[Federal Register Volume 70, Number 235 (Thursday, December 8, 2005)]
[Proposed Rules]
[Pages 72954-72964]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E5-7018]
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DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Part 301
[REG-137243-02]
RIN-1545-BA96
Guidance Necessary To Facilitate Electronic Tax Administration--
Updating of Section 7216 Regulations
AGENCY: Internal Revenue Service (IRS), Treasury.
ACTION: Notice of proposed rulemaking.
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SUMMARY: This document contains proposed regulations to update the
rules regarding the disclosure and use of tax return information by tax
return preparers. The proposed regulations announce new and additional
rules for taxpayers to consent electronically to the disclosure or use
of their tax return information by tax return preparers. The proposed
rules provide guidelines for tax return preparers using or disclosing
information obtained in the process of preparing income tax returns.
DATES: Written or electronically generated comments must be received by
March 8, 2006. Outlines of topics to be discussed at the public hearing
scheduled for April 4, 2006, in the Auditorium of the Internal Revenue
Building at 1111 Constitution Avenue, NW., Washington, DC 20224, must
be received by March 14, 2006.
ADDRESSES: Send submissions to: CC:PA:LPD:PR (REG-137243-02), room
5203, Internal Revenue Service, PO Box 7604, Ben Franklin Station,
Washington, DC 20044. Submissions may be hand-delivered Monday through
Friday between the hours of 8 a.m. and 4 p.m. to CC:PA:LPD:PR (REG-
137243-02), Courier's Desk, Internal Revenue Service, 1111 Constitution
Avenue, NW., Washington, DC, or sent electronically, via the IRS
Internet site at http://www.irs.gov/regs or via the Federal eRulemaking
Portal at http://www.regulations.gov (IRS-REG-137243-02). The public
hearing will be held in the IRS Auditorium, Internal Revenue Building,
1111 Constitution Avenue, NW., Washington, DC.
FOR FURTHER INFORMATION CONTACT: Concerning the proposed regulations,
Dillon Taylor, at (202) 622-4940; concerning submissions of comments,
LaNita Van Dyke of the Publications and Regulations Branch at (202)
622-7180 (not toll-free numbers).
SUPPLEMENTARY INFORMATION:
Background
This document contains proposed amendments to the Regulations on
Procedure and Administration (26 CFR Part 301) under section 7216 of
the Internal Revenue Code (Code). Section 7216 imposes criminal
penalties on tax return preparers who make unauthorized disclosures or
uses of information furnished to them in connection with the
preparation of an income tax return. In addition, tax return preparers
are subject to civil penalties under section 6713 for disclosure or use
of this information unless an exception under the rules of section
7216(b) applies to the disclosure or use.
Section 7216 was enacted by section 316 of the Revenue Act of 1971,
Public Law 92-178 (85 Stat. 529, 1971). In 1988, Congress modified the
section by limiting the criminal sanction to knowing or reckless
unauthorized disclosures. Public Law 100-647, (102 Stat. 3749, 1988).
At the same time, Congress enacted the civil penalty that is now found
in section 6713. Public Law 100-647, section 6242(a) (102 Stat. 3759,
1988). In 1989, Congress further modified section 7216, directing the
Treasury Department to issue regulations permitting disclosures of tax
return information for quality or peer reviews. Public Law 101-239,
7739(a) (102 Stat. 3759, 1989).
The Treasury Department and the IRS proposed regulations under
section 7216 on December 20, 1972 (37 FR 28070). Final regulations were
issued on March 29, 1974 (39 FR 11537). These regulations are divided
into three parts: Section 301.7216-1 for general provisions and
definitions; Section 301.7216-2 for disclosures and uses that do not
require formal taxpayer consent; and section 301.7216-3 for disclosures
and uses that require formal taxpayer consent. Since the regulations
were adopted in 1974, the Treasury Department and the IRS have amended
Sec. 301.7216-2 on occasion, but Sec. Sec. 301.7216-1 and 301.7216-3
have remained unchanged.
The current regulations were written in a paper filing era. They do
not address current common industry practices, such as electronic
preparation or filing of tax returns. The regulations are silent on
taxpayers' consent to the disclosure or use of tax return information
in an electronic environment. The proposed regulations address these
issues.
The proposed regulations also contain other modifications to
reflect the principle that taxpayers may provide knowing, informed, and
voluntary consent to a tax return preparer's use of tax return
information for purposes other than tax return preparation. While the
ability of a tax return preparer to solicit consent from a taxpayer
remains limited under certain circumstances, such as when the taxpayer
has already rejected a substantially similar request for consent, these
regulations allow a tax return preparer to solicit a taxpayer's consent
to use tax return information under certain circumstances that the
existing regulations currently prohibit. For example, these proposed
regulations allow tax return preparers to obtain consents to use tax
return information for solicitation of services or facilities furnished
by any person rather than limiting solicitations to the services or
facilities offered by the tax return preparer or member of the tax
return preparer's ``affiliated group.''
[[Page 72955]]
Concurrently, with publication of these proposed regulations, the
IRS is publishing a notice containing a proposed revenue procedure that
would provide guidance to tax return preparers on the format and
content of consents to disclose and consents to use tax return
information under Sec. 301.7216-3. The proposed revenue procedure
would also provide specific guidance for electronic signatures when a
taxpayer executes an electronic consent to the disclosure or use of the
taxpayer's tax return information.
Explanation of Provisions
1. Section 301.7216-1 Penalty for Disclosure or Use of Tax Return
Information
The regulations revise and clarify several definitions and clarify
the scope of the rules. For example, section 7216, rather than section
7701(a)(36) (defining income tax return preparer) or the privacy
provisions of Title V of the Gramm-Leach-Bliley Act, Public Law 106-
102, (113 Stat. 1338, GLBA), governs the disclosure and use of tax
return information by tax return preparers. The GLBA governs the use
and disclosure of customer information by financial institutions. Any
requirements of the GLBA that may be applicable to tax return preparers
do not supersede, alter, or affect the requirements of section 7216 and
Sec. Sec. 301.7216-1 through 301.7216-3. Similarly, the requirements
of section 7216 and Sec. Sec. 301.7216-1 through 301.7216-3 do not
nullify any requirements or restrictions of the GLBA, which are in
addition to the requirements or restrictions of section 7216 and
Sec. Sec. 301.7216-1 through 301.7216-3.
A. Tax Return Preparer
The definition of tax return preparer is revised to distinguish it
from the definition of income tax return preparer in section
7701(a)(36); tax return preparers subject to section 7216 include a
broader group of persons than income tax return preparers defined in
section 7701(a)(36). Some persons who are excluded from the definition
of an income tax return preparer under section 7701(a)(36), for
example, persons providing secretarial services, are tax return
preparers under section 7216, as defined by Sec. 301.7216-1(b)(2).
Some of the examples and exclusions have been revised to address common
scenarios.
B. Tax Return Information
The revised definition of tax return information clarifies that the
term encompasses a broader range of information than what taxpayers
literally furnish to a tax return preparer. The taxpayer's entitlement
to a refund and the amount of the refund are both tax return
information. Similarly, information the IRS furnishes a tax return
preparer with respect to the processing of a return, including the
acknowledgment of acceptance of an electronically-filed return, is tax
return information, even though the taxpayer does not communicate that
information to the tax return preparer.
C. Use and Disclosure
The proposed regulations add a definition of the term ``use'' to
clarify application of that term in the context of electronic
preparation and filing. The proposed regulations add a definition of
``disclosure'' to clarify that the term should be broadly construed.
The proposed regulations provide that to the extent that a taxpayer's
use of a hyperlink results in the transmission of tax return
information, that transmission of tax return information is a
disclosure.
