For more than 30 years, Subchapter F, § 301.7216-3, of the Treasury Regulations has provided a safeguard for taxpayers over their personal information submitted to tax preparers. On January 14, 2013, the IRS issued Revenue Bulletin 2013-3 strengthening § 7216 limitations on tax preparers using information obtained from taxpayers for solicitation of tax- and non-tax-related services. As client retention and brand awareness becomes increasingly important to growing and developing a business, a tax preparer needs to understand and keep abreast of the rules and regulations governing the use of taxpayers’ information.

Boundaries of the Regulation

Under the new Treasury Regulation 301.7216-2(n), a tax preparer may maintain of copy of his clients’ tax information without their consent. However, the information is limited to basic contact information, taxpayer classification and the type of return filed. Further, this information can only be used (1) for tax information, business information, or educational and informative purposes or (2) to solicit additional tax return preparation business. For any non-tax-return preparation services, § 7216 requires the consent of the client before any solicitations are mailed, and consent cannot be obtained retroactively.

With the changes to § 7216, tax preparers should be wary of the information they send to their clients. While the lines can be blurry about what constitutes education or informative services, it is imperative that caution be exercised about what information is contained within company newsletters and targeted publications. If there is any solicitation of non-tax services without proper consent from every one of your clients, innocent publications could be construed to violate § 7216. Also be wary of using a third-party distribution service to mail solicitations to taxpayers – tax-related and non-tax-related services all require consent from the taxpayer before any information can be disseminated to these vendors.

Obtaining Consent

The § 7216 consent form can be provided to the client in either paper or electronic format but cannot be included as part of the engagement letter for any of the series form 1040 income tax returns. In these situations, a separate form must be provided to the taxpayer outlining the requirements of § 7216. However, this form can be included as part of the initial engagement letter mailing.

In certain limited situations, consent may not be required if you have already obtained a taxpayer’s information while providing other services. Good practices by tax preparers should monitor where taxpayer information was obtained and, when in doubt, to err on the side of caution and send a consent request before soliciting non-tax-related services.

In brief, a good understanding of the rules and regulations now will almost certainly relieve any tax preparer of headaches down the road.