Section 7216 Consent for Offshore Tax Preparation

What section 7216 does

Section 7216 of the Internal Revenue Code makes it a crime for a tax return preparer to knowingly or recklessly disclose or use tax return information other than as the rules allow. Section 6713 adds a civil penalty for the same conduct. The regulations under section 7216 set out when information may be shared without consent and how a valid consent must be obtained.

Why offshore work needs consent

A preparer may share return information with another preparer located in the United States to help prepare the return without asking the taxpayer. That permission does not extend to a preparer located outside the United States. Before return information is disclosed offshore, the firm needs the taxpayer’s written consent.

What a valid consent contains

• The name of the tax return preparer and the name of the taxpayer
• The purpose of the disclosure
• The recipient or recipients of the information
• The tax return information that will be disclosed
• The taxpayer’s signature and the date

Consent must be given before the information is disclosed. Retroactive consent is not allowed. A single document cannot authorise both a use and a disclosure: consent to use and consent to disclose are separate documents. If the consent does not state how long it lasts, it is effective for one year from the date the taxpayer signs.

Extra rules for Form 1040 filers

For taxpayers who file a return in the Form 1040 series, Revenue Procedure 2013-14 sets the format. The consent is a separate document, on paper or electronic, and it must contain the mandatory statements the revenue procedure prescribes. On paper it is on sheets of at least 8½ by 11 inches with all text in at least 12 point type; on screen the text must be at least the size of the standard body text used by the website or software, with sufficient contrast. Consent must be affirmative: an opt out arrangement does not count. The consent form walkthrough quotes the mandatory statements.

Social Security numbers

A preparer in the United States may not obtain consent to disclose a taxpayer’s Social Security number to a preparer outside the United States, unless the number is protected by an adequate data protection safeguard, as defined in IRS guidance, and the request for consent confirms that the safeguard is maintained. Where that condition is not met, the number has to be masked or removed before the work goes offshore.

A checklist for your firm

1. Identify every engagement where return information will be shared with a preparer outside the United States.
2. Prepare a separate disclosure consent naming the offshore recipient, and a separate use consent if you need one.
3. For Form 1040 filers, use the Rev. Proc. 2013-14 format and its mandatory statements.
4. Obtain the signed consent before sending anything, and record the date it was signed.
5. Decide how Social Security numbers are handled: masked, or shared only under an adequate data protection safeguard stated in the consent.
6. Track expiry, which is one year unless the consent states otherwise, and renew before the next season.
7. Tell your offshore provider, in writing, which engagements have consent on file.

Sources

• 26 CFR 301.7216-2, permissible disclosures without consent
• 26 CFR 301.7216-3, disclosure or use with the taxpayer’s consent
• Revenue Procedure 2013-14

General information for accounting professionals, not legal or tax advice. Confirm requirements against current law and IRS guidance.