Regulations Address Disclosure and Use of Return Information (T.D. 9478; NPRM REG-131028-09)

Final, temporary and proposed regulations have been issued that provide updated guidance concerning the disclosure and use of tax return information by tax return preparers under Code Sec. 7216. The regulations address the use of information related to lists for solicitation of tax return business, the limited right to disclose, without the taxpayer's consent, certain statistical compilations in connection with, or in support of, a preparer's business, and the disclosure and use of return information in connection with performing conflict reviews.

CCH Comment. Code Sec. 7216 imposes a criminal penalty on preparers who knowingly or recklessly disclose any information furnished by taxpayers for the preparation of a return, or use any such information for any purpose other than the preparation of the return or declaration, subject to several exceptions. One exception, under the previously issued final regulations, allowed a preparer to use statistical compilations of anonymous return information in support of the preparer's tax return preparation business. However, the regulation also prohibited the disclosure of all statistical compilations, both taxpayer-identifying and anonymous, unless the disclosure was made in order to comply with financial accounting or regulatory reporting requirements or occurs in connection with the sale or other disposition of the compiler's tax return preparation business.

The regulations provide a limited expansion of the right, without the taxpayer's written consent, to use and include certain information in lists for the solicitation of tax return business. They permit the information included in such lists to reflect the taxpayer entity classification or type, including individual status, and the taxpayer retrun form number (such as Form 1040, U.S. Individual Income Tax Return, or Form 1220, U.S. Corporation Income Tax Return). The regulations specify that additional information that may be included in such lists can be contained in future guidance issued by the IRS.

While the regulations provide some expansion of the information contained in the lists used for the solicitation of tax return business, they clarify that such lists may not be used to solicit non-return preparation services. Moreover, auxiliary service providers, such as companies providing tax return preparation software, may not use any return information received to compile and maintain a list of taxpayers for the auxiliary service provider's own use, such as marketing to clients of the preparer.

The regulations also provide clarification of the rules concerning transfers of such lists. A transfer is permitted if it takes place in conjunction with the sale or other disposition of the compiler's tax return preparation business. The regulations specify that due diligence conducted by the prospective buyer of the business is considered "in conjunction with the sale or other disposition". The buyer is, however, bound by the same provisions with respect to the use and disclosure of such list.

The regulations supercede the interim guidance contained in Notice 2009-13, IRB 2009-6, 447, (TAXDAY 2009/01/19, I.6) which permitted a preparer to use tax return information to produce a statistical compilation of data in connection with the internal management or support of the preparer's tax return preparation business. Notice 2009-13 provided that any disclosure of a statistical compilation had to be in a form that could not be associated with, or otherwise identify, directly or indirectly, a particular taxpayer. To further protect anonymity, the disclosure had to not disclose cells containing data from fewer than 25 tax returns.

Under the regulations, disclosure of cells containing data from ten or more tax returns is permitted. The regulations clarify that a preparer is permitted to disclose an anonymous statistical compilation for bona fide research or public policy discussions concerning state or federal taxation or requiring data acquired during the return preparation process. However, the regulations prohibit, in the context of marketing or advertising, the use or disclosure of any part of a statistical compilation that identifies the dollar amount of refunds, credits, or deductions associated with tax returns, regardless of whether the data are statistical, averaged, aggregated or anonymous.

Finally, the regulations permit the use and disclosure of information, without the taxpayer's written consent, for purposes of conflict of interest reviews, but only to the extent necessary to accomplish the review. The regulations specify that such reviews include reviews undertaken to comply with requirements established by federal, state or local law, agency, boards and commissions. It also includes reviews by professional association ethics committee and boards. While such reviews may take place outside the United States, if disclosure is made in connection with such foreign reviews, the disclosing and receiving preparers must have adequate procedures in place to maintain the confidentiality of the disclosed information.

The text of the temporary regulations also serves as the text of the proposed regulations. Written or electronic comments and requests for a public hearing must be received by February 27, 2010.

T.D. 9478, 2010FED ¶47,008

Proposed Regulations, NPRM REG-131028-09, 2010FED ¶49,441

Other References:

Code Sec. 7216

CCH Reference - 2009FED ¶41,365A

CCH Reference - 2009FED ¶41,365E

CCH Reference - 2009FED ¶41,367C

CCH Reference - 2009FED ¶41,367G

Tax Research Consultant

CCH Reference - TRC IRS: 66,360.10

CCH Reference - TRC IRS: 66,360.15