Representation before the IRS · Power of Attorney

Rules for client privacy and consent to disclose

Two consent regimes run in parallel and are not interchangeable. IRC § 6103(c) governs what the IRS may release to someone the taxpayer names. IRC § 7216 governs what the preparer may disclose or use out of what the client gave them. Different documents, different timing rules, different penalties — and a consent good under one is not automatically good under the other.

The rule

What the IRS may release — IRC § 6103(c)

Section 6103(c) authorises the IRS to disclose a taxpayer’s return or return information to persons the taxpayer designates in a request for or consent to disclosure, or to any other person at the taxpayer’s request to the extent necessary to comply with a request to that person for information or assistance (Reg. § 301.6103(c)-1(a)).

A consent under Reg. § 301.6103(c)-1(b)(1) must be a separate written document pertaining solely to the authorized disclosure, signed and dated by the taxpayer, indicating at the time of signing: the taxpayer’s identity information under IRC § 6103(b)(6); the identity of the person or persons to whom disclosure is to be made; the type of return (or specified portion) or return information, and the particular data, to be disclosed; and the taxable year or years covered.

The disclosure will not be made unless the request or consent is received by the IRS within the window in the figures table (Reg. § 301.6103(c)-1(b)(2)).

Permissible designees are wide — individuals, trusts, estates, corporations, partnerships, government agencies at any level, or the general public (Reg. § 301.6103(c)-1(e)(3)). For a public forum such as a courtroom or congressional hearing, the consent must describe the circumstances and the dates. And designating an individual does not authorise disclosure to others associated with them, such as their employees or staff.

Requests for information or assistance (Reg. § 301.6103(c)-1(c)) are a separate route — a taxpayer asks a member of Congress, a friend or a relative to help, and the IRS may disclose only so far as it considers necessary. That paragraph does not apply to a representative in connection with practice before the IRS; for those, IRC § 6103(e)(6) and Reg. §§ 601.501 through 601.508 govern.

What the preparer may disclose or use — IRC § 7216

The crime. Any person engaged in the business of preparing, or providing services in connection with preparing, chapter 1 returns — or who for compensation prepares such a return for another — and who knowingly or recklessly discloses information furnished for or in connection with the preparation, or uses it for any purpose other than to prepare or assist in preparing the return, is guilty of a misdemeanor (IRC § 7216(a)). The fine rises where IRC § 6713(b) applies.

The consent rule. Unless § 7216 or Reg. § 301.7216-2 authorises it, a preparer may not disclose or use tax return information before obtaining written consent (Reg. § 301.7216-3(a)(1)). The consent must be knowing and voluntary, and conditioning any services on the taxpayer’s furnishing consent makes it involuntary. The one exception (§ 301.7216-3(a)(2)): a preparer may condition preparation services on consent to disclose to another tax return preparer for services assisting in, or auxiliary to, preparing that taxpayer’s return.

Form and contents (Reg. § 301.7216-3(a)(3)(i)). Every consent must name the preparer and the taxpayer; identify the intended purpose of a disclosure and, ordinarily, the specific recipient(s); for a consent to use, describe the particular use — and where the use is to solicit other products or services, identify each specific type, the regulation’s examples being balance due loans, mortgage loans, mutual funds, IRAs and life insurance; specify the tax return information involved; require consent before any disclosure to a preparer outside the United States; and be signed and dated by the taxpayer.

Timing (Reg. § 301.7216-3(b)). No retroactive consent — it must precede the disclosure or use. No solicitation consent after the return is delivered — a preparer may not request consent to disclose or use for solicitation of business unrelated to return preparation after providing the completed return to the taxpayer for signature. No second ask after a refusal — where a taxpayer declines such a request, the preparer may not solicit another consent for a substantially similar purpose as to that return. Duration is in the figures table.

The SSN rule (Reg. § 301.7216-3(b)(4)). A preparer within the United States may not obtain consent to disclose a Form 1040 series taxpayer’s social security number to a preparer outside it, and must redact or mask the SSN before the information goes abroad. Two carve-outs: where the US preparer initially received the SSN from that foreign preparer, it may retransmit it without consent; and consent may be obtained where the disclosure uses an adequate data protection safeguard as defined in published guidance, verified in the consent request. A preparer “located outside the United States” does not include one continuously and regularly employed in the United States who is temporarily travelling abroad.

Special rules (Reg. § 301.7216-3(c)). A taxpayer may consent to multiple uses in one document or multiple disclosures in one document, but a single document cannot authorize both — and each must be specifically and separately identified. A consent authorising disclosure of an entire return must state that the taxpayer may request a more limited disclosure. And the preparer must give the taxpayer a copy at the time of execution, satisfied by letting them print or save it electronically.

Current figures

How it works in practice

Keep the two regimes apart by asking who is disclosing. Whether the IRS may tell someone something is § 6103. Whether the practitioner may pass on or reuse what the client handed over is § 7216. A Form 8821 is a § 6103(c) instrument; an engagement-letter consent to send client data to an offshore processing centre is a § 7216 instrument. Neither does the other’s job.

Both are strict about the document being separate and specific. Reg. § 301.6103(c)-1(b)(1) requires a document “pertaining solely to the authorized disclosure,” so a clause buried in a longer agreement does not qualify. Reg. § 301.7216-3(c)(1) goes further and forbids one document from authorising both uses and disclosures.

