[Federal Register Volume 73, Number 128 (Wednesday, July 2, 2008)]
[Rules and Regulations]
[Pages 37804-37806]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E8-15046]


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DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Part 301

[TD 9409]
RIN 1545-BI01


Amendments to the Section 7216 Regulations--Disclosure or Use of 
Information by Preparers of Returns

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Final and temporary regulations.

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SUMMARY: This document contains final and temporary regulations that 
provide rules relating to the disclosure and use of tax return 
information by tax return preparers. These regulations provide updated 
guidance regarding the disclosure of a taxpayer's social security 
number to a tax return preparer located outside of the United States. 
The text of these regulations also serves as the text of the proposed 
regulations set forth in the notice of proposed rulemaking on this 
subject in the Proposed Rules section in this issue of the Federal 
Register.

DATES: Effective Date: These regulations are effective on July 2, 2008.
    Applicability Date: See Sec.  301.7216-3T(d).

FOR FURTHER INFORMATION CONTACT: Lawrence E. Mack, (202) 622-4940 (not 
a toll-free number).

SUPPLEMENTARY INFORMATION:

Background

    This document amends 26 CFR part 301 to provide modified rules 
relating to the ability of a tax return preparer located within the 
United States to disclose a taxpayer's social security number 
constituting tax return information with the taxpayer's consent to a 
tax return preparer located outside of the United States. In the 
accompanying and cross-referenced notice of proposed rulemaking, the 
Treasury Department and IRS request comments on the proposed rule from 
all interested persons.
    On December 8, 2005, the Treasury Department and IRS published a 
notice of proposed rulemaking (REG-137243-02) in the Federal Register 
(70 FR 72954) proposing amendments to the regulations under section 
7216 (regarding the use or disclosure of tax return information by 
income tax return preparers). On January 3, 2008, the Treasury 
Department and IRS issued final regulations under section 7216 (TD 
9375) applicable to disclosures or uses of tax return information 
occurring on or after January 1, 2009. Thus, TD 9375 replaces 
previously issued final regulations that remain applicable to 
disclosures or uses of tax return information occurring prior to 
January 1, 2009.
    TD 9375 included the revision of Sec.  301.7216-3(b)(4), which, for 
disclosures and uses of tax return information occurring on or after 
January 1, 2009, provides that an income tax return preparer located in 
the United States may not disclose the taxpayer's social security 
number (SSN) to a tax return preparer located outside of the United 
States even if the taxpayer consents to the disclosure. These temporary 
regulations modify the rules under Sec.  301.7216-3(b)(4).

Explanation of Provisions

    The Treasury Department and IRS are amending the regulations under 
section 7216 applicable to disclosures and uses of tax return 
information occurring on or after January 1, 2009, to provide a limited 
exception to the general rule that an income tax return preparer 
located in the United States may not disclose a taxpayer's SSN to a tax 
return preparer located outside of the United States. Section 301.7216-
3(b)(4) provides that a tax return preparer located within the United 
States, including any territory or possession of the United States, may 
not obtain consent to disclose a taxpayer's SSN to a tax return 
preparer located outside of the United States or any territory or 
possession of the United States. Thus, with one exception, if a tax 
return preparer located within the United States obtains consent from a 
taxpayer to disclose tax return information to another tax return 
preparer located outside of the United States, as provided under 
Sec. Sec.  301.7216-3(a)(3)(i)(D), 301.7216-2(c)(2) and 301.7216-2(d), 
the tax return preparer located in the United States may not disclose 
the taxpayer's SSN, and must redact or otherwise mask the taxpayer's 
SSN before the tax return information is disclosed outside of the 
United States. The exception is limited to the circumstance in which a 
tax return preparer located inside the United States initially receives 
the SSN from a tax return preparer located outside the United States 
and the preparer within the United States retransmits the SSN to the 
preparer that provided the SSN. When a taxpayer-client requests that a 
tax return preparer within the United States transfer the return 
preparation engagement to a tax return preparer located outside the 
United States, the preparer still must redact or otherwise mask the 
taxpayer's SSN before the information is disclosed and, in this 
situation, it will be incumbent upon the taxpayer to provide the SSN 
directly to the tax return preparer located abroad.
    The revisions containing the SSN disclosure prohibition in Sec.  
301.7216-3(b)(4) were explained in the preamble to the final 
regulations. The regulation was adopted in light of factors including: 
(1) The fact that it is not necessary for tax return preparers to 
disclose certain taxpayer identifying information to other tax return 
preparers who are assisting them in preparing a return; (2) the 
important role an SSN plays in the tax administration process, and the 
heightened potential for misuse when an SSN is readily associated with 
confidential information, such as tax return information; and 3) the 
heightened concern about the theft of taxpayer identifying information 
resulting from disclosures outside the United States.
    Upon further consideration, the Treasury Department and IRS have 
concluded that Sec.  301.7216-3(b)(4) can

