Circular 230 Ethics

[thepensionmaven]

We have recently taken over a plan from another TPA.  Client has notified TPA and asked the transaction be handled as smoothly as possible.  Client can not find some documents and the prior TPA is charging him a fee to copy the documents from TPAs file.

We have run into this situation very few times, the last time I believe Circular 230 had been mentioned, and the client told the request for a duplication fee is prohibited under Circular 230.

I can not find the exact reference in Circular 230.

[Larry Starr]

20 hours ago, thepensionmaven said:

We have recently taken over a plan from another TPA.  Client has notified TPA and asked the transaction be handled as smoothly as possible.  Client can not find some documents and the prior TPA is charging him a fee to copy the documents from TPAs file.

We have run into this situation very few times, the last time I believe Circular 230 had been mentioned, and the client told the request for a duplication fee is prohibited under Circular 230.

I can not find the exact reference in Circular 230.

It is NOT prohibited, which is why you can't find it.

Your post alludes to the fact that the client had the documents but now can't find their documents and would like copies.  When a client leaves us, we send them a formal letter that includes the information that all items necessary for the new servicer have previously been provided  to the client and if anything is needed from our files, there will be storage retrieval costs and copying costs (with a minimum of something less than $100).  All the documents we have are OUR documents and records, not the client's.  Any documents provided by the client (for example, when we take on the client) are copied for our files and the originals given to us are returned.  The fees do need to be reasonable FOR MATTERS BEFORE THE INTERNAL REVENUE SERVICE, but it you are not involved in that (because you no longer work for that client), even that section of the Circular is not applicable.

[david rigby]

Charging a reasonable fee may be appropriate; what does the service agreement say?   

[Larry Starr]

17 hours ago, david rigby said:

Charging a reasonable fee may be appropriate; what does the service agreement say?   

Yes, charging a fee is itself reasonable, but not a Circular 30 issue in this case.

[thepensionmaven]

I had a similar situation whereby a client mentioned he switched accountants and the previous accountant was going charging him a fee to release any paperwork and the new accountant cited Circular 230.  I assume that was just to scare the guy off.

[Larry Starr]

1 hour ago, thepensionmaven said:

I had a similar situation whereby a client mentioned he switched accountants and the previous accountant was going charging him a fee to release any paperwork and the new accountant cited Circular 230.  I assume that was just to scare the guy off.

Yeah, but that probably would be subject to Circular 230 issues due to the nature of the work being done.

[Peter Gulia]

Beyond the rules for practice before the Internal Revenue Service, a certified public accountant likely is regulated by States’ accountancy laws.

 

For example, here’s a regulation of New Jersey’s State Board of Accountancy.

 

N.J.A.C. § 13:29-3.16 Records

a)    A licensee or the licensee’s firm shall furnish to the licensee’s client or former client, upon request made within a reasonable time after original issuance of the document in question:

1) A copy of a tax return of the client;

2) A copy of any report, or other document, issued by the licensee to or for such client;

3) Any accounting or other records belonging to, or obtained from or on behalf of, the client which the licensee removed from the client’s premises or received for the client’s account, but the licensee or the licensee’s firm may make and retain copies of such documents when they form the basis for work done by the licensee; and

4) Licensee-prepared client records that would ordinarily constitute part of the client’s books and records, are contained in the licensee’s or his or her firm’s working papers, and are not otherwise available to the client.  Copies of such records shall be produced to the client in the same manner, media, and format as the record was created by the licensee.

b) A licensee or the licensee’s firm shall not withhold client records for the non-payment of fees for services performed.

 

I picked New Jersey as an example because I remember from my experience in advising CPAs that New Jersey harshly enforces this rule.

 

The Circular 230 rule (if it applies) has more tolerance.

31 C.F.R. § 10.28

https://www.ecfr.gov/cgi-bin/text-idx?SID=2eeaa78d7df8a20eb74ecf9cb721ece2&mc=true&node=se31.1.10_128&rgn=div8

[Larry Starr]

3 hours ago, Peter Gulia said:

Beyond the rules for practice before the Internal Revenue Service, a certified public accountant likely is regulated by States’ accountancy laws.

