Understanding IRC 7216 and its Revised Regulations

1. UnderstandingIRC �7216 and its Revised Regulations Presented by: Ralph G. Picardi, Esq. Lapping & Picardi, LLP North American Professional Liability Insurance Agency, LLC

2. Copyright This presentation, and it�s full content, is the property of North American Professional Liability Insurance Agency, LLC (NAPLIA) and Ralph Picard, Esq / Lapping & Picardi, LLP. Any use of this information without the express consent of NAPLIA and/or Lapping & Picardi, LLP is strictly prohibited. Any use of this information without permission is a violation of the copyright and will be prosecuted.

3. Important Disclaimers The information and opinions in this presentation and these slides is intended solely for general educational purposes, to give tax professionals a broad outline of the statute, regulations, and revenue procedure discussed herein. It is not intended for the purpose of providing specific legal, accounting, or other professional advice to any particular recipient for use in the recipient�s practice or in advising the recipient�s clients, or with respect to any particular jurisdiction. The author and presenter of said information (1) makes no representations, warranties, or guarantees as to its technical accuracy or compliance with any law (federal, state, or local) or professional standard; and, (2) assumes no responsibility to any recipient of the information to correct or update its contents for any reason, including changes in any law or professional standard. Therefore, you should not rely on the information and opinions in this presentation and these slides. Rather, before taking any action in connection with the legal provisions outlined herein, you should consult the actual text of those provisions, and obtain specific legal and/or accounting advice. No warranties as to merchantability or fitness for a particular purpose are expressed or implied. Application of tax law and use of the information contained in this presentation and these slides is solely the responsibility of the reader.

4. Governing Legal Provisions The Statute: IRC �7216 The Treasury Regulations (26 CFR 301.7216): 301.7216-1 301-7216-2 301-7216-3 The Revenue Procedure: 2008-35

6. General Rule Applies to whom: One engaged in business of preparing income tax returns One providing services in connection with preparation of returns One who prepares return for another person for compensation Applies to what information: Information furnished in connection with preparation of income tax return Wrongful acts: Knowing or reckless disclosure Knowing or reckless use for any purpose other than to prepare, or assist in preparing, return

7. Consequences Criminal�Misdemeanor: Fine�Not more than $1,000 Imprisonment�Not more than 1 year Or both Civil: Separate statute�IRC �6713(a) $250 per disclosure and/or use Not to exceed $10,000 in any calendar year

8. Exceptions General rule shall not apply to: Disclosure of information if pursuant to: Taxpayer�s consent Any other provision of IRC Order of a court Use of information to prepare other returns for taxpayer: State and local tax returns Declarations of estimated tax Disclosure/use of information permitted by Treasury regulations Including in connection with quality or peer reviews

9. Important Points Taxpayer�s consent must be in writing Form and substance of consent dictated by Treasury regulations Court order may not be sufficient in all states Some states have very strict accountant-client privilege laws Subpoena is not a court order Sufficient only in limited contexts as provided in Treasury regulations

10. The Regulations: 301.7216-1, 2, 3

11. Overview of Treasury Regulations 26 CFR 301.7216-1, 2, 3 Revised regulations apply to disclosures or uses occurring on or after 1/1/09 Purpose of revised regulations: To give taxpayers greater control over their tax information To govern how preparers, with informed written consent of taxpayers, may disclose or use tax return information To provide specific, limited exceptions allowing disclosure/use without consent

12. 24 CFR 301.7216-1

13. Overview Primary purpose�To provide definitions of important terms Key defined terms: Tax return Tax return preparer Tax return information Use Disclosure

14. Tax return Any return Or amended return Of income tax Imposed by chapter 1 of IRC

15. Tax Return Preparer Engaged in business of preparing/assisting in preparing income tax returns Engaged in business of providing auxiliary services to preparers Compensated for preparing/assisting in preparing: Even if not in the course of a business Even casually helping relative, friend, acquaintance Employee of preparer who: Assists in preparation Assists in providing auxiliary services to preparers

16. Engaged in Business In the course of business Held out to preparers or taxpayers As one who prepares or assists in preparing tax returns As one who provides auxiliary services to preparers, including: Tax return preparation software or equipment contractor Authorized IRS e-file Provider Preparation need not be sole business activity Need not charge fee for preparation services

17. Tax Return Information Any information furnished in any form or manner in connection with preparation of tax return Information that taxpayer would not have furnished to preparer but for engagement to prepare return Specifically includes taxpayer�s name, address, identifying number. General categories of tax return information: Furnished by taxpayer Furnished by third party Furnished by IRS In connection with processing of return Including acknowledgment of acceptance or notice of rejection of electronically filed return Derived or generated by preparer from such information Statistical compilations of tax return information, even in cannot be directly or indirectly tied to particular taxpayer Does not include�Identical information, if obtained in another context