2. Section 301.7216-2 Permissible Disclosures or Uses Without Consent
of the Taxpayer
Proposed Sec. 301.7216-2 provides exceptions to the general rule
of section 7216(a) that imposes criminal penalties on tax return
preparers who make unauthorized disclosures or uses of tax return
information. A tax return preparer may disclose or use tax return
information as Sec. 301.7216-2 permits without obtaining consent from
a taxpayer. A number of subsections dealing with disclosures or uses
without consent are proposed in substantially their current form. Some
subsections are renumbered to achieve a more logical ordering, and some
subsections have been proposed with minor changes to the current
language to refine the rules or promote clarity. Some subsections
addressing disclosures between tax return preparers have been changed
to reflect new rules.
A. Proposed Changes to Specifically Account for Technological, Legal,
and Other Developments
(1) Proposed Sec. 301.7216-2(b) provides that disclosures to the
IRS that will facilitate electronic tax administration are authorized
without the taxpayer's prior written consent. Disclosures that will
facilitate electronic tax administration include IRS requests for tax
return information to investigate compliance with electronic filing
rules or to evaluate the effectiveness of electronic filing programs.
(2) Proposed Sec. 301.7216-2(d) expands current Sec. 301.7216-
2(h), which authorizes disclosures to tax return preparers who process
tax return information. The proposed regulations provide that
disclosures between tax return preparers are authorized when the
disclosures (i) assist in the preparation of a return, (ii) as long as
the services provided by the recipient of the disclosure are not
substantive determinations or advice affecting a taxpayer's reported
tax liability; and (iii) as long as the disclosure is to a tax return
preparer located in the United States. The proposed regulations clarify
that disclosures to other tax return preparers for substantive
determinations or advice require the taxpayer's prior written consent.
The proposed regulations also provide that tax return preparers'
disclosures to other tax return preparers located outside of the United
States require the taxpayer's prior written consent. The written
consent for disclosure of tax return information outside of the United
States is needed because it is difficult for the Secretary to pursue a
criminal action under section 7216 against a tax return preparer
located outside of the United States or to collect a civil penalty
assessed under section 6713 from a tax return preparer located outside
the United States. Proposed Sec. 301.7216-2(d) also provides that a
tax return preparer may disclose tax return information to contractors
performing certain auxiliary services in connection with tax return
preparation. For the disclosure to fall within this exception, the tax
return preparer must present the individuals receiving the disclosure
with a written notice informing them that section 7216 applies to them
and describes the requirements and penalties of section 7216.
Contractors to whom disclosures are made pursuant to this provision are
tax return preparers pursuant to Sec. 301.7216-1(b)(2)(i)(D).
(3) Proposed Sec. 301.7216-2(f) amends current Sec. 301.7216-
2(c), regarding disclosures pursuant to an order of a court or an
administrative order, demand, summons or subpoena issued by a Federal
or State agency, by also authorizing disclosures made pursuant to a
subpoena issued by the United States Congress. In addition, the IRS is
aware that most state accountancy boards work in conjunction with the
American Institute of Certified Public Accountants' (AICPA)
Professional Ethics Executive Committee, and state and local bar
associations to investigate potential ethical violations by certified
public accountants who are members of the AICPA. The proposed amendment
[[Page 72956]]
authorizes disclosures to the AICPA made pursuant to an ethics
violation investigation of the tax return preparer. The proposed
amendment authorizes disclosures made pursuant to a formal demand from
the Public Company Accounting Oversight Board.
(4) Proposed Sec. 301.7216-2(g), governing disclosures for use in
Treasury investigations or court proceedings, amends current Sec.
301.7216-2(d), which limits disclosures to IRS investigations and court
proceedings. This change is necessary because a function within the
Treasury Department, but outside of the IRS, may handle some
investigations that will require a disclosure of tax return
information. Disclosures are also authorized to officers of a court in
court proceedings in which a taxpayer-client of a return preparer is a
party. The proposed regulations clarify that the tax return preparer
need not be a party to a court proceeding for a disclosure to be
authorized under this section.
(5) Proposed Sec. 301.7216-2(k) expands the current provision in
Sec. 301.7216-2(k) governing the preparation or audit of State or
local tax returns to allow the use of tax return information to assist
in the preparation of any tax return of the taxpayer under the law of a
country other than the United States. Disclosures are also expanded to
allow for the preparation of tax returns under the law of another
country to the same extent that disclosures are allowed for the
preparation and filing of a Federal tax return.
(6) Proposed Sec. 301.7216-2(o) addresses the use of tax return
information to prepare statistical compilations and the use of the
statistical compilations themselves. Rev. Rul. 79-114 (1979-1 C.B.
441), holds that the current regulations prohibit a tax return
preparer's use of tax return information to prepare anonymous
statistical compilations unless the affected taxpayers individually
consent. Section 301.7216-2(o) will obsolete Rev. Rul. 79-114. Section
301.7216-2(o) will permit the use of tax return information to prepare
anonymous statistical compilations for limited purposes related to
management or support of the tax return preparer's business. The tax
return information will remain protected from any other use and
disclosure outside the limited purposes of this proposed section.
B. Other Changes to Existing Provisions
(1) Proposed Sec. 301.7216-2(h) amends current Sec. 301.7216-
2(e), which authorizes attorneys and accountants to disclose tax return
information to third parties in the normal course of rendering legal or
accounting services if the taxpayer expressly or impliedly consents to
the disclosure. The proposed regulations remove the requirement that
the taxpayer's express or implied consent is necessary before these
types of disclosures can be made because implied consent would exist in
virtually every situation when an attorney or accountant is required to
disclose tax return information to a third party in the normal course
of providing legal or accounting services to a taxpayer. The proposed
regulations provide that these disclosures are authorized unless the
taxpayer directs otherwise.
(2) Proposed Sec. 301.7216-2(i) amends current Sec. 301.7216-
2(f), which provides that corporate fiduciaries are authorized to
disclose tax return information to a taxpayer's attorney, accountant,
or investment advisor only with the taxpayer's express or implied
consent. As with disclosures made by attorneys and accountants, a
taxpayer will generally give implied consent to disclosures by
corporate fiduciaries to a taxpayer's attorney, accountant, or
investment advisor. The proposed regulations remove the express or
implied consent requirement, and provide instead that disclosures are
authorized unless the taxpayer directs otherwise.
(3) Proposed Sec. 301.7216-2(c) amends current Sec. 301.7216-
2(i), regarding disclosures by an officer, employee, or member of a tax
return preparer to another officer, employee, or member of the same tax
return preparer to perform services that assist in the preparation of,
or assist in providing auxiliary services in connection with the
preparation of, the tax return of a taxpayer. The proposed regulations
provide that these disclosures or uses are authorized without the
taxpayer's written consent only if the officer, employee, or member to
whom the information is disclosed is located within the United States.
The written consent for disclosure of tax return information outside of
the United States is needed because it is difficult for the Secretary
to pursue a criminal action under section 7216 against a tax return
preparer located outside of the United States or to collect a civil
penalty assessed under section 6713 from a tax return preparer located
outside the United States. Therefore, a taxpayer's written consent is
required before a tax return preparer can disclose a taxpayer's tax
return information to another tax return preparer located outside of
the United States.
(4) Proposed Sec. 301.7216-2(q) amends current Sec. 301.7216-
2(n), regarding disclosures to report the commission of a crime, by
clarifying that penalties for disclosure shall not apply to disclosures
necessary to report a crime, nor to any disclosures necessary for the
investigation and prosecution of the crime.
