Protecting Client Information and Your Practice
“Just what is IRC 7216?”
Internal Revenue Code §7216 is a criminal provision enacted by the U.S. Congress in 1971 that prohibits preparers of tax returns from knowingly or recklessly disclosing or using tax return information.
Treasury Regulation §301.7216 had been substantially unchanged for over 30 years and did not address the modern return preparation marketplace, particularly electronic filing and the cross-marketing of financial and commercial products and services during tax return preparation.
IRC Section 7216 – Privacy Restrictions on Disclosure of Client Information by Tax Return Preparers
IRC 7216 provides rules and sanctions for inappropriate disclosure of client information.
Income tax preparers and those who provide services connected with the preparation of returns, may not knowingly or recklessly disclose any information provided by the taxpayer that is intended for use in the preparation of a tax return.
Preparers also may not use any information provided by or on behalf of the taxpayer for any purpose other than to prepare, or assist in preparing, the return.
“What is the IRS’ definition of a Tax Preparer?”
Tax return preparers are persons that participate in the preparation of tax returns for taxpayers, including but not limited to:
“It’s a Crime!”
Under 7216, anyone who discloses or improperly uses tax return information is guilty of a misdemeanor and subject to a possible fine of $1,000, imprisonment of not more than one year, or both.
IRC Section 6713, which is the civil penalty, imposes a $250 fine on a preparer for each prohibited disclosure or use of the return information.
These important rules and regulations affect the way we do business for and with our tax return clients. These regulations emphasize the concept that taxpayers need to receive proper warnings and consent notices that allow them to make an informed decision over the use of their tax information by the preparer.
The entire purpose of this new emphasis is to give taxpayers greater control over their personal tax return information.
“How does the IRS define ‘tax return information’?”
All the information that tax return preparers obtain from taxpayers...in any form or manner that is used to prepare tax returns or is obtained in connection with the preparation of returns. It also includes all computations, worksheets, and printouts created by a preparer. In addition, all correspondence from the IRS during the preparation, filing and correction of tax returns is considered privileged “tax return information”.
“What are disclosures?”
Disclosure of tax return information is the act of making tax return information known to any person in any manner whatsoever. The current regulations authorize two types of disclosures: (1)Certain permissible disclosures without taxpayer consents and (2)Disclosures requiring taxpayer consent.
A Few Examples of Disclosures That Can Be Made Without a Taxpayer’s Prior Written Consent
Disclosures Requiring Taxpayer Consent
All other disclosures not specifically authorized require tax return preparers to secure from taxpayers advance signed consents authorizing the disclosures. These consents are valid only if they are made by the taxpayer voluntarily and are signed and dated by the taxpayer.
Consents must contain certain specific information...they must specify the nature of the disclosure, to whom the disclosure will be made, and details on the data to be disclosed. The consents must also be obtained before tax return information is used and before the return is given to the taxpayer for signature.
“Do consents to disclose or use tax return information have expiration dates?”
Yes. The taxpayer and tax return preparer may agree to specify the period of time the consent will be effective and include the period in the consent form. If no period is specified the regulations state that the consent will be effective for a period of one year from the date the taxpayer signed the consent.
Below is an Example of a 7216 Disclosure Form Containing the Mandatory Language as Described by Regulations:
Federal law requires this consent form be provided to you. Unless authorized by law, we cannot disclose, without your consent, your tax return information to third parties for purposes other than the preparation and filing of your tax return and, in certain limited circumstances, for purposes involving tax return preparation. If you consent to the disclosure of your tax return information, Federal law may not protect your tax return information from further use or distribution.
You are not required to complete this form. Because our ability to disclose your tax return information to another tax return preparer affects the service that we provide to you and its cost, we may decline to provide you with service or change the terms of service that we provide to you if you do not sign this form. If you agree to the disclosure of your tax return information, your consent is valid for the amount of time that you specify. If you do not specify the duration of your consent, your consent is valid for one year.
Duration of consent (optional):
I, [insert name of taxpayer] authorize [insert name of tax return preparer] to disclose [specify tax return information to be disclosed] to [identify the recipient of the tax return information] for the purpose of [specify the intent of the disclosure].
Note: If there are multiple reasons for requesting disclosures they may all be listed in one consent form. See Revenue Procedure 2008-35, section 6 for examples.
If you believe your tax return information has been disclosed or used improperly in a manner unauthorized by law or without your permission, you may contact the Treasury Inspector General for Tax Administration (TIGTA) by telephone at 1-800-366-4484, or by email at firstname.lastname@example.org.
Taxpayer Signature: Date: