New regulations contained in Internal Revenue Code Section 7216, Disclosure or Use of Tax Information by Preparers of Returns, effective at the beginning of the year, are designed to protect taxpayer confidential information from being given to third parties for purposes other than that of tax return preparation. The new regulations limit tax return preparers’ use or disclosure of taxpayer data (both financial and contact information) for purposes other than tax return preparation without the knowledge of the taxpayer. The taxpayer must give informed written consent to the tax return preparer for any other purposes beyond the scope of tax return preparation. Separate consents for both disclosure and use from the taxpayer are required.

Disclosure of client tax return information is prohibited except for instances in which the tax return preparer must disclose the information to a tax return processor; participate in a peer review or must comply with applicable federal, state or local laws. The new rules apply to anyone who assists in the preparation of a taxpayer return, including administrative assistants, subcontractors, etc. For purposes of the regulation, tax return information includes taxpayer basic contact information, financial information, information received from third-parties—such as a bank, insurance company, broker, etc.—in other words, any information used in preparation of the tax return. Correspondence and other supplied documentation from the taxpayer and/or third parties is included in the information protected under the new regulation.

The separate consents for both disclosure and use (other than tax return preparation) of the taxpayer information must be obtained by the tax return preparer. The consents must identify, among other things, the intended purpose and recipient(s) of the information. The taxpayer must sign and date the consent. The consents must also note that signing the form is not a requirement and that, if the taxpayer decides to consent, a time limitation can be set for the consent (otherwise, the consent is considered effective for one year from the date signed). Other required language in the consents should refer the taxpayer to the Treasury Inspector General for Tax Administration if the taxpayer believes his or her information provided for tax return preparation has been disclosed or used improperly.

For further information regarding the provisions of Section 7216, please refer to Treasury Regulation §301.7216, and Revenue Procedure 2008-35. Additionally, the IRS website provides a Frequently Asked Questions page regarding Section 7216 issues.