3. Proposed Sec. 301.7216-3: Disclosures and Uses Authorized by
Taxpayer Consent
Significant revisions are proposed under Sec. 301.7216-3 to
address a number of issues concerning the application of these rules in
the context of electronic return preparation and filing. The Treasury
Department and the IRS propose these amendments to protect taxpayers'
tax return information, and to ensure that taxpayers are fully informed
when providing consent to disclose or use tax return information.
A. Restrictions Regarding the Offering of Certain Services
The current regulations restrict use of tax return information for
the solicitation of services or facilities in matters not related to
the IRS to those ``currently offered'' by the tax return preparer or
members of the tax return preparer's ``affiliated group,'' within the
meaning of section 1504. Because taxpayers must consent to any use or
disclosure connected with the solicitation, taxpayer privacy interests
are adequately protected regardless of whether a service is currently
offered or whether a business offering a service to the taxpayer is a
member of a tax return preparer's affiliated group. The currently-
offered and affiliated-group rules restrict the ability of taxpayers to
control and direct the use of their own tax return information as they
see fit. The proposed regulations adopt an approach that ensures
taxpayers are provided with a meaningful opportunity to consent to the
use and disclosure of their tax return information. Accordingly, the
proposed rules revoke the affiliated-group and currently-offered
restrictions.
The current regulations do not place limits on tax return
preparers' ability to obtain consents to use tax return information to
solicit business in matters related to the IRS. The proposed
regulations remove the distinction between matters related to the IRS
and matters not related to the IRS, and thereby make uniform the
requirements regarding consents to use tax return information to
solicit business.
B. Form of Consent
The proposed regulations provide that the IRS may provide guidance,
by revenue procedure, on the form and content of a taxpayer's consent.
The
[[Page 72957]]
proposed regulations also allow a taxpayer to use a single document to
consent to multiple uses of their tax return information, or use a
single document to consent to multiple disclosures of their tax return
information, provided certain requirements are met. Although the
proposed regulations permit a single document to authorize multiple
uses or multiple disclosures, the taxpayer must affirm separately each
use or disclosure within the single document. In addition, because the
Treasury Department and the IRS believe taxpayers should be alerted to
the significant difference between consenting to disclosures to third
parties and consenting to uses of tax return information by their tax
return preparers, the proposed regulations provide that a single
document cannot authorize both uses and disclosures; rather, one
document must authorize uses and another separate document must
authorize disclosures.
Proposed Effective Date
These regulations are proposed to apply on the date that is 30 days
after the final regulations are published in the Federal Register.
Special Analyses
It has been determined that this notice of proposed rulemaking is
not a significant regulatory action as defined in Executive Order
12866. Therefore, a regulatory assessment is not required. It also has
been determined that section 553(b) of the Administrative Procedure Act
(5 U.S.C. chapter 5) does not apply to these regulations, and, because
these regulations do not impose a collection of information on small
entities, the Regulatory Flexibility Act (5 U.S.C. chapter 6) does not
apply. Pursuant to section 7805(f), this notice of proposed rulemaking
will be submitted to the Chief Counsel for Advocacy of the Small
Business Administration for comment on their impact.
Comments and Public Hearing
Before these regulations are adopted as final regulations,
consideration will be given to any written comments and electronic
comments that are submitted timely to the IRS. The Treasury Department
and the IRS specifically request comments on the following: Whether it
is necessary to have an exception to section 7216 for disclosures made
to contractors as provided in proposed Sec. 301.7216-2(d)(2), and, if
so, how should the regulations protect the information from being used
or disclosed by the contractors; and what should constitute an
electronic signature on electronic consents. In addition, the IRS and
Treasury Department specifically request comments on the clarity of the
proposed regulations and how they can be made easier to understand. All
comments will be available for public inspection and copying.
The public hearing is scheduled for April 4, 2006, at 10 a.m., and
will be held in the Auditorium, Internal Revenue Building, 1111
Constitution Avenue, NW., Washington, DC. Due to building security
procedures, visitors must enter at the Constitution Avenue entrance.
All visitors must present photo identification to enter the building.
Visitors will not be admitted beyond the immediate entrance area more
than 30 minutes before the hearing starts. For information about having
your name placed on the building access list to attend the hearing, see
the FOR FURTHER INFORMATION CONTACT section of this preamble.
The rules of 26 CFR 601.601(a)(3) apply to the hearing. Persons who
wish to present oral comments at the hearing must submit written or
electronic comments by March 8, 2006, and submit an outline of the
topics to be discussed and the time to be devoted to each topic by
March 14, 2006. A period of 10 minutes will be allocated to each person
for making comments. An agenda showing the scheduling of the speakers
will be prepared after the deadline for receiving outlines has passed.
Copies of the agenda will be available free of charge at the hearing.
Drafting Information
The principal authors of the regulations are Brinton T. Warren,
Bridget E. Tombul, and Dillon Taylor of the Office of the Associate
Chief Counsel (Procedure and Administration), Administrative Provisions
and Judicial Practice Division.
List of Subjects in 26 CFR Part 301
Employment taxes, Estate taxes, Excise taxes, Gift taxes, Income
taxes, Penalties, Reporting and recordkeeping requirements.
Proposed Amendment to the Regulations
Accordingly, 26 CFR part 301 is proposed to be amended as follows:
PART 301--PROCEDURE AND ADMINISTRATION
Paragraph 1. The authority citation for part 301 continues to read,
in part, as follows:
Authority: 26 U.S.C. 7805 * * *
Par. 2. Section 301.7216-0 is added to read as follows:
Sec. 301.7216-0 Table of contents.
This section lists captions contained in Sec. Sec. 301.7216-1
through 301.7216-3.
Sec. 301.7216-1 Penalty for disclosure or use of tax return
information.
(a) In general.
(b) Definitions.
(c) Gramm-Leach-Bliley Act.
(d) Effective date.
Sec. 301.7216-2 Permissible disclosures or uses without consent of
the taxpayer.
(a) Disclosure pursuant to other provisions of Internal Revenue
Code.
(b) Disclosure to facilitate electronic tax administration.
(c) Disclosures or uses for preparation of a taxpayer's return.
(d) Disclosures to other tax return preparers.
(e) Disclosure or use of information in the case of related
taxpayers.
(f) Disclosure pursuant to an order of a court, or an
administrative order, a demand, summons or subpoena which is issued in
the performance of its duties by a Federal or State agency, the United
States Congress, a professional ethics board, or the Public Company
Accounting Oversight Board.
(g) Disclosure for use in Treasury investigations or court
proceedings.
(h) Certain disclosures by attorneys and accountants.
(i) Corporate fiduciaries.
(j) Disclosure to taxpayer's fiduciary.
(k) Disclosure or use of information in preparation or audit of
State or local tax returns or assisting a taxpayer with foreign country
tax obligations.
(l) Payment of tax preparation services.
(m) Retention of records.
(n) Lists for solicitation of tax return business.
(o) Producing statistical information in connection with tax return
preparation business.
(p) Disclosure or use of information for quality or peer reviews.
(q) Disclosure to report the commission of a crime.
(r) Disclosure of tax return information due to a tax return
preparer's incapacity or death.
(s) Effective date.
Sec. 301.7216-3 Disclosure or use permitted only with the taxpayer's
consent.
(a) In general.
(b) Timing requirements and limitations.
(c) Special rules.
(d) Permissible disclosures to third parties at the request of the
taxpayer.
(e) Effective date.
[[Page 72958]]
Par. 3. Section 301.7216-1 is revised to read as follows:
Sec. 301.7216-1 Penalty for disclosure or use of tax return
information.
