[Federal Register Volume 73, Number 4 (Monday, January 7, 2008)]
[Rules and Regulations]
[Pages 1058-1075]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 08-1]


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DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Part 301

[TD 9375]
RIN-1545-BA96


Guidance Necessary To Facilitate Electronic Tax Administration--
Updating of Section 7216 Regulations

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Final regulations.

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SUMMARY: This document contains regulations to update the rules 
regarding the disclosure and use of tax return information by tax 
return preparers. Among other things, the regulations finalize rules 
for taxpayers to consent to the disclosure or use of their tax return 
information by tax return preparers.

DATES: Effective Date: These regulations are effective January 7, 2008.
    Applicability Date: The regulations apply to disclosures or uses of 
tax return information occurring on or after January 1, 2009.

SUPPLEMENTARY INFORMATION:

Background

    This document contains amendments to the Regulations on Procedure 
and Administration (26 CFR Part 301) under section 7216 of the Internal 
Revenue Code. These regulations strengthen taxpayers' ability to 
control their tax return information by requiring that tax return 
preparers give taxpayers specific information, including who will 
receive the tax return information and the particular items of tax 
return information that will be disclosed or used, to allow taxpayers 
to make knowing, informed, and voluntary decisions over the disclosure 
or use of their tax information by their tax return preparer.
    Section 7216 imposes criminal penalties on tax return preparers who 
knowingly or recklessly make unauthorized disclosures or uses of 
information furnished to them in connection with the preparation of an 
income tax return. In addition, tax return preparers are subject to 
civil penalties under section 6713 for disclosure or use of this 
information unless an exception under the rules of section 7216(b) 
applies to the disclosure or use.
    Section 7216 was enacted by section 316 of the Revenue Act of 1971, 
Public Law 92-178 (85 Stat. 529). In 1988, Congress modified the 
section by limiting the criminal sanction to knowing or reckless, 
unauthorized disclosures. Public Law 100-647 (102 Stat. 3749). At the 
same time, Congress enacted the civil penalty that is now found in 
section 6713. Public Law 100-647, Sec.  6242(a) (102 Stat. 3759). In 
1989, Congress further modified section 7216, directing the Treasury 
Department to issue regulations permitting disclosures of tax return 
information for quality or peer reviews. Public Law 101-239, Sec.  
7739(a) (103 Stat. 3759).
    The Treasury Department and the IRS proposed regulations under 
section 7216 on December 20, 1972 (37 FR 28070). Final regulations were 
issued on March 29, 1974 (39 FR 11537). These regulations are divided 
into three parts: Sec.  301.7216-1 for general provisions and 
definitions; Sec.  301.7216-2 for disclosures and uses that do not 
require formal taxpayer consent; and Sec.  301.7216-3 for disclosures 
and uses that require formal taxpayer consent. Since the regulations 
were adopted in 1974, the Treasury Department and the IRS have amended 
Sec.  301.7216-2 on occasion, but Sec. Sec.  301.7216-1 and 301.7216-3 
have remained unchanged.
    A notice of proposed rulemaking (REG-137243-02) was published in 
the Federal Register (70 FR 72954) on December 8, 2005. Concurrently 
with publication of the proposed regulations, the IRS published Notice 
2005-93, 2005-52 I.R.B. 1204 (December 07, 2005), setting forth a 
proposed revenue procedure that would provide guidance to tax return 
preparers regarding the format and content of consents to disclose and 
consents to use tax return information under Sec.  301.7216-3.
    Written comments were received in response to the notice of 
proposed rulemaking. A public hearing was held on April 4, 2006. 
Commentators appeared at the public hearing and

[[Page 1059]]

commented on the notice of proposed rulemaking.
    All comments were considered and are available for public 
inspection upon request. This preamble summarizes most of the comments 
received by the IRS and Treasury Department. After consideration of the 
written comments and the comments provided at the public hearing, the 
proposed regulations under section 7216 are adopted as revised by this 
Treasury decision.
    Concurrently with publication of these regulations, the IRS is 
publishing a revenue procedure and an advanced notice of proposed 
rulemaking. The revenue procedure provides guidance on the format and 
content of consents to disclose or use tax return information under 
Sec.  301.7216-3 for taxpayers filing a return in the Form 1040 series, 
e.g., Form 1040, Form 1040NR, Form 1040A, or Form 1040EZ. The revenue 
procedure also provides specific guidance for electronic signatures 
when a taxpayer filing a return in the Form 1040 series executes an 
electronic consent to the disclosure or use of the taxpayer's tax 
return information.
    The advanced notice of proposed rulemaking requests comments 
regarding a proposed rule under Sec.  301.7216-3 that a tax return 
preparer may not obtain a consent to disclose or use tax return 
information for the purpose of the tax return preparer soliciting, or 
the taxpayer obtaining, a refund anticipation loan (RAL) or certain 
other products.

Summary of Comments

1. Preamble

    Some commentators recommended that the final regulations specify 
the existing revenue rulings, notices, and other guidance under section 
7216 that continue to have effect under the final regulations. While 
the final regulations do not identify all guidance that has continuing 
effect, the section of this Treasury decision entitled ``Effect on 
Other Documents'' specifies guidance that Treasury and the IRS have 
determined as contrary to the regulations.
    One commentator requested that the preamble of the regulations 
clarify whether a tax return preparer may offer for sale an insurance 
policy that will reimburse the taxpayer additional tax the taxpayer is 
required to pay under certain circumstances involving errors by the tax 
return preparer. Section 7216 and the regulations thereunder govern 
only a tax return preparer's disclosure or use of tax return 
information. To the extent that a tax return preparer offers a product, 
such as insurance, where the offer is based on the disclosure of tax 
return information to a third-party, or where use of such tax return 
information serves as the basis for making the offer, section 7216 and 
the regulations thereunder only govern whether use or disclosure of the 
tax return information requires taxpayer consent.

2. Section 301.7216-1 Penalty for Disclosure or Use of Tax Return 
Information

A. Statutory Provisions
    Some commentators recommended that Treasury and the IRS seek 
legislative changes to section 7216. More specifically, these 
commentators recommended that the amount of the section 7216 criminal 
penalty be increased, that the amount of the section 6713 civil penalty 
be increased, and that the Code be amended to provide a private right 
of action against tax return preparers. Another commentator recommended 
amending section 7216 to provide a means to abate the penalty in cases 
where reasonable cause and good faith is established. This commentator 
also recommended that Treasury and the IRS not attempt to regulate the 
disclosure or use of tax return information in the context of a 
criminal statute, section 7216, but that only civil penalties should 
apply.
    Requests for statutory changes to sections 7216 and 6713 are 
outside of the scope of these regulations. Section 7216 expressly 
provides for Treasury to promulgate regulations to exempt certain 
disclosures or uses of information from the statute's criminal 
sanction. Although Treasury and the IRS do not have the regulatory 
authority to provide for a reasonable cause exception under section 
7216, the criminal penalty provided for by that statute is premised on 
a finding of knowing or reckless conduct.
B. Tax Return Preparer
    One commentator requested expanding the definition of tax return 
preparer to include clerical staff involved in preparation of a tax 
return. Because the definition of tax return preparer in the 
regulations already encompasses clerical staff involved in the 
preparation of a return, no change is needed to address this comment.
    While approving of the generally broad scope of the term ``tax 
return preparer,'' one commentator expressed concern that the term did 
not cover employees of tax return preparers who do not personally 
assist in the preparation of tax returns or the provision of auxiliary 
services. That commentator recommended that section 7216 should 
nonetheless apply to any employee. This comment was not adopted. The 
statute applies only to persons ``engaged in the business of preparing, 
or providing services in connection with the preparation of, returns.'' 
The regulations, however, do not permit disclosure by one employee of a 
tax return preparer to another employee of the tax return preparer on 
the basis of employment status alone. See Treas. Reg. Sec.  301.7216-
2(c).
    Based on recent amendments to section 7701(a)(36) of the Code 
(which post-amendment applies more generally to tax return preparers 
other than income tax returns), the final regulations were revised to 
omit the language in the proposed regulations pertaining to the lack of 
uniformity of the definition of tax return preparer provided in section 
7701(a)(36) and the definition of tax return preparer for purposes of 
section 7216.
C. Tax Return Information
    Some commentators expressed concern that the definition of tax 
return information encompasses an overly broad amount of information. 
One commentator recommended that a taxpayer's name, address, telephone 
number, e-mail address, and identification number should not be treated 
as tax return information. Another commentator recommended that a 
taxpayer's name, address, and other contact information should be 
available for a tax return preparer to use to provide the taxpayer with 
any information that the tax return preparer believes may be of 
interest to the taxpayer. These recommendations regarding tax return 
information were not adopted because information revealing the identity 
of, or how to contact, a person is information central to one's privacy 
and deserving of treatment as tax return information when submitted 
for, or in connection with, the preparation of a tax return. Section 
301.7216-2(n), however, permits tax return preparers to make limited 
use of taxpayer's contact information to offer tax information or 
additional tax return preparation services to previous customers.
    One commentator recommended eliminating language from the 
regulations providing that information maintained in a form that is 
associated with the tax return preparation becomes tax return 
information regardless of how the information was initially obtained. 
The commentator questioned whether non-tax return information could 
become tax return information as a result of the manner in which it is

[[Page 1060]]

stored and maintained by the tax return preparer. Treasury and the IRS 
agree that section 7216 protects only information furnished to a tax 
return preparer for, or in connection with, the preparation of a return 
and that information does not become tax return information merely by 
the method in which the information is stored. The language in the 
proposed regulations that is the subject of the comment was included to 
recognize that the protections of section 7216 may extend to 
information furnished by persons other than the taxpayer, including 
information furnished by one person within a firm to a tax return 
preparer employed by the same firm. In that situation, the information 
in the hands of the tax return preparer would be tax return information 
even if the person furnishing the information had obtained it other 
than in connection with the preparation of a tax return. Because this 
rule is evident from other provisions of the regulations, and the 
language commented upon may create confusion, the language has been 
removed from these regulations.
    One commentator expressed concern that the proposed regulations 
improperly expand upon section 7216 by defining ``tax return 
information'' to include information derived or generated from tax 
return information. The commentator commented that section 7216 
protects only information furnished to tax return preparers, and data 
that a tax return preparer derives from that information should not be 
considered data furnished to the tax return preparer. The commentator, 
therefore, recommended removing this language from the regulations.
    The commentator's recommendation was not adopted. Information that 
a tax return preparer would typically derive from other information 
furnished in connection with the preparation of a return could include 
information on the taxpayer's entitlement to deductions, credits, 
losses or gains, the amounts thereof, and the amount of tax due. It 
would frustrate the purpose of the statute not to protect this 
information when a taxpayer has furnished the tax return preparer the 
means to derive it.
    Similarly, the same commentator stated that the proposed 
regulations improperly expand upon the statute by defining ``tax return 
information'' to include ``information received by the tax return 
preparer from the IRS in connection with the processing of such 
return.'' The commentator recommended eliminating this language from 
the regulations. This recommendation was not adopted. The statute 
protects information furnished to a tax return preparer for, or in 
connection with, preparation of a return and does not require that the 
taxpayer have furnished the information.
    Some commentators approved of the proposed regulations' definition 
of tax return information, but expressed concern that Example 1 in 
Sec.  301.7216-1(b)(3)(ii) suggests that information supplied to 
register tax preparation software is not tax return information unless 
the tax return preparer states during the registration process that it 
will provide updates to registrants. These commentators, therefore, 
recommended deleting that fact from the example. This recommendation 
was adopted to explicitly provide that all information furnished to 
register tax return preparation software is tax return information.
    Some commentators expressed concern that if information furnished 
to register tax return preparation software was treated as tax return 
information, then tax return preparers would be required to obtain 
consent from taxpayers prior to updating the tax return preparation 
software. To address this concern, section 301.7216-2(c) of the 
regulations has been revised.
D. Disclosure and Use
    One commentator stated that the definition of ``use'' is overly 
broad. The commentator proposed that the ``use'' of tax return 
information should not include tax return preparers informing taxpayers 
of the availability of products and services that tax return preparers 
offer that could benefit taxpayers. As an example, the commentator 
stated that informing a taxpayer about the availability of a refund 
anticipation loan based on the taxpayer's tax return information should 
not be a ``use'' of tax return information. This recommendation was not 
adopted. The regulations require consents for tax return preparers to 
use tax return information so that taxpayers themselves determine 
whether they want additional information regarding products and 
services that might benefit them. The potential uses of tax return 
information should be clearly described by tax return preparers and the 
potential uses must be consented to by taxpayers before such uses 
occur.
    Two commentators recommended that tax return preparers should be 
responsible for subsequent disclosures or uses of tax return 
information by third parties to whom tax return preparers made an 
authorized disclosure of tax return information. This recommendation 
was not adopted because section 7216 does not apply to third parties 
who are not tax return preparers.
E. Providing Auxiliary Services
    Section 301.7216-1(b)(2)(iii) of the proposed regulations provides 
that a person is engaged in the business of providing auxiliary 
services in connection with the preparation of tax returns as described 
in paragraph (b)(2)(i)(B) of that section if, in the course of the 
person's business, the person holds himself out to tax return preparers 
or to taxpayers as a person who performs auxiliary services, whether or 
not providing the auxiliary services is the person's sole business 
activity and whether or not the person charges a fee for the auxiliary 
services. One commentator recommended broadening the definition of 
auxiliary services to include analysis of data for purposes of 
monitoring the tax return preparer's business for fraud prevention and 
provision of data storage services. These services as well as similar 
services are typical of the types of auxiliary services that can be 
provided to tax return preparers as contemplated by Sec.  301.7216-
1(b)(2)(iii) and are already covered by the broad definition of 
auxiliary services in the regulations. The same commentator also 
recommended broadening the definition of auxiliary services to include 
the analysis of customer activity to improve services and assistance in 
connection with preparation for taxpayer audits. These services are 
already addressed in other parts of the regulations. See Sec. Sec.  
301.7216-2(o) and 301.7216-2(k).
F. Exclusions Under Sec.  301.7216-1(b)(2)(v)
    One commentator recommended that the express exclusion under Sec.  
301.7216-1(b)(2)(v) of the proposed regulations of certain persons from 
the definition of tax return preparer should be extended to include 
persons who provide ``a broad range of financial products and services 
* * * to customers of tax return preparers, including savings, 
transaction, and retirement accounts.'' The commentator's 
recommendation was not adopted as the regulations do not provide an 
exhaustive list of the persons identified as excluded from the 
definition of tax return preparer. To the extent the service providers 
suggested to be excluded by the commentator provide services only 
incidentally related to the preparation of the return, these persons 
would be excluded under the regulation.
G. Hyperlinks
    One commentator recommended that the regulations should not treat 
as a

