Confidentiality Rules

[Harvey Lucas]

10 years ago I witnessed an agreement and a transaction between 2 of my clients.

Both had been my clients for many years, ie, I prepared 1040 income tax returns for both parties.

After the tax season in 2005, they came in together and asked me what the tax consequences would be if Mom (my client), gave her home to Son (also my client).

Mom was 73 years old at the time, son was 40..

Mom had owned the house for 50 years, it was free and clear.

The agreement was that son would allow mom to live in the house the rest of her life and that son would live there with her and take care of her to any extent necesary.

In exchange for that promise, mom would gift the house to son.

They executed a quit claim deed and the title to the house transferred to son.

In the years that followed, son would come in to have his tax return done and in the process we would talk about how things were going withthe living arrangment.

Mom had no income other than Social Security so she didn't come in to have a tax return done anymore.

In every discussion with Son for the first several years, he reported that all was well, and he confirmed his promise regarding mom being able to live in the house the rest of her life and that he would always take care of her.

After that, the situation changed in that mom and son were not getting along very well, to say the least!

Mom hired an atorney to try and reverse the transfer of the house but she lost, primarily because she ran out of money for the attorney.

She continued to live in the house..

However, Son's brother, also my client, came in recently and tells me that now Son has hired an attorney and is going to evict his now 83 year old mom!!!

She has no money!!

I am sick about this to say the least.

Sorry about the length of this post, but now I come to my question.

I was a witness to the agreement between Mom and Son with respect to his promise that she be allowed to live in that house the rest of her life..

I have offered to testify in an upcoming legal proceeding to fight against the eviction.

Will I be breaking any rules regarding client confidentiality if I testify about what there agreement was?

I have been in the tax business over 30 years, I have a PTIN and an EFIN, however, I am not a CPA, EA or an Attorney.

I passed the test last January to be a RTRP but one week after came the IRS loss on that program and so they never sent me my RTRP certificate.

Any help and insight is helpfull.

Sincerely,

Harvey Lucas

[RightOn]

I do not know the answer to your question.

But I salute you for standing up for the old woman. You are a good man.

[Burke]

An oral agreement can be binding depending on state law. As a witness, you do not have to be an attorney, CPA, or anything other than a citizen who tells the truth if you are subpoenaed to testify in a legal case. I would certainly offer, but how it will turn out is up to the judge. What you are testifying to has nothing to do with her tax return (or his.) What you have here is a Life Estate, albeit implied rather than written in the deed (which is the way it should have been done.) And because she has continued to live in the home for the last 10 years based on this oral agreement, the son will be hard-pressed to convince a judge to throw her out. An attorney would certainly bring this to the judge's attention. Perhaps Legal Aid would take the case pro-bono. Advise her to contact them.

[Koss]

Confidentiality

Harvey Lucas wrote:

Will I be breaking any rules regarding client confidentiality if I testify about what there agreement was?

Your testimony about the agreement does not appear to violate the laws which protect the privacy of tax information, such as Section 7216, because what you heard, i.e., the oral agreement, had nothing to do with either party's tax return. However, you did say that you were asked about the tax consequences of the gift of the home. That may not come up, because it is probably not relevant. Nevertheless, I can almost guarantee that if you testify, you will be asked how you know the mother and son, and you will be asked to explain how, and why, you were present when they discussed the agreement.

In theory, your answers might conceivably violate Section 7216. In general, it is now considered a violation of client confidentiality even to reveal to a third party that a person is your client.

But I wouldn't worry too much about that. First of all, both the mother and son might be willing to consent to the disclosure of the nature of your relationship.

If the son won't consent, then you should ask the mother's lawyer to issue a subpoena for you to testify. If you disclose information in response to a subpoena, that is not a violation of Section 7216.

The fact that you are not an attorney helps. It means that neither mother nor son had any expectation of attorney-client confidentiality. In other words, the communications were not privileged. This means that a subpoena can be used to obtain information from you. In contrast, a subpoena cannot be used to force an attorney to reveal information that he obtained through private communications with his client.

Burke wrote:

An oral agreement can be binding depending on state law.

