IRS Loosens Rules on Preparer Use of Taxpayer Info

The Internal Revenue Service has issued a set of proposed rules that would make it easier for tax preparers to contact clients about tax law developments, send out newsletters and deal with liability insurance claims.

The proposed and temporary regulations, and related revenue rulings, pertain to Section 7216 of the Tax Code and are intended to enable tax return preparers to more effectively provide services that taxpayers would ordinarily expect from tax preparers. Generally, the services benefit taxpayers, increase voluntary compliance and improve tax administration, according to the IRS.

The proposed and temporary regulations enable tax return preparers to use or disclose tax return information without explicit taxpayer consent in certain limited circumstances. Tax preparers can contact their clients regarding tax law developments that may affect the clients. They can also disclose information in connection with the potential sale or purchase of a tax return preparer’s business and during the process of conducting client conflict-of-interest checks.

Revenue Ruling 2010-4 provides guidance on whether a tax return preparer is liable for criminal and civil penalties when the preparer uses tax return information to contact taxpayers to inform them of changes in tax law that could affect the taxpayers’ income tax liability reported in tax returns previously prepared or processed by the tax return preparer. It also affects the use of tax return information to determine which taxpayers’ future income tax filing obligations may be affected by a prospective change in tax rules or regulations, and to contact taxpayers to notify them of a changed rule or regulation, explain how the change may affect them, and advise them on actions they may take in response to the change. The revenue ruling also governs the disclosure of tax return information to a third-party service provider that creates, publishes, or distributes newsletters covering tax, business and economic information or analysis for educational purposes.

Revenue Ruling 2010-5 provides guidance on whether a tax preparer is liable for criminal and civil penalties when the preparer discloses to a professional liability insurance carrier information required to obtain or maintain professional liability insurance coverage; or to report a claim or potential claim against the tax return preparer; or to aid in the investigation of a claim or potential claim against the tax return preparer. The revenue ruling also applies to disclosing information to the preparer’s professional liability insurance carrier in order to obtain legal representation under the terms of the insurance policy, or to an unrelated attorney for the purpose of evaluating a claim or potential claim against the tax return preparer.

Before the proposed regulations are adopted as final, the IRS said it would consider any written or electronic comments that are submitted on a timely basis. All comments will be made available for public inspection and copying.

For reprint and licensing requests for this article, click here.
Tax practice
MORE FROM ACCOUNTING TODAY