (Updated 12/18/2008)

"....Generally, tax preparers must obtain the signed consent of the taxpayer on paper or electronically before they can disclose taxpayer return information to anyone or use it for any purpose other than in the context of preparing and filing the return. Separate consents are required for disclosure(s) and use(s).... Violations could result in imprisonment for up to one year, a fine of not more than $1,000, or both, for each violation."

Also, here is the current US Code, Title 26, Section 7216:

http://www.law.cornell.edu/uscode/html/uscode26/usc_sec_26_0 0007216----000-.html

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bryris
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Posted: 12 Jul 2009 at 18:55 \| IP Logged

In Gleim, this question states what roswell said. A prospective purchaser can be shown tax returns assuming a signed nondisclosure agreement is obtained.

This part: "use it for any purpose other than in the context of preparing and filing the return [is prohibited]."

Since a prospective purchaser of a firm might have an interest in this information for the purpose of preparing such returns after the firm is purchased, a court "could" interpret this use of the information as just.

There is probably a ruling somewhere on this. Just a guess though.

If I was interested in purchasing a firm, I'd want to know what type of clients I would be working with. Would I get bunch a of 1040s who pay $200 per return, or would I be getting big corporate type clients? I'd be interesting in seeing some of the tax issues going on before I start day #1. If I couldn't have access to the tax information, I'd have to rely on the seller's information concerning the tax clients. Then once I sign the bottom line and start working the new firm, I'd have to just then pull out the client folders for the first time and be clueless about them when the client calls me up on the phone to discuss their situation? It just doesn't compute.

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arushi_13
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Posted: 12 Jul 2009 at 19:36 \| IP Logged

Thanks guys appreciate your inputs.But still confused...

bryris please could you copy paste Gleim's answer explanation for the same Q(s). I will really appreciate it.

Thanks a ton.

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