18. Use and Disclosure of Tax Return Information Use Referring to or relying upon tax return information as basis to take or permit an action Disclosure Making tax return information known to any person in any manner

19. 24 CFR 301.7216-2

20. Overview Primary purpose�To set forth permissible disclosures or uses without consent of taxpayer Describes specific categories of disclosure/use

21. No Consent Needed(Specific categories of disclosure/use) Pursuant to IRC To IRS For updating taxpayer�s tax return preparation software Within preparer�s firm To other preparers, auxiliary service providers, contractors To/for related taxpayers In response to legal process To preparer�s lawyer To Treasury Department�In investigation of preparer To officer of court By corporate fiduciaries To taxpayer�s fiduciary In connection with taxpayer�s state, local, foreign tax matters Information given by taxpayer to facilitate payment of preparer�s fees Retention of tax return information to assist with other tax needs of taxpayer In lists for solicitation of tax return business To produce statistical information concerning preparer�s business For quality or peer reviews To report commission of crime Because of preparer�s incapacity or death

22. Disclosure to/Use by Others(Within Preparer�s Firm) May be disclosed to/used by others in firm for return preparation or additional services to taxpayer May be disclosed to/used by others in firm for return preparation or additional services to others US preparer�Others must be within US Non-US preparer�Others need not be within US

23. Disclosure to/Use by Others(Outside Preparer�s Firm) Other Preparers, Auxiliary Service Providers, Contractors Purpose: To prepare/assist in preparing return Concerning tax hardware/software Outside services must be non-substantive

24. Related Taxpayers Sufficient relationship: Husband/wife parent/child grandparent/grandchild partnership/partner trust or estate /beneficiary or fiduciary corporation/shareholder members of control group of corporations Interests not adverse regarding information Taxpayer hasn�t expressly prohibited disclosure/use

25. Legal Process Court order Grand jury subpoena Congressional subpoena Administrative order, subpoena Professional ethics committee/board�Written request PCAOB�Written request

26. To Officer of Court Proceeding involving preparer Proceeding involving preparer�s client Pending before court or grand jury The term, �officer of court�, is not defined

27. 24 CFR 301.7216-3

28. Taxpayer�s Written Consent(In General) Overview of taxpayer consent Consent to furnish tax return information to another preparer Form and contents of consents

29. Overview of Taxpayer Consent Preparer may not disclose/use tax information without taxpayer�s prior written consent Unless IRC �7216 or 301.7216-2 specifically authorizes otherwise Preparer must: Follow taxpayer�s directions Conform consent to 301-7216-3 Consent must be knowing and voluntary Preparer generally may not condition services on obtaining consent to disclosure/use

30. Furnishing Information toAnother Preparer Preparer may condition provision of preparation services Upon taxpayer's consenting to disclosure of taxpayer's tax return information To another preparer For purpose of performing services that Assist in Provide auxiliary services in connection with Preparation of taxpayer�s return

31. Form and Contents of Consents Specific requirements for all consents Additional requirements for consents concerning 1040-series returns Additional provisions concerning all other returns

32. Requirements for All Consents Names of preparer and taxpayer Intended purpose of disclosure Specific recipient (s) of tax return information Particular use authorized If preparer intends to use information to solicit for other products or services Consent must identify each specific type of product/service service Specific information to be disclosed/used Signed and dated by taxpayer

33. Additional Consent Requirements (1040-series returns) Authorizes Treasury Secretary to impose additional requirements For form and contents of consents to disclose/use information Concerning 1040-series returns See Revenue Procedure 2008-35

34. All Other Returns May be in any format Even within engagement letter Must meet general requirements, except: May include uses and disclosures in one consent Consent need not specifically and separately describe multiple uses/disclosures May describe class of entities to receive disclosure: If recipients engaged by taxpayer or affiliate To render services in connection with preparation of returns, financials, or other financial information As required by government authority, municipality or regulatory body

35. Taxpayer�s Written Consent(Timing Requirements/Limitations) No retroactive consent Time limitations on requesting consent in solicitation context No requests for consent after unsuccessful request No consent to disclose taxpayer's SSN to preparer outside US concerning 1040- series return Duration of consent

36. No Retroactive Consent Taxpayer must provide written consent before preparer discloses or uses taxpayer's tax return information

37. Time Limitations(Consent Requests�Solicitation) Preparer may not request taxpayer's consent to disclose/use tax return information For purposes of soliciting unrelated business After preparer provides completed tax return to taxpayer for signature

38. No Second Requests For each return prepared for taxpayer If taxpayer declines request for consent to disclose/use tax return information For purposes of soliciting unrelated business Preparer may not make second substantially similar request

