Practitioners' responsibilities in complying with records requests.

• Author: Rempalski, Kristy L.

Editor: Thomas J. Purcell Ill, CPA, J.D., Ph.D.

It is common for a tax practitioner to gain new clients. However, that likely means another tax practitioner is losing a client. The turnover of clients is one of the primary reasons a client will request the return of tax records from a CPA. Other possible reasons might include a pending lawsuit or the need to provide financial or tax records to a bank to obtain financing.

When responding to such requests, the tax practitioner must be cognizant of, and adhere to, the collective body of applicable professional standards and law, including the AICPA Code of Professional Conduct (AICPA Code); Treasury Circular 230, Regulations Governing Practice Before the Internal Revenue Service (31 C.F.R. Part 10); the authority of applicable state boards; and the Internal Revenue Code. A practical consideration is whether the CPA must comply with a request before being compensated for services already provided to the client.

This column examines the interplay of the aforementioned standards, including key definitions of the types of records that may be in a client's file. In addition, this column provides practical guidance in responding to such requests. In this column, any reference to a "client" includes either a current or a former client, and a request for records includes a request for records to be provided either to the client directly or to a successor tax practitioner. "CPA" refers to an individual who has an active license to practice and thus is covered by Circular 230. Unless otherwise indicated, a CPA is also assumed to be a member of the AICPA.

Analysis of the AICPA Code

The AICPA Code and related Interpretations address the responsibilities of Institute members (and, by reference, of practitioners in those states where the governing board of accountancy has incorporated the AICPA Code into the state-specific code of conduct) when they perform professional services. Interpretations of the AICPA Code are adopted by the professional ethics division's executive committee to provide guidelines on the application of the rules.

Rule 501, Acts Discreditable, states that "[a] member shall not commit an act discreditable to the profession." Interpretation ET Section 501-1, "Response to Requests by Clients and Former Clients for Records," guides a member in how to respond to a client's request for records. The following terms are defined solely for use with Interpretation ET Section 501-1:

* The term "client" includes current and former clients.

* "Client-provided records" are accounting or other records belonging to the client that were provided to the member by, or on behalf of, the client, including hard copy or electronic reproductions of such records.

* "Member-prepared records" are accounting or other records that the member was not specifically engaged to prepare and that are not in the client's books and records or are otherwise not available to the client, with the result that the client's financial information is incomplete. Examples include adjusting, closing, combining, or consolidating journal entries (including computations supporting such entries) and supporting schedules and documents that are proposed or prepared by the member as part of an engagement (e.g., an audit).

* "Member's work products" are deliverables as set forth in the terms of the engagement, such as tax returns.

* "Member's working papers" are all other items prepared solely for purposes of the engagement and include items:

* Prepared by the member, such as audit programs, analytical review schedules, and statistical sampling results and analyses, and

* Prepared by the client, at the request of the member and reflecting testing or other work done by the member.

Note that Rule 501 was promulgated primarily from an auditing engagement perspective. As such, it is at times difficult to interpret and apply in tax situations.

A member's failure to comply with a client's request for a return of client records could constitute a violation of Rule 501 as an act discreditable to the profession. Client-provided records include both original and electronically reproduced documents that the client provided directly to the member or that were provided on behalf of the client and include documents prepared by the client, client employees, or a third party. Examples of client-provided records are general ledgers; trial balances; asset purchase or sale documents; brokerage statements; Forms W-2, Wage and Tax Statement, and receipts for charitable contributions.

When a client...