This is correct. In general, an oral agreement IS binding, in every state. Unfortunately, most states also have a law that is commonly referred to as the statute of frauds, which requires that any agreement that involves a transfer of ownership of real estate must be in writing.

Your testimony may be very valuable to the mother. She may be able to claim that she signed the deed under duress or undue influence.

But the oral agreement, by itself, is probably not enforceable. When it comes to transferring ownership of real estate, the general principle is that if it's not in writing, it is not enforceable.

I would probably do exactly what you are doing, i.e., offer to testify. You are doing what your conscience is telling you to do.

But this won't be an easy case for the mother to win. I don't think the law is on her side.

Burke's observation, that it should have been a life estate, is right on the money. She didn't have good legal advice.

BMK

[Burke]

There is legal precedent for an implied life estate, not specifically written into a deed. See Rev Ruling 78-409, 1978-2, CB 234; Rev Ruling 70-155, 1970-1 CB 189/190; IRC Section 2036 (a)(1); Skinner vs US, 316 F 2d, 517; also, Linderme vs Commissioner; and Kerdolf vs Commissioner.

This why she needs an attorney to represent her. There have been rulings in both directions depending on individual facts and circumstances. Her unopposed 10-yr occupation of the premises speaks to intent. Maybe he didn't expect her to live this long.

[Koss]

Life Estate

Burke wrote:

There is legal precedent for an implied life estate, not specifically written into a deed. See Rev Ruling 78-409, 1978-2, CB 234; Rev Ruling 70-155, 1970-1 CB 189/190; IRC Section 2036 (a)(1); Skinner vs US, 316 F 2d, 517; also, Linderme vs Commissioner; and Kerdolf vs Commissioner.

That's interesting, but these are citations to federal tax law, as it relates to the estate tax, and various issues involving basis. In an eviction case, the local court is going to rely on state law as it applies to real property.

I agree that the elderly woman described in the original post does have a case. Burke's observation regarding her "10 year unopposed occupation" is a good one. I also agree that she really needs a lawyer. As Burke suggested, if she doesn't have the money, she should talk to the local legal aid society.

BMK

[Koss]

Further thoughts

I would also recommend that the woman reach out to the local social service agency that provides assistance to the elderly. They may be able to help find a lawyer to take the case pro bono. If she is in danger of being evicted and becoming homeless, they will surely take an interest in the matter. They might also be able to arrange for some sort of mediation, in an effort to resolve the conflict between the woman and her son.

BMK

[Harvey Lucas]

Thank you so much Koss and Burke.

Your comments are very helpful!!

Mom failed in reversing the quit claim deed with the legal action of a few years ago, the judge said he wanted to help but there was a 3year statute regarding these type of transfers.

However, with respect to moms occupation of the home, I feel that is a completely diferent legal matter.

Son promised Mom that she could live there for the rest of her life and I was a witness to that promise, also, another person in my office was also a witness to it.

I will do as suggested and have them suppeona me.

If Son loses the case I am sure he will be very angry with me, that is why I am a little concerned about what I say.

However, when asked about my relationship, I can simply say that Son and I had business dealings and met at least one time per year.

I will explain to the judge that confidentialty rules prohibit me from saying what type of business that Son and I engaged in.

If IRS wants to penalize me for this disclosure then it will be a penalty I am willing to pay.

I will be very surprised if they do penalize me but even if they do it would be a small price to pay for doing the right thing.

Thanks again for your input, it is very much appreciated.

I will post the outcome.

Harvey Lucas

[taxxcpa]

Unless someone brings it up, the IRS would never know about it. In the unlikely event they were told of it, they would probably agree that it was justified and do nothing.

[geekgirldany]

What an awful situation. I really can not add to what others have already said. I believe you could say that both were your clients at that time but would not go further than that.

I really do hate it for the Mother. It is awful when you can not even trust your own children. I had a neighbor that was older and her grandson tricked her into signing over the her house to him. The two daughters got mad and would not have anything to do with their mother. She ended up in a nursing home with her home being sold out from under her by grandson. It is a cruel world.