What To Tell Your Clients About Tax Return Privacy
Data theft is a matter of serious concern especially when it includes such sensitive data as tax returns. Disclosing information about a client’s tax return without his consent is considered to be a violation of section 7216 and all regulations pertaining to it. Hence it is effectively labelled as a federal crime and CPAs who essentially deal with all this critical information should familiarize themselves and educate their clients about two very important facts:
Defining certain important terms
With tax return privacy being of paramount importance with the IRS, it is important to understand what constitutes a “disclosure”. Simply speaking, in a broader sense and as defined by the Treasury Regulations, a disclosure, when it refers to a taxpayers tax return information, is said to be the act of passing on any information with regards to the same irrespective of how it is done.
Tax return information is any such information which has relevant details of the taxpayer with regards to his address, name, any identifying number etc. Thus effectively speaking tax return information can refer to any information that:
Exceptions for disclosure of tax payer’s information
But there are exceptions to the rule and this need to be communicated to their clients by the CPAs. Disclosure of tax return information is permitted in the following two instances:
Narrow disclosures can, however, be made to an outsourced tax preparer who is involved in assisting in tax preparation such as e-filing etc. These disclosures are, however, not permitted if the outsourced tax preparer is authorized to make substantive determinations since it may affect the primary taxpayer’s taxable liability.
A tax preparer or CPA is also not authorized to send any information regarding the tax filing of their clients outside of the USA, without informing and taking permission from the client. However, a US CPA is authorized to use tax return information about their clients as gained from a CPA outside the USA only if:
Disclosures regarding taxpayers who are related to the client either as family members, beneficiary, fiduciary, trust or estate etc., if there is no clash of interest between them.
Use of the tax payer’s information for marketing or other such purposes is strictly prohibited. While it is ok to maintain a list of the client contacts, using them to sell them services or products, is restricted under the Treasury Regulations Act.
If there is a need for a disclosure to be made in connection with other IRC provisions, a court order or subpoena etc., and certain other stringent conditions as mentioned in the Treasury Regulations, then the CPA is permitted to do so.