Good News for Tax Preparers and Marketers – IRS 7216 Revisions
 
Michelle Baca

Over the past year, IRS Section 7216 has been a hot topic. Since it went into effect on January 1, 2009, there have been many questions, concerns, and confusion over the legal implications to tax preparers. The intent was to prohibit tax preparers from “knowingly or recklessly” disclosing or using tax related information other than in connection with the preparation of returns.  Section 7216 also set forth the requirement for tax preparers to obtain consent from their tax-only clients to distribute non-tax related information to them and to share their information with any third-party. I wrote a blog post in February, 2009, How IRS Section 7216 Affects Your Marketing Activities, outlining the implications of IRS Section 7216 on firm’s marketing activities and wanted to follow it up with a review of the recent revisions and clarifications issued regarding that section.

On December 30th, 2009, the IRS released two new revenue rulings (Rev. Rul. 2010-4 and Rev. Rul. 2010-5) to provide clarification and guidance on determining whether a tax return preparer is liable for criminal and civil penalties for using or disclosing tax return information in certain situations.

As the video explanation of the revision by the Journal of Accountancy outlines, the new rules enable tax return preparers to use or disclose tax return information without explicit taxpayer consent in certain limited circumstances. A summary of some of these exceptions are outlined below.

Based on our understanding, Revenue Ruling 2010-4 indicates that tax preparers may:

  • Send communications to tax clients to inform them of changes in tax law that could affect the taxpayer’s income tax liability reported in previous tax returns processed by the preparer and to advise on any need to file amended returns or take another course of action.
  • Communicate with tax clients to inform them of changes in rules or regulations and to explain how those changes may affect them as well as to advise on an appropriate course of action.
  • Communicate with tax clients regarding prospective changes in rules or regulations that may affect a current return. For example, sending communications regarding economic stimulus provisions would be allowable.
  • Furnish third-party service providers with names and/or e-mail addresses to contact tax clients for the purposes of creating, publishing, or distributing newsletters or other types of communication pieces containing tax information and general business or economic information and analysis for educational purposes.

Please note that it is our understanding that tax preparers may NOT send communications to tax clients who have specifically requested not to be contacted or who have informed the preparer that they will not be using their services in the next filing season.

Revenue Ruling 2010-5 clarifies rules for dealing with liability insurance carriers, stating that tax preparers may disclose tax clients’ information:

  • If it is required by the insurance carrier in order to obtain coverage.
  • If the information is necessary in order to make an insurance claim.
  • To secure legal representation regarding a liability issue.

I have attempted to outline the main issues addressed in the rule revisions and we will continue to monitor any other activity or release of clarifications or additional information and will certainly pass them on as we become aware of them.  For more information and the specific detail pertaining to the IRS Section 7216 updates that you’ll need to consider for your firm, visit these resources:

In the meantime, please feel free to post any questions or further information or insights you may have to offer us and our readers related to IRS Section 7216.

Kind Regards,

Michelle Baca
www.convergencecoaching.com

 

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2 Responses
  • Kelly Nizzer Bates on February 18, 2010

    Michelle –
    How are firms efficiently obtaining consent to send information without making it an administrative nightmare?
    Do you have clients using electronic opt-in methods? How?
    If so, what about timeframe of consent/opt-in?

    Reply
  • Filling income tax on July 23, 2011

    It is a beautifully written blog and i want to have the blog for the
    Filling income tax. The filling of income tax is very important to make the country finacially strong.

    Reply
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