[[Page 1061]]

disclosure by a tax return preparer the situation where a taxpayer is 
transferred from the tax return preparer's website to a different 
website and the taxpayer separately enters information on the different 
website. This recommendation was not adopted because the regulations 
already do not treat this fact pattern as a disclosure by the tax 
return preparer.

3. Section 301.7216-2 Permissible Disclosures or Uses Without Consent 
of the Taxpayer

A. Disclosures to the IRS
    Section 301.7216-2(b) of the proposed regulations provides that tax 
return preparers may disclose to the IRS any tax return information the 
IRS requests to assist in the administration of electronic filing 
programs. One commentator requested limiting this rule to ``specific 
necessary purposes, such as compliance by electronic return 
originators.'' This recommendation was not adopted. Return information 
in the hands of the IRS is already protected from unauthorized 
disclosure. See, e.g., section 6103.
    Other commentators expressed concern regarding whether Sec.  
301.7216-2(b) permitted disclosures of tax return information to the 
IRS in general. Because the purpose of these regulations is to protect 
taxpayers from the unauthorized uses and disclosures by tax return 
preparers, and because tax return information in the hands of the IRS 
is already protected from unauthorized disclosure, Sec.  301.7216-2(b) 
has been modified to clarify that return preparers may disclose any tax 
return information to the IRS for any purpose.
B. Use By Tax Return Preparer for Purposes of Updating Software
    Section 301.7216-2(c)(1) of the final regulations has been revised 
to provide that if a tax return preparer provides software to a 
taxpayer that is used in connection with the preparation or filing of a 
tax return, the tax return preparer may use the taxpayer's tax return 
information to update the taxpayer's software for the purpose of 
addressing changes in IRS forms, e-file specifications and 
administrative, regulatory and legislative guidance or to test and 
ensure the software's technical capabilities without obtaining the 
taxpayer's consent under Sec.  301.7216-3.
C. Disclosure to a Tax Return Preparer Within the Same Firm Located 
Outside of the United States
    Section 301.7216-2(c) of the proposed regulations generally 
provides that an officer, employee, or member of a tax return preparer 
in the United States may disclose tax return information to another 
officer, employee, or member of the same tax return preparer located 
within the United States. Section 301.7216-2(c)(1) of the proposed 
regulations provides that the taxpayer must give consent under Sec.  
301.7216-3 prior to any disclosure of tax return information by an 
officer, employee, or member of a tax return preparer in the United 
States to an officer, employee, or member of the same tax return 
preparer located outside of the United States or any territory or 
possession of the United States. One commentator expressed concern that 
this rule was too strict with respect to multinational companies and 
employees on assignment outside of the United States. This commentator 
stated that such taxpayers anticipate that their tax return information 
will be disclosed outside of the United States. This commentator 
recommended that consent under Sec.  301.7216-3 should not be required 
with respect to disclosures when the taxpayer is a multinational 
company or an individual taxpayer employed or on assignment outside of 
the United States and that an engagement letter explaining potential 
circumstances involving disclosures overseas ought to be permitted in 
these situations.
    This recommendation was not adopted. As explained in the preamble 
to the proposed regulations, the Treasury Department and IRS believe 
that a separate explanation is required under these circumstances in 
order to advise taxpayers that their tax return information is being 
disclosed to tax return preparers located outside the United States. 
The final regulations, however, address the commentator's request for 
additional flexibility with respect to the form and manner of the 
consent for taxpayers other than individuals. For tax return preparers 
providing tax return preparation services to taxpayers who do not file 
an income tax return in the Form 1040 series, e.g., Form 1040, Form 
1040NR, Form 1040A, or Form 1040EZ, a consent to disclose tax return 
information outside the United States may be in any format, including 
an engagement letter to a client, as long as the consent provides 
sufficient information to enable the taxpayer to provide informed 
consent. For tax return preparers providing tax return preparation 
services to taxpayers who file an income tax return in the Form 1040 
series, the regulations provide that the Secretary may issue guidance, 
by publication in the Internal Revenue Bulletin, prescribing the form 
and manner of the consent to disclose tax return information, including 
disclosure of return information outside the United States. This rule 
is consistent with the general rule adopted by these final regulations 
with respect to a tax return preparer's request for consent to disclose 
tax return information. See section 301.7216-3(a)(3).
    Additionally, one commentator recommended that, rather than provide 
limitations on the disclosure of tax return information by a tax return 
preparer within the United States to another tax return preparer of the 
same firm who is located outside of the United States, the regulations 
should instead permit such disclosures without consent if the tax 
return preparer of the same firm outside of the United States consents 
to adhere to the rules of section 7216. This recommendation was not 
adopted because it does not inform taxpayers that their tax return 
information will be disclosed outside of the United States or allow 
taxpayers to control the decision whether their information is 
disclosed overseas.
D. Disclosures to Other Tax Return Preparers
    Section 301.7216-2(d) of the proposed regulations provides that 
disclosures between tax return preparers are authorized when the 
disclosures (i) assist in the preparation of a return; (ii) the 
services provided by the recipient of the disclosure are not 
substantive determinations or advice affecting a taxpayer's reported 
tax liability; and (iii) the disclosure is to a tax return preparer 
located in the United States. Two commentators expressed concern that 
the phrase ``substantive determinations or advice'' is a vague standard 
and recommended the use of examples in the regulations that adequately 
define the phrase. The final regulations clarify the meaning of 
substantive determinations and provide an example to illustrate the 
operation of this rule.
    One commentator recommended adopting the professional ethics rules 
of the American Institute of Certified Public Accountants (AICPA) on 
outsourcing in lieu of Sec.  301.7216-2(d) of the proposed regulations. 
Rule 102 of the AICPA Code of Professional Conduct requires that, prior 
to sharing confidential client information (such as a tax return) with 
a third-party service provider, an AICPA member must inform the client, 
preferably in writing, that the member may use a third-party service 
provider when providing professional services to the client. Unlike the 
rules in the regulations, the AICPA Code of Professional Conduct does 
not require that the client consent

[[Page 1062]]

to the disclosure of tax return information when substantive 
determinations or advice are sought from third parties. Under the AICPA 
rules, AICPA members who use third-party service providers remain 
responsible for the work done by the service providers and they must 
contract with the third-party service provider for the service provider 
to monitor the confidentiality of the client's information to the 
third-party Service provider. The commentator's recommendation that the 
regulations adopt only the protections of the AICPA ethics rules was 
not adopted. The Treasury Department and the IRS are concerned that 
taxpayers and tax return information would not be adequately protected 
if a tax return preparer could disclose tax return information to any 
third-party service provider without taxpayer consent to that 
disclosure.
    One commentator recommended modifying Sec.  301.7216-2(d) of the 
proposed regulations to allow disclosures between franchisors and 
franchisees in the tax return preparation business according to the 
terms of their franchise agreement. The commentator's recommendation 
was not adopted because the existence of a written franchise agreement 
should not affect the confidentiality of a taxpayer's tax return 
information.
    One commentator critiqued Sec.  301.7216-2(d) because it will limit 
the benefits tax return preparation firms may enjoy from using foreign 
outsourcing. Foreign outsourcing is not prohibited by the final 
regulations, which permit the disclosure of tax return information 
outside of the United States if the taxpayer consents to such 
disclosure. One commentator recommended that tax return preparers 
should be allowed to disclose tax return information to third-party 
service providers subject to the requirements of the privacy provisions 
of Title V of the Gramm-Leach-Bliley Act, Public Law 106-102 (113 Stat. 
1338) (GLBA). Specifically, the commentator proposed that the 
regulations should permit tax return preparers to: (1) Execute a 
written contract with a service provider limiting the service 
provider's disclosure or use of tax return information; (2) select and 
retain service providers that are capable of safeguarding tax return 
information; and (3) implement contractual provisions requiring service 
providers to develop and maintain appropriate information safeguards. 
This recommendation was not adopted. While the requirements of section 
7216 and these regulations do not override any requirements or 
restrictions of the GLBA, the sensitivity of tax return information 
justifies affording tax return information stronger protections than 
other information subject to the GLBA.
E. Disclosure Pursuant to an Order of a Court, or an Administrative 
Order, Demand, Request, Summons or Subpoena Which is Issued in the 
Performance of its Duties by a Federal or State Agency, the United 
States Congress, a Professional Association Ethics Committee or Board, 
or the Public Company Accounting Oversight Board
    One commentator recommended that the title of proposed Sec.  
301.7216-2(f) be revised to add the word ``request'' following the word 
``demand,'' to align the subsection's title with the regulation's 
language in Sec.  301.7216-2(f)(5). This recommendation was adopted in 
the final regulation.
    One commentator recommended replacing the phrase ``professional 
ethics board'' in proposed Sec.  301.7216-2(f) with the phrase 
``certain professional association ethics committees or boards.'' The 
commentator noted that this change would avoid confusion as to whether 
the reference to professional ethics boards means governmental entities 
that control licensing for CPAs or whether the phrase would include 
professional associations that have boards or committees that 
discipline their members, such as the AICPA or state and local bar 
associations. This recommendation was adopted, in part, by changing the 
phrase ``professional ethics board'' to ``professional association 
ethics committee or board.'' Section 301.7216-2(f)(4)(ii) separately 
addresses disclosures to government entities charged with licensing, 
registration, or regulation of tax return preparers.
    One commentator recommended permitting disclosure of tax return 
information without taxpayer consent pursuant to disclosures required 
by Federal or State laws and administrative rules, but did not identify 
any specific rule or law that required a disclosure in circumstances 
contrary to either the preexisting regulations or the proposed 
regulations. Preexisting regulations already permitted disclosures 
pursuant to an order of a court or a Federal or State agency. These 
final regulations permit disclosures pursuant to an order of a court or 
an administrative order, demand, summons or subpoena that is issued in 
the performance of its duties by a Federal or State agency, the United 
States Congress, a professional association ethics committee or board, 
or the Public Company Accounting Oversight Board. The protections 
offered by limiting disclosures to responses to specific governmental 
or quasi-governmental requests provide appropriate protection for 
taxpayer privacy.
    One commentator expressed concern about proposed Sec.  301.7216-
2(f)(5) and the safeguarding of tax return information received by a 
professional association board or committee conducting an ethics 
investigation. The commentator recommended revising Sec.  301.7216-
2(f)(5) to expressly prohibit professional associations from publishing 
as part of any resulting professional disciplinary determination the 
tax return information of a taxpayer furnished to them during an ethics 
investigation of a preparer unless the taxpayer provides consent. This 
recommendation was not adopted because section 7216 does not provide 
for penalties against third parties who receive tax return information 
in this context.
    One commentator recommended rewording proposed Sec.  301.7216-
2(f)(6) to provide the following: ``A written request from the Public 
Company Accounting Oversight Board (PCAOB) in connection with an 
inspection under section 104 of the Sarbanes-Oxley Act of 2002, 15 
U.S.C. 7214, or an investigation under section 105 of such Act, 15 U.S. 
7215, for use in accordance with such Act.'' The commentator noted that 
this wording describes more clearly the situations in which disclosures 
to the PCAOB are permitted, and to permit registered firms and their 
associated persons to comply with their disclosure obligations under 
the Act. This recommendation was adopted.
    One commentator expressed concern that permitting the disclosure of 
tax return information pursuant to a subpoena issued by the United 
States Congress is inconsistent with the rules regarding disclosures by 
the IRS to Congress under section 6103(f). The commentator stated that 
the regulations may provide a method to avoid the specific disclosure 
rules of section 6103(f), which are designed to protect taxpayers and 
prevent Congressional abuse of returns or return information. Another 
commentator recommended eliminating the term ``demand'' in Sec.  
301.7216-2(f)(4)(i) because the commentator believes the term is too 
broad and could permit any Federal agency to simply ask for tax return 
information even if the agency does not have authority to issue 
``formal legal orders'' compelling the disclosure. These 
recommendations were not adopted. Both Congress and Federal agencies 
are presumed to act in accordance with the law and there are

