By: Nancy Reimer, Nicole Graham, Elizabeth Lowery, Zinnia Khan, and Caroline Wu
Many
Certified Public Accountants and accounting firms will likely be increasingly confronted
with collecting fees as the COVID-19 health crisis continues. In dealing with unpaid fees, a CPA must pay
close attention to their professional duties and obligations with respect to
the release of client records, tax returns and even their own workpapers.
In
every instance, a CPA must adhere not only to the American Institute of CPAs’
(“AICPA”) Code of Professional Conduct and guidance from the Internal Revenue
Service (“IRS”), but also to state-specific statutes and regulations. There are often key differences between the
AICPA Code, IRS guidance and state law.
For example, the release of client records, including a tax return or
audit report, is left to a CPA’s discretion under the AICPA Code – as it states
that a CPA should provide certain records upon a client’s request. In contrast, IRS Circular 230, § 10.28
provides a CPA must, at the request of a client, promptly return the
client’s records.
Accordingly,
it is best to start with the requirements of the AICPA Code of Professional
conduct and IRS Circular 230 (for tax returns) and then proceed to examine the
obligations set forth under the laws of the state in which the CPA is
licensed.
AICPA
Code section 1.400.200.07 governs a client’s request for records or the CPA’s
work product in the CPA’s custody or control and which have not previously been
provided to the client. Under section
1.400.200.07, the CPA should respond by providing the prepared records
and work product, except that such records may be withheld if fees are due
to the CPA for that specific work product.
This language, however, is subject to the rules and regulations of other
authorities, including state laws and regulations.
Under
IRS Circular 230, § 10.28, a CPA must, at the request of a client, promptly
return any and all records of the client that are necessary for the client
to comply with his or her Federal tax obligations. The existence of a dispute over fees
generally does not relieve the CPA of this responsibility. IRS Circular 230 also defers to
requirements under state law. If the
applicable state law permits the retention of a client’s records in the case of
a fee dispute or unpaid fees, the CPA need only return those records that must
be attached to the taxpayer’s return.
The
laws and regulations concerning the return of client records and other
documents for various states are set forth below. Not coincidentally, the states below are those
where Freeman, Mathis & Gary, LLP maintains one or more offices.
California
Regardless of whether there are unpaid
fees, California CPAs are required to return all client’s records. California
Board of Accountancy Regulations Article 9 § 68 specifically states that: “Unpaid
fees do not constitute justification for retention of client records. Although, in general the accountant’s working
papers are the property of the licensee [CPA]…”
California’s Business and Professions
Code § 5037 goes on to say that the CPA’s “working papers”, “except the
reports submitted by the [CPA] to the client…shall remain the property of the [CPA]
in the absence of an express agreement.” But it is unclear what “reports submitted by
the [CPA] to the client” means, and whether it includes a CPA’s work product
such as prepared returns.
California Board of Accountancy
Regulations Article 9 § 68.1 defines “working papers” as the “[CPA’s] records of the procedures
applied, the tests performed, the information obtained and the pertinent conclusions
reached in an audit, review, compilation, tax, special report or other
engagement” and “include, but are not limited to, audit of other programs,
analyses, memoranda, letters of confirmation and representations, abstracts of
company documents and schedules or commentaries prepared or obtained by the [CPA].”
Thus, the definition of “working papers” arguably includes all of a CPA’s work
product. This makes sense since, in the
case of unpaid fees, there is no specific return requirement for any documents
other than a client’s own records.
Connecticut
Conn.
Gen. Stat. § 20-281k(b) provides, a CPA shall return a client’s original
records to his client or former client upon the client’s request and reasonable
notice. The CPA may make and retain
copies of such documents of the client when such documents form the basis for
work done by him. Unlike the AICPA Code,
this language imposes a mandatory duty on CPAs to return client records upon
request
Florida
Florida’s provides that a CPA must
return all of the client’s own records upon request, and can
charge reasonable fees for costs incurred in doing so. Section (c) of the same rule appears to build
in the requirement of payment by the client before any work product is released,
as it defers to the terms of the engagement between the CPA and client. Florida’s Regulation of Professions and
Occupations, Title XXXII Chapter 473.318 addresses the ownership of working
papers, and is almost word for word identical to that of California’s BPC §
5037 quoted above which states that working papers remain the property of the
CPA.
