A few days ago, the IRS and Department of Treasury announced new rules designed to give taxpayers greater protection and control over tax return information held by professional tax return preparers. The new rules are the first in more then 30 years and bring an update to the disclosure and privacy laws related to tax return preparers. The IRS hopes the update will bring taxpayer consent requirements up to date with the electronic age. Preparers will have until January 1, 2009 to implement the new consent requirements, allowing for a full year to make any necessary changes.
According to the IRS, the new rules are as follows:
- Generally, preparers must obtain taxpayer consent, either by paper or electronically depending on how the return is being filed, before tax return information can be disclosed to any third party or used for any purpose other than filing the return.
- If the taxpayer consents to the disclosure and use of his information, the consent must identify the intended purpose of the disclosure, identify the recipients and describe the particular authorized disclosure or use of the information.
- Mandatory language informs individual taxpayers that they are not required to sign the consent; that if they sign the consent, federal law may not protect their information from further disclosure; and that if they sign the consent, they can set a time period for the duration of that consent. If taxpayers fail to set a time period, the consent is valid for a maximum of one year.
- To prevent consent requests from individual taxpayers from being buried in fine print, the rules require the paper consent documents to be in 12-point type on 81/2 by 11 inch paper and require electronic consent requests to be in the same type as the Web site’s standard text, all to prevent consent requests from being too difficult to read for individual taxpayers.
- If a taxpayer declines to provide consent for an unrelated tax preparation disclosure or use request, the preparer cannot make a similar consent request. The intent is to protect taxpayers from being pressured with repeated consent requests regarding the same issue.
- Mandatory consent from taxpayers also is required if the tax information is going to be disclosed to a tax preparer located outside the United States. This provision is intended to ensure taxpayers are informed if their tax information is being sent offshore for return preparation. The individual taxpayer’s Social Security Number also must be redacted.
Additionally, the IRS and Treasury Department also addressed the topic of Refund Anticipation Loans (RALs). They are concerned that may give preparers a financial incentive to take improper credits or deductions in order to inflate refund claims. The IRS issued an Advance Notice of Proposed Rulemaking announcing that they are considering a proposal to prohibit preparers from disclosing or using taxpayer return information for the purpose of selling RALs and similar products. The IRS has given itself a 90-day written comment period after which they will consider what steps, if any, they will take to modify rules related to RALs.
