New IRS Proposals Seek To Protect Taxpayer Information
The Internal Revenue Service has issued proposed guidance on the disclosure
or use of tax return information by tax return preparers in an attempt to safeguard
taxpayer information from identity theft and to update existing regulations
which were drafted prior to the electronic storage and transmission of individual
tax returns. 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 pre-existing regulations under Internal Revenue Code section 7216 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. “Safeguarding of tax return information is critical,” said IRS
Commissioner Mark W. Everson. “It’s vital we update the preparation rules for the 21st century.
Americans ought to know when their tax returns are being outsourced and prepared
abroad. In particular, I want to thank Massachusetts Rep. Ed Markey and others
for drawing our attention to this important issue.” 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. The proposed regulations are open to public comment for 90 days after their
date of publication. A public hearing on the proposed regulations has been scheduled
for April 4, 2006 at 10 a.m. .
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