[[Page 1063]]

other limitations on their abilities to seek tax return information.
F. Disclosure for Use in Securing Legal Advice, Treasury 
Investigations, or Court Proceedings
    Final section 301.7216-2(g) has been revised to confirm that a tax 
return preparer may disclose tax return information to an attorney for 
purposes of the preparer securing legal advice.
G. Tax Return Preparers Working for the Same Firm
    Section 301.7216-2(h)(1)(ii) provides that a tax return preparer's 
law or accounting firm does not include any related or affiliated 
firms. Some commentators expressed concern that this rule reduces the 
application of the Sec.  301.7216-2 exceptions for tax return preparers 
that are structured as separate legal entities, but are closely 
related. One commentator recommended that the regulations be revised to 
provide that the ``same firm'' standard be determined in a manner 
similar to the rules for qualified employee plans for a single 
employer. This recommendation was not adopted. Taxpayers should have a 
clear understanding with whom they are dealing. Adopting this 
recommendation would require that a taxpayer understand complex rules 
about which separate legal entities are part of the ``same firm'' as 
their tax return preparer to be able to understand who might receive 
their tax return information. Additionally, a tax return preparer has 
the ability to obtain consent from a taxpayer to disclose tax return 
information to a related or affiliated firm.
H. Disclosure or Use of Tax Return Information in Preparation for Audit
    One commentator recommended that a tax return preparer should be 
permitted to disclose tax return information to another tax return 
preparer so that the second tax return preparer can provide assistance 
in connection with the audit of a return under the law of any State or 
political subdivision thereof, the District of Columbia, or any 
territory or possession of the United States. This comment was not 
adopted because Sec.  301.7216-2(k) already permits such disclosures.
I. Payment for Tax Preparation Services
    Section 301.7216-2(l) provides that a tax return preparer may 
disclose and use, without the taxpayer's written consent, tax return 
information that the taxpayer provides to the tax return preparer to 
pay for tax preparation services to the extent necessary to process the 
payment. One commentator recommended applying this rule to the 
collection of payments. This recommendation was adopted. The exception 
under Sec.  301.7216-2(l) for the collection of payments is subject to 
the same limitations as the rule for processing payments. Only tax 
return information that the taxpayer provided to the tax return 
preparer to pay for tax return preparation services may be used to 
collect payment. This limitation precludes tax return preparers from 
using any other tax return information to collect on delinquent 
payments.
J. Lists for Solicitation of Tax Return Business
    Section 301.7216-2(n) of the proposed regulations provides that a 
tax return preparer may compile and maintain a separate list containing 
solely the names, addresses, e-mail addresses, and phone numbers of 
taxpayers whose tax returns the tax return preparer has prepared or 
processed. The proposed regulations also state that this list may be 
used by the compiler solely to contact the taxpayers on the list for 
the purpose of offering tax information or additional tax return 
preparation services. One commentator recommended adding that no 
mention of services or products other than those related to tax 
preparation services may be made. Treasury and the IRS agree that the 
prohibition on using the list to solicit business other than tax return 
preparation services could be strengthened, and have modified Sec.  
301.7216-2(n) to address the commentator's concern.
K. Producing Statistical Information in Connection With Tax Return 
Preparation Business
    Section 301.7216-2(o) of the proposed regulations permits a tax 
return preparer to use tax return information to prepare anonymous 
statistical compilations for limited purposes related to management or 
support of the tax return preparer's business. Two commentators 
recommended that the disclosure or use of tax return information in 
statistical compilations should be limited to ``internal management'' 
because ``support'' might be read to allow a tax return preparer to 
target specific customers with advertising. This recommendation was not 
adopted because Sec.  301.7216-2(o) specifically prohibits the 
disclosure or use of statistical compilations in connection with, or in 
support of, businesses other than tax return preparation, and use of 
lists to solicit additional tax return preparation business is 
specifically governed, and limited, by Sec.  301.7216-2(n).
    One commentator recommended that statistical compilations of tax 
return information that do not identify taxpayers should not be 
considered ``tax return information'' for purposes of section 7216. The 
commentator stated that if statistical information is treated as ``tax 
return information,'' such a rule could prevent tax return preparers 
(especially tax return preparers that are publicly traded) from 
reporting essential data to financial regulators or to market 
participants to provide an accurate picture of the tax return 
preparer's performance and financial condition. In response to the 
concern raised by the commentator, the final regulation was modified to 
provide that the compiler of the statistical compilation may not 
disclose the compilation, or any part thereof, to any other person 
unless the disclosure of the statistical compilation is made in order 
to comply with financial accounting or regulatory reporting 
requirements or occurs in conjunction with the sale or other 
disposition of the compiler's tax return preparation business.
    One commentator recommended that tax return preparers located 
within the same firm should be permitted, without obtaining consent, to 
use tax return information for ``the management, support or maintenance 
of the tax return preparer's business.'' This recommendation was not 
adopted. Because the regulations already permit a tax return preparer 
to use tax return information to prepare statistical compilations for 
limited purposes related to management or support of the tax return 
preparer's business, it is unclear how the commentator's recommendation 
would further aid in the management or support of a tax return 
preparer's business.
    One commentator recommended that the regulations require that 
``taxpayer identifying'' data, such as names and social security 
numbers, be redacted from statistical information. This recommendation 
was not adopted. The regulations already require that statistical 
compilations must be ``anonymous.''
L. Quality or Peer Reviews
    Section 301.7216-2(p) of the proposed regulations provides that a 
quality or peer review may be conducted only by attorneys, certified 
public accountants, enrolled agents, and enrolled actuaries who are 
eligible to practice before the Internal Revenue Service. Some 
commentators recommended that this subsection of the proposed 
regulations should be revised to permit other professionals to 
participate in quality or peer reviews.

[[Page 1064]]

This recommendation was not adopted. The restriction helps to prevent 
unauthorized disclosures of tax return information by limiting 
participation in such reviews to those persons subject to Circular 230, 
31 CFR Part 10.
M. Extraction of Tax Return Information Within Software Only for the 
Purposes of Reducing Repetitive Data Entry
    One commentator recommended that the use of computer software 
designed to assist with the preparation of an income tax return should 
be allowed without consent to ``extract'' certain tax return 
information once entered, such as the taxpayer's name and address, and 
reprint such information in required fields on the same return in order 
to eliminate repetitive data entry. This comment was not adopted 
because the regulations do not prohibit such a use of tax return 
information where the information is being used for the permitted 
purpose of preparing the taxpayer's tax return.

4. Proposed Sec.  301.7216-3: Disclosures and Uses Authorized by 
Taxpayer Consent

A. Consent To Disclose Tax Return Information
    Some commentators expressed concern that the proposed regulations 
authorize the IRS to make available for sale to third parties its 
internal records and data containing tax return information. This 
concern reflects a fundamental misunderstanding of the proposed 
regulations. The proposed regulations do not address any disclosure of 
tax return information by the IRS; the proposed regulations address 
only the disclosure and use of tax return information by tax return 
preparers. Separate laws, including section 6103, strictly protect the 
confidentiality of returns and return information in the hands of IRS 
employees and others.
    Some commentators expressed concern that the proposed regulations 
would loosen the current rules regarding a tax return preparer's 
ability to disclose a client's tax return information. This concern is 
based on a misunderstanding of the purpose and content of the proposed 
and preexisting regulations. Section 301.7216-3(a)(1) of the proposed 
regulations provides that, unless section 7216 or Sec.  301.7216-2 
authorizes the disclosure of tax return information, a tax return 
preparer may not disclose a taxpayer's tax return information prior to 
obtaining consent from the taxpayer. Since 1974, section 301.7216-
3(a)(2) has provided that, ``[i]f a tax return preparer has obtained 
from a taxpayer a consent * * *, he may disclose the tax return 
information of such taxpayer to such third persons as the taxpayer may 
direct.'' Thus, the proposed regulations contained the same substantive 
rule that has been in place for over 30 years. Throughout the long-
standing existence of former Sec.  301.7216-3(a)(2), there has been no 
objection to the provision that allowed taxpayers to provide informed 
consent to tax return preparers disclosing tax return information to 
third parties.
    Nonetheless, commentators criticized the proposed rule, stating 
that it could allow tax return preparers to induce clients into 
providing unknowing or inadvertent consents to sell or otherwise 
disclose tax return information. Furthermore, they argue that 
disclosure to third parties could result in identity theft. Thus, one 
solution these commentators recommend is to prohibit taxpayers from 
ever consenting to the disclosure of their tax return information.
    The Treasury Department and IRS did not adopt the commentators' 
recommendation. Rather, the final regulations retain the general rule 
that has been in place for more than 30 years recognizing that 
taxpayers should have control over their own tax return information and 
that taxpayers should, with appropriate limits and safeguards, be able 
to direct tax return preparers to disclose tax return information as 
taxpayers see fit. This rule parallels the statutory rule in section 
6103(c) that allows taxpayers to consent to the IRS disclosing returns 
or return information to third parties of the taxpayer's choosing.
    In addition, this rule is consistent with the privacy protection 
regime in the Health Insurance Portability and Accountability Act 
(HIPAA), Public Law 104-191 (110 Stat. 1936). HIPAA permits health care 
providers and health plans to disclose information about health status, 
provision of health care, or payment to a third-party if they have 
obtained authorization from the individual patient.
    While identity theft is a significant concern, Treasury and the IRS 
do not believe a generalized concern regarding the potential for 
criminal activity by third parties should preclude taxpayers from being 
able to direct the disclosure of tax return information to third 
parties for legitimate reasons of the taxpayer's own choosing, 
particularly in the absence of any evidence that disclosure of tax 
return information by tax return preparers has been a source of 
identity theft problems.
    While the idea of a complete prohibition on consent to disclosure 
was rejected, Treasury and the IRS did revise Sec.  301.7216-3(b)(5), 
based on several factors. These factors include: (1) The fact that it 
is not necessary for tax return preparers to disclose certain taxpayer 
identifying information to other tax return preparers who are assisting 
them in preparing a return; (2) the important role a social security 
number (SSN) plays in the tax administration process, and the 
heightened potential for misuse when an SSN is readily associated with 
confidential information, such as tax return information; and (3) the 
heightened concern about the theft of an individual's confidential 
information resulting from disclosures outside the United States. 
Section 301.7216-3(b)(4) now provides that a tax return preparer 
located within the United States, including any territory or possession 
of the United States, may not obtain consent to disclose a taxpayer's 
SSN to a tax return preparer located outside of the United States or 
any territory or possession of the United States. Thus, if a tax return 
preparer located within the United States obtains consent from a 
taxpayer to disclose tax return information to another tax return 
preparer located outside of the United States, as provided under 
Sec. Sec.  301.7216-2(c) and 301.7216-2(d), the tax return preparer 
located in the United States may not disclose the taxpayer's SSN, and 
the tax return preparer must redact or otherwise mask the taxpayer's 
SSN before the tax return information is disclosed outside of the 
United States. If a tax return preparer located within the United 
States initially receives or obtains a taxpayer's SSN from another tax 
return preparer located outside of the United States, however, the tax 
return preparer within the United States may, without consent, 
retransmit the taxpayer's SSN to the tax return preparer located 
outside the United States that initially provided the SSN to the tax 
return preparer located within the United States. Where a taxpayer-
client requests that a tax return preparer within the United States 
transfer the return preparation engagement to a tax return preparer 
located outside the United States, the preparer must still redact or 
otherwise mask the taxpayer's SSN before the information is disclosed 
and, in this situation, it will be incumbent upon the taxpayer to 
provide the SSN directly to the tax return preparer located abroad.
    Some commentators recommended that the regulations provide 
taxpayers with the ability to informally initiate a request for the 
disclosure of tax return information from their tax return

