Cameron Miranda
The Internal Revenue Code (IRC) section 7216 prohibits tax return preparers from knowingly or recklessly disclosing or using tax return information without the taxpayer's consent. This is because tax returns contain sensitive information, and federal law requires the Internal Revenue Service (IRS) to keep any information in them confidential. Violating section 7216 is a federal crime and can result in criminal misdemeanor charges, with penalties of up to $1,000 or one year in prison, or both, plus the costs of prosecution. Additionally, victims of unlawful disclosure can sue for damages of $1,000 or more for each act.
| Characteristics | Values |
|---|---|
| Definition of violation | "Knowingly or recklessly" disclosing or using tax return information without prior consent |
| Applicable laws | IRC Section 7216, Treasury Regulations Section 301.7216-2, Gramm-Leach-Bliley Act, AICPA Rule Interpretation 1.700.060 |
| Penalties | Criminal misdemeanor, $1,000 fine or one year in prison, civil penalty of $250 per unauthorized action up to $10,000 per year, fines up to $250,000, disciplinary measures, loss of job for federal employees |
| Exceptions | Disclosure to another preparer in the US for non-substantive services, disclosure for payment processing, disclosure for quality reviews, disclosure to report a crime, disclosure to state tax agencies, court-ordered disclosure to law enforcement, limited disclosure for official tax investigations, disclosure to Social Security Administration for tax liability |
| Taxpayer rights | Taxpayers can authorize third-party access to their information, can disclose their own tax information |
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What You'll Learn
Disclosure without taxpayer consent
Tax return preparers are generally prohibited from disclosing or using a taxpayer's information without their consent. This is to protect the taxpayer's privacy and ensure that their information is not misused. Obtaining consent is crucial, and it must be done in a knowing and voluntary manner. Written consent is often required, and the taxpayer must understand what they are consenting to. Consent can be given for the entire return or just specific portions, and it can be revoked at any time.
There are, however, certain exceptions to the rule. For instance, tax return preparers are allowed to disclose information without consent for specific purposes, such as payment processing, reporting criminal activities, audits, or sharing with authorized IRS e-file providers. Additionally, disclosures to other tax preparers within the United States for non-substantive purposes, such as preparing or assisting with returns, are permitted without consent. Disclosures to other members of the same firm for legal or accounting services are also allowed.
Despite these exceptions, tax preparers must exercise caution and adhere to strict guidelines. Violating disclosure laws can result in significant penalties, including civil and criminal charges, fines, and even imprisonment. Thus, it is essential for tax preparers to understand their obligations and only disclose information when permitted by law or with the explicit consent of the taxpayer.
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Disclosure to a third party
Tax return preparers are permitted to disclose tax return information to another officer, employee or member of the same firm for the purpose of providing other legal services to the taxpayer. For example, an accountant who prepares a tax return for a taxpayer may disclose information to another accountant in the firm for use in connection with the preparation of accounting statements or reports for the taxpayer.
In the normal course of rendering legal or accounting services to the taxpayer, the attorney or accountant may make the tax return information available to third parties, including stockholders, management, suppliers, or lenders, consistent with the applicable legal and ethical responsibilities, unless the taxpayer directs otherwise.
A tax return preparer may also disclose tax return information without the taxpayer's written consent to the extent necessary to process or collect payment for tax preparation services. For example, if the taxpayer provides their credit card information to pay for tax preparation services, the tax return preparer may disclose the taxpayer's name, credit card number, credit card expiration date, and amount due to the credit card company to process the payment.
Additionally, a tax return preparer may, without taxpayer consent, disclose tax return information to another tax return preparer not in their firm and located within the United States for use in preparing or assisting in preparing a return, as long as the services provided do not involve substantive determinations or advice affecting the taxpayer's tax liability.
In some cases, the Internal Revenue Service (IRS) may disclose tax return information to third parties. IRC Section 6103 generally prohibits the release of tax information by an IRS employee. However, there are exceptions to this rule. For example, IRC Section 6103(d) allows return information to be shared with state agencies responsible for tax administration upon their written request. IRC Section 6103(i)(1) provides that tax information may be shared with law enforcement agencies for the investigation and prosecution of non-tax criminal laws pursuant to a court order. The IRS may also make limited disclosures to third parties in the course of official tax administration investigations if necessary to obtain information that is not otherwise reasonably available.
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Disclosure outside the US
Disclosure of tax information outside the US is a highly regulated area, with stringent rules in place. In general, a tax return preparer located within the United States may not disclose tax return information to another preparer located outside the country without the express consent of the taxpayer. This is in line with the general rule that taxpayers control their tax information.
There are some exceptions to this rule. For example, if a taxpayer initially provides tax return information to a preparer outside the US, that information may be disclosed to or used by other members of that firm without specific consent, for the purpose of assisting with the preparation of the taxpayer's return. Additionally, a preparer within the US may disclose a taxpayer's SSN to a preparer outside the US if the taxpayer has provided consent and certain data security requirements are met.
