IRS Section 7216 updates a 30-year old regulation intended to protect taxpayer information and to address the requirements tax preparers need to consider when using or disclosing tax payer information. The updates are intended to consider practices in our electronic age. Given all of the buzz about, and the urgency of the implications of the IRS Section 7216, I’m going to share our thoughts on the bottom line of what this means to the marketing practices within your firm.
Under Section 7216, you will need to obtain consent from your tax-only clients in order to distribute non-tax related information to them and to share their information with any third-party. There are timing considerations and limitations on retroactive consents which mean that you should have procedures in place NOW to remain in compliance as you deliver returns during this spring tax season.
There appear to be a wide variety of opinions and interpretations of the new requirements, and while we don’t claim to be IRS experts, we have done a lot of research on the subject. Here’s a summary of what we believe are the most important things to consider as you implement processes to address Section 7216:
- The new regulations only apply to your “tax-only” clients. “Tax-only” means those clients for whom you only provide tax return services and do not or have not performed in the past any other services such as general accounting services. If you have performed any other services for a client, they are exempt from IRS 7216.
- The regulations state that the communications that are restricted are only those marketing communications that are not tax-related. For example, you do not need to obtain consent from any client to send communications that include tax-related information to them. However, you must obtain consent from tax-only clients to send them marketing communications that do not contain any tax-related information. These might include cross-selling publications or information about a new service your firm is offering.
- There are five important points to remember about obtaining your clients’ consent:
- You must obtain consent prior to delivering the return to the client for signature
- Retroactive consents, or consents received after the return is delivered or after you have already sent marketing communications, are prohibited
- You may only ask for a client’s consent one time
- If a timeframe is not specified in the consent form, it is valid for only one year, so you’ll want to specify a timeframe to keep from repeating the consent process next spring
- You will need a separate consent form for different situations where you may be disclosing or using tax information from a client, but there are situations where you can combine consents for multiple situations
For further information regarding consent and sample consent forms click here: http://www.irs.gov/efile/article/0,,id=201520,00.html
Mail Houses and Third-Party Distributors of Marketing Communications
If you plan to use a mail house or third-party distributor to send print or e- mail newsletters to your tax-return-only clients about tax-related or non-tax related topics, you need to obtain the clients’ consent to disclose the clients’ information to the mail house or communications distributor. However, if your e-letter service is not responsible for actually e-mailing the newsletter to your clients (you e-mail it) and they do not have access to your clients’ e-mail addresses, then they are not considered a third party. For example, BizActions is a third-party that sends out email newsletters on behalf of firms and would be considered a third party in this instance. You can review their position on Section 7216 and sample consent forms by clicking here. Other providers may offer content for newsletters but do not send out the newsletters and do not have access to firms’ client data, so they are not considered third parties.
Staying in Compliance
Ensure that you remain in compliance by identifying those tax-only clients that you need to obtain consent for and make sure you obtain it before delivering their tax return to avoid missing your opportunity to send marketing materials to those clients and to share their information with third-parties when necessary. Also, take measures to ensure that your client data management system enables you to keep track of or “flag” those tax-only clients for whom you do not have the required consent so that you can easily exclude them from your marketing initiatives that don’t include some tax information.
Penalties for Non-Compliance
There are numerous exceptions and language that is “open to interpretation” within Section 7216. I think the safest bet is to get consent from all of your tax-only clients to use or disclose their taxpayer information for an extended period of time to ensure that you are in compliance. You need to also be sure that you have read the regulations and discussed them within your firm to have a consistent approach to this. If you have further doubt, consult with your attorney or discuss this further with your IRS representative because the penalties for non-compliance are significant. Several resources and related links are available on this topic, including a web seminar on Section 7216 facilitated by the AICPA PCPS team that you can register for by clicking here, plus the additional links below:
How are you ensuring that you are in compliance with section 7216? Take the poll below or post a comment to this blog – I’d love to hear from you!