As of Jan 1, 2009, tax preparers can face up to one year in prison and up to $1,000 in fines if found in violation of IRC section 7216. This code was originally enacted in 1971 as a civil provision, and has recently been revised to a criminal provision that prohibits tax return preparers from knowingly or recklessly: disclosing any information furnished to him for, or in connection with, the preparation of any such return; or using any such information for any purpose other than to prepare, or assist in preparing, any such returns. The revised regulations for IRC section 7216 are applicable to disclosures or uses occurring on or after Jan 1, 2009, and the focus is on the disclosure or use of return information and the consents needed from a taxpayer to enable tax preparers to disclose or use this information.
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 A 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- 1[b]) 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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