13 Oct 2019

The Confidentiality of a Client’s Tax Return Information

Internal Revenue Code (IRC) section 7216 and its lengthy regulations govern when a tax return preparer may disclose or use a taxpayer’s tax return information without first obtaining the taxpayer’s consent. Because it is a federal crime to violate section 7216 and its regulations, CPAs should familiarize themselves with these provisions. This column discusses when tax return preparers are permitted to disclose or use tax return information without first obtaining the taxpayer’s consent. A future column will discuss the requirements for obtaining consent when it is necessary.

The Statutory and Regulatory Scheme

IRC section 7216 and its regulations are set up as a blanket prohibition on a preparer’s disclosure or use of a taxpayer’s return information without the taxpayer’s prior consent. Treasury Regulations section 301.7216-2, however, provides for numerous exceptions to this rule. For disclosures or uses not permitted thereunder, IRC section 7216 makes it a crime for a tax return preparer to knowingly or recklessly—

  • disclose any information furnished to the tax return preparer in connection with preparing a client’s tax return, or
  • use tax return information other than to prepare or assist in preparing a client’s tax return.

Civil monetary penalties may be imposed under IRC section 6713. Willful unauthorized disclosure of tax return information may also subject a preparer to discipline under Treasury Department Circular 230 or subject a CPA to discipline by the AICPA.

Who is a tax return preparer?

Section 7216 broadly defines a tax return preparer as any person who is engaged in the business of preparing or assisting in preparing tax returns, who is employed by such person, or who provides auxiliary services in connection with the preparation of tax returns, such as an e-file provider [Treasury Regulations section 301.7216-1(b)(2)].