[[Page 37805]]

be amended to provide flexibility to allow a tax return preparer within 
the United States to disclose an SSN with the taxpayer's consent to a 
tax return preparer located outside of the United States if both tax 
return preparers have sufficient data security programs and procedures 
in operation to protect such important confidential information from 
misuse or unauthorized access or disclosure. These measures will 
significantly reduce the security risks associated with the disclosure 
of this information outside of the United States. Although SSN security 
is the primary focus of these regulations, the flexibility provided by 
these regulations will enable qualified tax return preparers to address 
situations in which there is a need for a tax return preparer in the 
United States to disclose an SSN to a tax return preparer located 
outside of the United States, as appropriate under the circumstances. 
This includes, but is not limited to, situations in which the tax 
return preparer located outside of the United States is a signing tax 
return preparer or requires an unredacted SSN to file a return on 
behalf of a taxpayer, the tax return preparer located outside the 
United States may need a copy of the entire return, including the 
taxpayer's SSN (for example, to assist an expatriated U.S. taxpayer 
secure treaty benefits from the relevant foreign government), or the 
taxpayer prefers that the tax return preparer located within the United 
States disclose the taxpayer's SSN to the tax return preparer located 
outside the United States (for example, because the taxpayer concludes 
that the data security protection provided by the tax return preparer 
in the United States and the tax return preparer located outside of the 
United States is sound).
    In light of these considerations, the Treasury Department and IRS, 
pursuant to these temporary regulations, amend the regulations 
contained in TD 9375 (applicable to disclosures and uses of tax return 
information on or after January 1, 2009) to include an exception to 
Sec.  301.7216-3(b)(4). The exception in Sec.  301.7216-3T(b)(4)(ii) 
provides that a tax return preparer located within the United States, 
including any territory or possession of the United States, may obtain 
consent to disclose the taxpayer's SSN to a tax return preparer located 
outside of the United States or any territory or possession of the 
United States if the tax return preparer discloses the SSN through the 
use of an ``adequate data protection safeguard'' as described in 
guidance published in the Internal Revenue Bulletin and verifies the 
maintenance of the adequate data protection safeguards in the request 
for the taxpayer's consent pursuant to the specifications described in 
guidance published in the Internal Revenue Bulletin. The exception 
authorizes only those preparers with an adequate data protection 
safeguard in operation to request a taxpayer's consent to disclose an 
SSN to a preparer located outside the United States that also has an 
adequate data protection safeguard. The Treasury Department and IRS 
anticipate that requiring tax return preparers that seek a taxpayer's 
consent to disclose an SSN to a tax return preparer located abroad to 
maintain adequate data security would provide the further benefit of 
enhancing the level of security of any data transfer, including the 
data transfer of the taxpayer's SSN, while providing additional 
flexibility to address situations in which there is a reason or need to 
disclose an SSN to a tax return preparer located abroad. Tax return 
preparers without an adequate data protection safeguard, or those 
preparers with an adequate data protection safeguard that seek to 
disclose an SSN to a tax return preparer located abroad that does not 
have an adequate data protection safeguard, must continue to comply 
with the general rule in Sec.  301.7216-3T(b)(4)(i), and are still 
required to mask any SSN prior to disclosure to a tax return preparer 
located outside the United States, or any territory or possession of 
the United States, even if the taxpayer has consented to disclosure of 
an SSN.
    Revenue Procedure 2008-35, published concurrently with these 
regulations, provides the relevant guidance regarding the exception in 
Sec.  301.7216-3T(b)(4)(ii) to the general rule requiring SSN masking. 
Section 4.07 of Revenue Procedure 2008-35 provides guidance regarding 
the requirements for an adequate data protection safeguard. Pursuant to 
Section 4.07, an ``adequate data protection safeguard'' is a data 
security program, policy and practice that meets or conforms to one of 
the following privacy or data security frameworks:
    (1) The United States Department of Commerce ``safe harbor'' 
framework for data protection (or successor program);
    (2) A foreign law data protection safeguard that includes a 
security component, for example, the European Commission's Directive on 
Data Protection;
    (3) A framework that complies with the requirements of a financial 
or similar industry-specific standard that is generally accepted as 
best practices for technology and security related to that industry, 
for example, the BITS (Financial Services Roundtable) Financial 
Institution Shared Assessment Program;
    (4) The requirements of the AICPA/CICA Privacy Framework;
    (5) The requirements of the most recent version of IRS Publication 
1075, Tax Information Security Guidelines for Federal, State and Local 
Agencies and Entities; or
    (6) Any other data security framework that provides the same level 
of privacy protection as contemplated by one or more of the frameworks 
described in (1) through (5).
    Section 4.04(1)(e)(ii) of Revenue Procedure 2008-35 provides 
guidance regarding mandatory language that must be included in each 
request for consent provided to an individual taxpayer by the tax 
return preparer that seeks consent to disclose an SSN to a return 
preparer located outside the United States or its or territories or 
possessions. See Sec.  601.601(d)(2)(ii)(b).
    These regulations clarify that the rule in Sec.  301.7216-3T(b)(4) 
applies only to a tax return preparer's request for consent to disclose 
tax return information, including an SSN, from a taxpayer filing a 
return in the Form 1040 series, for example, Form 1040, Form 1040NR, 
Form 1040A, or Form 1040EZ. Also, the regulations clarify that a tax 
return preparer located outside of the United States does not include a 
tax return preparer who is continuously and regularly employed in the 
United States or any territory or possession of the United States and 
who is in a temporary travel status outside of the United States. This 
clarification is necessary to avoid disruption of the performance of 
the duties of employees of tax return preparers based in the United 
States who are on a temporary travel assignment in a location outside 
of the United States.
    The Treasury Department and IRS also conclude that the addition of 
the exception in Sec.  301.7216-3T(b)(4)(ii) appropriately balances 
concerns regarding safeguarding of sensitive tax return information and 
identity theft against the tax return preparers' needs for disclosing 
SSNs and a taxpayer's right to control access to his or her SSN. In a 
separate notice of proposed rulemaking published with these temporary 
regulations, the Treasury Department and IRS request comments on the 
proposed rules, as well as the guidance regarding the requirements for 
an adequate data protection safeguard in Section 4.07 of Revenue 
Procedure 2008-35.