39. May Not Disclose Taxpayer's SSN(To Non-US Preparer�1040-series return) Preparer within US Includes US territories and possessions Of 1040-series return Includes Forms 1040, 1040NR, 1040A, Form 1040EZ May not obtain consent to disclose taxpayer�s SSN to non-US preparer Unless US preparer first received SSN from non-US preparer If US preparer obtains consent to disclose tax return information to non-US preparer, must redact SSN

40. Exception(Disclosing SSN to Non-US Preparer) US preparer may obtain consent to disclose taxpayer's SSN to non-US preparer Only if US preparer discloses SSN to non-US preparer using adequate data protection safeguard As defined by Treasury Secretary (26 CFR 601.601(d)(2)(ii)(b)) And verifies maintenance of safeguards in request for taxpayer's consent as specified by Treasury Secretary

41. Duration of Consent Consent document may specify duration of taxpayer's consent to disclosure/use of tax return information If consent does not specify duration, it will be effective for one year from the date of taxpayer signature

42. Taxpayer�s Written Consent (Special Rules) Multiple disclosures/uses within a single consent form Disclosure of entire return Copy of consent must be provided to taxpayer

43. Multiple Disclosures/Uses Taxpayer may consent to multiple uses within same written document, or multiple disclosures within same written document Single written document cannot authorize both uses and disclosures One written document must authorize uses and another separate written document must authorize disclosures Consent authorizing multiple disclosures or multiple uses must specifically and separately identify each disclosure or use

44. Disclosure of Entire Return A consent may authorize the disclosure of all information contained within a return A consent authorizing disclosure of entire return must provide that taxpayer has ability to request more limited disclosure of tax return information as taxpayer may direct

45. Provide Copy to Taxpayer Preparer must provide copy of executed consent to taxpayer at time of execution Requirement may be satisfied by giving taxpayer the opportunity, at time of executing consent, to print completed consent or save it in electronic form

46. Revenue Procedure 2008-35

47. Overview Provides guidance to preparers regarding format and content of consents to disclose/use tax return information concerning 1040-series returns Provides specific requirements for electronic signatures when taxpayer executes electronic consent to disclose/use tax return information

48. Form and Content Separate written document Paper consent Electronic consent Mandatory statements in the consent Affirmative consent Signature Incomplete consents Special rule for multiple disclosures/uses within single consent Disclosure of entire return. Adequate data protection safeguard

49. Separate Written Document Taxpayer�s consent to each separate disclosure/use of tax return information must be contained on separate written document Except that one document may include multiple disclosures or multiple uses (but not both) Specifically and separately identified Consent may be in paper or electronic form May be attached to engagement letter

50. Paper Consent One or more sheets of paper 81/2 inch x 11 inch or larger All text on each sheet must pertain solely to disclosure/use the consent authorizes Sheet(s), together, must contain all required elements All text must be in at least 12-point type No more than 12 characters per inch

51. Electronic Consent Must be provided on one or more computer screens All text placed by preparer on each screen must pertain solely to disclosure/use of tax return information authorized by consent Except for computer navigation tools. Text of consent must meet the following specifications: Size of text must be at least same size as, or larger than, normal or standard body text used by website or software package for direction, communications or instructions There must be sufficient contrast between text and background colors. Each screen or, together, the screens must: Contain all requires elements Be able to be signed and dated by the taxpayer Be able to be formatted in readable and printer-friendly manner

52. Requirements of Every Consent(1040-Series Returns) Meet all requirements of 301.7216-3 Mandatory statements in consent form: Disclosure in tax preparation context Disclosure in other contexts Use�All contexts Mandatory statement�All consents Mandatory statement�Consent to disclose to non-US preparer Affirmative consent: All consents must require taxpayer�s affirmative consent to preparer�s disclosure/use of tax information Consent may not require taxpayer to remove or �deselect� disclosures or uses that taxpayer does not want�An �opt-out� consent Signature of taxpayer Incomplete consent forms Preparer shall not present to taxpayer for signature consent form with blank spaces related to purpose of consent

53. Mandatory Statement(Disclosure in Tax Preparation Context ) Consent form (if required) must include the following statements in the following sequence: �Federal law requires this consent form be provided to you. Unless authorized by law, we cannot disclose, without your consent, your tax return information to third parties for purposes other than the preparation and filing of your tax return and, in certain limited circumstances, for purposes involving tax return preparation. If you consent to the disclosure of your tax return information, Federal law may not protect your tax return information from further use or distribution.� �You are not required to complete this form. Because our ability to disclose your tax return information to another tax return preparer affects the service that we provide to you and its cost, we may decline to provide you with service or change the terms of service that we provide to you if you do not sign this form. If you agree to the disclosure of your tax return information, your consent is valid for the amount of time that you specify. If you do not specify the duration of your consent, your consent is valid for one year.�

