Internal Revenue Code Section 7216, per irs.gov, “is a criminal provision enacted by the U.S. Congress in 1971 that prohibits preparers of tax returns from knowingly or recklessly disclosing or using tax return information” without a client’s explicit, “written consent.”
The disclosure of tax return information is defined as “the act of making tax return information known to any person in any manner whatever.” For example, you disclose tax return information when you provide a client’s tax documents to another team member of your firm who is assisting with their tax preparation.
The use of tax return information is defined as “any circumstance in which a tax return preparer refers to, or relies upon, tax return information as the basis to take or permit an action.” For example, you would be using tax return information if, when preparing a tax return for a client, you determined that they are eligible to make a contribution to an IRA and you discussed that option with them. You use tax return information anytime you make a recommendation to a taxpayer or offer a non-tax service to a taxpayer, based on knowledge gained from information furnished in connection with your preparation of the taxpayer’s return.
In other words, Section 7216 is intended for the tax preparer to avoid sharing information with anyone other than persons necessary in the course of the tax preparation, assisting in preparing, or obtaining and providing services in connection with the preparation of an income tax return. However, there is no requirement in Section 7216 or its regulations for a tax preparer to inform the client that a third-party provider is being used to process the return.
While data is stored on TaxDome servers, it is not disclosed to TaxDome. All data sent to us is encrypted, so we do not have access to clients’ documents. In this capacity, your relationship with TaxDome is similar to using Dropbox, Google Drive, or other such Internet service providers. Therefore, using TaxDome does not require Section 7216 consent.
For more information, go to Section 7216 Frequently Asked Questions at irs.gov.