Final IRS regulations protect confidentiality of taxpayer return information

Maintaining the confidentiality of taxpayer return information is imperative. Recently, the IRS issued final regulations (T.D. 9375) governing the disclosure and use of taxpayer return information by return preparers. The rules also enhance the requirements for obtaining a taxpayer’s consent to the disclosure or use of return information.

Background

Since 1974, tax preparers have had the power to disclose taxpayer return information to third parties and to use the information for non-return preparation purposes if the taxpayer consents to the use or disclosure. Preparers face criminal penalties under Code Sec. 7216 if they knowingly or recklessly make unauthorized disclosures or use of your return information. The final rules reinforce that taxpayers, and not the IRS, control the tax return information held by their tax preparers.

Final regulations

Under the final rules:

• Preparers may not disclose a taxpayer’s return information without obtaining prior consent unless there is an authorized exception.
• Preparers who knowingly or recklessly disclose or use tax return information for a purpose other than preparing a tax return risk substantial penalties. All information given to register tax return preparation software is considered “tax return information.”
• A return preparer within the U.S. cannot disclose to a foreign preparer (a preparer outside of the U.S.) the taxpayer’s Social Security number (SSN) even with the taxpayer’s consent. The taxpayer must directly give the foreign preparer his or her SSN.
• For the first time, return preparers are required to use mandatory, IRS-approved language on consent forms.
• Preparers can obtain consent through engagement letters, but the form and content of such engagement letters must comply with IRS requirements, which are different for consents to disclose and consents to use tax return information.
• A taxpayer may specify the duration of the taxpayer’s consent to disclose or use return information. If a time limit is not set, the consent expires after one year.

If you have questions or concerns about giving your consent to disclose or use the information on your tax return to a return preparer, or how preparers can use your information, our office can answer your questions and address your concerns.