CPAs Beware: Disclosure or Use of Taxpayer Information Requirements Under IRC Section 7216 by ProQuest


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									                                              T A X A T I O N
                                        compliance & enforcement

CPAs Beware: Disclosure or Use of
Taxpayer Information Requirements
Under IRC Section 7216
By Kandace M. Mauldin, Michael Chiasson, Shawn Mauldin, and Kevin Breaux

       s of January 1, 2009, tax preparers can face up to one            Prior to this revision, no substantial changes had been made
       year in prison and up to $1,000 in fines if found in vio-      to this regulation for more than 30 years to reflect modern tax
       lation of IRC section 7216. This code was originally enact-    return preparation practices. Not only had no changes been
       ed in 1971 as a civil provision, and has recently been         made to the original regulation, but many believe that the regu-
revised to a criminal provision that prohibits tax return preparers   lation had not been followed or enforced like it should have
from knowingly or recklessly: 1) disclosing any information fur-      been during those three decades (Claudia A. Hill, “Don’t Start
nished to him for, or in connection with, the preparation of any      Filing Season Without Checking Out Code Sec. 7216 Updated
such return; or 2) using any such information for any purpose         Rules for Tax Preparers,” Journal of Tax Practice & Procedure,
other than to prepare, or assist in preparing, any such returns.      December 2008–January 2009).

44                                                                                                     JULY 2010 / THE CPA JOURNAL
   The revised regulations for IRC section        first is the term “tax return,” which the reg-    exceptions fall into four categories and are
7216 are applicable to disclosures or uses        ulation defines as “any return (or amend-         discussed below: disclosure or use for the
occurring on or after January 1, 2009, and        ed return) of the income tax imposed by           purpose of preparing the tax return, disclo-
the focus is on the disclosure or use of          chapter 1 or 2 of the Code, or any decla-         sure or use to third parties, disclosure or use
return information and the consents need-         ration (or amended declaration) of esti-          because of legal right or duty, and disclo-
ed from a taxpayer to enable tax prepar-          mated tax made under section 6015”                sure or use for professional duty.
ers to disclose or use this information.          (Treasury Regulations section 301.7216-1).
Disclosures are described as a preparer           A tax return “preparer” is defined as             Preparing the Tax Return
revealing taxpayer information to a third            any person (A) who is engaged in the             There are certain circumstances during
party, and applications of it involve the use        business of preparing tax returns, (B)         the preparation of a tax return when a tax
of return information for the purpose of             who is engaged in the business of pro-         preparer may need to disclose or use tax-
offering nontax services to the taxpayer.            viding auxiliary services in connection        payer information. There are three cir-
The revision of Treasury Regulations                 with the preparation of tax returns, (C)       cumstances in preparing tax returns that do
Subchapter F section 301.7216 broke the              who is remunerated for preparing, or           not require taxpayer consent to disclose
regulation into three subsections. The first         assisting in preparing, a tax return for
subsection is the overall rules and defini-          any other person, or (D) who, as part
tions, the second subsection addresses               of his duties or employment with any
disclosures and uses that do not require             person described in (A), (B), or (C) of
consent, and the third subsection address-           this subdivision, performs services which
es disclosures and uses that require the tax-
payer’s explicit consent.
                                                     assist in the preparation of, or assist in
                                                     providing auxiliary services in connec-
                                                                                                         A tax return preparer cannot
   Because of the severity of the penalties          tion with the preparation of a tax return.”
related to the revisions, tax preparers need
to ensure they are in compliance for any
                                                     (Treasury Regulations section 301.7216-
                                                                                                         disclose or use any taxpayer
returns prepared on or after January 1, 2009.        Examples of who is included in the def-
They also need to ensure that anyone
assisting them in the preparation also com-
                                                  inition of a tax return preparer are those
                                                  who are in the business or hold themselves
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