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Privileged Communications, Confidentiality, and Privacy Acts :fire: …
Privileged Communications, Confidentiality, and Privacy Acts
:fire: :warning:
I. Privileged Communications
A. Introduction
- There are two types:-
1. Testimonial privileges
2. Work product privilege
This privilege typically
prevents one party
in a
lawsuit from learning the other side's attorney's strategies for litigation.
B. Accountant-Client Testimonial Privilege
The federal courts have refused to recognize an accountant-client testimonial privilege.
The state courts have refused to recognize a common law accountant-client testimonial privilege
Approximately 15 states have statutorily recognized an accountant-client privilege. In those states, remember:
a. The privilege belongs to the client, not to the accountant;
b. The privilege can be waived by the client, either expressly or through voluntary and knowing disclosure of the relevant information
c. Waiver of the privilege as to part of the communication is waiver as to all;
d. The privilege applies only in state court, where state procedural rules apply.
C. Tax Practitioners' Privilege
Section 7525 of the Internal Revenue Code extends a modest testimonial privilege to clients of all tax advisers authorized to practice before the IRS,
including accountants. However, the privilege has several exceptions and has been construed narrowly by the courts.
Exceptions—The privilege does not apply to:
a. Criminal matters;
b. Matters not before the IRS or federal courts in cases brought by or against the United States;
c. Tax advice on state or local matters; or
d. Written advice in connection with promotion of a tax shelter.
Construed narrowly—Courts have not been uniform in their construction or application of the Section 7525 tax practitioners' privilege, but many
have held that:
a. It does not apply to information communicated to the practitioner solely for the purposes of facilitating tax return preparation.
b. It merely extends to tax practitioners the same privilege accorded in the attorney-client relationship.
c. Legal advice is protected, but not general accounting advice.
d. The exceptions to the privilege are to be broadly construed.
D. Accountant's Working Papers
Working papers are the notes, evidence, computations, and so on that accountants accumulate when doing professional work for their clients.
These working papers belong to the accountants, absent express agreement to the contrary
Accountants must keep working papers confidential absent:
a. Client consent to disclosure
b. An enforceable government subpoena.
II. Confidential Communications
A. General Rule—According to the AICPA Code of Professional Conduct, absent client consent, a CPA shall not disclose confidential information disclosed by
clients.
B. Exceptions—Recognized exceptions include:
GAAP calls for disclosure
An enforceable subpoena or summons has been issued
An ethical examination is being conducted
A peer review requires disclosure
Disclosure is to other firm members on a “need-to-know” basis
C. Miscellaneous Rules
CPAs may utilize outside computer services to process tax returns, as long as there is no release of confidential information
CPAs may reveal the names of clients without client consent, unless such disclosure releases confidential information.
E. Violations—Violation of confidentiality obligations is also grounds for a civil malpractice lawsuit by a client.
III. Privacy Acts