Practices and Procedures · Requirements for Enrolled Agents

Rules for returning a client's records and documents

The rule that surprises practitioners is that a fee dispute generally does not entitle you to hold the client’s records. Section 10.28 makes return of them a professional obligation, gives one narrow accommodation to state law, and defines “records of the client” widely enough to catch material practitioners often think of as their own file.

The rule

The duty. At the request of a client, a practitioner must promptly return any and all records of the client necessary for the client to comply with their federal tax obligations. The practitioner may retain copies of what is returned (Circular 230 § 10.28(a)).

Fee disputes generally do not excuse it. “The existence of a dispute over fees generally does not relieve the practitioner of his or her responsibility under this section” (§ 10.28(a)).

The one accommodation, and its limits. If applicable state law allows a practitioner to retain a client’s records in the case of a fee dispute, the practitioner need only return those records that must be attached to the taxpayer’s return — but must still provide the client reasonable access to review and copy any additional records retained under state law that are necessary for the client to comply (§ 10.28(a)). The accommodation reduces what must be handed over; it never reduces access to nothing.

What counts as records of the client. All documents or written or electronic materials provided to the practitioner, or obtained by the practitioner in the course of the representation, that preexisted the retention. It also includes materials prepared by the client or a third party — not an employee or agent of the practitioner — at any time and provided to the practitioner with respect to the subject matter of the representation (§ 10.28(b)).

And what does not. Records of the client do not include any return, claim for refund, schedule, affidavit, appraisal or other document prepared by the practitioner or their employee or agent, if the practitioner is withholding it pending the client’s performance of a contractual obligation to pay fees (§ 10.28(b)).

Separately, the practitioner has their own retention duty. IRC § 6107(b) requires a preparer to keep a completed copy of the return or a list for three years after the close of the return period. Returning the client’s records does not affect that, which is why § 10.28(a) expressly permits retaining copies.

How it works in practice

The distinction that decides most disputes is source, not possession. What the client or a third party produced and gave to the practitioner goes back. What the practitioner produced can be withheld against unpaid fees. A bank statement the client supplied is the client’s; the schedule the practitioner built from it is not — provided a contractual obligation to pay is actually outstanding.

“Necessary to comply with federal tax obligations” is the measure of what must go back, not everything in the file. In practice that is broad — substantiation, prior returns, closing statements, basis records — because a client who cannot produce them cannot file or defend a return.

Check the state law point before relying on it. The accommodation applies only where applicable state law allows or permits retention in a fee dispute. Where it does not, the full duty applies notwithstanding the unpaid fee. And even where it does, two obligations survive: return of anything that must be attached to the return, and reasonable access to review and copy the rest.

Promptly means promptly. Delay in returning records engages § 10.23 as well, and a refusal that obstructs the client’s ability to respond to the IRS can look like the contemptuous conduct § 10.51(a)(12) describes. The professional exposure usually exceeds the fee in dispute.

How this has changed

Section 10.28 took its present form in T.D. 9011 (67 FR 48765, 26 July 2002), which added the state law accommodation and the reasonable-access requirement that qualifies it. The definitional paragraph, and in particular the exclusion for documents the practitioner prepared and is withholding pending payment, is what converted a general obligation into a workable rule — before it, the boundary between the client’s records and the practitioner’s work product was left to state law alone. The section was carried forward unchanged by T.D. 9527 (76 FR 32286, 3 June 2011).

Exam focus

That the duty is triggered by the client’s request and requires prompt return of records necessary to comply with federal tax obligations. That a fee dispute generally does not excuse it, and exactly what the state law accommodation does and does not permit. The § 10.28(b) definition, both limbs — what is included, and the exclusion for the practitioner’s own work product withheld pending payment. That copies may be retained. Expect a fact pattern sorting a mixed file into what goes back and what does not.

Check yourself

1. A client requests their records during a fee dispute. The practitioner: (A) May retain everything until paid (B) Must generally return records necessary for the client to comply with federal tax obligations, a fee dispute not relieving the responsibility (C) Must return everything including their own work product (D) May retain records for 30 days Answer: B. Circular 230 § 10.28(a).

2. Where state law permits retention during a fee dispute, the practitioner must still: (A) Return everything (B) Return records that must be attached to the return, and give reasonable access to review and copy the rest (C) Do nothing further (D) Return records only after 90 days Answer: B.

3. Which is a “record of the client” under § 10.28(b)? (A) A depreciation schedule the practitioner prepared, withheld pending payment (B) Bank statements the client provided (C) A draft return prepared by the practitioner’s employee, withheld pending payment (D) The practitioner’s engagement notes Answer: B.

4. An appraisal prepared by an independent appraiser and provided during the representation is: (A) The practitioner’s work product (B) A record of the client, the appraiser not being the practitioner’s employee or agent (C) Excluded because the practitioner engaged the appraiser (D) Returnable only if the client paid the appraiser Answer: B.

5. After returning the client’s records, the practitioner: (A) May not keep copies (B) May retain copies, and separately must keep a copy or list for three years under IRC § 6107(b) (C) Must destroy the file (D) Must obtain the client’s consent to keep copies Answer: B.