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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.
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.
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’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.
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 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 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:
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:
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:
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.
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 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.
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.
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