IRS Finalizes Rules on Use and Disclosure of Taxpayer Information

The Internal Revenue Service has finalized its regulations regarding how tax preparers can use and disclose the information on their clients’ tax returns.

The regulations in TD 9608 provide updated guidance affecting tax preparers regarding the use of information related to lists for solicitation of tax return business; the disclosure or use of statistical compilations of data under Section 7216 of the Tax Code by tax preparers in connection with, or in support of, their tax prep business; and the disclosure or use of information for the purpose of performing conflict reviews.

The regulations take effect on Dec. 28, 2012, but finalize temporary regulations that have been in effect since 2010, with some minor clarifications and revisions.

The modifications in the temporary and proposed regulations were made following the issuance of Notice 2009-13 in February 2009, and the receipt of comments submitted in response to the notice.

The IRS and the Treasury Department received seven comments in response to the proposed regulations. As proposed, Section 301.7216-2(n) allows tax preparers to maintain a list of limited tax return information that may be used by the compiler to contact taxpayers to provide tax information and general business or economic information or analysis for educational purposes or to solicit tax return preparation services. One commentator asked to expand the acceptable list maintenance purposes to include solicitation of “accounting services” “consistent with legal and ethical responsibilities.” The commentator explained that these accounting services include, for example, assistance with bookkeeping, the preparation of payroll returns, and the preparation of regulatory returns. The commentator also included the preparation of state and local income tax returns as an accounting service.

Preparation of state and local income tax returns is, however, tax return preparation expressly authorized by the statute, and use of the list is permissible to solicit this service, the IRS noted. The language of Section 7216(a)(2) prohibits the use of “any such information for any purposes other than to prepare, or assist in the preparing, of any such return.”

The general rule under Section 7216 prohibits the disclosure or use of tax return information unless a written consent is obtained or an exception applies. With the expiration of Notice 2009-13 on Dec. 31, 2009, the uses of statistical compilations allowed for in the notice were no longer permissible. The IRS noted that if Section 301.7216-2(o) were made effective only upon publication of the final regulations, as one commentator suggested, neither the exceptions provided for Notice 2009-13 nor those provided for in Section 301.7216-2T(o) would be applicable after December 2009. The permissible use of statistical compilations without taxpayer consent would be more, not less, restrictive than if Section 301.7216-2(o) had not been published as a temporary regulation.

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