(a) In general. Section 7216(a) prescribes a criminal penalty for
tax return preparers who knowingly or recklessly disclose or use tax
return information for a purpose other than preparing a tax return. A
violation of section 7216 is a misdemeanor, with a maximum penalty of
up to one year imprisonment or a fine of not more than $1,000, or both,
together with the costs of prosecution. Section 7216(b) establishes
exceptions to the general rule in section 7216(a) prohibiting
disclosure and use. Section 7216(b) also authorizes the Secretary to
promulgate regulations prescribing additional permitted disclosures and
uses. Section 6713(a) prescribes a related civil penalty for
disclosures and uses that constitute a violation of section 7216. The
penalty for violating section 6713 is $250 for each disclosure and use,
not to exceed a total of $10,000 for a calendar year. Section 6713(b)
provides that the exceptions in section 7216(b) also apply to section
6713. Under section 7216(b), the provisions of section 7216(a) will not
apply to any disclosure or use permitted under regulations prescribed
by the Secretary.
(b) Definitions. For purposes of section 7216 and Sec. Sec.
301.7216-1 through 301.7216-3:
(1) Tax return. The term tax return means any return (or amended
return) of income tax imposed by chapter 1 of the Internal Revenue
Code.
(2) Tax return preparer--(i) In general. The term tax return
preparer means:
(A) Any person who is engaged in the business of preparing or
assisting in preparing tax returns;
(B) Any person who is engaged in the business of providing
auxiliary services in connection with the preparation of tax returns,
including a person who develops software that is used to prepare or
file a tax return and any Authorized IRS e-file Provider;
(C) Any person who is otherwise compensated for preparing, or
assisting in preparing, a tax return for any other person; or
(D) Any individual who, as part of their duties of employment with
any person described in paragraph (b)(2)(i)(A), (B), or (C) of this
section performs services that assist in the preparation of, or assist
in providing auxiliary services in connection with the preparation of,
a tax return.
(ii) Business of preparing returns. A person is engaged in the
business of preparing tax returns as described in paragraph
(b)(2)(i)(A) of this section if, in the course of the person's
business, the person holds himself out to tax return preparers or
taxpayers as a person who prepares tax returns or assists in preparing
tax returns, whether or not tax return preparation is the person's sole
business activity and whether or not the person charges a fee for tax
return preparation services.
(iii) Providing auxiliary services. A person is engaged in the
business of providing auxiliary services in connection with the
preparation of tax returns as described in paragraph (b)(2)(i)(B) of
this section if, in the course of the person's business, the person
holds himself out to tax return preparers or to taxpayers as a person
who performs auxiliary services, whether or not providing the auxiliary
services is the person's sole business activity and whether or not the
person charges a fee for the auxiliary services. Likewise, a person is
engaged in the business of providing auxiliary services if, in the
course of the person's business, the person receives a taxpayer's tax
return information from another tax return preparer pursuant to the
provisions of Sec. 301.7216-2(d)(2).
(iv) Otherwise compensated. A tax return preparer described in
paragraph (b)(2)(i)(C) of this section includes any person who--
(A) Is compensated for preparing a tax return for another person,
but not in the course of a business; or
(B) Is compensated for helping, on a casual basis, a relative,
friend, or other acquaintance to prepare their tax return.
(v) Exclusions. A person is not a tax return preparer merely
because he leases office space to a tax return preparer, furnishes
credit to a taxpayer whose tax return is prepared by a tax return
preparer, furnishes information to a tax return preparer at the
taxpayer's request, furnishes access (free or otherwise) to a separate
person's tax return preparation Web site through a hyperlink on his own
Web site, or otherwise performs some service that only incidentally
relates to the preparation of tax returns.
(vi) Application of section 7701(a)(36). If a person is an income
tax return preparer for purposes of section 7701(a)(36), the person is
subject to the provisions of section 7216 and is a tax return preparer
for purposes of Sec. Sec. 301.7216-1 through 301.7216-3. The fact that
a person is not an income tax return preparer for purposes of section
7701(a)(36), however, is not determinative of whether the person is a
tax return preparer for purposes of section 7216(a) and Sec. Sec.
301.7216-1 through 301.7216-3.
(vii) Examples. The application of Sec. 301.7216-1(b)(2) may be
illustrated by the following examples:
Example 1. Bank B is a tax return preparer within the meaning of
paragraph (b)(2)(i)(A) of this section, and an Authorized IRS e-file
Provider. B employs one individual, Q, to solicit the necessary tax
return information for the preparation of a tax return; another
individual, R, to prepare the return on the basis of the information
that is furnished; a secretary, S, who types the information on the
returns into a computer; and an administrative assistant, T, who
uses a computer to file electronic versions of the tax returns.
Under these circumstances, only R is an income tax return preparer
for purposes of section 7701(a)(36), but all four employees are tax
return preparers for purposes of section 7216, as provided in
paragraph (b) of this section.
Example 2. Tax return preparer P contracts with department store
D to rent space in D's store. D advertises that taxpayers who use
P's services may charge the cost of having their tax return prepared
to their charge account with D. Under these circumstances, D is not
a tax return preparer because it provides space, credit, and
services only incidentally related to the preparation of tax
returns.
(3) Tax return information--(i) In general. The term tax return
information means any information, including, but not limited to, a
taxpayer's name, address, or identifying number, which is furnished in
any form or manner for, or in connection with, the preparation of a tax
return of the taxpayer. This information includes information that the
taxpayer furnishes to a tax return preparer and information furnished
the tax return preparer by a third party. Tax return information also
includes information the tax return preparer derives or generates from
tax return information in connection with the preparation of a
taxpayer's return.
(A) Tax return information can be provided directly by the taxpayer
or by another person. Likewise, tax return information includes
information received by the tax return preparer from the IRS in
connection with the processing of such return, including an
acknowledgment of acceptance or notice of rejection of an
electronically filed return.
(B) Tax return information includes statistical compilations of tax
return information, even in a form that cannot be associated with, or
otherwise identify, directly or indirectly, a particular taxpayer. See
Sec. 301.7216-2(o) for limited use of tax return information to make
statistical compilations without taxpayer consent and to use the
statistical compilations for limited purposes.
[[Page 72959]]
(C) Tax return information does not include information identical
to any tax return information that has been furnished to a tax return
preparer if the identical information was obtained otherwise than in
connection with the preparation of a tax return. Information maintained
in a form that is associated with the tax return preparation, however,
becomes tax return information, regardless of how the information was
initially obtained.
(D) Information is considered ``in connection with tax return
preparation,'' and therefore tax return information, if the taxpayer
would not have furnished the information to the tax return preparer but
for his intention to engage, or his engagement of, the tax return
preparer to prepare his tax return.
(ii) Examples. The application of this paragraph (b)(3) may be
illustrated by the following examples:
Example 1. Taxpayer A purchases computer software designed to
assist with the preparation and filing of her income tax return.
When A loads the software onto her computer, it prompts her to
register her purchase of the software. As part of the registration
process, the software provider states that it will provide
registrants with any updates to the software. In this situation, the
software provider is a tax return preparer under paragraph
(b)(2)(i)(B) of this section and the information that A provides to
register her purchase is tax return information because she is
providing it in connection with the preparation of a tax return.
Example 2. Corporation A is a brokerage firm that maintains a
website through which its clients may access their accounts, trade
stocks, and generally conduct a variety of financial activities.
Through its Web site, A offers its clients free access to its own
tax preparation software. Taxpayer B is a client of A and has
furnished A his name, address, and other information when
registering for use of A's Web site to use A's brokerage services.
In addition, A has a record of B's brokerage account activity,
including sales of stock, dividends paid, and IRA contributions
made. B uses A's tax preparation software to prepare his tax return.
