A CPA gets a grand jury subpoena for tax-planning memos, an AICPA peer reviewer asks for a sample of client files, and a former client demands their working papers back. Three different rules govern three different requests, and all three answers come due the same week.
Three frameworks govern what a CPA can say about a client. They trigger on different facts and impose different penalties.
Congress created §7525 in 1998 to level the playing field. Before that, only attorneys could promise clients confidential tax advice. §7525 extended a narrow version of attorney-client privilege to federally authorized tax practitioners (FATPs); Congress wanted parity for tax advice, not a new shield for everything a CPA does.
- CPAs licensed under state law
- Enrolled agents (passed the SEE or have qualifying IRS experience)
- Enrolled actuaries (limited to retirement and pension matters)
Attorneys are not "FATPs" under §7525, they get the broader attorney-client privilege automatically.
KEY: §7525 applies the same privilege the client would have with an attorney, but only "to the extent" attorney-client privilege would apply. So §7525 can never be broader than attorney-client.
Common mistakes
- Treating §7525 as full attorney-client privilege. §7525 has three carve-outs attorney-client does not: criminal, tax shelters, non-IRS forums. Trap answer: "the privilege protects all confidential tax communications." Wrong: only noncriminal, non-shelter, IRS-proceeding tax advice.
- Asserting privilege over return preparation. A preparer's depreciation calculation notes are not privileged. Only tax advice (analysis, risk evaluation, recommended elections) qualifies. Trap answer: "all communications with the CPA are privileged." Wrong, only the advisory subset.
- Confusing §1.700 with §7525. §1.700 is the AICPA voluntary-disclosure rule; §7525 is the federal evidentiary privilege. A subpoena overrides §1.700 (enumerated exception) but not §7525 (privilege blocks the subpoena). Trap: "The CPA can refuse under §1.700 because the client has not consented." Wrong: a valid subpoena defeats §1.700.
Bottom line
- IRC §7525 covers FATPs (CPAs, EAs, enrolled actuaries) giving tax advice in noncriminal IRS matters only, with no coverage for tax shelters, criminal cases, or state proceedings
- Attorney-client privilege is broader than §7525, covering criminal matters, state proceedings, and all legal advice with no tax-shelter limit
- The taxpayer holds §7525 privilege and must assert it; the CPA cannot invoke it unilaterally
- AICPA Code §1.700 forbids disclosing client information without consent; §1.700.060 lists four exceptions (enforceable subpoena, AICPA/state board inquiry, peer review, CPA defense)
Exam shortcut
For any §7525 fact pattern, run three filters: criminal → no privilege; tax shelter → no privilege; non-IRS forum → no privilege. If any filter trips, eliminate every "privileged" answer. For disclosure questions, ask which framework triggers: §1.700 for consent, §7216 for return information, GLBA for personal financial services. They stack: one disclosure can violate all three.
The full lesson (about 2,316 words, 15 min read) adds 2 worked examples, all 6 common mistakes, a self-check, free in the app.
Learning objectives
- I.D2
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