Georgia
In Georgia, section
20-12-.12. of the Rules of the State Board of Accountancy Public Accountancy
Act of 2014, states:
A licensee[CPA] shall furnish
to his or her client or former client, upon request made within a reasonable
time:
(a) Any accounting or other records belonging to, or obtained from or on behalf of, the client which the [CPA] removed from the client’s premises or received for the client’s account, but the [CPA] may make and retain copies of such documents when they form the basis for work done by him or her; and
(b) A copy of the [CPA’s] working papers, to the extent that such working papers include records which would ordinarily constitute part of the client’s books and records and are not otherwise available to the client.
The Georgia State
Board of Accountancy issued a Statement of Policy (Policy No. 5) relating to
section 20-12-.12. of the rules. The Statement of Policy explains:
During the course of a professional engagement, a [CPA] may possess certain records of a client, or may have developed certain records without which the Client Records would be incomplete. Retention of Client Records after the client has made a request for them is a violation of Rule 20-12-.12. The [CPA] does not have a lien on these records, and they must be returned regardless of the fact that the fee of the [CPA] may remain unpaid. For purpose of this Rule, the term “Client Records” refers to those journals, ledgers, bank statements and cancelled checks, copies of invoices and similar documentation of the transactions that are reflected in financial statements. It is anticipated that the client will have retained copies of financial statements, income tax returns, and similar documents. A [CPA] is not required to convert records that are not in electronic format to electronic format. However, if the client requests records in a specific format and the [CPA] was engaged to prepare the records in that format, the client’s request should be honored. If a [CPA] is engaged to perform certain work for a client and the engagement is terminated prior to the completion of such work, the [CPA] is required to return or furnish copies of only those records originally given to the [CPA] by the client. Any working papers developed by the [CPA] incident to the performance of the engagement which do not result in changes to the Client Records or are not in themselves part of the records ordinarily maintained by such client, are considered to be solely “accountant’s working papers” and are not the property of the client. Once the [CPA] has returned the Client Records or furnished the client with copies of such records and/or necessary supporting data, the [CPA] has discharged the obligation in this regard and need not comply with any subsequent requests to again furnish such records. If the [CPA] has retained copies of Client Records already in possession of the client, the [CPA] is not required to return such copies to the client.
Kentucky
Kentucky Revised Statutes Chapter
325.420(a) requires the
licensee[CPA] to return any of the client’s own records upon request. Kentucky
Revised Statutes Chapter 325.420(b) then builds in the requirement for
payment by the client for services rendered, before the [CPA] is required to
provide their work product, which specifically includes tax returns.
Maine
Maine
compels the return of client records upon the client’s request. Me. Rev. Stat. tit. 32, § 12280 states a CPA shall
furnish to his client or former client upon request and reasonable
notice:
- A copy of the CPA’s working papers, to the extent that the working papers include records that would ordinarily constitute part of the client’s records and are not otherwise available to the client; and
- Any accounting or other records belonging to, or obtained from or on behalf of, the client that the CPA removed from the client’s premises or received for the client’s account. The CPA may make and retain copies of those documents of the client when they form the basis for work done by him.
Massachusetts
Under
252 C.M.R. 3.03(3), a CPA shall furnish to a client or former client,
upon request made within a reasonable time after original issuance of the
document in question, if not previously furnished:
- A copy of the tax return of the client;
- A copy of any report or other document
issued by the CPA to or for such client;
- Any
accounting or other records belonging to, or obtained from or on behalf of the
client (but the CPA may make and retain copies of such documents of the client
when they form the basis for work done by the CPA); and
- A copy of the CPA’s workpapers, to the
extent that such workpapers include records that would ordinarily constitute
part of the client’s books and records and are not otherwise available to the
client.
New
Hampshire
Pursuant
to N.H. Rev. Stat. Ann. § 309-B:19 (II), a CPA shall furnish to the
client or former client, upon request and reasonable notice:
- A copy of the CPA’s working papers, to
the extent that such working papers include records that would ordinarily constitute
part of the client’s records and are not otherwise available to the client; and
- Any accounting or other records
belonging to, or obtained from or on behalf of, the client that the CPA removed
from the client’s premises or received for the client’s account. The CPA may
make and retain copies of such documents of the client when they form the basis
for work done by the CPA.
- A copy of
computer-prepared client data diskettes containing client ledger data, spread
sheet data, client documents and any other such data of the client or former
client that would ordinarily constitute part of the client’s records and not
otherwise be available to the client.
