dependent requests info

[BP.]

Client wanted to file and claim the son she had in 2007. Since the situation she described made her a QC of her parents, she needed to see if her parents claimed her before determining whose QC her son was. She's not speaking to her parents, so she called their tax preparer, who confirmed that she was claimed by them.

I was glad to have the info, but what do you think- would you have answered the girl's question if you were the parents' preparer?

[solomon]

No. However, a preparer would not need confirmation that the parents claimed the daughter if the preparer knew the daughter was a QC of the parents - thus could not claim her own child as a QC.

[Koss]

Confidentiality

No, I certainly would not disclose that type of information to anyone other than the taxpayer, particularly if the kid is "not speaking" to the parents. It's probably a very serious violation of Circular 230, as well as the ethics rules of every state accountancy board.

Many tax pros today have taken the position that it is usually inappropriate to disclose even the identity of a client. In other words, I can't even confirm or deny that I did your mom's taxes. It's none of your business whether she even filed a return.

With that being said, there are certainly some gray areas. Word-of-mouth referrals carry some degree of implied consent to disclose the client relationship. And when I do a married couple that chooses to file separately (because it works better in Ohio, for some strange reason), I often present both returns for signatures at the same time, with both spouses sitting at my desk, and they take home their copies in one large envelope. And all this occurs after a detailed discussion about how we split up the kids and the mortgage interest. So I think this also implies consent to disclose one spouse's information to the other. Written consent is not always required. It depends on the type of disclosure, and the individual facts and circumstances.

So now I'll get on the soapbox...

Right now the rules we have basically say we can't disclose tax return information to a third party without the client's consent. What constitutes consent, and how you get it, may vary from case to case. But the original post paints a picture that clearly says "don't do it."

But we may be headed in a different direction over time. Notice 2008-5, with its "clarification" of UDC, is not by any means the only IRS guidance which implies that the proper preparation of one person's return may require some knowledge of another person's tax return data. The conundrum, in general terms, has been around for years.

This year I had the privilege of preparing a FAFSA (college financial aid application) for my stepdaughter and one other client. The FAFSA may be the best example in which the issue of disclosure rears its ugly head.

My stepdaughter fits the stereotype: She turned 18 late last year, she is still living at home, she will graduate from high school in May, and she plans to begin college this fall.

This isn't about whether she is still a dependent or qualifying child; that's an open and shut case. The problem is this...

The structure of the financial aid system, as it is currently managed by the Department of Education, wisely treats the child as a dependent for purposes of financial aid eligibility regardless of whether the child is actually claimed by the parents. To be sure, there are a few exceptions, such as when both parents are deceased and the child was a ward of the court before turning 18.

But, just hypothetically, let's suppose that my stepdaughter up and moves out of the house, without our blessing, right now. She can do that because she's 18. The fact that she's still in high school doesn't matter. Suppose further that we stop talking to her, and stop supporting her, because she's living with some guy we don't approve of, or whatever. Just use your imagination.

She cannot properly complete the FAFSA without a copy of her parents' tax return.

It is certainly not the accountant's right or obligation to turn over that data without the parents' consent. And there may be some special procedure used by college financial aid officers to account for these unusual circumstances. But without special handling, an 18-year old in this situation simply could not accurately complete the FAFSA. The form requires the parents' data. Period. I'm not saying there are no exceptions. But any exception of this type would probably require extensive manual processing of the entire financial aid application.

Even some parents who have not "excommunicated" their kid might not want the kid to see all the data required by the FAFSA.

The compromise, of course, is for the kid to fill in his or her part, and then the parents do the rest in private, and then submit the entire form. But that requires good faith by both the parents and the kid. And in theory, the kid doesn't have to disclose his information to the parents, since he's 18...

Okay, I'll shut up. I've made my point.

Burton

[gkaiseril]

Client wanted to file and claim the son she had in 2007. Since the situation she described made her a QC of her parents, she needed to see if her parents claimed her before determining whose QC her son was. She's not speaking to her parents, so she called their tax preparer, who confirmed that she was claimed by them.

I was glad to have the info, but what do you think- would you have answered the girl's question if you were the parents' preparer?

The general rule of confidentiality has limited exceptions:

Exception 1: Tax professionals may disclose, without prior written consent, tax return information to a related party such as a husband and wife, child and parent, grandchild and
grandparent, partner and partnership, trust or estate and beneficiary, trust or estate and fiduciary, corporations and shareholder, or members of a controlled group of corporations,
if:

• The taxpayers are related as specified above, and

• The first taxpayer’s interest in the information is not adverse to the second taxpayer, and

• The first taxpayer has not expressly prohibited the disclosure or use of the information.

So if I knew the daughter was who she said she was and I was disclosing only the dependency status and had not be expressly told not to disclose all tax information, yes.

From the federal CFR:

TITLE 26 > Subtitle F > CHAPTER 61 > Subchapter B > § 6103.7216

Disclosure Or Use Without Formal Consent Of Taxpayer.

(e) Disclosure to persons having material interest

(1) In general

The return of a person shall, upon written request, be open to inspection by or disclosure to -

(A) in the case of the return of an individual -

(i) that individual,

(ii) the spouse of that individual if the individual and such spouse have signified their consent to consider a gift reported on such return as made one-half by him and one-half by the spouse pursuant to the provisions of section 2513; or

(iii) the child of that individual (or such child’s legal representative) to the extent necessary to comply with the provisions of section 1 (g);