April 29, 2009
Draft Frequently Asked Questions
Q-1. If a tax return preparer receives an email or other request in writing from a client asking the tax return preparer to send a tax return to a third party (such as a bank or other lender to facilitate processing of the client’s loan application), does that written request satisfy the consent requirements of Treas. Reg. section 301.7216-3?
A-1. It is common for a tax return preparer (in the normal course of rendering client services) to receive requests (such as an email request or an email confirming an oral request) from a client asking the tax return preparer to send the tax return to a third party, such as a bank or mortgage broker to obtain a loan, or other client advisor. Under these circumstances, the tax return preparer’s disclosure of tax return information is responding to a client’s specific written request. In this context, the client’s written request, although not in strict compliance with Rev. Proc. 2008-35, satisfies the consent requirements of Treas. Reg. section 301-7216-3 because the request was initiated by the client and thus the consent was knowing and voluntary.
Q-2. If a tax return preparer calls another tax return preparer working in another firm, and requests a form or other schedule, such as a Schedule K-1 on behalf of a client, does the request for (which may require disclosure of tax return information by the requesting preparer) disclosure of the form or schedule require written consent to be obtained from the client by either preparer?
A-2. No. The disclosure by either tax return preparer would be considered a permissible disclosure under Treas. Reg. section 301.7216-2(d)(1) as the disclosure is considered “…for the purpose of preparing or assisting in preparing a tax return….”
Q-3. What types of professional services are considered “legal or accounting services” provided to the taxpayer for purposes of Treas. Reg. section 301.7216-2(h)(1)(i)?
A-3. As part of a client’s engagement of a tax return preparer, a client expects the tax return preparer to advise them regarding tax preparation and tax planning in the broader sense, consistent with the tax return preparer’s applicable legal and ethical responsibilities. Therefore, to the extent a tax return preparer uses tax return information or discloses such information to officers, employees or members of the tax return preparer’s firm for purposes of offering the client tax planning, bookkeeping, personal financial planning or valuation services, such use or disclosure is authorized under Treas. Reg. section 301.7216-2(h)(1)(i).
Q-4. If a tax return preparer determines that he or she must obtain written client consent from a taxpayer that is a corporation or other entity prior to the disclosure or use of the entity’s tax return information, which officers or employees of the corporation or other entity are considered appropriate persons for authorizing and signing the written consent on behalf of the taxpayer?
A-4. In general, Treas. Reg. section 301.7216-3 sets out the procedures tax return preparers must follow in obtaining written consents from taxpayers for the disclosure or use of a taxpayer’s tax return information. For purposes of Treas. Reg. section 301.7216-3, the following officers or employees are considered appropriate persons for authorizing and signing a written consent on behalf of a corporation or other entity: (1) president, vice president, chief financial officer, treasurer, assistant treasurer, chief accounting or tax officer; or (2) any other corporate representative as designated by an individual listed in the preceding category.
Q-5. If a tax return preparer discusses a facet of a client’s tax return with another person by way of a hypothetical question or fact pattern (i.e., without disclosing the taxpayer’s name or other identifying attributes), does the tax return preparer need to obtain written consent from the client prior to posing the hypothetical?
A-5. As long as the tax return preparer posing the hypothetical question or fact pattern does not disclose the taxpayer’s name or any other identifying attributes, the discussion between the tax return preparer and other person is not considered a disclosure or use of tax return information. Under such circumstances, the tax return preparer posing the hypothetical does not need to obtain a written consent from the client.
Q-6. If a tax return preparer uses temporary staff, former employees or retired partners who are compensated as independent contractors to assist in the preparation of tax returns, is the tax return preparer required to obtain written consents from clients with respect to disclosure of their return information to the independent contractors?
A-6. No. The disclosure of a client’s tax return information to an independent contractor engaged to perform services for a tax return preparer (at the preparer’s offices or via remote connection using the preparer’s technology/servers) is considered a permissible disclosure or use of tax return information under Treas. Reg. section 301.7216-2(c)(2), as long as the independent contractor is located in the United States and assists the preparer in the preparation of tax returns in the manner similar to an officer, employee, or member of the same firm as the tax return preparer.