Special Analyses

    It has been determined that this Treasury decision is not a 
significant

[[Page 37806]]

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 because they are interpretive 
regulations. Because these regulations are necessary to provide tax 
return preparers and taxpayers with immediate guidance on the 
application of the section 7216 rules regarding SSN masking 
requirements, particularly in light of the January 1, 2009 
applicability date provided by the recently promulgated section 7216 
regulations contained in TD 9375, and as these regulations are intended 
to provide a limited exception to, and relief from, the rule requiring 
SSN masking in all instances where tax return information is disclosed 
to a tax return preparer located outside of the United States and its 
territories and possessions, good cause would otherwise exist for 
dispensing with notice and public comment pursuant to 5 U.S.C. 553(b) 
and (c). For applicability of the Regulatory Flexibility Act (5 U.S.C. 
chapter 6), refer to the Special Analyses section of the preamble to 
the cross-referenced notice of proposed rulemaking published in the 
Proposed Rules section of this issue of the Federal Register. Pursuant 
to section 7805(f) of the Internal Revenue Code, these temporary 
regulations have been submitted to the Chief Counsel for Advocacy of 
the Small Business Administration for comment on their impact on small 
business.

Drafting Information

    The principal author of these regulations is Lawrence E. Mack, 
Office of the Associate Chief Counsel (Procedure and Administration).