The software populates some fields on B's return on the basis of
information A already maintains in its databases. A is a tax return
preparer within the meaning of paragraph (b)(2)(i)(B) of this
section because it has prepared and provided software for use in
preparing tax returns. The information in A's databases that the
software accesses to populate B's return, i.e., the registration
information and brokerage account activity, is not tax return
information because A did not receive that information in connection
with the preparation of a tax return. Once A uses the information to
populate the return, however, the information associated with the
return becomes tax return information. If A retains the information
in a form in which A can identify that the information was used in
connection with the preparation of a return, the information in that
form is tax return information. If, however, A retains the
information in a database in which A cannot identify whether the
information was used in connection with the preparation of a return,
then that information is not tax return information.
(4) Use--(i) In general. Use of tax return information includes any
circumstance in which a tax return preparer refers to, or relies upon,
tax return information as the basis to take or permit an action.
(ii) Example. The application of this paragraph (b)(4) may be
illustrated by the following example:
Example. Preparer G is a tax return preparer as defined by
paragraph (b)(2)(i)(A) of this section. If G determines, upon
preparing a return, that a refund is due to the taxpayer, G will ask
whether the taxpayer desires a refund anticipation loan, i.e., a
loan that the taxpayer repays from the taxpayer's refund proceeds. G
does not ask about refund anticipation loans in cases in which the
taxpayer is not due a refund. G is using tax return information when
it asks whether a taxpayer is interested in obtaining a refund
anticipation loan because G is basing the inquiry on the taxpayer's
being entitled to a refund.
(5) Disclosure. The term disclosure means the act of making tax
return information known to any person in any manner whatever. To the
extent that a taxpayer's use of a hyperlink results in the transmission
of tax return information, such transmission of tax return information
is a disclosure by the tax return preparer subject to penalty under
section 7216 if not authorized by regulation.
(6) Hyperlink. For purposes of section 7216, a hyperlink is the
device used to transfer an individual using tax preparation software
from a tax return preparer's Web page to a Web page operated by another
person without the individual having to separately enter the web
address of the destination page.
(7) Request for consent. A request for consent includes any effort
by a tax return preparer to obtain the taxpayer's consent to use or
disclose the taxpayer's tax return information. The act of supplying a
taxpayer with a paper or electronic form that meets the requirements of
a revenue procedure published pursuant to Sec. 301.7216-3(a) is a
request for a consent. When a tax return preparer requests a taxpayer's
consent, any associated efforts of the tax return preparer, including,
but not limited to, verbal or written explanations of the form, are
part of the request for consent.
(c) Gramm-Leach-Bliley Act. Any applicable requirements of the
Gramm-Leach-Bliley Act, Public Law 106-102 (113 Stat. 1338), do not
supersede, alter, or affect the requirements of section 7216 and
Sec. Sec. 301.7216-1 through 301.7216-3. Similarly, the requirements
of section 7216 and Sec. Sec. 301.7216-1 through 301.7216-3 do not
nullify any requirements or restrictions of the Gramm-Leach-Bliley Act,
which are in addition to the requirements or restrictions of section
7216 and Sec. Sec. 301.7216-1 through 301.7216-3.
(d) Effective date. This section applies on the date that is 30
days after the final regulations are published in the Federal Register.
Par. 4. Section 301.7216-2 is revised to read as follows:
Sec. 301.7216-2 Permissible disclosures or uses without consent of
the taxpayer.
(a) Disclosure pursuant to other provisions of Internal Revenue
Code. The provisions of section 7216(a) and Sec. 301.7216-1 shall not
apply to any disclosure of tax return information if the disclosure is
made pursuant to any other provision of the Internal Revenue Code or
the regulations thereunder. Thus, for example, these provisions will
not apply to--
(1) A disclosure under section 7269 to an officer or employee of
the IRS of information concerning the estate of a decedent; or
(2) A disclosure under section 7602 (through formal or informal
procedures) to an officer or employee of the IRS of books, papers,
records, or other tax return information that may be relevant to any
person's income tax liability.
(b) Disclosures to facilitate electronic tax administration. Tax
return preparers may disclose to the IRS any tax return information the
IRS requests to assist in the administration of electronic filing
programs. The information can include tax return information requested
in the course of investigating Authorized IRS e-file Providers for
compliance with electronic filing rules or tax return information that
the IRS determines would assist in evaluating the effectiveness of
electronic filing programs.
(c) Disclosures or uses for preparation of a taxpayer's return--(1)
Tax return preparers located within the same firm in the United States.
If a taxpayer furnishes tax return information to a tax return preparer
located within the United States, including any territory or possession
of the United States, an officer, employee, or member of a tax return
preparer may use the tax return information, or disclose the tax return
information to another officer, employee, or member of the same tax
return preparer, for the purpose of performing services that assist in
the preparation of, or assist in providing
[[Page 72960]]
auxiliary services in connection with the preparation of, the
taxpayer's tax return. If an officer, employee, or member to whom the
tax return information is to be disclosed is located outside of the
United States or any territory or possession of the United States, the
taxpayer's consent under Sec. 301.7216-3 prior to any disclosure is
required.
(2) Furnishing tax return information to tax return preparers
located outside the United States. If a taxpayer initially furnishes
tax return information to a tax return preparer located outside of the
United States or any territory or possession of the United States, an
officer, employee, or member of a tax return preparer may use tax
return information, or disclose any tax return information to another
officer, employee, or member of the same tax return preparer, for the
purpose of performing services that assist in the preparation of, or
assist in providing auxiliary services in connection with the
preparation of, the tax return of a taxpayer by or for whom the
information was furnished without the taxpayer's consent under Sec.
301.7216-3.
(3) Examples. The following examples illustrate this paragraph (c):
Example 1. T is a client of Firm, which is a tax return
preparer. E, an employee at Firm's State A office, receives tax
return information from T for use in preparing T's income tax
return. E discloses the tax return information to P, an employee in
Firm's State B office; P uses the tax return information to process
T's income tax return. Firm is not required to receive T's consent
under Sec. 301.7216-3 prior to E's disclosure of T's tax return
information to P, because the tax return information is disclosed to
an employee employed by the same tax return preparer located within
the United States.
Example 2. Same facts as Example 1 except T's tax return
information is disclosed to FE who is located in Firm's Country F
office. FE uses the tax return information to process T's income tax
return. After processing, FE returns the processed tax return
information to E in Firm's State A office. Because FE is outside of
the United States, Firm is required to obtain T's consent under
Sec. 301.7216-3 prior to E's disclosure of T's tax return
information to FE.
Example 3. T, Firm's client, is temporarily located in Country
F. She initially furnishes her tax return information to employee FE
in Firm's Country F office for the purpose of having Firm prepare
her U.S. income tax return. FE makes the substantive determinations
concerning T's tax liability and forwards T's tax return information
to FP, an employee in Firm's Country P office, for the purpose of
processing T's tax return information. FP processes the return
information and forwards it to Partner at Firm's State A office in
the United States for review and delivery to T. Because T initially
furnished the tax return information to a tax return preparer
outside of the United States, T's prior consent for use or
disclosure under Sec. 301.7216-3 was not required. An officer,
employee, or member of Firm in the United States may use T's tax
return information or disclose the tax return information to another
officer, employee, or member of Firm without T's prior consent under
Sec. 301.7216-3 as long as any use or disclosure of T's tax return
information is within the United States. Firm is required to receive
T's consent under Sec. 301.7216-3 prior to any subsequent
disclosure of T's tax return information to a tax return preparer
located outside of the United States.