54. Mandatory Statement(Disclosure in Other Contexts ) Consent form must include the following statements in the following sequence: �Federal law requires this consent form be provided to you. Unless authorized by law, we cannot disclose, without your consent, your tax return information to third parties for purposes other than the preparation and filing of your tax return. If you consent to the disclosure of your tax return information, Federal law may not protect your tax return information from further use or distribution.� �You are not required to complete this form. If we obtain your signature on this form by conditioning our services on your consent, your consent will not be valid. If you agree to the disclosure of your tax return information, your consent is valid for the amount of time that you specify. If you do not specify the duration of your consent, your consent is valid for one year.�

55. Mandatory Statement(Use�All Contexts) Consent form must include the following statements in the following sequence: �Federal law requires this consent form be provided to you. Unless authorized by law, we cannot use, without your consent, your tax return information for purposes other than the preparation and filing of your tax return. � �You are not required to complete this form. If we obtain your signature on this form by conditioning our services on your consent, your consent will not be valid. Your consent is valid for the amount of time that you specify. If you do not specify the duration of your consent, your consent is valid for one year.�

56. Mandatory Statement(All Consents) All consents must contain the following statement: �If you believe your tax return information has been disclosed or used improperly in a manner unauthorized by law or without your permission, you may contact the Treasury Inspector General for Tax Administration (TIGTA) by telephone at 1-800-366-4484, or by email at complaints@tigta.treas.gov.�

57. Mandatory Statement(Consent to Disclose to Non-US Preparer) If disclosure will not include the taxpayer�s SSN, prior consent must state: �This consent to disclose may result in your tax return information being disclosed to a tax return preparer located outside the United States.� If disclosure will include taxpayer�s SSN, prior consent must state: �This consent to disclose may result in your tax return information being disclosed to a tax return preparer located outside the United States, including your personally identifiable information such as your Social Security Number (�SSN�). Both the tax return preparer in the United States that will disclose your SSN and the tax return preparer located outside the United States which will receive your SSN maintain an adequate data protection safeguard (as required by the regulations under 26 U.S.C. Section 7216) to protect privacy and prevent unauthorized access of tax return information. If you consent to the disclosure of your tax return information, Federal agencies may not be able to enforce U.S. laws that protect the privacy of your tax return information against a tax return preparer located outside of the U.S. to which the information is disclosed.�

58. Multiple Disclosures/Uses(Within Single Consent Form) Multiple disclosure consents and multiple use consents must provide taxpayer with opportunity in form to affirmatively select each separate disclosure or use Consent form must include required information for each separate disclosure or use, except: Mandatory statements in Rev. Proc. relating to use or disclosure need only be stated once

59. Disclosure of Entire Return If consent authorizes disclosure of copy of taxpayer�s entire return Or all information within return Consent must provide that taxpayer may request and direct more limited disclosure of information

60. Adequate Data Protection Safeguard US preparer may disclose a taxpayer�s SSN to non-US preparer with taxpayer�s consent only when both preparers maintain adequate data protection safeguard at time taxpayer gives consent and when preparer makes disclosure Adequate data protection safeguard is security program, policy and practice approved by management and implemented Includes administrative, technical and physical safeguards to protect tax return information from misuse or unauthorized access or disclosure Meets or conforms to one of the following privacy or data security frameworks: Commerce Dept. �safe harbor� framework for data protection (or successor ) Foreign law data protection safeguard that includes a security component Framework that complies with requirements of a financial or similar industry-specific standard that is generally accepted as best practices for technology and security related to that industry Requirements of the AICPA/CICA Privacy Framework Requirements of most recent version of IRS Publication 1075, Tax Information Security Guidelines for Federal, State and Local Agencies and Entities Other comparable data security framework �same level of privacy protection

61. Signature All consents to disclose/use tax return information must be signed by taxpayer Electronic consents Signature must be furnished in a manner that ensures affirmative, knowing consent to each disclosure or use. Preparer must obtain taxpayer�s signature on the consent in one of the following manners: Taxpayer may affirmatively enter pre-assigned PIN as signature Taxpayer may affirmatively enter taxpayer�s name as signature Any other manner in which taxpayer affirmatively enters 5 or more characters that are unique to that taxpayer as signature

62. Examples Disclosure In context of tax return preparation or performance of auxiliary services Information will not be disclosed outside US Information will be disclosed outside US Disclosure does not include taxpayer�s SSN Disclosure does include taxpayer�s SSN In context other than return preparation/performance of auxiliary services Information will not be disclosed outside US Information will be disclosed outside US Disclosure does not include taxpayer�s SSN Disclosure does include taxpayer�s SSN Use�All situations (http://www.irs.gov/efile/article/0,,id=201520,00.html)

63. Thank You www.naplia.com/7216 Ralph Picardi � Lapping & Picardi, LLP rpicardi@lappingandpicardi.com