 

For example, here’s a regulation of New Jersey’s State Board of Accountancy.

 

N.J.A.C. § 13:29-3.16 Records

a)    A licensee or the licensee’s firm shall furnish to the licensee’s client or former client, upon request made within a reasonable time after original issuance of the document in question:

1) A copy of a tax return of the client;

2) A copy of any report, or other document, issued by the licensee to or for such client;

3) Any accounting or other records belonging to, or obtained from or on behalf of, the client which the licensee removed from the client’s premises or received for the client’s account, but the licensee or the licensee’s firm may make and retain copies of such documents when they form the basis for work done by the licensee; and

4) Licensee-prepared client records that would ordinarily constitute part of the client’s books and records, are contained in the licensee’s or his or her firm’s working papers, and are not otherwise available to the client.  Copies of such records shall be produced to the client in the same manner, media, and format as the record was created by the licensee.

b) A licensee or the licensee’s firm shall not withhold client records for the non-payment of fees for services performed.

 

I picked New Jersey as an example because I remember from my experience in advising CPAs that New Jersey harshly enforces this rule.

 

The Circular 230 rule (if it applies) has more tolerance.

31 C.F.R. § 10.28

https://www.ecfr.gov/cgi-bin/text-idx?SID=2eeaa78d7df8a20eb74ecf9cb721ece2&mc=true&node=se31.1.10_128&rgn=div8

Peter, while true (I think in most states probably) for CPAs, the OP is a TPA and not a CPA and this is simply not applicable to him. 

But when you analyze the pieces discussed in your posting for CPA firms, items one and two are applicable but ONLY if requested in a "reasonable time" after originally being provided. I'm sure that gives plenty of wiggle room.  Ask for it within 6 months after they are prepared, probably reasonable time. Ask for it 2 years after prepared, probably not reasonable time and they can charge for it.  Slippery slope in between.

But item 3 wouldn't apply (even if I was a licensed CPA firm) specifically because we NEVER keep original records of the client and item 4 wouldn't apply because nothing we prepare would ordinarily constitute part of the client's books or records.

Therefore, if they want something from their "old TPA", they need to pay.  In situations we are in like the OP, we tell the client he needs to pay the reasonable fees for "stuff" we might need from the prior servicer that the client doesn't provide to us. And it's amazing how when you tell the client they have to pay the fee to the old provider, most (if not all) of the "stuff" shows up once they have a financial incentive to look for it!!!! 

[Peter Gulia]

Yes, thepensionmaven described a TPA firm.  And asked for a reference to Circular 230’s return-of-records rule.  And later in the discussion described an example about accountants.

 

My post has in it a quotation of an accountancy rule, and a citation of and hyperlink to the particular Circular 230 rule thepensionmaven asked for.

 

My post doesn’t state anything about what a TPA must, may, or should do.

 

Larry Starr explains his firm’s method.  I mostly agree that external law does not ordinarily impose a duty to make copies of copies of records already in a client’s possession.

 

Some TPAs need not follow any professional-conduct rules.  Some TPAs have a worker who follows the American Retirement Association’s rule, which applies even if the member is not governed by the rules for practice before the Internal Revenue Service.  Some TPAs have a worker who wants the TPA to follow a rule for lawyers, accountants, actuaries, or another profession.  (Some regulators assert that the profession’s rules apply to whatever a licensee does, even if her work is not of a kind that requires the profession’s license.)

 

Returning to what I imagine might be thepensionmaven’s interest, sometimes a hint about some return-of-records rule—even if the rule might not or does not apply—helps persuade a removed TPA to cooperate in furnishing what the next TPA seeks.

 

Consider too Larry Starr’s observation that a prospect of incurring fees might motivate a client to become less lazy about looking for what it already has.

