Tax Return Preparers and Section 7216

Internal Revenue Code Section 7216 provides for criminal prosecution in certain situations. It was enacted by the U.S. Congress in 1971 and prohibits preparers of tax returns from knowingly or recklessly disclosing or using tax return information. Treas. Reg. §301.7216 had been substantially unchanged for over 30 years and did not address the modern return preparation marketplace, particularly electronic filing and the cross-marketing of financial and commercial products and services during the return preparation experience. After a long process that included many public suggestions and comments, updated regulations were published and apply to uses and disclosures beginning on January 1, 2009.

In general, Section 7216(a) imposes criminal penalties on tax return preparers who knowingly or recklessly make unauthorized disclosures or uses of information furnished in connection with the preparation of an income tax return. A violation of Section 7216 is a misdemeanor, with a maximum penalty of up to one year imprisonment or a fine of not more than $1,000, or both, together with the costs of prosecution.

Recently revised Treasury Regulations, Treas. Reg. §301.7216, and recently enacted Revenue Procedure 2008-35 provide guidance for tax return preparers. Revenue Procedure 2008-35 supplements the regulations, in particular Treas. Reg. Section 301.7216-3, and provides specific form and content guidance to tax return preparers for obtaining consents to disclose and consents to use taxpayer data in both the paper and electronic environments. Generally, tax preparers must obtain the signed consent of the taxpayer on paper or electronically before they can disclose taxpayer return information to anyone or use it for any purpose other than in the context of preparing and filing the return. Separate consents are required for disclosure and use of tax return information. Consents must contain certain items.

Prior to use of any tax return information, tax return preparers should carefully review the requirements for use of such information.