As a tax professional, the work you do for your clients is very customer service oriented. Good tax preparers build very strong relationships with their clients as they begin learning a very personal part of their lives: their finances. Tax preparers become very close to the people they serve and get to know many things about them. This relationship is one that ensures that clients will continue to come back to the preparer and the company they represent.
This is why many tax firms require that employees sign a non-compete agreement before bringing them on board. Non-compete agreements are designed to prevent employees from taking a company’s clients with them upon termination. This is a very heated topic in the tax industry as each tax preparer signs their client’s returns with their own person PTIN number – holding the tax preparer personally responsible and leaving them with a feeling of empowerment and ownership. As an employer, you cannot afford to lose clients just because one of your preparers leaves. However, as a tax preparer, you’ve likely become very close to your clients – who may or may not want to have a new person handling their taxes. This is where the controversy comes in.
What the law says
The IRS Privacy Law, Section 7216 prohibits anyone who is involved in the preparation of tax returns from knowingly or recklessly disclosing or using the tax-related information provided other than in connection with the preparation of such returns.
The law states:
(a) General rule
Any person who is engaged in the business of preparing, or providing services in connection with the preparation of, returns of the tax imposed by chapter 1, or any person who for compensation prepares any such return for any other person, and who knowingly or recklessly—
(1) discloses any information furnished to him for, or in connection with, the preparation of any such return, or
(2) uses any such information for any purpose other than to prepare, or assist in preparing, any such return, shall be guilty of a misdemeanor, and, upon conviction thereof, shall be fined not more than $1,000, or imprisoned not more than 1 year, or both, together with the costs of prosecution.
This law does not prohibit tax preparers from taking clients with them if/when they leave a tax office. In fact, there are no IRS laws that guard against this. This is why as a tax business owner you should require all employees sign a non-compete to guard against the possibility of losing clients when one of your employees leaves.
What to include in your new hire packet
Our tax preparer employment agreement includes the following key provisions:
1. Non-compete during the term of employment
2. Non-compete (only for clients served by preparer while employed by us) for 2 years after termination within 25 miles of any of our offices.
3. Non-solicitation of clients or employees (perpetual)
4. Confidentiality of client and proprietary information (perpetual)
This agreement is one of the many components included in our Tax Business Personnel Manual, which is provided in digital form for customization by independent tax businesses.
Non-solicitation and confidentiality provisions, if drafted correctly should be adequate to prevent former tax preparers from taking clients.
We’d love to hear your thoughts on this matter. Please leave us a comment below.
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