The voluntariness rule has real bite. Conditioning any service on the client signing a § 7216 consent makes it involuntary and worthless. “Sign this or we cannot prepare your return” is fatal — except in the one carve-out, where the consent is to send the information to another preparer helping prepare that same return.

Solicitation consents have a deadline and one chance. Once the completed return has gone to the taxpayer for signature, the window closes; and a refusal is final for that return. Both rules target the same practice — using the preparation relationship to sell financial products — and both are absolute.

The offshore SSN rule is the sharpest technical point. A US preparer sending Form 1040 series information abroad must mask the SSN, and cannot obtain consent to send it, unless the safeguard route in Reg. § 301.7216-3(b)(4)(ii) is used and verified in the consent request. Two asymmetries: the rule is about outbound disclosure, so an SSN that came from the foreign preparer may go back; and an employee merely travelling abroad is not a preparer “located outside the United States.”

The § 6103 side has its own traps. The 120-day window runs from the taxpayer’s signature date, so a consent held in a file for four months is dead on arrival. And naming an individual designee does not reach that individual’s staff — which matters when a client names one partner and expects the whole team covered.

Two penalties, one act. A disclosure can be both the § 7216 misdemeanor and the § 6713 civil penalty. Section 7216 requires the act to be knowing or reckless; § 6713 has no such requirement, which is why an inadvertent disclosure can be penalised civilly without criminal exposure. Section 7216 is the only preparer provision carrying imprisonment.

How this has changed

The § 7216 regulations in their present form apply to disclosures or uses occurring on or after January 1, 2009 (Reg. § 301.7216-3(d)). That project rebuilt the consent rules around the knowing-and-voluntary standard, the separate-documents rule, the solicitation timing limits and the offshore SSN restriction.

Two features are live hooks rather than fixed rules. Reg. § 301.7216-3(a)(3)(ii) reserves to the Secretary the power to issue additional format and content requirements for Form 1040 series consents by publication in the Internal Revenue Bulletin, so the requirements for individual-return consents are the regulation’s list plus whatever guidance adds. And the adequate data protection safeguard permitting an SSN to travel abroad is likewise defined in published guidance.

The regulation draws a line the other way for taxpayers not filing a Form 1040 series return (Reg. § 301.7216-3(a)(3)(iii)): consent may be in any format, including an engagement letter, the one-document rule does not apply, and in place of naming specific recipients it may permit disclosure to a descriptive class of entities engaged by the taxpayer or an affiliate for services connected with preparing returns, audited or other financial statements, or financial information a government authority or regulatory body requires.

On the § 6103 side, Reg. § 301.6103(c)-1 has been amended for electronic filing: paragraph (d) exempts acknowledgments of electronically filed returns and combined federal-state programs from the paragraph (b) and (c) requirements, and paragraph (e)(2) permits signature by any method prescribed under Reg. § 301.6061-1(b) — which is what allows electronic signatures here.

Exam focus

Know which regime the question is in: disclosure by the IRS to a designee is § 6103(c); disclosure or use by the preparer is § 7216.

For § 6103(c), know the separate written document requirement, the four items it must indicate, and the 120-day receipt window measured from the taxpayer’s signature.

For § 7216, know that consent must be knowing and voluntary; that conditioning services on it makes it involuntary except for disclosure to another preparer assisting with the return; that one document cannot authorise both uses and disclosures; that solicitation consents cannot be sought after the return is delivered or re-sought after a refusal; and that a consent with no stated duration lasts one year. Know the offshore SSN rule and its two carve-outs, and that § 7216 requires a knowing or reckless act while the § 6713 civil penalty does not.

Check yourself

1. One written consent authorises a preparer both to use client data for marketing and to disclose it to a lender. Valid? (A) Yes, if both are specifically identified (B) Yes, for Form 1040 series filers (C) No, one document cannot authorise both uses and disclosures (D) Yes, if the taxpayer receives a copy Answer: C. Reg. § 301.7216-3(c)(1) requires one document for uses and a separate one for disclosures, each specifically and separately identifying every use or disclosure.

2. A preparer will not prepare a return unless the client consents to marketing for the firm’s insurance products. Effect? (A) Valid if signed and dated (B) Involuntary, and it fails (C) Valid but limited to one year (D) Valid if a copy is given to the client Answer: B. Conditioning any services on furnishing consent makes it involuntary under Reg. § 301.7216-3(a)(1). The only exception is consent to disclose to another preparer assisting with that taxpayer’s return.

3. A taxpayer signs a § 6103(c) consent on 1 April. By when must the IRS receive it? (A) Within 30 days (B) Within 60 days (C) Within 120 days of the signature date (D) Before the return’s due date Answer: C. Reg. § 301.6103(c)-1(b)(2) — no disclosure unless the consent is received within 120 days following the date the taxpayer signed and dated it.

4. A US preparer sends Form 1040 information abroad with the client’s signed consent. What must happen to the SSN? (A) It may be sent, consent having been obtained (B) It must be redacted or masked, unless an adequate data protection safeguard is used and verified in the consent request (C) It may be sent if the foreign preparer holds a PTIN (D) It must be sent separately Answer: B. Reg. § 301.7216-3(b)(4). A US preparer may retransmit an SSN it initially received from that foreign preparer without consent.

5. A § 7216 consent says nothing about duration. How long is it effective? (A) Indefinitely (B) Until the return is filed (C) One year from the date signed (D) 120 days Answer: C. Reg. § 301.7216-3(b)(5) — a consent may specify its duration; where it does not, one year from signature.