(d) Disclosures to other tax return preparers--(1) Preparer-to-
preparer disclosures. Except as limited in paragraph (d)(2) of this
section, an officer, employee, or member of a tax return preparer may
disclose tax return information of a taxpayer to another tax return
preparer located in the United States (including any territory or
possession of the United States) for the purpose of preparing, or
assisting in preparing a tax return, or obtaining or providing
auxiliary services in connection with the preparation of any tax return
so long as the services provided are not substantive determinations or
advice affecting a taxpayer's reported tax liability. The authorized
disclosures permitted under this subparagraph include one tax return
preparer disclosing tax return information to another tax return
preparer for the purpose of having the second tax return preparer
transfer that information to, and compute the tax liability on, a tax
return of the taxpayer by means of electronic, mechanical, or other
form of tax return processing service. The authorized disclosures
permitted under this subparagraph also include disclosures by a tax
return preparer to an Authorized IRS e-file Provider for the purpose of
electronically filing the return with the IRS. Authorized disclosures
also include disclosures by a tax return preparer to a second tax
return preparer for the purpose of making information concerning the
return available to the taxpayer. This would include, for example,
whether the return has been accepted or rejected by the IRS, or the
status of the taxpayer's refund. Except as provided in paragraph (c) of
this section, a tax return preparer may not disclose tax return
information to another tax return preparer for the purpose of the
second tax return preparer providing substantive determinations without
first receiving the taxpayer's consent in accordance with the rules
under Sec. 301.7216-3.
(2) Disclosures to contractors. A tax return preparer may disclose
tax return information to a person under contract with the tax return
preparer in connection with the programming, maintenance, repair,
testing, or procurement of equipment or software used for purposes of
tax return preparation only to the extent necessary for the person to
provide the contracted services, and only if the tax return preparer
ensures that all individuals who are to receive disclosures of tax
return information receive a written notice that informs them of the
applicability of sections 6713 and 7216 to them and describes the
requirements and penalties of sections 6713 and 7216. Contractors
receiving tax return information pursuant to this subsection are tax
return preparers under section 7216 because they are performing
auxiliary services in connection with tax return preparation. See Sec.
301.7216-1(b)(2)(i)(B) and (D).
(3) Examples. The following examples illustrate this paragraph (d):
Example 1. E, an employee at Firm's State A office, receives tax
return information from T for Firm's use in preparing T's income tax
return. E makes substantive determinations and forwards the tax
return information to P, an employee at Processor; Processor is
located in State B. P places the tax return information on the
income tax return and furnishes the finished product to E. E is not
required to receive T's prior consent under Sec. 301.7216-3 before
disclosing T's tax return information to P, because Processor's
services are not substantive determinations and the tax return
information remained in the United States at Processor's State B
office during the entire course of the tax return preparation
process.
Example 2. Firm, a tax return preparer, offers income tax return
preparation services. Firm's contract with its software provider,
Contractor, requires Firm to periodically randomly select certain
taxpayers' tax return information solely for the purpose of testing
the reliability of the software sold to Firm. Under its agreement
with Contractor, Firm discloses tax return information to
Contractor's employee, C, who services Firm's contract without
providing Contractor or C with a written notice that describes the
requirements of and penalties under sections 7216 and 6713. C uses
the tax return information solely for quality assurance purposes.
Firm's disclosure of tax return information to C was an
impermissible disclosure, because Firm failed to ensure that C
received a written notice that describes the requirements and
penalties of sections 7216 and 6713.
Example 3. E, an employee of Firm in State A in the United
States, receives tax return information from T for use in preparing
T's income tax return. After E enters T's tax return information
into Firms' computer, that information is stored on a computer
server that is physically located in State A. Firm contracts with
Contractor, located in Country F, to prepare its clients' tax
returns. FE, an employee of Contractor, uses a computer in Country F
and inputs a password to view T's
[[Page 72961]]
income tax information stored on the computer server in State A to
prepare T's tax return. A computer program permits FE to view T's
tax return information, but prohibits FE from downloading or
printing out T's tax return information from the computer server.
Because Firm is disclosing T's tax return information outside of the
United States, Firm is required to obtain T's consent under Sec.
301.7216-3 prior to the disclosure to FE.
(e) Disclosure or use of information in the case of related
taxpayers. (1) In preparing a tax return of a second taxpayer, a tax
return preparer may use, and may disclose to the second taxpayer, in
the form in which it appears on the return, any tax return information
that the tax return preparer obtained from a first taxpayer if--
(i) The second taxpayer is related to the first taxpayer within the
meaning of paragraph (e)(2) of this section;
(ii) The first taxpayer's tax interest in the information is not
adverse to the second taxpayer's tax interest in the information; and
(iii) The first taxpayer has not expressly prohibited the
disclosure or use.
(2) For purposes of paragraph (e)(1)(i) of this section, a taxpayer
is related to another taxpayer if they have any one of the following
relationships: husband and wife, child and parent, grandchild and
grandparent, partner and partnership, trust or estate and beneficiary,
trust or estate and fiduciary, corporation and shareholder, or members
of a controlled group of corporations as defined in section 1563.
(3) See Sec. 301.7216-3 for disclosure or use of tax return
information of the taxpayer in preparing the tax return of a second
taxpayer when the requirements of this paragraph are not satisfied.
(f) Disclosure pursuant to an order of a court, or an
administrative order, demand, summons or subpoena which is issued in
the performance of its duties by a Federal or State agency, the United
States Congress, a professional ethics board, or the Public Company
Accounting Oversight Board. The provisions of section 7216(a) and Sec.
301.7216-1 will not apply to any disclosure of tax return information
if the disclosure is made pursuant to any one of the following
documents:
(1) The order of any court of record, Federal, State, or local.
(2) A subpoena issued by a grand jury, Federal or State.
(3) A subpoena issued by the United States Congress.
(4) An administrative order, demand, summons or subpoena that is
issued in the performance of its duties by--
(i) Any Federal agency as defined in 5 U.S.C. 551(1) and 5 U.S.C.
552(f), or
(ii) A State agency, body, or commission charged under the laws of
the State or a political subdivision of the State with the licensing,
registration, or regulation of tax return preparers.
(5) A written request from a professional ethics board
investigating the ethical conduct of the tax return preparer.
(6) A formal demand from the Public Company Accounting Oversight
Board to registered public accounting firms in connection with an
inspection under section 104 of the Sarbanes-Oxley Act of 2002 (Act),
15 U.S.C. 7214, or an investigation under section 105 of the Act.
(g) Disclosure for use in Treasury investigations or court
proceedings. A tax return preparer may disclose tax return
information--
(1) To his attorney, or to an employee of the Treasury Department,
for use in connection with any investigation of the tax return preparer
(including investigations relating to the tax return preparer in its
capacity as a practitioner) conducted by the IRS or the Treasury
Department; or
(2) To his attorney, or to any officer of a court, for use in
connection with proceedings involving the tax return preparer
(including proceedings involving the tax return preparer in its
capacity as a practitioner), or the return preparer's client, before
the court or before any grand jury that may be convened by the court.
(h) Certain disclosures by attorneys and accountants. The
provisions of section 7216(a) and Sec. 301.7216-1 shall not apply to
any disclosure of tax return information permitted by this paragraph
(h).
