In Rev. Proc. 2013-14, the IRS has provided guidance to tax return preparers about the format and content of taxpayer consents to disclose and consents to use tax return information and modified the mandatory language required on each taxpayer consent. The guidance applies to individuals filing a return in the Form 1040 series. The revenue procedure also lists specific requirements for electronic signatures when a taxpayer executes an electronic consent to the disclosure or consent to the use of the taxpayer’s tax return information.
Rev. Proc. 2013-14 modifies and supersedes rules issued in 2008 (Rev. Proc. 2008-35) and is effective Jan. 14, 2013.
The revenue procedure applies to all tax return preparers who seek consent to disclose or consent to use tax return information of taxpayers who file a Form 1040 series return. Other taxpayers (who do not file a return in the Form 1040 series) may use language prescribed in the revenue procedure or may use consents whose formats and content do not conform to the revenue procedure as long as those consents otherwise meet the requirements of Regs. Sec. 301.7216-3.
In the revenue procedure, the IRS says that some taxpayers have expressed confusion over whether they must complete consent forms to engage a tax return preparer to perform tax return preparation services. The modified mandatory language required in consent forms clarifies that a taxpayer does not need to complete a consent form to engage a tax return preparer to perform only tax return preparation services. One example in the revenue procedure provides that if a tax return preparer makes provision of tax preparation services contingent on the taxpayer’s signing a consent, the consent is not valid because it is not voluntary. However, a taxpayer must complete a consent form as described in the revenue procedure to allow a tax return preparer to disclose or use tax return information in providing services other than tax return preparation.
Sec. 7216 prohibits a tax return preparer from “knowingly or recklessly” disclosing or using tax return information. A violation could result in a preparer’s being charged with a criminal misdemeanor, involving a maximum penalty of $1,000 or one year in prison, or both, plus costs of prosecution. However, Sec. 7216(b) contains exceptions to this general rule and authorizes the IRS to promulgate regulations prescribing additional permitted disclosures or uses.
Under the revenue procedure, each separate consent to disclosure or use of tax return information must be contained on a separate written document (either paper or electronic). The separate written document may be provided as an attachment to an engagement letter furnished to the taxpayer.
The revenue procedure prescribes the required paper size and font size for consents on paper. For electronic consents, the revenue procedures requires the consent to appear on its own screen, prescribes the text size, and says there must be sufficient contrast between the text and background colors.
The revenue procedure provides mandatory statements that must be included in a consent in various circumstances, including:
- Consent to disclose tax return information in a context other than tax return preparation or auxiliary services;
- Consent to disclose tax return information in the context of tax return preparation or auxiliary services; and
- Consent to use tax return information.
All consents must also 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 firstname.lastname@example.org.
The revenue procedure also provides mandatory language to be included in any consent to disclose tax return information to a tax return preparer located outside the United States.
All consents must require the taxpayer’s affirmative consent to a tax return preparer’s disclosure or use of tax return information. An “opt-out” consent, which requires the taxpayer to remove or deselect disclosures or uses that the taxpayer does not wish to be made, is not permitted. For an electronic consent to be valid, it must be furnished in a manner that ensures the taxpayer’s affirmative, knowing consent to each disclosure or use.
All consents to disclose or use tax return information must be signed by the taxpayer. For consents on paper, the taxpayer’s consent to a disclosure or use must contain the taxpayer’s handwritten signature. For electronic consents, a taxpayer must sign the consent by any method prescribed in Rev. Proc. 2013-14.
A tax return preparer may not alter a consent form after the taxpayer has signed the document; therefore, a tax return preparer cannot present a taxpayer with a consent form containing blank spaces for the purpose of completing the spaces after the taxpayer has signed the document.
Adequate data protection safeguards
A tax return preparer located within the United States, including any U.S. territory or possession, may disclose a taxpayer’s Social Security number to a tax return preparer located outside the United States or any U.S. territory or possession with the taxpayer’s consent only when both the tax return preparer located within the United States and the tax return preparer located outside the United States maintain an “adequate data protection safeguard” at the time the taxpayer’s consent is obtained and when making the disclosure.
The revenue procedure describes an adequate data protection safeguard as a management-approved and implemented security program, policy, and practice that includes administrative, technical, and physical safeguards to protect tax return information from misuse, unauthorized access, or disclosure and that meets or conforms to one of the data security frameworks described in the revenue procedure.
- For electronic consents, the tax return preparer must obtain the taxpayer’s signature on the consent in one of the following ways:
- Assign a personal identification number (PIN) that is at least five characters long to the taxpayer.
- Have the taxpayer type in the taxpayer’s name and then hit “enter” to authorize the consent. (The software must not automatically furnish the taxpayer’s name so that the taxpayer only has to click a button to consent.)
Any other manner in which the taxpayer affirmatively enters five or more characters unique to the taxpayer that the tax return preparer uses to verify the taxpayer’s identity.
The revenue procedure includes three examples showing the application of its rules.
—Alistair M. Nevius (email@example.com) is the JofA’s editor-in-chief, tax.