Rev. Rul. 85-5

1985-1 C.B. 385, 1985-5 I.R.B. 29.

DISCLOSURE OF TAX RETURN

Published: February 4, 1985

Section 7216.-Disclosure or Use of Information by Preparers of Returns, 26 CFR 301.7216-2: Disclosure or use without formal consent of taxpayer.

  Disclosure of tax return. An accountant may disclose a tax return and related work papers pursuant to an order of a state board of accountancy that is charged with the licensing, including quality review, of accountants. The penalty imposed by section 7216(a) of the Code does not apply.

ISSUE

  Under the facts described below, does an accountant's disclosure of a tax return and related work papers, pursuant to the order of a state board charged with the licensing of accountants, subject the accountant to the penalty under section 7216(a) of the Internal Revenue Code?

FACTS

  The board of accountancy is established under state law to regulate the practice of accounting. The board's regulatory licensing activity includes a quality review of the work product of certain accountants. This work product includes tax returns and related work papers. The board determines which accountant's work will be reviewed and refers the actual review to a peer review group that is composed of accountants selected by the board. The review group selects specific names from a client list and then orders the accounting firm to turn over specific records of the named clients for review, including tax returns and related work papers.

LAW AND ANALYSIS

  Section 7216(a) of the Code provides that any person who is engaged in the business of preparing or providing services in connection with the preparation of, returns of the tax imposed by chapter 1, or declarations or amended declarations of estimated tax under section 6015, or any person who for compensation prepares any such return or declaration for any other person, and who--(1) discloses any information furnished to him for, or in connection with, the preparation of any such return or declaration, or (2) uses any such information for any purpose other than to prepare, or assist in preparing, any such return or declaration, shall be guilty of a misdemeanor, and, upon

conviction thereof, shall be fined not more than $1,000, or imprisoned not more than one year, or both, together with the costs of prosecution.

  Section 7216(b)(3) of the Code states that section 7216(a) shall not apply to a disclosure or use of information which is permitted by regulations prescribed by the Secretary.

  Section 301.7216-2(c)(2) of the Regulations on Procedure and Administration provides that the provisions of section 7216(a) of the Code do not apply to any disclosure of tax return information if such information is made pursuant to any one of the following documents: An administrative order, demand, summons, or subpoena which is issued in the performance of its duties by a state agency, body, or commission charged under the laws of a state or a political subdivision of the state with the licensing, registration or regulation of tax return preparers. Information must be clearly identified in the document in order to be disclosed under this paragraph.

  The information being requested for review is specifically identified. The disclosure of the tax return is being made pursuant to an administrative order issued in the performance of its duties by a commission charged under the laws of the state with the licensing of accountants, some of whom are tax return preparers. State agencies, bodies or commissions charged with licensing, registering of regulation accountants, some of whom are also tax return preparers, come within the exceptions of section 7216(b)(3) of the Code and section 301.7216-2(c)(2) of the regulations.

HOLDING

  The disclosure by an accountant of a tax return and related work papers, pursuant to the state board's order, will not subject the accountant to the penalty under section 7216(a) of the Code.

Rev. Rul. 85-5, 1985-1 C.B. 385, 1985-5 I.R.B. 29.