Date: July 12, 2023Attorney: Martin D. Hauptman

In a recent alert dated June 27, the IRS’ Office of Professional Responsibility (OPR) addressed a critical topic that all tax practitioners should be mindful of: What to Do When a Tax Practitioner Becomes Incapacitated or Dies. The OPR outlined best practices and provided invaluable guidance on implementing a comprehensive succession plan to ensure the smooth transition and proper handling of a tax practitioner’s practice in such unfortunate circumstances.

Establishing a formal succession plan is essential for every tax practitioner, regardless of their career stage. OPR emphasizes that a well-designed plan should encompass various aspects, including:

  1. Entering into an agreement with an assisting practitioner who will assume responsibility for closing or taking over the practice.
  2. Familiarizing the assisting practitioner with the practice, ensuring a seamless transition for clients.
  3. Maintaining an up-to-date inventory of all open client matters, including relevant contact information and details to address clients’ needs and deadlines effectively.
  4. Implementing measures to provide secure access to the practitioner’s records for the assisting practitioner.
  5. Ensuring that the assisting practitioner has the necessary information and funds to handle bills and financial obligations.
  6. Discussing with clients the option to authorize the assisting practitioner to represent them or receive information on their behalf to avoid any disruption in IRS representation.
  7. Devising a comprehensive communications plan to inform clients in the event of the practitioner’s incapacity or death.
  8. Actively involving family members in the discussion and understanding of the succession plan to ensure smooth implementation.

When executing a succession plan, the assisting practitioner should consider important factors to safeguard the practitioner’s practice and client interests. These include:

  1. Securing all client files and preventing any unauthorized removal of documents without client permission.
  2. Exercising control over premises access to protect confidential client information.
  3. Implementing reliable backup procedures for electronic files, whether stored locally or in the cloud.
  4. Conducting interviews with employees, independent contractors, and vendors to identify all known clients and client property beyond available records.
  5. Considering local media publication to inform clients about office closure and the need to retain new representation while facilitating the orderly transfer of client files.
  6. Maintaining copies of files for the deceased practitioner’s estate to handle potential claims, determine rights to fees and reimbursable expenses, and support legal obligations.
  7. Ensuring clients receive timely notice of the practitioner’s incapacity or death and tracking confirmation of receipt.
  8. Safeguarding client confidentiality throughout the process.

Effective communication with clients is crucial in handling ongoing matters and properly managing client files. Ideally, these discussions should occur as part of the succession planning process, allowing practitioners to understand their clients’ preferences and facilitate a smooth transition. Section 10.28 of Circular 230 outlines a practitioner’s obligation to return client records upon request, and a successor practitioner has a similar responsibility.

In situations where a practitioner does not have a succession plan or clients were not given advance notice of the plan, the assisting practitioner should promptly confirm representation arrangements with each client. It is crucial to respect clients’ choices, whether they decide to remain with the practitioner’s firm or opt for new representation. In the latter case, arrangements must be made for the secure and efficient transfer of all client files with written permission from the client.

OPR highlights the necessity of communicating with the IRS when reporting the incapacity or death of a tax practitioner. This involves filing appropriate forms, such as Form 56 (Notice of Fiduciary Relationship), and notifying the IRS Return Preparer’s Office (RPO) or the Centralized Authorization File (CAF) Unit, depending on the circumstances.

Regarding the closure of a deceased sole practitioner’s business account associated with their Employer Identification Number (EIN), it is important to follow the required procedures. While an EIN cannot be canceled, the practitioner’s firm or assisting practitioner should send a letter to the IRS, including the business’s full legal name, EIN, business address, reason for closing the account, and any available IRS notice assigning the EIN to the business.

OPR emphasizes that the confidentiality of taxpayer information is a paramount responsibility for the practitioner’s firm, assisting or successor practitioners, and the trustee, executor, or administrator of the practitioner’s estate. Practitioners can find general information on safeguarding taxpayer data in IRS Publication 4557, titled “Safeguarding Taxpayer Data (A Guide for Your Business).”

As tax practitioners, it is crucial for us to prioritize the implementation of a robust succession plan to protect our clients’ interests and ensure the continuity of their affairs in the unfortunate event of incapacity or death. By adhering to the guidelines provided by OPR, we can navigate these challenging circumstances and uphold the standards of our profession.

For further information on implementing a business continuity plan contact us at or call 973-243-7912.

Remember, proactive planning today can safeguard the future of your practice and provide peace of mind for both you and your clients.