List of Subjects in 26 CFR Part 301

    Employment taxes, Estate taxes, Excise taxes, Gift taxes, Income 
taxes, Penalties, Reporting and recordkeeping requirements.

Amendments to the Regulations

0
Accordingly, 26 CFR part 301 is amended as follows:

PART 301--PROCEDURE AND ADMINISTRATION

0
Paragraph 1. The authority citation for part 301 is amended by adding 
an entry in numerical order to read as follows:

    Authority: 26 U.S.C. 7805. * * *
    Section 301.7216-3T also issued under 26 U.S.C. 7216. * * *
0
Par. 2. Section 301.7216-3 is amended by revising paragraph (b)(4) to 
read as follows:


Sec.  301.7216-3  Disclosure or use permitted only with the taxpayer's 
consent.

* * * * *
    (b) * * *
    (4) [Reserved]. For further guidance, see Sec.  301.7216-3T(b)(4).
* * * * *

0
Par. 3. Section 301.7216-3T is added to read as follows:


Sec.  301.7216-3T  Disclosure or use permitted only with the taxpayer's 
consent (temporary).

    (a) [Reserved]. For further guidance, see Sec.  301.7216-3(a).
    (b) Timing requirements and limitations--(1) through (3) 
[Reserved]. For further guidance, see Sec.  301.7216-3(b)(1) through 
(3).
    (4) No consent to the disclosure of a taxpayer's social security 
number to a return preparer outside of the United States with respect 
to a taxpayers filing a return in the Form 1040 Series--(i) In general. 
Except as provided in paragraph (ii) of this section, a tax return 
preparer located within the United States, including any territory or 
possession of the United States, may not obtain consent to disclose the 
taxpayer's social security number (SSN) with respect to taxpayers 
filing a return in the Form 1040 Series, for example, Form 1040, Form 
1040NR, Form 1040A, or Form 1040EZ, to a tax return preparer located 
outside of the United States or any territory or possession of the 
United States. Thus, if a tax return preparer located within the United 
States (including any territory or possession of the United States) 
obtains consent from an individual taxpayer to disclose tax return 
information to another tax return preparer located outside of the 
United States, as provided under Sec. Sec.  301.7216-2(c) and 301.7216-
2(d), the tax return preparer located in the United States may not 
disclose the taxpayer's SSN, and the tax return preparer must redact or 
otherwise mask the taxpayer's SSN before the tax return information is 
disclosed outside of the United States. If a tax return preparer 
located within the United States initially receives or obtains a 
taxpayer's SSN from another tax return preparer located outside of the 
United States, however, the tax return preparer within the United 
States may, without consent, retransmit the taxpayer's SSN to the tax 
return preparer located outside the United States that initially 
provided the SSN to the tax return preparer located within the United 
States. For purposes of this section, a tax return preparer located 
outside of the United States does not include a tax return preparer who 
is continuously and regularly employed in the United States or any 
territory or possession of the United States and who is in a temporary 
travel status outside of the United States.
    (ii) Exception. A tax return preparer located within the United 
States, including any territory or possession of the United States, may 
obtain consent to disclose the taxpayer's SSN to a tax return preparer 
located outside of the United States or any territory or possession of 
the United States where the tax return preparer within the United 
States discloses the SSN to a tax return preparer outside of the United 
States through the use of an adequate data protection safeguard as 
defined by the Secretary in guidance published in the Internal Revenue 
Bulletin (see Sec.  601.601(d)(2)(ii)(b) of this chapter) and verifies 
the maintenance of the adequate data protection safeguards in the 
request for the taxpayer's consent pursuant to the specifications 
described by the Secretary in guidance published in the Internal 
Revenue Bulletin.
    (b)(5) and (c) [Reserved]. For further guidance, see Sec.  
301.7216-3(b)(5) and (c).
    (d) Effective/applicability date. This section applies to 
disclosures or uses of tax return information occurring on or after 
January 1, 2009. The applicability of this section expires on or before 
January 1, 2012.

Linda E. Stiff,
Deputy Commissioner for Services and Enforcement.

    Approved: June 25, 2008.
Eric Solomon,
Assistant Secretary of the Treasury (Tax Policy).
 [FR Doc. E8-15046 Filed 7-1-08; 8:45 am]
BILLING CODE 4830-01-P