[[Page 1065]]

preparers without formally following the consent rules of Sec.  
301.7216-3. This recommendation was not adopted. As a practical matter, 
it would be difficult to distinguish when a taxpayer informally 
initiates a request for the disclosure of tax return information and 
when tax return preparers merely claim that a taxpayer initiated the 
request for disclosure. Additionally, tax return preparers are always 
free to provide taxpayers their own returns and taxpayers may disclose 
tax return information to others directly.
    Other commentators recommended that the regulations should prohibit 
disclosure to third-party solicitors and not allow taxpayers to consent 
to disclosures for the purpose of receiving solicitations because the 
risks to the taxpayer of providing consent inadvertently are too great 
in comparison to the benefit of receiving solicitations from third 
parties. This recommendation was not adopted because it denies 
taxpayers the ability to control and direct the disclosure of their own 
tax return information. If taxpayers do not wish to receive offers or 
solicitations from third parties, they can simply refuse to provide the 
consent needed for third parties to receive their tax return 
information. If a tax return preparer obtains written consent under 
circumstances that make the consent unknowing or uninformed, the 
consent would be invalid under the requirements of the regulations.
B. Consent To Use of Tax Return Information
    Section 301.7216-3 of the preexisting regulations provides that a 
consent to use tax return information does not apply for purposes of 
facilitating the solicitation of the taxpayer's use of any services or 
facilities furnished by a person other than the tax return preparer, 
unless the other person and the tax return preparer are members of the 
same affiliated group of corporations within the meaning of section 
1504. The proposed regulations removed this ``affiliated group'' 
limitation because the affiliated group concept has little application 
in the context of modern return preparation businesses. The proposed 
regulations also reflected a determination by the IRS and Treasury 
Department that a taxpayer's ability to consent to a preparer's use of 
tax return information to solicit additional business should not be 
limited by arbitrary factors largely beyond the taxpayer's knowledge or 
control, such as the size, diversity, or organizational structure of 
the tax return preparer. Some commentators expressed concern that 
removal of the ``affiliated group'' limitation would make it easier for 
tax return preparers to disclose tax return information to third 
parties for marketing purposes. This comment reflects a 
misunderstanding of the nature of a consent governing a tax return 
preparer's use of tax return information. Use consents are limited to 
what a tax return preparer can do with tax return information in the 
tax return preparer's own hands; use consents cannot be used in 
connection with disclosures to third parties. Thus, identity theft or 
other abuses by third parties could not arise from taxpayers providing 
use consents to tax return preparers.
    Further, prohibiting the commercial use of tax return information 
outright would result in no longer allowing legitimate uses of tax 
return information that have evolved over time as standard commercial 
practices. For example, tax return preparers could not use tax return 
information to advise taxpayers of strategies that may positively 
affect the taxpayers' finances such as individual retirement accounts 
or qualified tuition programs, or of the taxpayers' eligibility to 
participate in government benefit programs, such as food stamps.
C. Prohibit Tax Return Preparers From Disclosing Tax Return Information 
for Any Reason Unrelated to the Preparation of a Tax Return
    Many commentators recommended prohibiting tax return preparers from 
disclosing tax return information for any purpose unrelated to the 
preparation of tax returns. This recommendation was not adopted because 
there are many legitimate purposes for the disclosure of tax return 
information identified in Sec.  301.7216-2, such as the disclosure of 
tax return information for the reporting of a crime or for an ethics 
investigation. Similarly, there are legitimate purposes, other than tax 
return preparation, when a taxpayer would choose to consent to the tax 
return preparer's disclosure of tax return information.
    As an alternative, some commentators recommended that the 
regulations prohibit or greatly restrict the use or disclosure of tax 
return information for marketing purposes. They specifically 
recommended banning tax return preparers from disclosing tax return 
information in association with taxpayers seeking refund anticipation 
loans (RALs) and similar products. Treasury and the IRS did not adopt 
this recommendation because it was not contained in the proposed 
regulations and could have a significant impact on existing business 
practices. Concurrently with the publication of these final 
regulations, however, Treasury and the IRS are requesting comments on a 
proposed rule that, if ultimately adopted as final, would prohibit tax 
return preparers from using or disclosing tax return information for 
the purpose of soliciting, or the taxpayer obtaining, a RAL or certain 
other products.
    Commentators also recommended that disclosure of tax return 
information by tax return preparers should be conditioned upon the 
existence of an agreement by third parties receiving the information 
that the tax return information will not be used for any purpose other 
than the purpose for which the information was provided. This 
recommendation was not adopted because policing agreements by third 
parties are outside the scope of section 7216. Section 7216 governs 
only the actions of tax return preparers.
D. Obtaining Consent Through Engagement Letters
    Some commentators recommended that when the regulations require 
consent to disclose or use tax return information, tax return preparers 
should be permitted to obtain such consent from ``large taxpayers,'' 
such as large corporations, through an engagement letter. These 
commentators observed that it is ordinary business practice for tax 
return preparers and large taxpayers to negotiate and set the terms of 
the provision of services, including the preparation of income tax 
returns, in an engagement letter. This recommendation was adopted. 
Treasury and the IRS agree that requiring multiple, separate consents 
would impose a significant burden and could frustrate these taxpayers' 
ability to comply with tax laws and other regulatory and reporting 
requirements. Section 301.7216-3(a)(3) has been modified to provide a 
set of requirements regarding the format and content of consents to 
disclose and use tax return information with respect to taxpayers 
filing income tax returns in the Form 1040 series, e.g., Form 1040, 
Form 1040NR, Form 1040A, or Form 1040EZ, and a separate set of 
requirements regarding the format and content of consents to disclose 
and use tax return information with respect to taxpayers filing all 
other tax returns. Under Sec.  301.7216-3(a)(3)(iii), for tax return 
preparers providing tax return preparation services to taxpayers who do 
not file an income tax return in the Form 1040 series, a consent to use 
or a consent to disclose may be in any format, including an engagement 
letter to a client, as long as the consent

[[Page 1066]]

complies with the requirements of Sec.  301.7216-3(a)(3)(i).
E. Conditioning Services on Consent
    Section 301.7216-3(a)(1) provides that a consent to use or disclose 
tax return information must be knowing and voluntary. Section 301.7216-
3(a)(1) has been modified to clarify that to condition the provision of 
services on the taxpayer's consent will make the consent involuntary 
and invalid unless Sec.  301.7216-3(a)(2) applies.
    Section 301.7216-3(a)(2) provides that a tax return preparer may 
condition its provision of preparation services upon a taxpayer's 
consenting to disclosure of the taxpayer's tax return information to 
another tax return preparer for the purpose of performing services that 
assist in the preparation of, or provide auxiliary services in 
connection with the preparation of, the tax return of the taxpayer. One 
commentator requested a clarification regarding whether a tax return 
preparer with offices within and outside of the United States is 
permitted to condition its provision of tax preparation services to a 
taxpayer outside of the United States on the taxpayer consenting to 
disclosure. The final regulations permit a tax return preparer with 
offices within and outside of the United States to condition its 
provision of tax preparation services to a taxpayer on the taxpayer's 
consenting to disclosure to a return preparer located outside the 
United States. An example was added to the final regulations to clarify 
this rule.
    Other commentators recommended that the regulations should prohibit 
tax return preparers from conditioning the provision of any services 
upon consent. This recommendation was adopted by inserting the word 
``any'' before ``services'' in Sec.  301.7216-3(a)(1), to which Sec.  
301.7216-3(a)(2) provides the only exception.
F. Requests To Consent After Completed Tax Return Provided to Taxpayer
    Proposed section 301.7216-3(b)(2) provides that a tax return 
preparer may not request a taxpayer's consent to disclose or use tax 
return information after the tax return preparer provides a completed 
tax return to the taxpayer for signature. Commentators suggested that 
there may be legitimate circumstances where a request to consent is 
necessary in light of taxpayer preferences and is part of client 
service provided by the preparer. Specifically, the commentators gave 
the example of a taxpayer requesting that his or her tax return 
preparer disclose the past three years of the taxpayer's tax returns to 
his or her attorney for purposes of preparing the client's estate plan. 
Under the proposed regulation, a request for consent to disclose would 
be untimely in this situation, even though the taxpayer requests the 
disclosure as part of the client service provided by the tax return 
preparer. As indicated by the provisions regarding solicitation of 
other business that were included in the previous final regulations, 
the Treasury Department and IRS believe that taxpayers should not be 
the subject of repetitive solicitation requests for business made by 
tax return preparers after the tax preparation engagement has ended. 
Consistent with previous final regulations, the final regulation in 
section 301.7216-3(b)(2) has been modified to state that a tax return 
preparer may not request a taxpayer's consent to disclose or use tax 
return information for purposes of solicitation of business unrelated 
to tax return preparation after the tax return preparer provides a 
completed tax return to the taxpayer for signature. Under the final 
regulations, the preparer would not be precluded from requesting 
consent to disclose the past three years of the taxpayer's tax returns 
to his or her attorney for purposes of preparing the client's estate 
plan according to the example provided by commentators.
G. Prohibition on Multiple Requests for Consent
    Proposed section 301.7216-3(b)(3) provides that if a taxpayer 
declines to provide consent to a disclosure or use of tax return 
information, a tax return preparer cannot make another request for 
consent. Some commentators recommended that the regulations permit a 
tax return preparer to clarify the purpose and extent of the consent if 
necessary after the taxpayer declines to provide consent, and that such 
a clarification should not be treated as a second request by the tax 
return preparer to obtain a consent. Another commentator stated that 
tax return preparers should be permitted to request consent whenever 
they wish so long as the consent properly describes the nature of, and 
reasons for, potential disclosures or uses. The commentators' 
recommendations were based upon the recognition that there may be 
legitimate reasons for the preparer to more thoroughly explain the 
request for consent and how the consent relates to the tax preparation 
engagement. However, Treasury and the IRS are concerned that lack of 
restrictions regarding multiple requests for consent regarding the same 
or similar request may cause undue pressure to consent where there are 
repetitious requests. In light of these concerns, section 301.7216-
3(b)(3) has been modified to provide that, for purposes unrelated to a 
tax preparation engagement, if a taxpayer declines a request for 
consent to the disclosure or use of tax return information, the tax 
return preparer may not solicit from the taxpayer another consent for a 
purpose substantially similar to that of the rejected request. Under 
this rule, there is no prohibition regarding the taxpayer independently 
asking the tax return preparer about a disclosure or use of the 
taxpayer's same tax return information after a declined consent 
request.
H. Multiple Disclosures or Multiple Uses Within a Single Consent Form
    Section 301.7216-3(c)(1) of the proposed regulations provides that 
a taxpayer may consent to multiple disclosures within the same written 
document, or multiple uses within the same written document. One 
commentator recommended permitting taxpayers to consent to multiple 
disclosures and multiple uses with the same form. Another commentator 
recommended prohibiting a taxpayer from consenting to multiple 
disclosures within the same written document, or multiple uses within 
the same written document, in order to avoid potential taxpayer 
confusion. These recommendations were not adopted.
    The proposed rule was intended to emphasize that disclosure and use 
are two distinct concepts, and a taxpayer may consider consenting to 
one and not the other. The comments to the proposed regulations 
demonstrated that there is potential for confusion regarding the 
distinction between disclosure and use. Treasury and the IRS believe it 
is appropriate to require separate consents in situations where there 
is a probability that the taxpayer could become confused over the 
distinction between use and disclosure. Section 301-7216-3(c)(1) of the 
final regulations provides that for taxpayers who are filers of returns 
in the Form 1040 series, the proposed rule is retained. The rule 
requiring separate consents is limited to individuals because use or 
disclosure of that tax return information involves situations where 
confusion is most likely to occur.
I. Disclosure of All Information Contained Within a Return
    Section 301.7216-3(c)(2) of the proposed regulations provides that 
a consent authorizing the disclosure of all information contained 
within a return must set forth an explanation of the reason why a 
consent authorizing a more limited disclosure of tax return information 
is unsatisfactory for the

[[Page 1067]]

purpose of the consent. Some commentators characterized this 
requirement as burdensome in certain situations and recommended 
eliminating this requirement. Commentators reasoned that a third party 
service provider, such as the taxpayer's attorney, may request a copy 
of the return and the requirement to provide an explanation would 
interject the preparer between the requirements imposed by the third 
party service provider and the taxpayer. In light of these concerns, 
section 301.7216-3(c)(2) of the final regulations modifies this 
provision to provide that where a consent authorizes the disclosure of 
a copy of the taxpayer's tax return or all information contained within 
a return, the consent must provide that the taxpayer has the ability to 
request a more limited disclosure of tax return information as the 
taxpayer may direct.
    Some commentators concerned with marketing of tax return 
information recommended that disclosure of the entire tax return should 
not be permitted under any circumstances. The commentators' rationale 
was that disclosure of the entire return is never necessary for 
marketing purposes. This recommendation was not adopted because, in 
general, taxpayers should have control over their own tax return 
information and they should be able to direct tax return preparers to 
disclose tax return information as the taxpayers see fit.
J. Duration of Consent
    Section 301.7216-3(b)(5) of the proposed regulations provides that 
no consent to the disclosure or use of tax return information may be 
effective for a period longer than one year from the date the taxpayer 
signed the consent. Some commentators expressed concern that the 
duration of consent may need to be effective for a period greater than 
one year. One commentator observed that when preparing expatriate tax 
returns, there may be circumstances when the due date for a foreign tax 
return or other related document is more than one year after the 
taxpayer signs the consent. Some commentators recommended that 
taxpayers should be permitted to establish the duration of consent, and 
the one-year period should apply only if the taxpayer fails to specify 
a different duration of consent. This recommendation was adopted in the 
final regulations.
K. Consents Read Aloud
    Some commentators recommended that Sec.  301.7216-3 require that 
consents be read aloud by audio output. This recommendation was not 
adopted. This recommendation would impose a burdensome rule that is 
outside the norm of standard practices for obtaining consent.

