The following article is adapted and reprinted from the M&A Tax Report, Vol. 10, No. 1, August 2001, Panel Publishers, New York, NY.


By Robert W. Wood

The bad news is that the FTC — that's the Federal Trade Commission to those of you tax afficionados that thought FTC might stand for a recently enacted tax bill — has entered your lives. As part of its continual protection of consumers (huh?), a law was passed in 1999 charging the FTC with protecting consumers from disclosure of their "nonpublic personal information" given by a consumer to a "financial institution." As laudable as this goal may sound, the FTC cast a very wide net in defining what it considers to be a "financial institution."

Many summaries are available of these rules — but for those who want the real skinny, you should read 16 Code of Federal Regulations, Part 313. Notification requirements are detailed, and definitions are included that are worth a look. The bad news is that as we go to press, the deadline for the first compliance (a notice to customers) was July 1, 2001. Annual notices are required thereafter. Various organizations — including the American Bar Association — have been seeking extensions of time.


The real bombshell was that the FTC defined financial institution to include lawyers who routinely receive confidential information. The estate planning and tax bars have perhaps taken this disclosure rule most significantly, but many other lawyers are doing so as well. It does not appear that anything definitive will be solved on this for a while. Cautious practitioners in the many covered professions and institutions have sent out notices (we here at The M&A Tax Report have received quite a pile).

Oh, a Penalty?

Yes, unfortunately, there are some teeth to these rules, although its not clear to me whether these will be applied vigorously in the short run. Apparently the FTC is taking the position that penalties can be as much as $11,000 per failure. I suppose if that is $11,000 in penalties for failing to notify 10,000 customers, its not such a big deal. But if its $11,000 per customer for each of those 10,000 customers, then those figures do add up, don't they?

Don't you just love government regulation...

FTC Enters Your Lives, Vol. 10, No. 1, The M&A Tax Report (August 2001), p. 7