Rules on use, disclosure of taxpayer information finalized.

• Author: Nevius, Alistair M.

The IRS issued final regulations under Sec. 7216 that govern the circumstances in which tax return preparers can disclose or use certain limited tax return information (T.D. 9608). The regulations finalize with minor changes rules that were issued in 2010 as temporary and proposed regulations (TD. 9478 and REG-131028-09). The final regulations are effective Dec. 28, 2012. The IRS also issued guidance to tax return preparers about the format and content of taxpayer consents to disclose and consents to use tax return information and modified the mandatory language required on each taxpayer consent (Rev. Proc. 2013-14).

Sec. 7216 prohibits a tax return preparer from "knowingly or recklessly" disclosing or using tax return information. A violation could result in a preparer's being charged with a criminal misdemeanor, involving a maximum penalty of $1,000 or one year in prison, or both, plus costs of prosecution. However, Sec. 7216(b) contains exceptions to this general rule and authorizes the IRS to promulgate regulations prescribing additional permitted disclosures or uses.

The rules finalized in T.D. 9608 were generally already in effect because they had been issued as temporary regulations that were effective Jan. 4, 2010. The final regulations retain the provisions in the proposed and temporary regulations that require return preparers to obtain written consent to use taxpayer information for any purpose not expressly allowed in the regulations.

When it issued the temporary regulations, the IRS said they were intended to provide additional flexibility to tax return preparers and to provide benefits to taxpayers without compromising taxpayers' rights to control the use or disclosure of their tax return information. They expanded the information that tax return preparers may use without taxpayer consent and include in lists for soliciting tax return business.

The final regulations clarify that lists used to solicit tax return business may not be used to solicit non--tax return preparation services. One commentator on the proposed regulations asked that the list of acceptable purposes be expanded to include accounting services, but the IRS did not adopt this comment in the final regulations because accounting services are not specifically excepted in Sec. 7216(b).

Another commentator asked the IRS to clarify whether articles could be included in a newsletter that addresses several topics that do not constitute tax return preparation services or whether this runs afoul of the requirement that "The list may not be used to solicit any service or product other than tax return preparation services" (Regs. Sec. 301.7216-2(n)). The IRS noted, in the preamble to the final regulations, that a tax return preparer may, without taxpayer consent, compile a list of specified taxpayer information that can be used to contact taxpayers on the list to provide tax information and general business or economic information or analysis "for educational purposes." The IRS also said that the regulations do not attempt to describe every scenario that may constitute permissible (or prohibited) use of a list, and that return preparers must "carefully consider, on a case-by-case basis, the specific content of a particular newsletter article to ensure that the content meets the requirements of [section]301.7216-2(n)."

Solicitation of Tax Return Business

Under Regs. Sec. 301.7216-2(n), return preparers may compile and maintain a list of their clients' names, addresses, email addresses, and phone numbers for the sole purpose of offering tax information or additional tax return preparation services to those taxpayers. The temporary regulations expanded...