Can a real estate closing lawyer file IRS Form 1099 disclosing the parties' sale price and tax IDs without violating client confidentiality, and must clients be told?

Plain-English summary

Lawyer L frequently handled real estate transactions. After reviewing new federal tax law, L believed that, as of January 1, 1987, he was required to file Form 1099 with the IRS for each real estate transfer in which he acted as closing agent, reporting the sale price and the parties' tax identification numbers. L was concerned about violating client confidences by disclosing that information, and asked whether he had to advise the parties that the returns were being filed and whether he needed the clients' permission to disclose.

The opinion concluded that Rule 4(c)(3) permits a lawyer to disclose confidential information when required by law to do so; whenever L is required by tax law to provide information to the IRS, he may ethically do so, and because it is a legal requirement, client consent is not required. Separately, Rule 6(b)(1) requires a lawyer to keep a client reasonably informed and to comply promptly with requests for information, and its comment requires a lawyer to fulfill reasonable client expectations for information. The opinion therefore concluded that L and similarly situated attorneys should inform their clients, and other affected persons as reasonable and appropriate, when the lawyer must provide information to the IRS.

Currency note

This opinion was issued in 1987, before the North Carolina State Bar's adoption of the 2003 revisions to the Rules of Professional Conduct. The provisions it applies (Rule 4(c)(3) on disclosure required by law and Rule 6(b)(1) on keeping a client informed) have since been renumbered and revised (the corresponding Model Rules are 1.6 and 1.4). Subsequent rule amendments or later opinions may have changed the analysis. Treat this page as historical context, not current guidance. Verify against current rules before relying on any specific rule, deadline, or requirement mentioned here.

Common questions

Q: Does filing IRS Form 1099 for a closing violate client confidentiality?

A: No. The opinion concluded that Rule 4(c)(3) permits disclosure of confidential information when required by law, so a lawyer required to file Form 1099 may do so ethically.

Q: Does the lawyer need the client's permission to disclose to the IRS?

A: No. The opinion concluded that because the disclosure is a legal requirement, the client's consent is not required.

Q: Must the lawyer tell the clients the filing is being made?

A: Yes. The opinion concluded that under Rule 6(b)(1) the lawyer should inform clients, and other affected persons as reasonable and appropriate, when he must provide the information to the IRS.

Background and rules framework

The opinion applied North Carolina Rule 4(c)(3), the confidentiality exception for disclosures required by law (corresponding to Model Rule 1.6), and Rule 6(b)(1) on keeping a client reasonably informed (corresponding to Model Rule 1.4). The analysis turned on the legal mandate to file Form 1099, which both authorized the disclosure without consent and triggered the duty to keep the client informed.

Citations and references

Rules of Professional Conduct:

• North Carolina Rule 4(c)(3) (confidentiality; disclosure required by law)
• North Carolina Rule 6(b)(1) (keeping the client reasonably informed)
• MR 1.6 (confidentiality); MR 1.4 (communication)

Statutes:

• IRS Form 1099 real estate reporting requirement (effective January 1, 1987, as described in the opinion)

See also

• NC Ethics Op. RPC 33: client's alias and confidentiality
• NC Ethics Op. RPC 44: attorney's obligation to follow closing instructions

Source

• Landing page: https://www.ncbar.gov/for-lawyers/ethics-and-governing-rules/ethics-opinions/opinions/rpc-23/

Original opinion text

Reproduced from the official source for research purposes. The linked source is authoritative.

Inquiry:

Lawyer L frequently handles real estate transactions for his clients. Lawyer L has reviewed new federal tax law requirements. He believes that, as of January 1, 1987, he is required to file Form 1099 with the Internal Revenue Service for each real estate transfer in which he acts as the closing agent. That form would require that he provide the Internal Revenue Service with the sales price and tax identification numbers for the parties to the real estate transaction.

Lawyer L is concerned that he may be violating client confidences by disclosing the information required by Form 1099 to the Internal Revenue Service. If he must disclose this information, is he required to advise the parties to the transaction that the returns are being filed? Is it necessary to secure the permission of the clients in order to disclose that information?

Opinion:

Rule 4(c)(3) permits a lawyer to disclose confidential information if he is required by law to do so. Whenever Lawyer L is required by tax law provisions to provide certain information to the Internal Revenue Service, he may ethically do so. Since it is a legal requirement, the consent of the client, as such, is not required. Rule 6(b)(l) requires a lawyer to keep a client reasonably informed of the status of any matter and to comply promptly with requests for information. The comment thereto indicates that a lawyer is required to "fulfill reasonable client expectations for information...." Therefore, Lawyer L and other attorneys similarly situated should inform their clients, and other affected persons as reasonable and appropriate, when the lawyer must provide information to the Internal Revenue Service.