The IRS has issued proposed guidance on the disclosure or use of tax return information by tax return preparers. A key principle underlying the proposed guidance is that tax return preparers may not disclose or use tax return information for purposes other than tax return preparation without the knowing, informed and voluntary consent of the taxpayer.

The existing regulations were drafted in the early 1970s, prior to the advent of many of the business practices and technology uses that define the electronic preparation and transmission of tax returns by preparers.

The proposed regulations broaden the definitions of tax return preparer and tax return information, revise the manner and form of obtaining taxpayer consent to use or disclose tax return information and add a requirement to obtain taxpayer consent before preparers send tax return information offshore.

The new regulations also take into account the presence and wide-spread use of computers in tax preparation. If a tax return preparer hires contractors who will need access to tax return information to repair computers or data files, the tax return preparer must notify those contractors that they will also be subject to restrictions on their use or disclosure of tax return information.

In many respects, the proposed guidance goes well beyond the disclosure and processing requirements of European data protection legislation. For example, the guidance

• prevents the use of "small print", either on printed documents or computer screens
  
  
• requires the request for consent to appear on a separate document or screen that does not contain information on any other subjects
  
  
• specifies the actual statements that must be included
  
  
• limits the period for which consent applies to one year
  
  
• requires the paper or electronic document to include the telephone number of the Treasury Inspector General for Tax Administration so that suspected unauthorized use or disclosures can be reported
  
  
• requires consent to be voluntary and to be given by affirmative consent, not by an "opt-out", and the document must allow consent to be given for some but not all uses or disclosures
  
  
• requires the consent document to be signed by the taxpayer, and in the case of electronic documents, the use of electronic signatures.

Full details of the proposed regulations are provided in an IRS Notice. The proposed regulations are open to public comment until March 8, 2006.

...back to 8 December 2005


Further information:
IRS Issues Proposed Regulations to Safeguard Taxpayer Information
Notice 2005-93

Discuss this news item in the PayPerShop Forum