(1)(i) A tax return preparer who is lawfully engaged in the
practice of law or accountancy and prepares a tax return for a taxpayer
may use the taxpayer's tax return information, or disclose the
information to another officer, employee or member of the tax return
preparer's law or accounting firm, consistent with applicable legal and
ethical responsibilities, who may use the tax return information for
the purpose of providing other legal or accounting services to the
taxpayer. As an example, a lawyer who prepares a tax return for a
taxpayer may use the tax return information of the taxpayer for, or in
connection with, rendering legal services, including estate planning or
administration, or preparation of trial briefs or trust instruments,
for the taxpayer or the estate of the taxpayer. In addition, the lawyer
who prepared the tax return may disclose the tax return information to
another officer, employee or member of the same firm for the purpose of
providing other legal services to the taxpayer. As another example, an
accountant who prepares a tax return for a taxpayer may use the tax
return information, or disclose it to another officer, employee or
member of the firm, for use in connection with the preparation of books
and records, working papers, or accounting statements or reports for
the taxpayer. In the normal course of rendering the 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.
For rules regarding disclosing outside of the United States, see Sec.
301.7216-2(c) and (d).
(ii) A tax return preparer's law or accounting firm does not
include any related or affiliated firms. For example, if law firm A is
affiliated with law firm B, officers, employees and members of law firm
A must receive a taxpayer's consent under Sec. 301.7216-3 before
disclosing the taxpayer's tax return information to an officer,
employee or member of law firm B.
(2) A tax return preparer who is lawfully engaged in the practice
of law or accountancy and prepares a tax return for a taxpayer may,
consistent with the applicable legal and ethical responsibilities, take
the tax return information into account, and may act upon it, in the
course of performing legal or accounting services for a client other
than the taxpayer, or disclose the information to another officer,
employee or member of the tax return preparer's law or accounting firm
to enable that other officer, employee or member to take the
information into account, and act upon it, in the course of performing
legal or accounting services for a client other than the taxpayer. This
is permissible when the information is, or may be, relevant to the
subject matter of the legal or accounting services for the other
client, and consideration of the information by those performing the
services is necessary for the proper performance of the services. In no
event, however, may the tax return information be disclosed to a person
who is not an officer, employee or member of the law or accounting
firm, unless the disclosure is exempt from the application of section
7216(a) and Sec. 301.7216-1 by reason of another provision of
Sec. Sec. 301.7216-2 or 301.7216-3.
(3) The application of this paragraph may be illustrated by the
following examples:
[[Page 72962]]
Example 1. A, a member of an accounting firm, renders an opinion
on a financial statement of M Corporation that is part of a
registration statement filed with the Securities and Exchange
Commission. After the registration statement is filed, but before
its effective date, B, a member of the same accounting firm,
prepares an income tax return for N Corporation. In the course of
preparing N's income tax return, B discovers that N does business
with M and concludes that the information given by N should be
considered by A to determine whether the financial statement opined
on by A contains an untrue statement of material fact or omits a
material fact required to keep the statement from being misleading.
B discloses to A the tax return information of N for this purpose. A
determines that there is an omission of material fact and that an
amended statement should be filed. A so advises M and the Securities
and Exchange Commission. A explains that the omission was revealed
as a result of confidential information that came to A's attention
after the statement was filed, but A does not disclose the identity
of the taxpayer or the tax return information itself. Section
7216(a) and Sec. 301.7216-1 do not apply to B's disclosure of N's
tax return information to A and A's use of the information in
advising M and the Securities and Exchange Commission of the
necessity for filing an amended statement. Section 7216(a) and Sec.
301.7216-1 would apply to a disclosure of N's tax return information
to M or to the Securities and Exchange Commission unless the
disclosure is exempt from the application of section 7216(a) and
Sec. 301.7216-1 by reason of another provision of either this
section or Sec. 301.7216-3.
Example 2. A, a member of an accounting firm, is conducting an
audit of M Corporation, and B, a member of the same accounting firm,
prepares an income tax return for D, an officer of M. In the course
of preparing the return, B obtains information from D indicating
that D, pursuant to an arrangement with a supplier doing business
with M, has been receiving from the supplier a percentage of the
amounts that the supplier invoices to M. B discloses this
information to A who, acting upon it, searches in the course of the
audit for indications of a kickback scheme. As a result, A discovers
information from audit sources that independently indicate the
existence of a kickback scheme. Without revealing the tax return
information A has received from B, A brings to the attention of
officers of M the audit information indicating the existence of the
kickback scheme. Section 7216(a) and Sec. 301.7216-1 do not apply
to B's disclosure of D's tax return information to A, A's use of D's
information in the course of the audit, and A's disclosure to M of
the audit information indicating the existence of the kickback
scheme. Section 7216(a) and Sec. 301.7216-1 would apply to a
disclosure to M, or to any other person not an employee or member of
the accounting firm, of D's tax return information furnished to B.
(i) Corporate fiduciaries. A trust company, trust department of a
bank, or other corporate fiduciary that prepares a tax return for a
taxpayer for whom it renders fiduciary, investment, or other custodial
or management services may, unless the taxpayer directs otherwise--
(1) Disclose or use the taxpayer's tax return information in the
ordinary course of rendering such services to or for the taxpayer; or
(2) Make the information available to the taxpayer's attorney,
accountant, or investment advisor.
(j) Disclosure to taxpayer's fiduciary. If, after furnishing tax
return information to a tax return preparer, the taxpayer dies or
becomes incompetent, insolvent, or bankrupt, or the taxpayer's assets
are placed in conservatorship or receivership, the tax return preparer
may disclose the information to the duly appointed fiduciary of the
taxpayer or his estate, or to the duly authorized agent of the
fiduciary.
(k) Disclosure or use of information in preparation or audit of
State or local tax returns or assisting a taxpayer with foreign country
tax obligations. The provisions of paragraphs (c) and (d) of this
section shall apply to the disclosure by any tax return preparer of any
tax return information in the preparation of, or in connection with the
preparation of, any tax return of the taxpayer under the law of any
State or political subdivision thereof, of the District of Columbia, of
any territory or possession of the United States, or of a country other
than the United States. The provisions of section 7216(a) and Sec.
301.7216-1 shall not apply to the use by any tax return preparer of any
tax return information in the preparation of, or in connection with the
preparation of, any tax return of the taxpayer under the law of any
State or political subdivision thereof, of the District of Columbia, of
any territory or possession of the United States, or of a country other
than the United States. The provisions of section 7216(a) and Sec.
301.7216-1 shall not apply to the disclosure or use by any tax return
preparer of any tax return information in the audit of, or in
connection with the audit of, any tax return of the taxpayer under the
law of any State or political subdivision thereof, of the District of
Columbia, of any territory or possession of the United States.
(l) Payment for tax preparation services. A tax return preparer may
use and disclose, without the taxpayer's written consent, tax return
information that the taxpayer provides to the tax return preparer to
pay for tax preparation services to the extent necessary to process the
payment. For example, if the taxpayer gives the tax return preparer a
credit card 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 for tax preparation services to
the credit card company, as necessary, to process the payment. Any tax
return information that is not relevant to the payment may not be used
or disclosed by the tax return preparer without the taxpayer's prior
written consent, unless otherwise permitted under another provision of
this section.
(m) Retention of records. A tax return preparer may retain tax
return information of a taxpayer, including copies of tax returns, in
paper or electronic format, prepared on the basis of the tax return
information, and may use the information in connection with the
preparation of other tax returns of the taxpayer or in connection with
an examination by the Internal Revenue Service of any tax return or
subsequent tax litigation relating to the tax return. The provisions of
paragraph (n) of this section regarding the transfer of a taxpayer list
also apply to the transfer of any records and related papers to which
this paragraph applies.
(n) Lists for solicitation of tax return business. A tax return
preparer may compile and maintain a separate list containing solely the
names, addresses, e-mail addresses, and phone numbers of taxpayers
whose tax returns the tax return preparer has prepared or processed.
