Tax Advisers, Return Preparers and Financial Planners Subject to New Federal Privacy Disclosure Rules(*).

The 1999 Gramm-Leach-Bliley Act contains provisions that are intended to protect the privacy of very broadly defined financial services, including tax planning, financial planning and tax return preparation. Under this Act, the Federal Trade Commission has issued regulations that require disclosure of certain information to consumers, and CPAs need to be aware of these requirements because they are in effect now and full compliance is required by July 1, 2001.

Generally, the FTC has been given the authority to regulate the privacy practices for financial services provided to consumers, other than those provided by banks, credit unions, securities companies, investment advisers (but only those who are actually registered with the SEC), and insurance companies. The regulations apply to those who provide "financial services," as defined by the Federal Reserve Board, which has long included tax planning, tax return preparation and financial planning.

CPAs who are "significantly engaged" in preparation of federal or state personal tax returns, including income, estate and gift tax returns, or who provide personal financial or tax planning are subject to the FTC's privacy regulations. To provide flexibility, the FTC rules do not define "significantly engaged," but they do provide some guidance through examples. In one example, a person who provides informal financial services (e.g., preparing tax forms without remuneration for friends or family, or as a community service), would not "likely" be significantly engaged in a financial activity.

The FTC's rule requires that certain disclosures be made to consumer clients (as opposed to business clients). There are one-time disclosures to new clients and annual disclosures to all clients. The disclosures must provide a clear and conspicuous notice that accurately reflects your privacy policy and practices, and the notice must be in writing or, if the consumer agrees, electronically. There is no required form for this notice, but it must include the following information:

1. The categories of non-public personal information you collect;

2. The categories of non-public personal financial information that you might disclose. If you are legally prohibited from disclosing non-public personal information, this should be stated (an example of such a prohibition is the Internal Revenue Code prohibition on disclosure of income tax return information);

3. The categories of affiliates and non-affiliated third parties to whom you disclose that information, or that you do not make such disclosures;

4. Your policies with respect to sharing information on a person who is no longer a client;

5. The categories of information disclosed pursuant to agreements with third-party service providers and joint marketers and the categories of third parties providing the services, or that you do not do so;

6. The client's right to opt out of the disclosure of non-public personal information, if you make such disclosures;

7. Disclosures you make under the Fair Credit Reporting Act (if any); and

8. Your practices with regard to protecting the confidentiality, security and integrity of non-public personal information.

An Appendix to the FTC rule provides sample clauses related to the required disclosures, and it can be found in the May 24, 2000, Federal Register (Vol. 65, No. 101, page 33688) and on the FTC's Web site at www.ftc.gov/privacy/glbact/index.htm.

The AICPA will be seeking clarification as to the impact of these regulations on our members. If you are a federal tax return preparer, you are already generally prohibited by the Internal Revenue Code from disclosing tax return information without your client's consent, so the interests sought to be protected by Gramm-Leach-Bliley are already covered, at least in part. Nonetheless, the regulations adopted by the FTC are, on their face, specifically applicable to return preparers. As the July 1, 2001, date draws closer, the AICPA will provide additional information on these requirements.

(*) This article is intended to provide you with notice of the privacy provisions of the Gramm-Leach-Bliley Act, and a general outline of the timing and type of disclosures that you must make if you are subject to its provisions. This article is not intended as legal advice, and you should contact your attorney with regard to any questions you have concerning the applicability of the Act.