Privileged Communications, Confidentiality, and Privacy Acts Flashcards
Testimonial privileges
Classic privileged communications include attorney-client, doctor-patient, and priest-penitent. Where applicable, the protected party (client, patient, penitent) can prevent the party who received the protected communications (attorney, doctor, priest) from testifying.
Work product privilege
This privilege typically prevents one party in a lawsuit from learning the other side’s attorney’s strategies for litigation.
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.
Tax practitioners privilege - exceptions
The privilege does not apply to:
Criminal matters;
Matters not before the IRS or federal courts in cases brought by or against the United States;
Tax advice on state or local matters; or
Written advice in connection with promotion of a tax shelter.
Exceptions to confidential communications
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
Misc. rules
CPAs may reveal the names of clients without client consent, unless such disclosure releases confidential information.
In divorce proceedings, a member who has prepared joint returns for the couple should consider both of them to be clients for purposes of requests for confidential information relating to tax returns. If given conflicting instructions, the CPA should consider the legal implications of disclosure with an attorney.
Outsourcing and offshoring place a responsibility on the member who sends business, such as tax return preparation, to outside firms or to foreign shores (1 million U.S. tax returns per year are prepared in India) to ensure the confidentiality of clients’ tax information.
Section 6713
which imposes a civil penalty for each unauthorized disclosure or use of tax information by a tax return preparer
Section 7216
which imposes a criminal fine and potential imprisonment for knowingly or recklessly:
Disclosing any information obtained in connection with the preparation of a return or
Using such information for any purpose other than to prepare or assist in preparing a return
Generally Accepted Privacy Principles
Voluntary guidelines that the profession developed to assist accounting firms in establishing procedures and policies that will protect clients’ information in their possession from hackers and others.
10 Generally Accepted Privacy Principles
Management—An accounting firm should define, document, communicate, and assign accountability for its privacy policies and procedures.
Notice—An accounting firm should provide notice about its privacy policies and procedures and identify the purpose for which any personal information about clients is collected, used, retained, and disclosed.
Choice and consent—An accounting firm should describe the choices available to clients and obtain implicit or explicit consent with respect to the collection, use, and disclosure of personal information.
Collection—An accounting firm should collect personal information only for the purposes identified in the notice described above.
Use, retention, and disposal—An accounting firm should limit the use of personal information to the purpose identified in the notice and for which the client has provided consent.
Access—Firms should provide clients with access to their personal information for review and update.
Disclosure to third parties—Accounting firms should disclose information to third parties only for the purposes identified in the notice and only with the client’s implicit or explicit consent. Accountants remain ultimately responsible for ensuring that this information is kept confidential.
Security for privacy—Accounting firms should protect personal information against unauthorized access, as identity theft is a growing problem.
Quality—Accounting firms should maintain accurate, complete, and relevant personal information for the purposes identified in the notice.
Monitoring and enforcement—The accounting firm should monitor compliance with its privacy policies and procedures and have procedures to address privacy-related inquiries, complaints, and disputes.
Bank Secrecy Act
taxpayers have an obligation to report foreign bank accounts (FBAR)
While FBAR penalties are aimed primarily at the taxpayer, a TRP who, perhaps not fully understanding the FBAR rules, checked the “No” box in answering the question as to whether the client has a foreign financial account might be punished under Internal Revenue Code provisions such as:
Section 6694 (Understatement of a Taxpayer's Liability) Section 7201 (Criminal Attempt to Evade or Defeat Tax) Section 7206 (Criminal Fraud and Making False Statements)
