New regs. govern overseas disclosure and use of taxpayer information.

• Author: Jamouneau, Greg

Sec. 7216 and the regulations thereunder were promulgated to set guidelines and impose restrictions on the use and disclosure of taxpayer information by tax return preparers. The rules were designed to protect taxpayers from having tax return information that is furnished to preparers disclosed and used in a manner that the taxpayer would not ordinarily authorize or contemplate. Sec. 7216(a) imposes significant penalties, including fines and/or imprisonment, for situations in which such information is disclosed knowingly or recklessly (subject to the many exceptions contained in the regulations) or is used for an improper purpose by return preparers. A civil penalty for improper disclosure of tax return information is contained in Sec. 6713.

The IRS issued final regulations under Sec. 7216 that were effective on January 1, 2009 (T.D. 9375). The purpose of these regulations is to update the existing rules to address current tax industry practices, such as electronic preparation and filing, expanded tax and nontax service offerings, and resource sharing across national borders.

Tax preparers who offer international tax services may be part of a multinational firm or a U.S. firm with overseas affiliates; they may provide services to expatriates or clients with international operations; or they may outsource tax return preparation services performed for U.S. clients to take advantage of cost savings. Regardless of how the preparer's firm is structured or how work is divided among jurisdictions, the new Sec. 7216 regulations are likely to affect preparers who operate internationally because they contain new requirements related to cross-border information sharing. Such preparers will have to reevaluate firm procedures and protocols in light of the new regulations.

Consent to Disclose Information Outside the United States

Regs. Sec. 301.7216-2(c)(2) requires a preparer to obtain taxpayer consent before disclosing any of the taxpayer's tax return information to another preparer located outside the United States, regardless of whether the preparers are related parties. In all cases, the consent must be knowing and voluntary, obtained prior to any disclosure, and signed and dated by the taxpayer. The term "tax return information" is defined in Regs. Sec. 301.7216-1(b)(3) and has been expanded to include items such as statistical compilations, IRS communications, and amounts generated (e.g., credits or deductions) based on information provided by the...