5. General Comments

    Several commentators recommended rejecting all of the provisions of 
the proposed regulations under section 7216. The recommendations to 
reject the proposed regulations were not adopted. The proposed 
regulations were finalized to provide updates relating to uses and 
disclosures of tax return information in the electronic return 
preparation context and create an environment that allows taxpayers to 
make informed decisions regarding the disclosure or use of their tax 
return information.

Effect on Other Documents

    The following publication is obsolete on or after January 1, 2009: 
Rev. Rul. 79-114, 1979-1 C.B. 441 (1979).

Special Analyses

    It has been determined that this Treasury decision is not a 
significant regulatory action as defined in Executive Order 12866. 
Therefore, a regulatory assessment is not required. It also has been 
determined that section 553(b) of the Administrative Procedure Act (5 
U.S.C. chapter 5) does not apply to these regulations, and, because 
these regulations do not impose a collection of information on small 
entities, the Regulatory Flexibility Act (5 U.S.C. chapter 6) does not 
apply. Pursuant to section 7805(f), the notice of proposed rulemaking 
preceding these regulations was submitted to the Chief Counsel for 
Advocacy of the Small Business Administration for comment on its impact 
on small business.

Drafting Information

    The principal author of these regulations is Dillon Taylor, 
formerly of the Office of the Associate Chief Counsel (Procedure and 
Administration). For further information regarding these regulations 
contact Lawrence Mack of the Office of the Associate Chief Counsel 
(Procedure and Administration) at 202-622-4940 (not a toll-free call).

List of Subjects in 26 CFR Part 301

    Employment taxes, Estate taxes, Excise taxes, Gift taxes, Income 
taxes, Penalties, Reporting and recordkeeping requirements.

Amendment to the Regulations

0
Accordingly, 26 CFR part 301 is amended as follows:

PART 301--PROCEDURE AND ADMINISTRATION

0
Paragraph 1. The authority citation for part 301 continues to read, in 
part, as follows:

    Authority: 26 U.S.C. 7805 * * *


0
Par. 2. Section 301.7216-0 is added to read as follows:


Sec.  301.7216-0  Table of contents.

    This section lists captions contained in Sec. Sec.  301.7216-1 
through 301.7216-3.

Sec.  301.7216-1 Penalty for disclosure or use of tax return 
information.

    (a) In general.
    (b) Definitions.
    (c) Gramm-Leach-Bliley Act.
    (d) Effective date.

Sec.  301.7216-2 Permissible disclosures or uses without consent of 
the taxpayer.

    (a) Disclosure pursuant to other provisions of the Internal 
Revenue Code.
    (b) Disclosures to the IRS.
    (c) Disclosures or uses for preparation of a taxpayer's return.
    (d) Disclosures to other tax return preparers.
    (e) Disclosure or use of information in the case of related 
taxpayers.
    (f) Disclosure pursuant to an order of a court, or an 
administrative order, demand, request, summons or subpoena which is 
issued in the performance of its duties by a Federal or State 
agency, the United States Congress, a professional association 
ethics committee or board, or the Public Company Accounting 
Oversight Board.
    (g) Disclosure for use in securing legal advice, Treasury 
investigations or court proceedings.
    (h) Certain disclosures by attorneys and accountants.
    (i) Corporate fiduciaries.
    (j) Disclosure to taxpayer's fiduciary.
    (k) Disclosure or use of information in preparation or audit of 
State or local tax returns or assisting a taxpayer with foreign 
country tax obligations.
    (l) Payment for tax preparation services.
    (m) Retention of records.
    (n) Lists for solicitation of tax return business.
    (o) Producing statistical information in connection with tax 
return preparation business.
    (p) Disclosure or use of information for quality or peer 
reviews.
    (q) Disclosure to report the commission of a crime.
    (r) Disclosure of tax return information due to a tax return 
preparer's incapacity or death.
    (s) Effective date.

Sec.  301.7216-3 Disclosure or use permitted only with the 
taxpayer's consent.

    (a) In general.
    (b) Timing requirements and limitations.
    (c) Special rules.
    (d) Effective date.


0
Par. 3. Section 301.7216-1 is revised to read as follows:

[[Page 1068]]

Sec.  301.7216-1  Penalty for disclosure or use of tax return 
information.

    (a) In general. Section 7216(a) prescribes a criminal penalty for 
tax return preparers who knowingly or recklessly disclose or use tax 
return information for a purpose other than preparing a tax return. A 
violation of section 7216 is a misdemeanor, with a maximum penalty of 
up to one year imprisonment or a fine of not more than $1,000, or both, 
together with the costs of prosecution. Section 7216(b) establishes 
exceptions to the general rule in section 7216(a) prohibiting 
disclosure and use. Section 7216(b) also authorizes the Secretary to 
promulgate regulations prescribing additional permitted disclosures and 
uses. Section 6713(a) prescribes a related civil penalty for 
disclosures and uses that constitute a violation of section 7216. The 
penalty for violating section 6713 is $250 for each prohibited 
disclosure or use, not to exceed a total of $10,000 for a calendar 
year. Section 6713(b) provides that the exceptions in section 7216(b) 
also apply to section 6713. Under section 7216(b), the provisions of 
section 7216(a) will not apply to any disclosure or use permitted under 
regulations prescribed by the Secretary.
    (b) Definitions. For purposes of section 7216 and Sec. Sec.  
301.7216-1 through 301.7216-3:
    (1) Tax return. The term tax return means any return (or amended 
return) of income tax imposed by chapter 1 of the Internal Revenue 
Code.
    (2) Tax return preparer--(i) In general. The term tax return 
preparer means:
    (A) Any person who is engaged in the business of preparing or 
assisting in preparing tax returns;
    (B) Any person who is engaged in the business of providing 
auxiliary services in connection with the preparation of tax returns, 
including a person who develops software that is used to prepare or 
file a tax return and any Authorized IRS e-file Provider;
    (C) Any person who is otherwise compensated for preparing, or 
assisting in preparing, a tax return for any other person; or
    (D) Any individual who, as part of their duties of employment with 
any person described in paragraph (b)(2)(i)(A), (B), or (C) of this 
section performs services that assist in the preparation of, or assist 
in providing auxiliary services in connection with the preparation of, 
a tax return.
    (ii) Business of preparing returns. A person is engaged in the 
business of preparing tax returns as described in paragraph 
(b)(2)(i)(A) of this section if, in the course of the person's 
business, the person holds himself out to tax return preparers or 
taxpayers as a person who prepares tax returns or assists in preparing 
tax returns, whether or not tax return preparation is the person's sole 
business activity and whether or not the person charges a fee for tax 
return preparation services.
    (iii) Providing auxiliary services. A person is engaged in the 
business of providing auxiliary services in connection with the 
preparation of tax returns as described in paragraph (b)(2)(i)(B) of 
this section if, in the course of the person's business, the person 
holds himself out to tax return preparers or to taxpayers as a person 
who performs auxiliary services, whether or not providing the auxiliary 
services is the person's sole business activity and whether or not the 
person charges a fee for the auxiliary services. Likewise, a person is 
engaged in the business of providing auxiliary services if, in the 
course of the person's business, the person receives a taxpayer's tax 
return information from another tax return preparer pursuant to the 
provisions of Sec.  301.7216-2(d)(2).
    (iv) Otherwise compensated. A tax return preparer described in 
paragraph (b)(2)(i)(C) of this section includes any person who--
    (A) Is compensated for preparing a tax return for another person, 
but not in the course of a business; or
    (B) Is compensated for helping, on a casual basis, a relative, 
friend, or other acquaintance to prepare their tax return.
    (v) Exclusions. A person is not a tax return preparer merely 
because he leases office space to a tax return preparer, furnishes 
credit to a taxpayer whose tax return is prepared by a tax return 
preparer, furnishes information to a tax return preparer at the 
taxpayer's request, furnishes access (free or otherwise) to a separate 
person's tax return preparation Web site through a hyperlink on his own 
Web site, or otherwise performs some service that only incidentally 
relates to the preparation of tax returns.
    (vi) Examples. The application of Sec.  301.7216-1(b)(2) may be 
illustrated by the following examples:

    Example 1. Bank B is a tax return preparer within the meaning of 
paragraph (b)(2)(i)(A) of this section, and an Authorized IRS e-file 
Provider. B employs one individual, Q, to solicit the necessary tax 
return information for the preparation of a tax return; another 
individual, R, to prepare the return on the basis of the information 
that is furnished; a secretary, S, who types the information on the 
returns into a computer; and an administrative assistant, T, who 
uses a computer to file electronic versions of the tax returns. 
Under these circumstances, only R is a tax return preparer for 
purposes of section 7701(a)(36), but all four employees are tax 
return preparers for purposes of section 7216, as provided in 
paragraph (b) of this section.
    Example 2. Tax return preparer P contracts with department store 
D to rent space in D's store. D advertises that taxpayers who use 
P's services may charge the cost of having their tax return prepared 
to their charge account with D. Under these circumstances, D is not 
a tax return preparer because it provides space, credit, and 
services only incidentally related to the preparation of tax 
returns.

    (3) Tax return information--(i) In general. The term tax return 
information means any information, including, but not limited to, a 
taxpayer's name, address, or identifying number, which is furnished in 
any form or manner for, or in connection with, the preparation of a tax 
return of the taxpayer. This information includes information that the 
taxpayer furnishes to a tax return preparer and information furnished 
to the tax return preparer by a third party. Tax return information 
also includes information the tax return preparer derives or generates 
from tax return information in connection with the preparation of a 
taxpayer's return.
    (A) Tax return information can be provided directly by the taxpayer 
or by another person. Likewise, tax return information includes 
information received by the tax return preparer from the IRS in 
connection with the processing of such return, including an 
acknowledgment of acceptance or notice of rejection of an 
electronically filed return.
    (B) Tax return information includes statistical compilations of tax 
return information, even in a form that cannot be associated with, or 
otherwise identify, directly or indirectly, a particular taxpayer. See 
Sec.  301.7216-2(o) for limited use of tax return information to make 
statistical compilations without taxpayer consent and to use the 
statistical compilations for limited purposes.
    (C) Tax return information does not include information identical 
to any tax return information that has been furnished to a tax return 
preparer if the identical information was obtained otherwise than in 
connection with the preparation of a tax return.
    (D) Information is considered ``in connection with tax return 
preparation,'' and therefore tax return information, if the taxpayer 
would not have furnished the information to the tax return preparer but 
for the intention to engage, or the engagement of, the tax return 
preparer to prepare the tax return.
    (ii) Examples. The application of this paragraph (b)(3) may be 
illustrated by the following examples:


[[Page 1069]]


    Example 1. Taxpayer A purchases computer software designed to 
assist with the preparation and filing of her income tax return. 
When A loads the software onto her computer, it prompts her to 
register her purchase of the software. In this situation, the 
software provider is a tax return preparer under paragraph 
(b)(2)(i)(B) of this section and the information that A provides to 
register her purchase is tax return information because she is 
providing it in connection with the preparation of a tax return.
    Example 2. Corporation A is a brokerage firm that maintains a 
Web site through which its clients may access their accounts, trade 
stocks, and generally conduct a variety of financial activities. 
Through its Web site, A offers its clients free access to its own 
tax preparation software. Taxpayer B is a client of A and has 
furnished A his name, address, and other information when 
registering for use of A's Web site to use A's brokerage services. 
In addition, A has a record of B's brokerage account activity, 
including sales of stock, dividends paid, and IRA contributions 
made. B uses A's tax preparation software to prepare his tax return. 
The software populates some fields on B's return on the basis of 
information A already maintains in its databases. A is a tax return 
preparer within the meaning of paragraph (b)(2)(i)(B) of this 
section because it has prepared and provided software for use in 
preparing tax returns. The information in A's databases that the 
software accesses to populate B's return, i.e., the registration 
information and brokerage account activity, is not tax return 
information because A did not receive that information in connection 
with the preparation of a tax return. Once A uses the information to 
populate the return, however, the information associated with the 
return becomes tax return information. If A retains the information 
in a form in which A can identify that the information was used in 
connection with the preparation of a return, the information in that 
form is tax return information. If, however, A retains the 
information in a database in which A cannot identify whether the 
information was used in connection with the preparation of a return, 
then that information is not tax return information.

    (4) Use--(i) In general. Use of tax return information includes any 
circumstance in which a tax return preparer refers to, or relies upon, 
tax return information as the basis to take or permit an action.
    (ii) Example. The application of this paragraph (b)(4) may be 
illustrated by the following example:

    Example. Preparer G is a tax return preparer as defined by 
paragraph (b)(2)(i)(A) of this section. If G determines, upon 
preparing a return, that the taxpayer is eligible to make a 
contribution to an individual retirement account (IRA), G will ask 
whether the taxpayer desires to make a contribution to an IRA. G 
does not ask about IRAs in cases in which the taxpayer is not 
eligible to make a contribution. G is using tax return information 
when it asks whether a taxpayer is interested in making a 
contribution to an IRA because G is basing the inquiry upon 
knowledge gained from information that the taxpayer furnished in 
connection with the preparation of the taxpayer's return.

