The American Institute of CPAs told the Internal Revenue Service that tax preparers who will be visited under the IRS’s 2011 compliance program need more information about how client confidentiality will be protected.

The AICPA also asked in a letter sent to the IRS on Dec. 22 and published Tuesday, what client records may be requested, what files are required to be shared, whether the visit might result in an examination of the preparer, and whether penalties might be imposed on tax preparers.

The IRS plans to visit 2,500 tax preparers in 2011 under its Preparer Letters and Visitation Program. The 2,500 tax preparers will be chosen from among 10,000 preparers to whom the IRS sent letters in late November.

The AICPA identified client confidentiality as a critical concern in its letter. The letter to Chris Wagner, commissioner of the IRS’s Small Business/Self-Employed Division, from Patricia Thompson, chair of the AICPA’s Tax Executive Committee, said, “We believe that requesting to review client files is inappropriate unless an examination of the preparer is opened.”

Many CPAs have confidentiality policies that require them to notify clients in order to get their consent before allowing IRS to review clients’ documents, the AICPA noted, and the IRS’s “proposed in-office review of client documents would be an end-run around this practice….”

“If the Service believes they have the authority to review client files during a compliance check, this request may be unreasonable in light of the size of the preparer’s practice and overly burdensome in terms of the time and effort that the preparer must undertake to prepare for a compliance check,” wrote Thompson. “Further, it will likely create tension between the CPA and his or her taxpayer clients that undercuts the IRS’s policy objectives.”

Furthermore, the AICPA said its members believe that requiring tax preparers to have all their 2009 files available for review is “unduly burdensome” and that if the IRS “insists upon review of the actual client files, these files should be identified and agreed upon prior to the office visit.”

For CPA firms that are completely or partially paperless, the AICPA said it is difficult to make electronic client files available without giving the IRS access to the firm’s computer systems. The AICPA said the IRS visits would be more productive and efficient if the preparer has advance notice of the likely topics of focus so that tax preparers can be ready to answer questions about a specific return.

The IRS should identify the method used to select the preparers, as the IRS does for its compliance checks of taxpayers, for example, whether they are selected at random or through the use of other parameters, the AICPA said.

Thompson sent another letter to the IRS that the AICPA released Tuesday asking for more flexibility in in implementing the electronic filing mandate for tax preparers (see AICPA Wants More Flexibility on IRS E-file Mandate).

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