Rule 2010-4 provides guidance on disclosure and use in relation to taxpayers' return information. It also provides detail on situations where preparers cannot be held liable for civil or criminal penalties under IRC 7216. For firms that have not taken the time to review the new mandate, it is highly advised to ensure compliance and avoid potential liability.

By now, firms are more than aware of Internal Revenue Code Section 7216 that went into effect on Jan. 1, 2009. IRC 7216 contains a criminal provision enacted by the U.S. Congress (originally in 1971) that prohibits anyone who is involved in the preparation of tax returns from knowingly or recklessly disclosing or using tax-related information outside of tax prep purposes. This law mandates that tax preparers must acquire consent to disclose contact information to third parties or use contact information for purposes other than sending tax-related information. Non-compliance with 7216 rules can result in preparers being charged with a criminal misdemeanor, involving a maximum penalty of $1,000, one year in prison, or both.

At the highest level, Rev. Rule 2010-4 communicates appropriate situations where tax preparers can legally use taxpayer information to communicate necessary tax law changes. The ruling answers whether a tax return preparer is liable for penalties under 7216:

1) When using tax return information to contact taxpayers and inform them of changes in tax law that could affect the income tax liability reported in tax returns previously prepared or processed by the preparer;

2) When using tax return information to determine which taxpayers’ future income tax return filing obligations may be affected by a prospective change in a tax rule or regulation, contacting the potentially affected taxpayers to notify them of changes, explaining how the change may affect them, and advising clients with regard to actions they may take in response to the change.

3) When disclosing tax return information to a third-party service provider that distributes newsletters, bulletins, or similar communications (by mail or email) to taxpayers containing tax information and general business and economic information or analysis for educational purposes or for purposes of soliciting additional tax return preparation services for the tax return preparer.

This ruling enables tax return preparers to more effectively provide services that taxpayers would ordinarily expect from their preparer—including communicating changes in tax laws that could affect tax liability. In general, these types of services benefit taxpayers, increase voluntary compliance, and improve tax administration.


Affect On Marketing Programs?

Most CPA firms and other professional service practices that deal with tax preparation utilize third-party providers in the creation and distribution of marketing materials. These can include both email newsletter subscription services and mail houses. According to IRC 7216, firms can use third-party service providers to distribute communications that contain tax information and general business and economic analysis for educational purposes. What they cannot do is use these communication vehicles to solicit non-tax related services without consent by the taxpayer.

As such, third-party providers are required to have procedures in place that are consistent with good business practices and designed to maintain the confidentiality of disclosed tax return information. Providers must also have sufficient data confidentiality procedures in place. It should be noted that if tax clients receive any solicitation in violation of the ruling through the newsletter or marketing materials without the tax client’s consent, criminal penalties can be assessed to the CPA firm. Compliance requirements are available at http://www.IRS.gov.