    (5) Disclosure. The term disclosure means the act of making tax 
return information known to any person in any manner whatever. To the 
extent that a taxpayer's use of a hyperlink results in the transmission 
of tax return information, this transmission of tax return information 
is a disclosure by the tax return preparer subject to penalty under 
section 7216 if not authorized by regulation.
    (6) Hyperlink. For purposes of section 7216, a hyperlink is a 
device used to transfer an individual using tax preparation software 
from a tax return preparer's Web page to a Web page operated by another 
person without the individual having to separately enter the Web 
address of the destination page.
    (7) Request for consent. A request for consent includes any effort 
by a tax return preparer to obtain the taxpayer's consent to use or 
disclose the taxpayer's tax return information. The act of supplying a 
taxpayer with a paper or electronic form that meets the requirements of 
a revenue procedure published pursuant to Sec.  301.7216-3(a) is a 
request for a consent. When a tax return preparer requests a taxpayer's 
consent, any associated efforts of the tax return preparer, including, 
but not limited to, verbal or written explanations of the form, are 
part of the request for consent.
    (c) Gramm-Leach-Bliley Act. Any applicable requirements of the 
Gramm-Leach-Bliley Act, Public Law 106-102 (113 Stat. 1338), do not 
supersede, alter, or affect the requirements of section 7216 and 
Sec. Sec.  301.7216-1 through 301.7216-3. Similarly, the requirements 
of section 7216 and Sec. Sec.  301.7216-1 through 301.7216-3 do not 
override any requirements or restrictions of the Gramm-Leach-Bliley 
Act, which are in addition to the requirements or restrictions of 
section 7216 and Sec. Sec.  301.7216-1 through 301.7216-3.
    (d) Effective/applicability date. This section applies to 
disclosures or uses of tax return information occurring on or after 
January 1, 2009.

0
Par. 4. Section 301.7216-2 is revised to read as follows:


Sec.  301.7216-2  Permissible disclosures or uses without consent of 
the taxpayer.

    (a) Disclosure pursuant to other provisions of the Internal Revenue 
Code. The provisions of section 7216(a) and Sec.  301.7216-1 shall not 
apply to any disclosure of tax return information if the disclosure is 
made pursuant to any other provision of the Internal Revenue Code or 
the regulations thereunder.
    (b) Disclosures to the IRS. The provisions of section 7216(a) and 
Sec.  301.7216-1 shall not apply to any disclosure of tax return 
information to an officer or employee of the IRS.
    (c) Disclosures or uses for preparation of a taxpayer's return--(1) 
Updating Taxpayers' Tax Return Preparation Software. If a tax return 
preparer provides software to a taxpayer that is used in connection 
with the preparation or filing of a tax return, the tax return preparer 
may use the taxpayer's tax return information to update the taxpayer's 
software for the purpose of addressing changes in IRS forms, e-file 
specifications and administrative, regulatory and legislative guidance 
or to test and ensure the software's technical capabilities without the 
taxpayer's consent under Sec.  301.7216-3.
    (2) Tax return preparers located within the same firm in the United 
States. If a taxpayer furnishes tax return information to a tax return 
preparer located within the United States, including any territory or 
possession of the United States, an officer, employee, or member of a 
tax return preparer may use the tax return information, or disclose the 
tax return information to another officer, employee, or member of the 
same tax return preparer, for the purpose of performing services that 
assist in the preparation of, or assist in providing auxiliary services 
in connection with the preparation of, the taxpayer's tax return. If an 
officer, employee, or member to whom the tax return information is to 
be disclosed is located outside of the United States or any territory 
or possession of the United States, the taxpayer's consent under Sec.  
301.7216-3 prior to any disclosure is required.
    (3) Furnishing tax return information to tax return preparers 
located outside the United States. If a taxpayer initially furnishes 
tax return information to a tax return preparer located outside of the 
United States or any territory or possession of the United States, an 
officer, employee, or member of a tax return preparer may use tax 
return information, or disclose any tax return information to another 
officer, employee, or member of the same tax return preparer, for the 
purpose of performing services that assist in the preparation of, or 
assist in providing auxiliary services in connection with the 
preparation of, the tax return of a taxpayer by or for whom the 
information was furnished without the taxpayer's consent under Sec.  
301.7216-3.

[[Page 1070]]

    (4) Examples. The following examples illustrate this paragraph (c):

    Example 1. Preparer P provides tax return preparation software 
to Taxpayer T for T to use in the preparation of its 2009 income tax 
return. For the 2009 tax year, and using T's tax return information 
furnished while registering for the software, P would like to update 
the tax return preparation software that T is using to account for 
last minute changes made to the tax laws for the 2009 tax year. P is 
not required to obtain T's consent to update the tax return 
preparation software. P may perform a software update regardless of 
whether the software update will affect T's particular return 
preparation activities.
    Example 2. T is a client of Firm, which is a tax return 
preparer. E, an employee at Firm's State A office, receives tax 
return information from T for use in preparing T's income tax 
return. E discloses the tax return information to P, an employee in 
Firm's State B office; P uses the tax return information to process 
T's income tax return. Firm is not required to receive T's consent 
under Sec.  301.7216-3 prior to E's disclosure of T's tax return 
information to P because the tax return information is disclosed to 
an employee employed by the same tax return preparer located within 
the United States.
    Example 3. Same facts as Example 2 except T's tax return 
information is disclosed to FE who is located in Firm's Country F 
office. FE uses the tax return information to process T's income tax 
return. After processing, FE returns the processed tax return 
information to E in Firm's State A office. Because FE is outside of 
the United States, Firm is required to obtain T's consent under 
Sec.  301.7216-3 prior to E's disclosure of T's tax return 
information to FE.
    Example 4. T, Firm's client, is temporarily located in Country 
F. She initially furnishes her tax return information to employee FE 
in Firm's Country F office for the purpose of having Firm prepare 
her U.S. income tax return. FE makes the substantive determinations 
concerning T's tax liability and forwards T's tax return information 
to FP, an employee in Firm's Country P office, for the purpose of 
processing T's tax return information. FP processes the return 
information and forwards it to Partner at Firm's State A office in 
the United States for review and delivery to T. Because T initially 
furnished the tax return information to a tax return preparer 
outside of the United States, T's prior consent for disclosure or 
use under Sec.  301.7216-3 was not required. An officer, employee, 
or member of Firm in the United States may use T's tax return 
information or disclose the tax return information to another 
officer, employee, or member of Firm without T's prior consent under 
Sec.  301.7216-3 as long as any disclosure or use of T's tax return 
information is within the United States. Firm is required to receive 
T's consent under Sec.  301.7216-3 prior to any subsequent 
disclosure of T's tax return information to a tax return preparer 
located outside of the United States.

    (d) Disclosures to other tax return preparers--(1) Preparer-to-
preparer disclosures. Except as limited in paragraph (d)(2) of this 
section, an officer, employee, or member of a tax return preparer may 
disclose tax return information of a taxpayer to another tax return 
preparer (other than an officer, employee, or member of the same tax 
return preparer) located in the United States (including any territory 
or possession of the United States) for the purpose of preparing or 
assisting in preparing a tax return, or obtaining or providing 
auxiliary services in connection with the preparation of any tax 
return, so long as the services provided are not substantive 
determinations or advice affecting the tax liability reported by 
taxpayers. A substantive determination involves an analysis, 
interpretation, or application of the law. The authorized disclosures 
permitted under this paragraph (d)(1) include one tax return preparer 
disclosing tax return information to another tax return preparer for 
the purpose of having the second tax return preparer transfer that 
information to, and compute the tax liability on, a tax return of the 
taxpayer by means of electronic, mechanical, or other form of tax 
return processing service. The authorized disclosures permitted under 
this paragraph (d)(1) also include disclosures by a tax return preparer 
to an Authorized IRS e-file Provider for the purpose of electronically 
filing the return with the IRS. Authorized disclosures also include 
disclosures by a tax return preparer to a second tax return preparer 
for the purpose of making information concerning the return available 
to the taxpayer. This would include, for example, whether the return 
has been accepted or rejected by the IRS, or the status of the 
taxpayer's refund. Except as provided in paragraph (c) of this section, 
a tax return preparer may not disclose tax return information to 
another tax return preparer for the purpose of the second tax return 
preparer providing substantive determinations without first receiving 
the taxpayer's consent in accordance with the rules under Sec.  
301.7216-3.
    (2) Disclosures to contractors. A tax return preparer may disclose 
tax return information to a person under contract with the tax return 
preparer in connection with the programming, maintenance, repair, 
testing, or procurement of equipment or software used for purposes of 
tax return preparation only to the extent necessary for the person to 
provide the contracted services, and only if the tax return preparer 
ensures that all individuals who are to receive disclosures of tax 
return information receive a written notice that informs them of the 
applicability of sections 6713 and 7216 to them and describes the 
requirements and penalties of sections 6713 and 7216. Contractors 
receiving tax return information pursuant to this section are tax 
return preparers under section 7216 because they are performing 
auxiliary services in connection with tax return preparation. See Sec.  
301.7216-1(b)(2)(i)(B) and (D).
    (3) Examples. The following examples illustrate this paragraph (d):

    Example 1. E, an employee at Firm's State A office, receives tax 
return information from T for Firm's use in preparing T's income tax 
return. E makes substantive determinations and forwards the tax 
return information to P, an employee at Processor; Processor is 
located in State B. P places the tax return information on the 
income tax return and furnishes the finished product to E. E is not 
required to receive T's prior consent under Sec.  301.7216-3 before 
disclosing T's tax return information to P because Processor's 
services are not substantive determinations and the tax return 
information remained in the United States at Processor's State B 
office during the entire course of the tax return preparation 
process.
    Example 2. Firm, a tax return preparer, offers income tax return 
preparation services. Firm's contract with its software provider, 
Contractor, requires Firm to periodically randomly select certain 
taxpayers' tax return information solely for the purpose of testing 
the reliability of the software sold to Firm. Under its agreement 
with Contractor, Firm discloses tax return information to 
Contractor's employee, C, who services Firm's contract without 
providing Contractor or C with a written notice that describes the 
requirements of and penalties under sections 7216 and 6713. C uses 
the tax return information solely for quality assurance purposes. 
Firm's disclosure of tax return information to C was an 
impermissible disclosure because Firm failed to ensure that C 
received a written notice that describes the requirements and 
penalties of sections 7216 and 6713.
    Example 3. E, an employee of Firm in State A in the United 
States, receives tax return information from T for use in preparing 
T's income tax return. After E enters T's tax return information 
into Firm's computer, that information is stored on a computer 
server that is physically located in State A. Firm contracts with 
Contractor, located in Country F, to prepare its clients' tax 
returns. FE, an employee of Contractor, uses a computer in Country F 
and inputs a password to view T's income tax information stored on 
the computer server in State A to prepare T's tax return. A computer 
program permits FE to view T's tax return information, but prohibits 
FE from downloading or printing out T's tax return information from 
the computer server. Because Firm is disclosing T's tax return 
information outside of the United States, Firm is required to obtain 
T's consent under Sec.  301.7216-3 prior to the disclosure to FE. As 
provided in Sec.  301.7216-3(b)(5), however, Firm may not obtain 
consent to disclose T's social security number (SSN) to a tax return

[[Page 1071]]

preparer located outside of the United States or any territory or 
possession of the United States.
    Example 4. A, an employee at Firm A, receives tax return 
information from T for Firm's use in preparing T's income tax 
return. A forwards the tax return information to B, an employee at 
another firm, Firm B, to obtain advice on the issue of whether T may 
claim a deduction for a certain business expense. A is required to 
receive T's prior consent under Sec.  301.7216-3 before disclosing 
T's tax return information to B because B's services involve a 
substantive determination affecting the tax liability that T will 
report.