This list may be used by the compiler solely to contact the taxpayers
on the list for the purpose of offering tax information or additional
tax return preparation services to such taxpayers. The compiler of the
list may not transfer the taxpayer list, or any part thereof, to any
other person unless the transfer takes place in conjunction with the
sale or other disposition of the compiler's tax return preparation
business. A person who acquires a taxpayer list, or a part thereof, in
conjunction with a sale or other disposition of a tax return
preparation business is subject to the provisions of this paragraph
with respect to the list. The term list, as used in this paragraph,
includes any record or system whereby the names and addresses of
taxpayers are retained. The provisions of this paragraph also apply to
the transfer of any records and related papers to which this paragraph
(n) applies.
(o) Producing statistical information in connection with tax return
preparation business. A tax return preparer may use, for the limited
purpose specified in this paragraph, tax return information to produce
a statistical compilation of data described in Sec. 301.7216-
1(b)(3)(i)(B). The purpose and use of the statistical compilation must
relate directly to the internal
[[Page 72963]]
management or support of the tax return preparer's tax return
preparation business. The tax return preparer may not disclose or use
the tax return information in connection with, or support of,
businesses other than tax return preparation. The compiler of the
statistical compilation may not transfer the compilation, or any part
thereof, to any other person unless the transfer takes place upon the
sale or other disposition of the tax return preparation business of the
compiler. A person who acquires a compilation, or a part thereof, in
conjunction with a sale or other disposition of a tax return
preparation business is subject to the provisions of this paragraph
with respect to the compilation as if the acquiring person had compiled
it.
(p) Disclosure or use of information for quality or peer reviews.
The provisions of section 7216(a) and Sec. 301.7216-1 shall not apply
to any disclosure for the purpose of a quality or peer review to the
extent necessary to accomplish the review. A quality or peer review is
a review that is undertaken to evaluate, monitor, and improve the
quality and accuracy of a tax return preparer's tax preparation,
accounting, or auditing services. A quality or peer review may be
conducted only by attorneys, certified public accountants, enrolled
agents, and enrolled actuaries who are eligible to practice before the
Internal Revenue Service. See Department of the Treasury Circular 230,
31 CFR part 10. Disclosure of tax return information is also authorized
to persons who provide administrative or support services to an
individual who is conducting a quality or peer review under this
paragraph (p), but only to the extent necessary for the reviewer to
conduct the review. Tax return information gathered in conducting a
review may be used only for purposes of a review. No tax return
information identifying a taxpayer may be disclosed in any evaluative
reports or recommendations that may be accessible to any person other
than the reviewer or the tax return preparer being reviewed. The tax
return preparer being reviewed will maintain a record of the review
including the information reviewed and the identity of the persons
conducting the review. After completion of the review, no documents
containing information that may identify any taxpayer by name or
identification number may be retained by a reviewer or by the
reviewer's administrative or support personnel. Any person (including
administrative and support personnel) receiving tax return information
in connection with a quality or peer review is a tax return preparer
for purposes of sections 7216(a) and 6713(a).
(q) Disclosure to report the commission of a crime. The provisions
of section 7216(a) and Sec. 301.7216-1 shall not apply to the
disclosure of any tax return information to the proper Federal, State,
or local official in order, and to the extent necessary, to inform the
official of activities that may constitute, or may have constituted, a
violation of any criminal law or to assist the official in
investigating or prosecuting a violation of criminal law. A disclosure
made in the bona fide but mistaken belief that the activities
constituted a violation of criminal law is not subject to section
7216(a) and Sec. 301.7216-1.
(r) Disclosure of tax return information due to a tax return
preparer's incapacity or death. In the event of incapacity or death of
a tax return preparer, disclosure of tax return information may be made
for the purpose of assisting the tax return preparer or his legal
representative (or the representative of a deceased tax return
preparer's estate) in operating the business. Any person receiving tax
return information under the provisions of this paragraph (r) is a tax
return preparer for purposes of sections 7216(a) and 6713(a).
(s) Effective date. This section applies on the date that is 30
days after the final regulations are published in the Federal Register.
Par. 5. Section 301.7216-3 is revised to read as follows:
Sec. 301.7216-3 Disclosure or use permitted only with the taxpayer's
consent.
(a) In general--(1) Taxpayer consent. Unless section 7216 or Sec.
301.7216-2 specifically authorizes the disclosure or use of tax return
information, a tax return preparer may not disclose or use a taxpayer's
tax return information prior to obtaining a consent from the taxpayer,
as described in this section. The consent must be knowing and
voluntary. As an example, a tax return preparer may not condition its
provision of preparation services upon the taxpayer's consenting to a
use of the taxpayer's tax return information. Except as provided in
paragraph (a)(2) of this section, conditioning the provision of
services on the taxpayer's furnishing consent will make the consent
involuntary, and the consent will not satisfy the requirements of this
section.
(2) Taxpayer consent to a tax return preparer furnishing tax return
information to another tax return preparer. A tax return preparer may
condition its provision of preparation services upon a taxpayer's
consenting to disclosure of the taxpayer's tax return information to
another tax return preparer for the purpose of performing services that
assist in the preparation of, or provide auxiliary services in
connection with the preparation of, the tax return of the taxpayer.
(3) Guidance describing the form and contents of taxpayer consents.
The Commissioner may issue guidance, by revenue procedure, describing
the form and content of taxpayer consents authorized under this
section.
(b) Timing requirements and limitations--(1) No retroactive
consent. A taxpayer must provide written consent before a tax return
preparer discloses or uses the taxpayer's tax return information.
(2) Time limitations on requesting consent. A tax return preparer
may not request a taxpayer's consent to use or disclose tax return
information after the tax return preparer provides a completed tax
return to the taxpayer for signature.
(3) No requests for consent after an unsuccessful request. With
regard to tax return information for each income tax return that a tax
return preparer prepares, if a taxpayer declines a request for consent
to the use or disclosure of tax return information, the tax return
preparer may not make another request to obtain consent for a purpose
substantially similar to that of the rejected request.
(4) Duration of consent. No consent to the use or disclosure of tax
return information may be effective for a period longer than one year
from the date the taxpayer signed the consent.
(c) Special rules--(1) Multiple disclosures within a single consent
form or multiple uses within a single consent form. A taxpayer may
consent to multiple uses within the same written document, or multiple
disclosures within the same written document. A single written
document, however, cannot authorize both uses and disclosures; rather
one written document must authorize the uses and another separate
written document must authorize the disclosures. Furthermore, a consent
that authorizes multiple uses or multiple disclosures must specifically
and separately identify each use or disclosure.
(2) Disclosure of entire return. A consent may authorize the
disclosure of all information contained within a return. A consent
authorizing the disclosure of an entire return must set forth an
explanation of the reasons why a consent authorizing a more limited
disclosure of tax return information is
[[Page 72964]]
unsatisfactory for the purpose of the consent.
(3) Copy of consent must be provided to taxpayer. The tax return
preparer must provide a copy of the executed consent to the taxpayer at
the time of execution. The requirements of this paragraph may also be
satisfied by giving the taxpayer the opportunity, at the time of
executing the consent, to print the completed consent or save it in
electronic form.
(d) Permissible disclosures to third parties at the request of the
taxpayer. A tax return preparer may disclose tax return information to
third parties as the taxpayer directs so long as the taxpayer provides
a consent to disclose tax return information that satisfies the
requirements of this paragraph and as prescribed by the Commissioner by
revenue procedure. (See Sec. 601.601(d)(2) of this chapter.)
(e) Effective date. This section applies on the date that is 30
days after the final regulations are published in the Federal Register.
Mark E. Matthews,
Deputy Commissioner for Services and Enforcement.
[FR Doc. E5-7018 Filed 12-7-05; 8:45 am]
BILLING CODE 4830-01-P