Introduction
Today, several CPA firms in the U.S. are turning to offshore accounting teams to handle the growing demands of tax season. They are leveraging skilled offshore CPAs, enabling them to scale faster, reduce overhead, and focus on client relationships. However, while the benefits of outsourcing are clear, there are compliance responsibilities that need to be fulfilled. This is because the IRS has strict rules on what must be disclosed in the event of taxpayer data being shared outside the United States.
When firms hire offshore CPA teams, compliance is just as critical as efficiency. KMK helps firms navigate operational efficiencies when it comes to engaging offshore teams. At the same time, we also help firms navigate the compliance requirements that come along with it. This blog explores exactly what CPA firms must disclose to the IRS when they engage offshore teams.
Why Disclosure Matters
The IRS emphasizes that offshore accounting should be entirely transparent. Hiring offshore teams is completely legal. However, this needs to be appropriately disclosed as it can expose firms to penalties and reputational risks when failing to do so. When a disclosure is done, it ensures clients understand where their sensitive financial information is being handled. It also allows the IRS to maintain oversight.
If non-compliance occurs after an offshore CPA hiring, it may not only result in fines but also jeopardize client trust. This is something that no CPA firm wants to encounter and can afford to lose.
IRS Rules on Outsourcing and Offshore Preparers
That said, the IRS allows the use of offshore tax professionals and outsourcing. However, specific consent and disclosure rules must be followed. According to Section 7216 of the Internal Revenue Code, it is a criminal offense for tax return preparers to knowingly or recklessly disclose or use taxpayer information without proper consent.
If Section 7216 is violated, it could result in fines of up to $1,000 per incident and imprisonment for up to one year. Apart from legal penalties, failure to comply can undermine a client’s trust and damage a firm’s reputation.
To remain compliant, CPA firms that hire offshore CPA support must:
- Obtain explicit taxpayer consent before transferring any tax return information outside the U.S.
- Ensure offshore teams work under the same ethical and professional standards outlined in IRS Circular 230.
- Confirm that any preparer who signs a return has a valid Preparer Tax Identification Number (PTIN).
It must be noted that these rules are not meant to discourage outsourcing. They are in place to guarantee accountability, transparency, and protection of taxpayer data when it is shared across borders.
What CPA Firms Must Disclose to the IRS
CPA firms engaging offshore teams need to be precise and proactive in their disclosures. Here are the key elements that CPA firms must disclose to the IRS:
- Taxpayer Consent Forms: Before sharing tax return information offshore, CPA firms must obtain signed, written consent from clients. The consent should explain clearly how and where their data will be used.
- Nature of Offshore Involvement: The IRS expects firms to disclose the scope of their offshore participation, including data entry, return preparation, review, or other support services.
- Jurisdiction of Offshore Teams: CPA firms are not required to list individual offshore employees, but they must disclose the jurisdiction or vendor involved in handling tax data.
- Data Security Measures: The IRS requires firms to demonstrate how taxpayer data is secured. This includes encryption methods, restricted access protocols, and safeguards against unauthorized use.
- PTIN Compliance: Offshore professionals who sign returns must obtain valid PTINs. If they don’t sign returns, firms must still ensure that U.S.-based signers review and take final responsibility.
- Privacy and Compliance Documentation: CPA firms should maintain written records that prove adherence to IRS, FTC, and state data privacy regulations whenever data is shared outside the U.S.
When firms hire offshore CPA firm support, these disclosures build trust and safeguard both the client and the firm.
Risks of Non-Disclosure
The risks of overlooking these requirements are significant:
- Civil Penalties: for failing to obtain taxpayer consent or for unauthorized disclosure of information.
- Loss of IRS E-Filing Privileges: which can disrupt client service.
- Reputational Damage: if clients discover their information was outsourced without their knowledge.
The cost of non-disclosure far outweighs the time and effort needed to ensure compliance.
Best Practices for CPA Firms Working with Offshore Teams
To protect both the firm and its clients, CPA firms should follow these best practices:
- Always secure informed client consent before outsourcing any tax data.
- Draft comprehensive contracts with offshore partners outlining compliance requirements.
- Implement robust data security policies and include them in client-facing disclosures.
- Keep audit-ready records of all disclosures and consent forms.
- Partner only with trusted offshore accounting partner providers who understand IRS compliance and U.S. data privacy laws.
By building these practices into their workflow, firms can confidently scale with offshore teams while minimizing risk.
How KMK Associates Can Help
At KMK Associates, we don’t just help firms hire offshore CPA teams; we ensure the process is safe, transparent, and IRS-compliant. Our role goes beyond staffing support:
- We guide CPA firms on Section 7216 compliance, ensuring that disclosures and consents are appropriately handled.
- We act as your offshore accounting partner, ensuring strict data security and confidentiality measures are followed.
- We provide a framework for drafting contracts, obtaining client consent, and maintaining audit-ready compliance documentation.
- Our offshore staffing for CPA firms is built around efficiency and compliance, so firms can scale confidently without worrying about regulatory risks.
By partnering with KMK Associates, CPA firms can focus on client service while we manage the complexities of compliance and offshore team integration.
Conclusion
Hiring offshore CPA teams has become a strategic advantage for many U.S. accounting firms, offering scalability, cost savings, and access to global expertise. But with that opportunity comes the responsibility to remain transparent with both clients and the IRS. At KMK, we help CPA firms that hire offshore CPA support by acting as a trusted, compliance-driven partner. Whether it’s managing disclosures, maintaining Section 7216 compliance, or ensuring that every data transfer is secure, we provide end-to-end guidance. Still not clear? That’s where KMK Associates comes in. Our team ensures your offshore CPA hired strategy is IRS-compliant, safe, and seamless, because compliance and trust are just as substantial as efficiency.