[Larry Starr]

12 hours ago, Peter Gulia said:

 

Some TPAs need not follow any professional-conduct rules.  Some TPAs have a worker who follows the American Retirement Association’s rule, which applies even if the member is not governed by the rules for practice before the Internal Revenue Service.  

 

Consider too Larry Starr’s observation that a prospect of incurring fees might motivate a client to become less lazy about looking for what it already has.

I was involved in drafting ASPPAs original Code of Conduct (was on the Board of Directors at that time and co-chaired the membership committee) but I just searched for it and can't find it on the ASPPA website (have already reported it to the powers to be).  Anyway, I remember dealing with this very issue since our philosophy on what are "client records" was well established before then.  Ultimately, as written (and as I remember), they don't require anything that would conflict with my earlier comments.  It can be a tricky area but we have found our approach works well. I should add that whenever we sign off a client, we tell them that they have everything they need but if they find they need anything else, there will be a file retrieval charge and a minimum research fee. We do store the files off site and our retrieval fees during the year are often enough to cover our annual storage bill; we think that's only fair that people who need things pay the cost of storing that stuff.  FWIW.

[Larry Starr]

46 minutes ago, Larry Starr said:

I was involved in drafting ASPPAs original Code of Conduct (was on the Board of Directors at that time and co-chaired the membership committee) but I just searched for it and can't find it on the ASPPA website (have already reported it to the powers to be).  Anyway, I remember dealing with this very issue since our philosophy on what are "client records" was well established before then.  Ultimately, as written (and as I remember), they don't require anything that would conflict with my earlier comments.  It can be a tricky area but we have found our approach works well. I should add that whenever we sign off a client, we tell them that they have everything they need but if they find they need anything else, there will be a file retrieval charge and a minimum research fee. We do store the files off site and our retrieval fees during the year are often enough to cover our annual storage bill; we think that's only fair that people who need things pay the cost of storing that stuff.  FWIW.

And the Powers That Be got back to me (thanks Nevin; a GREAT GUY!).  Here's the language (no surprise; it mirrors what I have said in this thread. I think I remember drafting it.....)

B. When a Principal has given consent for a new or additional professional to consult with a Member with respect to a matter for which the Member is providing or has provided Professional Services, the Member shall cooperate in assembling and transmitting pertinent data and documents, subject to receiving reasonable compensation for the work required to do so.  In accordance with Circular 230, the Member shall promptly, at the request of the Principal, return any and all records of the Principal that are necessary for the Principal to comply with federal tax Law, even if the Member is not subject to Circular 230. The existence of a fee dispute generally does not relieve the Member of this responsibility except to the extent permitted by applicable state Law.   The Member need not provide any items of a proprietary nature or work product for which the Member has not been compensated.

[Retired, but still reading]

OK - as the handle says, I'm retired, but still reading/interested ... so am a little late in adding my 2 cents, since the weather was nice and the tractor beckoned.

As a TPA firm owner, our policy was that when someone wanted to move to a new provider, we held the door open for them and provided them with whatever documents they needed  at no charge.  We were able to do this because all of our files (40+ years) were digitized as pdf's, organized and easy to access.   We undertook the digitization project for disaster recovery purposes - digital storage is dirt-cheap - but the digitization was quite an undertaking.  Fortunately, our interns did a great job of scanning (and checking every scan) and they were well-paid for it. 

Even when we were paper-based, we were the repository of last resort for plan information,  whether it's compensation history, confirmation of an old distribution for an attorney handling a participant's estate or that signed amendment required as a condition for a favorable Letter of Determination for an IRS audit ... we felt a responsibility to keep the info and folks that needed the info were extremely grateful that we had it.

It wasn't clear whether pensionmaven's new client owed the prior TPA  for services - if we had a non-paying client, we'd still furnish plan records for work that was completed/paid - at no charge.  

On takeover cases, our general rule was to call the prior TPA (not email, not fax - a phone call) - often a phone call helps you to better understand what you're getting into with the new client - and by making it personal, the former TPA may relent on the copying charges.  I don't know about your market, but in our market, most of us were cordial, friends and willing to help each other.

FWIW

Peter