    (e) Disclosure or use of information in the case of related 
taxpayers. (1) In preparing a tax return of a second taxpayer, a tax 
return preparer may use, and may disclose to the second taxpayer in the 
form in which it appears on the return, any tax return information that 
the tax return preparer obtained from a first taxpayer if--
    (i) The second taxpayer is related to the first taxpayer within the 
meaning of paragraph (e)(2) of this section;
    (ii) The first taxpayer's tax interest in the information is not 
adverse to the second taxpayer's tax interest in the information; and
    (iii) The first taxpayer has not expressly prohibited the 
disclosure or use.
    (2) For purposes of paragraph (e)(1)(i) of this section, a taxpayer 
is related to another taxpayer if they have any one of the following 
relationships: Husband and wife, child and parent, grandchild and 
grandparent, partner and partnership, trust or estate and beneficiary, 
trust or estate and fiduciary, corporation and shareholder, or members 
of a controlled group of corporations as defined in section 1563.
    (3) See Sec.  301.7216-3 for disclosure or use of tax return 
information of the taxpayer in preparing the tax return of a second 
taxpayer when the requirements of this paragraph are not satisfied.
    (f) Disclosure pursuant to an order of a court, or an 
administrative order, demand, request, summons or subpoena which is 
issued in the performance of its duties by a Federal or State agency, 
the United States Congress, a professional association ethics committee 
or board, or the Public Company Accounting Oversight Board. The 
provisions of section 7216(a) and Sec.  301.7216-1 will not apply to 
any disclosure of tax return information if the disclosure is made 
pursuant to any one of the following documents:
    (1) The order of any court of record, Federal, State, or local.
    (2) A subpoena issued by a grand jury, Federal or State.
    (3) A subpoena issued by the United States Congress.
    (4) An administrative order, demand, summons or subpoena that is 
issued in the performance of its duties by--
    (i) Any Federal agency as defined in 5 U.S.C. 551(1) and 5 U.S.C. 
552(f), or
    (ii) A State agency, body, or commission charged under the laws of 
the State or a political subdivision of the State with the licensing, 
registration, or regulation of tax return preparers.
    (5) A written request from a professional association ethics 
committee or board investigating the ethical conduct of the tax return 
preparer.
    (6) A written request from the Public Company Accounting Oversight 
Board in connection with an inspection under section 104 of the 
Sarbanes-Oxley Act of 2002, 15 U.S.C. 7214, or an investigation under 
section 105 of such Act, 15 U.S.C. 7215, for use in accordance with 
such Act.
    (g) Disclosure for use in securing legal advice, Treasury 
investigations or court proceedings. A tax return preparer may disclose 
tax return information--
    (1) To an attorney for purposes of securing legal advice;
    (2) To an employee of the Treasury Department for use in connection 
with any investigation of the tax return preparer (including 
investigations relating to the tax return preparer in its capacity as a 
practitioner) conducted by the IRS or the Treasury Department; or
    (3) To any officer of a court for use in connection with 
proceedings involving the tax return preparer (including proceedings 
involving the tax return preparer in its capacity as a practitioner), 
or the return preparer's client, before the court or before any grand 
jury that may be convened by the court.
    (h) Certain disclosures by attorneys and accountants. The 
provisions of section 7216(a) and Sec.  301.7216-1 shall not apply to 
any disclosure of tax return information permitted by this paragraph 
(h).
    (1)(i) A tax return preparer who is lawfully engaged in the 
practice of law or accountancy and prepares a tax return for a taxpayer 
may use the taxpayer's tax return information, or disclose the 
information to another officer, employee or member of the tax return 
preparer's law or accounting firm, consistent with applicable legal and 
ethical responsibilities, who may use the tax return information for 
the purpose of providing other legal or accounting services to the 
taxpayer. As an example, a lawyer who prepares a tax return for a 
taxpayer may use the tax return information of the taxpayer for, or in 
connection with, rendering legal services, including estate planning or 
administration, or preparation of trial briefs or trust instruments, 
for the taxpayer or the estate of the taxpayer. In addition, the lawyer 
who prepared the tax return may disclose the tax return information to 
another officer, employee or member of the same firm for the purpose of 
providing other legal services to the taxpayer. As another example, an 
accountant who prepares a tax return for a taxpayer may use the tax 
return information, or disclose it to another officer, employee or 
member of the firm, for use in connection with the preparation of books 
and records, working papers, or accounting statements or reports for 
the taxpayer. In the normal course of rendering the legal or accounting 
services to the taxpayer, the attorney or accountant may make the tax 
return information available to third parties, including stockholders, 
management, suppliers, or lenders, consistent with the applicable legal 
and ethical responsibilities, unless the taxpayer directs otherwise. 
For rules regarding disclosures outside of the United States, see Sec.  
301.7216-2(c) and (d).
    (ii) A tax return preparer's law or accounting firm does not 
include any related or affiliated firms. For example, if law firm A is 
affiliated with law firm B, officers, employees and members of law firm 
A must receive a taxpayer's consent under Sec.  301.7216-3 before 
disclosing the taxpayer's tax return information to an officer, 
employee or member of law firm B.
    (2) A tax return preparer who is lawfully engaged in the practice 
of law or accountancy and prepares a tax return for a taxpayer may, 
consistent with the applicable legal and ethical responsibilities, take 
the tax return information into account, and may act upon it, in the 
course of performing legal or accounting services for a client other 
than the taxpayer, or disclose the information to another officer, 
employee or member of the tax return preparer's law or accounting firm 
to enable that other officer, employee or member to take the 
information into account, and act upon it, in the course of performing 
legal or accounting services for a client other than the taxpayer. This 
is permissible when the information is, or may be, relevant to the 
subject matter of the legal or accounting services for the other 
client, and consideration of the information by those performing the 
services is necessary for the proper performance of the services. In no 
event, however, may the tax return information be disclosed to a person 
who is not an officer, employee or member of the law

[[Page 1072]]

or accounting firm, unless the disclosure is exempt from the 
application of section 7216(a) and Sec.  301.7216-1 by reason of 
another provision of Sec. Sec.  301.7216-2 or 301.7216-3.
    (3) Examples. The application of this paragraph may be illustrated 
by the following examples:

    Example 1. A, a member of an accounting firm, renders an opinion 
on a financial statement of M Corporation that is part of a 
registration statement filed with the Securities and Exchange 
Commission. After the registration statement is filed, but before 
its effective date, B, a member of the same accounting firm, 
prepares an income tax return for N Corporation. In the course of 
preparing N's income tax return, B discovers that N does business 
with M and concludes that the information given by N should be 
considered by A to determine whether the financial statement opined 
on by A contains an untrue statement of material fact or omits a 
material fact required to keep the statement from being misleading. 
B discloses to A the tax return information of N for this purpose. A 
determines that there is an omission of material fact and that an 
amended statement should be filed. A so advises M and the Securities 
and Exchange Commission. A explains that the omission was revealed 
as a result of confidential information that came to A's attention 
after the statement was filed, but A does not disclose the identity 
of the taxpayer or the tax return information itself. Section 
7216(a) and Sec.  301.7216-1 do not apply to B's disclosure of N's 
tax return information to A and A's use of the information in 
advising M and the Securities and Exchange Commission of the 
necessity for filing an amended statement. Section 7216(a) and Sec.  
301.7216-1 would apply to a disclosure of N's tax return information 
to M or to the Securities and Exchange Commission unless the 
disclosure is exempt from the application of section 7216(a) and 
Sec.  301.7216-1 by reason of another provision of either this 
section or Sec.  301.7216-3.
    Example 2. A, a member of an accounting firm, is conducting an 
audit of M Corporation, and B, a member of the same accounting firm, 
prepares an income tax return for D, an officer of M. In the course 
of preparing the return, B obtains information from D indicating 
that D, pursuant to an arrangement with a supplier doing business 
with M, has been receiving from the supplier a percentage of the 
amounts that the supplier invoices to M. B discloses this 
information to A who, acting upon it, searches in the course of the 
audit for indications of a kickback scheme. As a result, A discovers 
information from audit sources that independently indicate the 
existence of a kickback scheme. Without revealing the tax return 
information A has received from B, A brings to the attention of 
officers of M the audit information indicating the existence of the 
kickback scheme. Section 7216(a) and Sec.  301.7216-1 do not apply 
to B's disclosure of D's tax return information to A, A's use of D's 
information in the course of the audit, and A's disclosure to M of 
the audit information indicating the existence of the kickback 
scheme. Section 7216(a) and Sec.  301.7216-1 would apply to a 
disclosure to M, or to any other person not an employee or member of 
the accounting firm, of D's tax return information furnished to B.

    (i) Corporate fiduciaries. A trust company, trust department of a 
bank, or other corporate fiduciary that prepares a tax return for a 
taxpayer for whom it renders fiduciary, investment, or other custodial 
or management services may, unless the taxpayer directs otherwise--
    (1) Disclose or use the taxpayer's tax return information in the 
ordinary course of rendering such services to or for the taxpayer; or
    (2) Make the information available to the taxpayer's attorney, 
accountant, or investment advisor.
    (j) Disclosure to taxpayer's fiduciary. If, after furnishing tax 
return information to a tax return preparer, the taxpayer dies or 
becomes incompetent, insolvent, or bankrupt, or the taxpayer's assets 
are placed in conservatorship or receivership, the tax return preparer 
may disclose the information to the duly appointed fiduciary of the 
taxpayer or his estate, or to the duly authorized agent of the 
fiduciary.
    (k) Disclosure or use of information in preparation or audit of 
State or local tax returns or assisting a taxpayer with foreign country 
tax obligations. The provisions of paragraphs (c) and (d) of this 
section shall apply to the disclosure by any tax return preparer of any 
tax return information in the preparation of, or in connection with the 
preparation of, any tax return of the taxpayer under the law of any 
State or political subdivision thereof, of the District of Columbia, of 
any territory or possession of the United States, or of a country other 
than the United States. The provisions of section 7216(a) and Sec.  
301.7216-1 shall not apply to the use by any tax return preparer of any 
tax return information in the preparation of, or in connection with the 
preparation of, any tax return of the taxpayer under the law of any 
State or political subdivision thereof, of the District of Columbia, of 
any territory or possession of the United States, or of a country other 
than the United States. The provisions of section 7216(a) and Sec.  
301.7216-1 shall not apply to the disclosure or use by any tax return 
preparer of any tax return information in the audit of, or in 
connection with the audit of, any tax return of the taxpayer under the 
law of any State or political subdivision thereof, the District of 
Columbia, or any territory or possession of the United States.
    (l) Payment for tax preparation services. A tax return preparer may 
use and disclose, without the taxpayer's written consent, tax return 
information that the taxpayer provides to the tax return preparer to 
pay for tax preparation services to the extent necessary to process or 
collect the payment. For example, if the taxpayer gives the tax return 
preparer a credit card to pay for tax preparation services, the tax 
return preparer may disclose the taxpayer's name, credit card number, 
credit card expiration date, and amount due for tax preparation 
services to the credit card company, as necessary, to process the 
payment. Any tax return information that the taxpayer did not give the 
tax return preparer for the purpose of making payment for tax 
preparation services may not be used or disclosed by the tax return 
preparer without the taxpayer's prior written consent, unless otherwise 
permitted under another provision of this section.
    (m) Retention of records. A tax return preparer may retain tax 
return information of a taxpayer, including copies of tax returns, in 
paper or electronic format, prepared on the basis of the tax return 
information, and may use the information in connection with the 
preparation of other tax returns of the taxpayer or in connection with 
an examination by the Internal Revenue Service of any tax return or 
subsequent tax litigation relating to the tax return. The provisions of 
paragraph (n) of this section regarding the transfer of a taxpayer list 
also apply to the transfer of any records and related papers to which 
this paragraph applies.
    (n) Lists for solicitation of tax return business. A tax return 
preparer may compile and maintain a separate list containing solely the 
names, addresses, e-mail addresses, and phone numbers of taxpayers 
whose tax returns the tax return preparer has prepared or processed. 
This list may be used by the compiler solely to contact the taxpayers 
on the list for the purpose of offering tax information or additional 
tax return preparation services to such taxpayers. The compiler of the 
list may not transfer the taxpayer list, or any part thereof, to any 
other person unless the transfer takes place in conjunction with the 
sale or other disposition of the compiler's tax return preparation 
business. A person who acquires a taxpayer list, or a part thereof, in 
conjunction with a sale or other disposition of a tax return 
preparation business is subject to the provisions of this paragraph 
with respect to the list. The term list, as used in this paragraph (n), 
includes any record or system whereby the names and addresses of 
taxpayers are retained. The provisions of this paragraph (n) also apply 
to the transfer of any records and

