Definition
Section 7216 of the Internal Revenue Code applies to people in the business of preparing tax returns and to anyone who prepares returns for compensation. It makes it a misdemeanor to knowingly or recklessly disclose information furnished for the preparation of a return, or to use it for any purpose other than preparing the return. The statute sets a fine of up to $1,000 (a higher maximum applies to some disclosures covered by section 6713(b)), imprisonment of up to one year, or both, plus costs of prosecution. It excepts disclosures made under another provision of the Code or a court order, and uses or disclosures that Treasury regulations permit, which must include disclosures for quality or peer review.
Why it matters in an audit or review
Treasury Regulations under section 7216 explain what a preparer may do without consent and when the taxpayer's written consent is needed. The point reaches audit firms that prepare tax returns for attest clients, or that share tax return information with other firms, with tools, or with service providers. Firms need policies on who can access return information and when consent must be documented before any use beyond tax preparation.
Example
Illustrative: a firm wants to use a tax client's return data to build benchmark reports for marketing. The firm checks the regulations, finds that the use is not covered by a permitted exception, and gets the consent the regulations require before any use.
Common mistakes
Using return data for unrelated services or sharing it with a vendor without checking the regulations.
FAQ
Is this the same as client confidentiality under the AICPA Code?
No. Section 7216 is a separate federal law, and both can apply.
Sources
- 26 U.S.C. 7216, Disclosure or use of information by preparers of returns: https://uscode.house.gov
- 26 CFR 301.7216-1 through 301.7216-3: https://www.ecfr.gov/current/title-26/section-301.7216-1
- IRS Rev. Proc. 2013-14, consent formats under section 7216
- AICPA Code of Professional Conduct, Confidential Client Information Rule, ET 1.700.001
Definitions paraphrase AICPA and FASB guidance; read the standard itself before relying on a requirement. Example figures are illustrative. This page is guidance, not professional advice. Report an error