Q-7. Is a preparer’s mailing or distribution of information to clients for communications purposes (such as seminar/conference announcements, new hire announcements, seasonal or other greeting cards, modest gifts of nominal value, and newsletters principally related to tax information) considered a permissible use of tax return information, and thus does not trigger the need to obtain a written consent from the client?
A-7. Treas. Reg. section 301.7216-2(n) permits a tax return preparer to compile and maintain a separate list containing solely the names, addresses, e-mail addresses, and phone numbers of clients for whom the preparer has prepared a tax return. The distribution of information for communications purposes (such as seminar/conference announcements, new hire announcements, seasonal or other greeting cards, modest gifts of nominal value and newsletters principally related to tax information) is a permissible use of tax return information under Treas. Reg. section 301.7216-2(n), such that written consents from clients are not required.
Moreover, if a tax return preparer utilizes a third-party service provider under contract with the tax return preparer to distribute permissible communications under Treas. Reg. section 301.7216-2(n), the tax return preparer’s disclosure of the names and addresses of clients (whether in print or electronic form) to the third-party service provider does not require the preparer to obtain written consents from clients; as long as the preparer ensures that the third-party service provider receiving the disclosures of tax return information also receives a notice as to the applicability of sections 6713 and 7216 to such provider, including a description of the requirements and penalties of sections 6713 and 7216 pursuant to Treas. Reg. section 301.7216-2(d)(2).
Q-8. If tax return preparer (or the tax return preparer’s liability carrier or insurer) retains a Circular 230 practitioner to review a potential or actual malpractice claim of a client against the tax return preparer where the client’s tax return information is necessary to accomplish the review of the claim, must the tax return preparer obtain a written consent from the client prior to allowing the claim to be reviewed by the Circular 230 practitioner?
A-8. No. Treas. Reg. section 301.7216-2(p) permits the disclosure or use of tax return information without client consent for purposes of conducting quality or peer reviews. The retention of a Circular 230 practitioner by a tax return preparer or by the tax return preparer’s liability carrier or insurer to review a malpractice (or potential malpractice) claim of a client against the tax return preparer is considered a disclosure or use of tax return information involving a quality or peer review; and thus the retention or hiring of that Circular 230 practitioner does not require a written consent from the client.
Changes Requiring Modification of the Regulations
We support the following changes that would require modification of the Section 7216 regulations:
1. Eliminate the timing requirements and limitations under Treas. Reg. sections 301.7216-3(b)(1) and (2) (the provisions involving no retroactive consent and time limitations on requesting consent), because they inhibit the ability of a preparer to provide traditional tax planning, tax preparation, and accounting services to clients.
2. Allow preparers to cover a broad range of professional services as part of the written consent in the engagement letter, as opposed to requiring preparers to obtain separate written consents from clients.
3. Address the issues presented by Treas. Reg. section 301.7216-2(h)(1)(ii) involving affiliated firms:
A. Many professional firms have affiliated entities in which the ownership of both is substantially the same. Being able to share tax return information with a colleague, without disrupting the client dynamics by requesting consent, is ingrained in the business practices of many.
B. Many tax professionals are dually registered with a Circular 230 firm and an affiliate out of which they provide investment advisory services. They are performing both services for the same client out of different entities. Essentially, the regulation provides that service providers must obtain client consent to share the information with themselves. This is very confusing to both clients and the tax professional.
4. Expand the regulation discussed in Q&A 7 (Treas. Reg. section 301.7216-2(n)) to provide that newsletters may relate to tax and other topics pertinent to the client base. Information related to professional firms’ normal tax, accounting, and business services described in such a newsletter may not fall within the regulation’s “solely…for the purpose of offering tax information or additional tax return preparation services” requirement.
5. Expand the regulation discussed in Q&A 3 (Treas. Reg. section 301.7216-2(h)(1)(i)) to provide the same relief to other professional tax return preparers as is provided to attorneys and accountants. For example, as presently drafted, Treas. Reg. section 301.7216(h)(1)(i) would only allow attorneys and accountants the ability to request information (such as a Form 1099) from a third party.
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