As of January 1, 2009, new regulations under Internal Revenue Code Section 7216 have required tax preparers to obtain informed, written consent from taxpayers when using or disclosing information on a personal tax return for any purpose outside of preparing and filing the return. This not only includes providing data to outside institutions such as banks or mortgage companies, but also relates to sending clients information, such as educational articles or marketing literature for services that are not tax-related.

MACPA Continuing Education Opportunities on IRC 7216: West Michigan Tax Symposium Financial Planning and Advanced Federal Tax Conference (session O - What's New in Federal Tax) Tax Season Update with Steve Dilley Federal Tax Lectures Dates for Webinars on IRC 7216: Thursday, October 29th, 1pm Thursday, December 10th, 1pm Registration for these webinars will be available soon on the MACPA website.

In addition to these new regulations, the AICPA Code of Professional Conduct contains client confidentiality requirements. With the Privacy Act requirements well in place and the constant vigilance for client confidentiality under ET-Section 301, CPAs have exercised considerable safeguards to provide a secure safe haven for client and employer information. Repercussions of potential ethics violations must also be considered under ET-Section 201, General Standards of Practice and ET-Section 501, Acts Discreditable to the Profession.

Now, through Section 7216, the Internal Revenue Service has taken us several steps further in interpreting these three ethics code sections by redefining the commonly accepted term of “tax preparer” and the use of confidential client information.

What follows are a few eye opening questions and answers that stir the “ethics pot” and could land you in the proverbial “ hot water” without a proper understanding.


Q. A tax return preparer is the individual that signs the tax return as the preparer. What is different under Treas. Reg. Sec. 301.7216?

A. Recent changes to the tax preparer penalty statute are substantial and preparers should understand the risks associated with these revisions. A person may be a preparer without regard to a particular professional license or educational requirement.

Previously, income tax preparers who prepared returns for compensation, or employed others to prepare tax returns for compensation or a substantial portion of a tax return were considered tax preparers. Now, preparers of income, estate and gift tax returns are subject to the new statute. Also included are preparers of information tax returns such as a Form 1065, U.S. Return for Partnership Income if the items on the Partnership return constitute a substantial portion of a partner’s individual income tax return.

Two categories of preparers now exist…those that actually sign the tax return and non-signers, the individuals that prepare a substantial portion of a tax return and do not sign or who provide written or oral advice regarding a position taken on a tax return.

What may be considered “substantial” is determined on the merits of each return. There can only be one signer of the tax return but the responsibility for the tax consequences of the return can lie with both the signer and non-signer.

When giving tax advice, CPAs should determine their responsibility for the return and ask, who is the preparer?

Q. How does IRC 7216 impact issues of client confidentiality and standards of practice?

A. Sec. 7216, issued in 2008, reinforced client confidentiality issues that essentially were unchanged since 1980. The new guidance became effective on January 1, 2009 and prohibits tax return preparers from knowingly and recklessly using client tax return information. The new rules require a practitioner to obtain written or electronic permission from the client prior to, not after, disclosure of confidential information is made. The content of the consent form is different when dealing with an individual income tax return as compared to a business tax return.

The only exception to the confidentiality provision occurs when client information is required under court order.

Q. What is the definition of “confidential client information”?

A. The definition of client information is well defined under IRC 7216. Basically, it not only includes the taxpayer’s name, address and social security or Federal identification number, but also includes any data derived through the preparation of the tax return or rendering advice regarding the tax return.

Q. What is meant by “disclosure’?

A. Any use of client data by a practitioner in making that information available in any manner whatsoever, without specific client consent, would meet the definition of disclosure.

Q. Where can I find a more in depth discussion of the new tax preparer rules and the disclosure of taxpayer information?

A. Consult the following resources for more information:

MACPA Website Resources for Sec. 7216

IRS 7216 FAQ

Internal Revenue Code 301.7216

The Tax Advisor-May 2009 article: New Tax Preparer Rules for Disclosure and Use of Return Information

The Tax Advisor-August 2009 article: Tax Preparer Penalties: Who Is a Preparer?



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