New Jersey
N.J.A.C. 13:29-3.16
provides:
(a) A
licensee[CPA] or the [CPA’s] firm shall furnish to the [CPA’s] client or
former client, upon request made within a reasonable time after original
issuance of the document in question:
1. A
copy of a tax return of the client;
2. A
copy of any report, or other document, issued by the [CPA] to or for such
client;
3. Any
accounting or other records belonging to, or obtained from or on behalf of, the
client which the [CPA] removed from the client’s premises or received for the
client’s account, but the [CPA] or the [CPA’s] firm may make and retain copies
of such documents when they form the basis for work done by the [CPA]; and
4. [CPA]-prepared
client records that would ordinarily constitute part of the client’s books and
records, are contained in the [CPA]’s or his or her firm’s working papers, and
are not otherwise available to the client. Copies of such records shall be
produced to the client in the same manner, media, and format as the record was
created by the [CPA].
(b) A
[CPA] or the [CPA’s] firm shall not withhold client records for the non-payment
of fees for services performed.
Pennsylvania
A CPA shall
furnish to its client or former client upon request made within a
reasonable time after original issuance of the document in question:
(1) A copy of
a tax return of the client.
(2) A copy of
any report or other document issued by the [CPA] to or for such client and not
formally withdrawn or disavowed by the [CPA] prior to the request.
(3) A copy of
the [CPAs] working papers to the extent that such working papers include
records that would ordinarily constitute part of the client’s records and are
not otherwise available to the client. However, a [CPA] may require that
fees due the [CPA] with respect to completed engagements be paid before such
information is provided.
(4) Any
accounting or other records belonging to, or obtained from or on behalf of, the
client that the [CPA] removed from the client’s premises or received for the
client’s account. The[CPA] may make and
retain copies of such documents of the client whenever those documents form the
basis for work done by him.
(5) If a [CPA]
can document compliance with the foregoing requirements, he need not comply
with subsequent requests to again provide such information.
63 P.S. s. 9.11(b).
Rhode
Island
Rhode
Island law does not expressly address the return of client records, though R.I.
Gen. Laws Section 5-3.1-22 governs the ownership of such records. In Rhode Island, all statements, records,
schedules, working papers, memoranda, and any other data, including, but not
limited to, a data bank, that are retained by a CPA or accounting firm incident
to or in the course of professional services rendered to clients are the
property of that CPA or accounting firm in the absence of an express agreement
to the contrary.
CPAs
licensed in Rhode Island must therefore comply with the requirements prescribed
by the AICPA code and IRS Circular 230, § 10.28 when examining their
obligations to return client records.
Vermont
Under Vt. Stat. Ann. tit. 26, § 81(c), original copies of client documents in the possession of the CPA are the property of the client and must be returned to the client upon request. Subsection (a) provides, however, statements, records, schedules, working papers and memoranda made by a CPA are the property of the CPA.
Additional Information:
The FMG Coronavirus Task Team will be conducting a series of webinars on Coronavirus issues on a regular basis. Topics include COVID-19’s impact on finances and loans, the FFCRA, the CARES Act and more. Click here to view upcoming webinars.
FMG has formed a Coronavirus Task Force to provide up-to-the-minute information, strategic advice, and practical solutions for our clients. Our group is an interdisciplinary team of attorneys who can address the multitude of legal issues arising out of the coronavirus pandemic, including issues related to Healthcare, Product Liability, Tort Liability, Data Privacy, and Cyber and Local Governments. For more information about the Task Force, click here.
You can also contact your FMG relationship partner or email the team with any questions at [email protected].
**DISCLAIMER: The attorneys at Freeman Mathis & Gary, LLP (“FMG”) have been working hard to produce educational content to address issues arising from the concern over COVID-19. The webinars and our written material have produced many questions. Some we have been able to answer, but many we cannot without a specific legal engagement. We can only give legal advice to clients. Please be aware that your attendance at one of our webinars or receipt of our written material does not establish an attorney-client relationship between you and FMG. An attorney-client relationship will not exist unless and until an FMG partner expressly and explicitly states IN WRITING that FMG will undertake an attorney-client relationship with you, after ascertaining that the firm does not have any legal conflicts of interest. As a result, you should not transmit any personal or confidential information to FMG unless we have entered into a formal written agreement with you. We will continue to produce education content for the public, but we must point out that none of our webinars, articles, blog posts, or other similar material constitutes legal advice, does not create an attorney client relationship and you cannot rely on it as such. We hope you will continue to take advantage of the conferences and materials that may pertain to your work or interests.**
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