The Purpose of Sec 7216 Regulations Related to Tax Preparers

Posted by Lee Reams Sr., BSME, EA on

Section 7216 of the Internal Revenue Code is a criminal provision that governs the use and disclosure of tax return information by tax return preparers. The primary purpose of Sec. 7216 and its associated regulations is to protect the confidentiality of taxpayer information obtained during the tax return preparation process. Here are the key aspects:

1.    Prohibition on Unauthorized Disclosure or Use: Sec. 7216 prohibits tax return preparers from knowingly or recklessly disclosing or using tax return information for purposes other than preparing or assisting in preparing a tax return. This is to ensure that taxpayer information is not misused or disclosed without consent. 

2.    Criminal and Civil Penalties: Violations of Sec. 7216 can result in criminal penalties, including fines and imprisonment. Additionally, there is a civil penalty under IRC §6713 for unauthorized use or disclosure of tax return information, which does not require the disclosure to be knowing or reckless.

3.    Exceptions and Consents: The regulations under Sec. 7216 outline specific exceptions where tax return information can be used or disclosed without the taxpayer's consent. These include disclosures necessary for obtaining legal representation under an insurance policy, or disclosures to an unrelated attorney for evaluating a claim against the tax preparer.

4.    Legal and Ethical Responsibilities: Even with IRS authorization, tax professionals such as attorneys and accountants must adhere to legal and ethical rules that prohibit using or disclosing information to their own advantage or to the disadvantage of their clients.

5.    Interaction with Other Laws: Sec. 7216 does not override other privacy laws, such as the Gramm-Leach-Bliley Act, which also imposes requirements on financial institutions to protect personal information.

Overall, Sec. 7216 aims to safeguard taxpayer information by setting strict guidelines and penalties for tax preparers, ensuring that taxpayer data is used appropriately and confidentially.

Chapter 0.02 of the Big Book of Taxes covers Sec 7216 as it applies to various situations encountered in tax preparation with numerous sample consents and disclosures.