[[Page 1073]]

related papers to which this paragraph (n) applies.
    (o) Producing statistical information in connection with tax return 
preparation business. A tax return preparer may use, for the limited 
purpose specified in this paragraph (o), tax return information to 
produce a statistical compilation of data described in Sec.  301.7216-
1(b)(3)(i)(B). The purpose and use of the statistical compilation must 
relate directly to the internal management or support of the tax return 
preparer's tax return preparation business. The tax return preparer may 
not disclose or use the tax return information in connection with, or 
in support of, businesses other than tax return preparation. The 
compiler of the statistical compilation may not disclose the 
compilation, or any part thereof, to any other person unless disclosure 
of the statistical compilation is made in order to comply with 
financial accounting or regulatory reporting requirements or occurs in 
conjunction with the sale or other disposition of the compiler's tax 
return preparation business. A person who acquires a compilation, or a 
part thereof, in conjunction with a sale or other disposition of a tax 
return preparation business is subject to the provisions of this 
paragraph (o) with respect to the compilation as if the acquiring 
person had compiled it.
    (p) Disclosure or use of information for quality or peer reviews. 
The provisions of section 7216(a) and Sec.  301.7216-1 shall not apply 
to any disclosure for the purpose of a quality or peer review to the 
extent necessary to accomplish the review. A quality or peer review is 
a review that is undertaken to evaluate, monitor, and improve the 
quality and accuracy of a tax return preparer's tax preparation, 
accounting, or auditing services. A quality or peer review may be 
conducted only by attorneys, certified public accountants, enrolled 
agents, and enrolled actuaries who are eligible to practice before the 
Internal Revenue Service. See Department of the Treasury Circular 230, 
31 CFR part 10. Tax return information may also be disclosed to persons 
who provide administrative or support services to an individual who is 
conducting a quality or peer review under this paragraph (p), but only 
to the extent necessary for the reviewer to conduct the review. Tax 
return information gathered in conducting a review may be used only for 
purposes of a review. No tax return information identifying a taxpayer 
may be disclosed in any evaluative reports or recommendations that may 
be accessible to any person other than the reviewer or the tax return 
preparer being reviewed. The tax return preparer being reviewed will 
maintain a record of the review including the information reviewed and 
the identity of the persons conducting the review. After completion of 
the review, no documents containing information that may identify any 
taxpayer by name or identification number may be retained by a reviewer 
or by the reviewer's administrative or support personnel. Any person 
(including administrative and support personnel) receiving tax return 
information in connection with a quality or peer review is a tax return 
preparer for purposes of sections 7216(a) and 6713(a).
    (q) Disclosure to report the commission of a crime. The provisions 
of section 7216(a) and Sec.  301.7216-1 shall not apply to the 
disclosure of any tax return information to the proper Federal, State, 
or local official in order, and to the extent necessary, to inform the 
official of activities that may constitute, or may have constituted, a 
violation of any criminal law or to assist the official in 
investigating or prosecuting a violation of criminal law. A disclosure 
made in the bona fide but mistaken belief that the activities 
constituted a violation of criminal law is not subject to section 
7216(a) and Sec.  301.7216-1.
    (r) Disclosure of tax return information due to a tax return 
preparer's incapacity or death. In the event of incapacity or death of 
a tax return preparer, disclosure of tax return information may be made 
for the purpose of assisting the tax return preparer or his legal 
representative (or the representative of a deceased tax return 
preparer's estate) in operating the business. Any person receiving tax 
return information under the provisions of this paragraph (r) is a tax 
return preparer for purposes of sections 7216(a) and 6713(a).
    (s) Effective/applicability date. This section applies to 
disclosures or uses of tax return information occurring on or after 
January 1, 2009.


0
Par. 5. Section 301.7216-3 is revised to read as follows:


Sec.  301.7216-3  Disclosure or use permitted only with the taxpayer's 
consent.

    (a) In general--(1) Taxpayer consent. Unless section 7216 or Sec.  
301.7216-2 specifically authorizes the disclosure or use of tax return 
information, a tax return preparer may not disclose or use a taxpayer's 
tax return information prior to obtaining a written consent from the 
taxpayer, as described in this section. A tax return preparer may 
disclose or use tax return information as the taxpayer directs as long 
as the preparer obtains a written consent from the taxpayer as provided 
in this section. The consent must be knowing and voluntary. Except as 
provided in paragraph (a)(2) of this section, conditioning the 
provision of any services on the taxpayer's furnishing consent will 
make the consent involuntary, and the consent will not satisfy the 
requirements of this section.
    (2) Taxpayer consent to a tax return preparer furnishing tax return 
information to another tax return preparer. (i) A tax return preparer 
may condition its provision of preparation services upon a taxpayer's 
consenting to disclosure of the taxpayer's tax return information to 
another tax return preparer for the purpose of performing services that 
assist in the preparation of, or provide auxiliary services in 
connection with the preparation of, the tax return of the taxpayer.
    (ii) Example. The application of this paragraph (a)(2) may be 
illustrated by the following example:

    Example. Preparer P, who is located within the United States, is 
retained by Company C to provide tax return preparation services for 
employees of Company C. An employee of Company C, Employee E, works 
for C outside of the United States. To provide tax return 
preparation services for E, P requires the assistance of and needs 
to disclose E's tax return information to a tax return preparer who 
works for P's affiliate located in the country where E works. P may 
condition its provision of tax return preparation services upon E 
consenting to the disclosure of E's tax return information to the 
tax return preparer in the country where E works.

    (3) The form and contents of taxpayer consents--(i) In general. All 
consents to disclose or use tax return information must satisfy the 
following requirements--
    (A) A taxpayer's consent to a tax return preparer's disclosure or 
use of tax return information must include the name of the tax return 
preparer and the name of the taxpayer.
    (B) If a taxpayer consents to a disclosure of tax return 
information, the consent must identify the intended purpose of the 
disclosure. Except as provided in Sec.  301.7216-3(a)(3)(iii), if a 
taxpayer consents to a disclosure of tax return information, the 
consent must also identify the specific recipient (or recipients) of 
the tax return information. If the taxpayer consents to use of tax 
return information, the consent must describe the particular use 
authorized. For example, if the tax return preparer intends to use tax 
return information to generate solicitations for products or services 
other than tax return

[[Page 1074]]

preparation, the consent must identify each specific type of product or 
service for which the tax return preparer may solicit use of the tax 
return information. Examples of products or services that must be 
identified include, but are not limited to, balance due loans, mortgage 
loans, mutual funds, individual retirement accounts, and life 
insurance.
    (C) The consent must specify the tax return information to be 
disclosed or used by the return preparer.
    (D) If a tax return preparer to whom the tax return information is 
to be disclosed is located outside of the United States, the taxpayer's 
consent under Sec.  301.7216-3 prior to any disclosure is required. See 
Sec.  301.7216-2(c) and (d).
    (E) A consent to disclose or use tax return information must be 
signed and dated by the taxpayer.
    (ii) The form and contents of taxpayer consents with respect to 
taxpayers filing a return in the Form 1040 series--guidance describing 
additional requirements for taxpayer consents with respect to Form 1040 
series filers. The Secretary may issue guidance, by publication in the 
Internal Revenue Bulletin (see Sec.  601.601(d)(2)(ii)(b) of this 
chapter), describing additional requirements for tax return preparers 
regarding the format and content of consents to disclose and use tax 
return information with respect to taxpayers filing a return in the 
Form 1040 series, e.g., Form 1040, Form 1040NR, Form 1040A, or Form 
1040EZ.
    (iii) The form and contents of taxpayer consents with respect to 
all other taxpayers. A consent to disclose or use tax return 
information with respect to a taxpayer not filing a return in the Form 
1040 series may be in any format, including an engagement letter to a 
client, as long as the consent complies with the requirements of Sec.  
301.7216-3(a)(3)(i). Additionally, the requirements of Sec.  301.7216-
3(c)(1) are inapplicable to consents to disclose or use tax return 
information with respect to taxpayers not filing a return in the Form 
1040 series. Solely for purposes of a consent issued under Sec.  
301.7216-3(a)(3)(iii), in lieu of identifying specific recipients of an 
intended disclosure under Sec.  301.7216-3(a)(3)(i)(B), a consent may 
allow disclosure to a descriptive class of entities engaged by a 
taxpayer or the taxpayer's affiliate for purposes of services in 
connection with the preparation of tax returns, audited financial 
statements, or other financial statements or financial information as 
required by a government authority, municipality or regulatory body.
    (iv) Examples. The application of Sec.  301.7216-3(a)(3)(iii) may 
be illustrated by the following examples:

    Example 1. Consistent with applicable legal and ethical 
responsibilities, Preparer Z sends its client, a corporation, 
Taxpayer C, an engagement letter. Part of the engagement letter 
requests the consent of Taxpayer C for the purpose of disclosing tax 
return information to an investment banking firm to assist the 
investment banking firm in securing long term financing for Taxpayer 
C. The engagement letter includes language and information that 
meets the requirements of Sec.  301.7216-3(a)(3)(i), including: (I) 
Preparer Z's name, Taxpayer C's name, and a signature and date line 
for Taxpayer C; and (II) a statement that ``Taxpayer C authorizes 
Preparer Z to disclose the portions of Taxpayer C's 2009 tax return 
information to the firm retained by Taxpayer C necessary for the 
purposes of assisting Taxpayer C secure long term financing.'' The 
engagement letter satisfies the requirements of Sec.  301.7216-
3(a)(3) for the disclosure of the information provided therein for 
the specific purpose stated.
    Example 2. Consistent with applicable legal and ethical 
responsibilities, Preparer N sends its client, a corporation, 
Taxpayer D, an engagement letter. Part of the engagement letter 
requests the consent of Taxpayer D for the purpose of disclosing tax 
return information to Preparer N's affiliated firms located outside 
of the United States for the purposes of preparation of Taxpayer D's 
2009 tax return''. The engagement letter includes language and 
information that meets the requirements of Sec.  301.7216-
3(a)(3)(i), including: (I) Preparer N's name, Taxpayer D's name, and 
a signature and date line for Taxpayer D; (II) a statement that 
``Taxpayer D authorizes Preparer N to disclose Taxpayer D's 2009 tax 
return information to Preparer N's affiliates located outside of the 
United States for the purposes of assisting Preparer N prepare 
Taxpayer D's 2009 tax return''; and (III) a statement that, in 
providing consent, Taxpayer D acknowledges that its tax return 
information for 2009 will be disclosed to tax return preparers 
located abroad. The engagement letter satisfies the requirements of 
Sec.  301.7216-3(a)(3) for the disclosure of the information 
provided therein for the specific purpose stated.

    (b) Timing requirements and limitations--(1) No retroactive 
consent. A taxpayer must provide written consent before a tax return 
preparer discloses or uses the taxpayer's tax return information.
    (2) Time limitations on requesting consent in solicitation context. 
A tax return preparer may not request a taxpayer's consent to disclose 
or use tax return information for purposes of solicitation of business 
unrelated to tax return preparation after the tax return preparer 
provides a completed tax return to the taxpayer for signature.
    (3) No requests for consent after an unsuccessful request. With 
regard to tax return information for each income tax return that a tax 
return preparer prepares, if a taxpayer declines a request for consent 
to the disclosure or use of tax return information for purposes of 
solicitation of business unrelated to tax return preparation, the tax 
return preparer may not solicit from the taxpayer another consent for a 
purpose substantially similar to that of the rejected request.
    (4) No consent to the disclosure of a taxpayer's social security 
number to a return preparer outside of the United States. A tax return 
preparer located within the United States, including any territory or 
possession of the United States, may not obtain consent to disclose the 
taxpayer's social security number (SSN) to a tax return preparer 
located outside of the United States or any territory or possession of 
the United States. Thus, if a tax return preparer located within the 
United States (including any territory or possession of the United 
States) obtains consent from a taxpayer to disclose tax return 
information to another tax return preparer located outside of the 
United States, as provided under Sec. Sec.  301.7216-2(c) and 301.7216-
2(d), the tax return preparer located in the United States may not 
disclose the taxpayer's SSN, and the tax return preparer must redact or 
otherwise mask the taxpayer's SSN before the tax return information is 
disclosed outside of the United States. If a tax return preparer 
located within the United States initially receives or obtains a 
taxpayer's SSN from another tax return preparer located outside of the 
United States, however, the tax return preparer within the United 
States may, without consent, retransmit the taxpayer's SSN to the tax 
return preparer located outside the United States that initially 
provided the SSN to the tax return preparer located within the United 
States.
    (5) Duration of consent. A consent document may specify the 
duration of the taxpayer's consent to the disclosure or use of tax 
return information. If a consent agreed to by the taxpayer does not 
specify the duration of the consent, the consent to the disclosure or 
use of tax return information will be effective for a period of one 
year from the date the taxpayer signed the consent.
    (c) Special rules--(1) Multiple disclosures within a single consent 
form or multiple uses within a single consent form. A taxpayer may 
consent to multiple uses within the same written document, or multiple 
disclosures within the same written document. A single written 
document, however, cannot authorize both uses and disclosures; rather 
one written document must authorize the uses and

[[Page 1075]]

another separate written document must authorize the disclosures. 
Furthermore, a consent that authorizes multiple disclosures or multiple 
uses must specifically and separately identify each disclosure or use. 
See Sec.  301.7216-3(a)(3)(iii) for an exception to this rule for 
certain taxpayers.
    (2) Disclosure of entire return. A consent may authorize the 
disclosure of all information contained within a return. A consent 
authorizing the disclosure of an entire return must provide that the 
taxpayer has the ability to request a more limited disclosure of tax 
return information as the taxpayer may direct.
    (3) Copy of consent must be provided to taxpayer. The tax return 
preparer must provide a copy of the executed consent to the taxpayer at 
the time of execution. The requirements of this paragraph (c)(3) may 
also be satisfied by giving the taxpayer the opportunity, at the time 
of executing the consent, to print the completed consent or save it in 
electronic form.
    (d) Effective/applicability date. This section applies to 
disclosures or uses of tax return information occurring on or after 
January 1, 2009.

Linda E. Stiff,
Deputy Commissioner for Services and Enforcement.
    Approved: December 21, 2007.
Eric Solomon,
Assistant Secretary of the Treasury (Tax Policy).
[FR Doc. 08-1 Filed 1-3-08; 8:58 am]
BILLING CODE 4830-01-P