Tax Advisers, Return Preparers and Financial Planners Subject to New Federal Privacy Disclosure Rules(*).

• Position: Brief Article

The 1999 Gramm-Leach-Bliley Act contains provisions that are intended to protect the privacy of very broadly defined financial services, including tax planning, financial planning and tax return preparation. Under this Act, the Federal Trade Commission has issued regulations that require disclosure of certain information to consumers, and CPAs need to be aware of these requirements because they are in effect now and full compliance is required by July 1, 2001.

Generally, the FTC has been given the authority to regulate the privacy practices for financial services provided to consumers, other than those provided by banks, credit unions, securities companies, investment advisers (but only those who are actually registered with the SEC), and insurance companies. The regulations apply to those who provide "financial services," as defined by the Federal Reserve Board, which has long included tax planning, tax return preparation and financial planning.

CPAs who are "significantly engaged" in preparation of federal or state personal tax returns, including income, estate and gift tax returns, or who provide personal financial or tax planning are subject to the FTC's privacy regulations. To provide flexibility, the FTC rules do not define "significantly engaged," but they do provide some guidance through examples. In one example, a person who provides informal financial services (e.g., preparing tax forms without remuneration for friends or family, or as a community service), would not "likely" be significantly engaged in a financial activity.

The FTC's rule requires that certain disclosures be made to consumer clients (as opposed to business clients). There are one-time disclosures to new clients and annual disclosures to all clients. The disclosures must provide a clear and conspicuous notice that accurately reflects your privacy policy and practices, and the notice must be in writing or, if the consumer agrees, electronically. There is no required form for this notice, but it must include the following information:

1. The categories of non-public personal information you collect;

2. The categories of non-public personal financial information that you might disclose. If you are legally prohibited from disclosing non-public personal information, this should be stated (an example of such a prohibition is the Internal Revenue Code prohibition on disclosure of income tax return information);

3. The categories of affiliates and non-affiliated third...