Disclosure of tax information.

Most taxpayers assume the information they give their return preparers is confidential and these preparers may not give out this data to anyone without

their consent. And normally they are right. Tax return preparers can be subject to both civil and criminal penalties under certain circumstances: if the disclosure is knowing or reckless, for example, or if taxpayer information is used for any purpose other than to prepare the taxpayer's return.

Allowed disclosures. While confidentiality is generally the case, there are situations in which a preparer may make certain disclosures (without the written consent of the taxpayer) and not be subjected to any penalties.

Other accounting services for the same taxpayer. A return preparer who is lawfully engaged in the practice of accountancy (or law) and who prepares a taxpayer's return may use the return information-or disclose it to another member of the preparer's firm-to render other accounting services (such as the preparation of books of account, working papers or accounting statements or reports) for the taxpayer.

Accounting services for another taxpayer. In addition, a return preparer lawfully engaged in the practice of accountancy or law) and who prepares a return for a taxpayer may take such return information into account (and act upon it) when performing accounting services for a client other than the taxpayer or may disclose such information to another employee or member of the preparer's firm to enable that other individual to perform accounting services for a client other than the taxpayer. This may be done only when (1) such information is (or may be) relevant to the subject matter of the accounting service for the other client and (2) its consideration by those performing the services is necessary for proper performance of these services.

Identical information obtained elsewhere. If the identical tax return information was obtained by the return preparer from other sources (that is, other than in connection with the preparation of, or providing auxiliary services in connection with the preparation of, a tax return), the prohibition against information disclosure does not apply.

Disclosure of a crime. The prohibition against disclosure does not apply to the disclosure of any tax return information to the proper authority (federal, state or local) in order, and to the extent necessary, to inform the official of activities that may constitute a violation of any criminal law. In addition, such a disclosure made in the bona fide but mistaken belief that the activities were a violation of a criminal law qualifies.

Quality or peer review. Another exception to the prohibition against disclosure that is important to CPAs (especially nowadays) involves quality review or peer review. After December 28, 1990, under proposed and temporary regulations issued by the Treasury Department, information concerning tax returns may be disclosed to the extent necessary to accomplish the review.

For purposes of the Treasury Department's regulations, a quality or peer review is a review undertaken to evaluate, monitor and improve the quality and accuracy of a return preparer's tax-preparation services. It may be conducted only by those eligible to practice before the IRS (that is, lawyers, CPAS, enrolled agents and eligible enrolled actuaries). Return information gathered while conducting the review may be used only for purposes of the review; no tax-return information identifying a taxpayer may be disclosed in any evaluative report or recommendation (such as disclosure during the sale or merger of a tax practice or disclosures made to assist an incapacitated preparer or the personal representative of a deceased preparer) that may be accessible to any person other than the reviewer or the preparer being reviewed. The reviewer may not keep any documents that identify the taxpayer by name or taxpayer identification number, and anyone receiving return information during the course of a review will be subject to confidentiality rules.

Note: While the definition of quality or peer review" includes the AICPA Voluntary Tax Practice Reviews (to the extent they focus on tax return preparation), it does not include the review of a practice that includes tax planning or tax representation but not tax preparation. (The AICPA Tax Division is currently working to expand the regulations' definition.)

For a discussion of this and other current items of interest, see the Tax Clinic edited by Stuart Josephs, in the May 1991 issue of The Tax Adviser.

Note: With reference to the April 1991 "From The Tax Adviser": The five-year carryover deduction available for excess contributions for individuals also extends to contributions made to private nonoperating foundations.