The disclosure of tax information to a preparer outside the US is subject to strict regulations and consent requirements. For instance, the consent document must specify the duration of the taxpayer's consent, and the taxpayer must provide written consent before any disclosure or use of their information. Furthermore, a tax return preparer located within the US may not disclose a taxpayer's SSN to a preparer outside the country if the taxpayer is filing a return in the Form 1040 Series, even with the taxpayer's consent.
Violations of these regulations can result in serious consequences, including criminal penalties, fines, and disciplinary measures. It is important for tax return preparers to be familiar with these provisions to ensure compliance and avoid legal repercussions.
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Disclosure to report a crime
Disclosure laws are in place to protect taxpayers' information from being disclosed to other parties without their consent. However, there are certain exceptions to these laws, including when disclosure is necessary to report a crime.
In the case of reporting a crime, certain provisions of the law do not apply. For instance, Section 7216(a) and § 301.7216-1 do not apply to the disclosure of tax return information to the relevant federal, state, or local official when necessary to inform them of activities that may constitute a violation of criminal law or to assist in investigating or prosecuting a violation of criminal law. This means that tax return preparers are allowed to disclose information to the proper authorities when reporting a crime, even without the taxpayer's consent.
If a tax return preparer suspects that another tax return preparer is committing fraud or misconduct, they can file a complaint with the IRS using Form 14157-A, Tax Return Preparer Fraud or Misconduct Affidavit. This form should be submitted with any supporting documentation, and the IRS will investigate the complaint. Additionally, if a tax return preparer suspects that an individual or business is not complying with tax laws or has committed tax fraud, they can report this to the IRS using Form 3949-A, Information Referral.
It is important to note that tax return preparers must be cautious when disclosing taxpayer information, even when reporting a crime. They should only disclose the necessary information to the relevant authorities and must ensure that the disclosure is made in good faith. Violating disclosure laws can result in serious consequences, including criminal charges and civil penalties.
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Disclosure for payment
Disclosure laws are in place to protect taxpayers' information from being shared with other parties without their consent. The Internal Revenue Code (IRC) and Internal Revenue Service (IRS) have strict rules in this regard. The IRS is prohibited from sharing taxpayer information, except in specific circumstances, such as with state agencies responsible for tax administration, law enforcement agencies for non-tax criminal investigations, and other federal agencies for specific purposes.
Tax return preparers are generally prohibited from disclosing or using taxpayer information without prior consent. However, there are exceptions to this rule, including disclosures for payment. A tax return preparer may disclose taxpayer information, without consent, to the extent necessary to process or collect payment for their services. For example, if a taxpayer provides their credit card details to pay for tax preparation services, the tax return preparer may disclose the taxpayer's name, credit card number, expiration date, and amount due to the credit card company to process the payment.
Additionally, under the attorney-accountant rule, a tax return preparer who is also a lawyer or accountant may disclose taxpayer information to another member of their firm to provide legal or accounting services to the taxpayer. This includes sharing information with third parties, such as stockholders, management, suppliers, or lenders, provided it aligns with legal and ethical responsibilities and the taxpayer has not directed otherwise.
It is important to note that these disclosure laws are not limited to the IRS and tax return preparers. Taxpayers themselves are also subject to these laws. If a taxpayer discloses their tax information to others, many confidentiality rules no longer apply, and they may be restricted from certain actions. For instance, the IRS cannot comment on anything voluntarily disclosed by a taxpayer. However, taxpayers can authorize the IRS to disclose their tax records to a third party by providing written authorization or designating a third-party designee on their return.
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Frequently asked questions
A violation of disclosure laws for tax preparers occurs when they disclose or use a taxpayer's tax return information without first obtaining the taxpayer's consent.
"Tax return information" includes any information related to a taxpayer's tax liability, tax payments, and efforts to collect unpaid taxes. It also includes the fact of whether or not an individual has filed a tax return.
Consent from the taxpayer is not required when:
- The disclosure is made to another tax return preparer within the United States for use in preparing or assisting in preparing a return, as long as it does not involve substantive determinations or advice affecting the taxpayer's tax liability.
- The disclosure is made to another officer, employee, or member of the same firm for the purpose of providing legal or accounting services to the taxpayer.
- The disclosure is necessary for payment for tax preparation services.
- The disclosure is made to conduct quality, peer, or conflict reviews.
- The disclosure is made to report the commission of a crime.
Violations of disclosure laws can result in criminal and civil penalties, including fines, imprisonment, and disciplinary measures. Violators can be charged with a criminal misdemeanor, with a maximum penalty of $1,000 or one year in prison, or both. Under civil penalty provisions, each unauthorized disclosure can result in a fine of $250, up to a limit of $10,000 per calendar year. Victims of unlawful disclosure can also sue for damages of $1,000 or more for each act.
Tax information can be disclosed to certain parties without the taxpayer's consent, including:
- State agencies responsible for tax administration, with a written request signed by an authorized official.
- Law enforcement agencies pursuant to a court order for the investigation and prosecution of non-tax criminal laws.
- Third parties by the IRS during official tax administration investigations if necessary to obtain information that is not otherwise reasonably available.
- The Social Security Administration and other specified federal agencies as needed.
