Most people have a vague understanding that their medical provider is legally obligated to protect their private information based on the Health Insurance Portability and Accountability Act (HIPPA). They also have heard about attorney-client privilege from a variety of television shows if not in real life, where an attorney cannot be forced to divulge information about a client in a legal proceeding. People may not know that even the federal government is legally required to safeguard protected personal information (PPI) through the Federal Information Security Management Act (FISMA) and the Privacy Act of 1974.
So what about your accountant or tax preparer? Are they required to keep your information confidential? We will break down our analysis into accountants/tax-preparers that are Certified Public Accountants (CPA) and those that are not.
Certified Public Accountants - All Client Services
CPAs are required by the AICPA and their state governing bodies to keep all client information confidential. The AICPA (ET Section 301) states that "a member in public practice shall not disclose any confidential client information without the specific consent of the client." A CPA faces serious discipline if they violate this rule regarding confidentiality. However, the confidentiality required from a CPA falls short of the standard mandated for an attorney. CPAs are permitted to divulge confidential client information in the following five circumstances:
1) To comply with a legally enforceable subpoena or summons (the federal government and many states do not recognize an accountant-client privilege)
2) To comply with professional standards, laws or regulations.
3) To participate in an authorized peer review of the CPA’s firm.
4) To initiate or respond to a duly authorized investigation by AICPA, state CPA society or state accountancy board.
5) To allow a review connected to the prospective purchase, sale, or merger of all or part of an accounting/tax practice.
What does this mean to the average taxpayer or businessperson? Unless you know of criminal activity going on in your finances or business that you wish to hide, you should have every confidence in the privacy of your information when establishing a business relationship with a CPA.
Non-CPA Accountants/Tax Preparers - Tax Return Information
Even if the accountant is not a CPA, they are mandated by Internal Revenue Code Sec. 7216 to keep tax return information confidential. Therefore, if you are doing business with any person or firm that is preparing your tax returns, you have a legal expectation of confidentiality of your information. An accountant faces serious penalties for both intentionally divulging confidential information without written consent and even for non-intentional negligent divulging of confidential information.
Non-CPA Accountants/Tax Preparers - Other Accounting Services
In regard to other accounting services offered by non-licensed accountants, such as bookkeeping services, there doesn't seem to be any specific confidentiality laws governing their work. A significant breach in confidentiality from an outside bookkeeper may end up resulting in a favorable civil judgment to the client, but it would be highly recommended to have the subject of confidentially fully vetted in a contract with an outside accountant.