The IRS took additional steps to protect taxpayer information with the December release of T.D. 9608, which contains final regulations under Sec. 7216. This Code section addresses the disclosure or use of tax return information by tax return preparers who prepare tax returns for compensation. Also in December, the IRS released Rev. Proc. 2013-14, which provides guidance to tax return preparers about the format and content of taxpayer consents for purposes of Sec. 7216.
Sec. 7216 forbids paid tax return preparers to “knowingly or recklessly” (1) disclose any information furnished to them for, or in connection with, the preparation of a tax return or (2) use such information for any purpose other than to prepare or assist in preparing such a return. A violation of Sec. 7216 could subject the tax return preparer to a misdemeanor criminal penalty (if convicted) of a fine of up to $1,000, or imprisonment for up to one year, or both, plus costs of prosecution.
In general, Regs. Sec. 301.7216-2 specifies a number of situations when a tax return preparer can disclose or use tax return information for a nontax purpose. Among other amendments, T.D. 9608 revises Regs. Sec. 301.7216-2(n), which governs lists for solicitation of tax return preparation business. The preamble to T.D. 9608 states that the IRS considers accounting services to be non-tax-preparation services. Therefore, according to the preamble, if a tax return preparer wants to use tax return information from a client’s tax return to solicit or offer accounting services to the client, the preparer must obtain the taxpayer’s written consent before soliciting the additional services. On the other hand, if the tax preparer is merely soliciting additional tax return preparation services, the preparer does not generally need to obtain the client’s consent.
Newsletters are a major area covered under the final regulations. Under Regs. Sec. 301.7216-2(n), as amended, a tax return preparer may compile specified items of taxpayer clients’ tax return information without their consent and contact those clients if the preparer is providing tax information and general business or economic information or analysis for educational purposes. The preamble states that “a newsletter that summarizes recent case law or describes current legal developments would be considered to be for educational or informational purposes,” not needing the taxpayer’s written consent.
While a commenter on previously proposed Sec. 7216 regulations had suggested the IRS remove all limits on the types of tax return information a preparer may include in lists for solicitation of tax return business under Regs. Sec. 301.7216-2(n), the preamble to T.D. 9608 specifically rejects that recommendation. The preamble states that the IRS and Treasury must balance congressional intent and concerns for the protection of sensitive taxpayer data with the benefits the taxpayer may receive from the proposed disclosures or uses and that removing all limits on the types of tax return information that may be compiled and maintained in a list does not meet this balancing test.
Regs. Sec. 301.7216-2(n) does not permit a tax return preparer to include non-tax-return information in the preparer’s list or lists of client tax return information. The IRS believes the inclusion of non-tax-return information in this way could result in circumvention of the restrictions under Sec. 7216. Thus, the preparer needs to obtain the client’s written consent before including non-tax-return information as part of a permissible list of tax return information under Regs. Sec. 301.7216-2(n).
T.D. 9608 also amends Regs. Sec. 301.7216-2(o), which governs the production of statistical information in connection with tax return preparation services. This regulation section permits a tax return preparer to produce certain statistical compilations of tax return data without obtaining clients’ written consent. In general, the statistical compilation of data during the tax return preparation process must (1) relate to the internal management or support of the preparer’s tax return preparation business or (2) be used for bona fide research or for public policy discussions concerning state or federal taxation. However, the regulations clearly state that the tax return preparer “may not disclose the statistical compilation, or any part thereof, to any other person unless disclosure . . . is anonymous as to taxpayer identity, [and] does not disclose an aggregate figure containing data from fewer than ten tax returns” (Regs. Sec. 301.7216-2(o)(1)).
Rev. Proc. 2013-14 provides tax return preparers guidance on the format and content of taxpayer consents for disclosing or using tax return information of taxpayers filing a return in the Form 1040 series. The revenue procedure also sets out the requirements for electronic signatures when a taxpayer executes an electronic consent to a disclosure or use of tax return information under the Sec. 7216 regulations. In general, the revenue procedure modifies the mandatory language required on a taxpayer’s consent to disclose or use tax return information. The language in Rev. Proc. 2013-14 must be used starting Jan. 1, 2014. During 2013, practitioners can use that language or the language provided in Rev. Proc. 2008-35 (Rev. Proc. 2013-19).
The AICPA will continue to provide members with information on further developments under Sec. 7216.
Benson Goldstein is senior technical manager (taxation) with the AICPA in Washington, D.C., and is staff liaison to the AICPA IRS Practice and Procedures Committee. For more information about this column, contact Mr. Goldstein at firstname.lastname@example.org.