What do you do, as a tax professional, if you receive a subpoena for tax records?
On February 6, 2018, IRS Director Stephen Whitlock, Office of Professional Responsibility, requested the following response be shared with all tax pros:
During a recent CPE webinar, several questions were received about the appropriate response to a subpoena for client records – in a situation where the client is a party in civil litigation regarding a non-tax matter.
The context of the questions suggests: information subpoenaed relates to Federal income tax returns, questioners were compensated preparers of the tax returns.
In cases like this, a tax return preparer should not disclose, pursuant to the subpoena, client tax returns or the associated work papers the preparer used or obtained in connection with the preparation of the tax returns.
OPR is not suggesting a preparer who receives a subpoena should ignore it. The preparer should tell the attorney, who issued the subpoena, that the preparer is prohibited by federal law from complying with the subpoena. Specifically, I.R.C. § 7216 and its regulations. These rules prohibit disclosure of tax returns and tax return information without the taxpayer’s consent, unless an exception applies, and the situation presented by the questions is not an exception.
The preparer should tell the attorney to, instead, obtain a court order for the records. Presumably, an order from the court presiding over the litigation. Upon receipt of a valid court order: that orders the disclosure of the client’s tax returns, to an attorney representing an opposing party in a lawsuit filed by or against the preparer’s client or former client, THEN the practitioner/preparer is authorized to disclose copies of the tax returns to the named attorney. OR the preparer could disclose the records to the attorney after obtaining the client’s written consent to the disclosure.
CAVEAT: A person served with a subpoena should consider obtaining advice from a lawyer about how to handle and respond to the subpoena, as the information provided above should not be relied on as a definitive answer for all facts, circumstances, and the rules or legal requirements of the locality in which the subpoena was issued.