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Internal Revenue Code
IRC Section 7216 prohibits anyone who is involved in the preparation of tax returns from knowingly or recklessly disclosing or using the tax-related information provided other than in connection with the preparation of such returns. Anyone who violates this provision may be subject to a fine or even imprisonment. The regulations under section 7216 provide an exemption from this law for tax return preparers who disclose taxpayer information to a third party for the purpose of having that third party process the return. Nevertheless, members should make third-party providers to which they have supplied protected client information aware of this requirement. Note there is no requirement in section 7216 or its regulations for a member to inform the client that a third-party provider is being used. In addition, IRC section 7525 provides a client with a privilege similar to an attorney-client privilege when they make certain tax-related disclosures to, among others, CPAs. Care needs to be taken to assure that a third-party provider does not do anything that adversely affects a client’s rights under this provision.
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