New Rules and Penalties for Disclosure of Tax Data Could Land Tax Preparers in Jail

By McGowan, John R. | The CPA Journal, May 2009 | Go to article overview

New Rules and Penalties for Disclosure of Tax Data Could Land Tax Preparers in Jail


McGowan, John R., The CPA Journal


Success in the digital age depends upon the widespread integration of information and technology into all aspects of modem business. Federal and state laws and regulations concerning data security and privacy can have a significant impact on businesses. The IRS has strongly emphasized the need for tax preparers to protect tax return data. Beginning January 1, 2009, Treasury Regulations took effect that may lead to not only civil but criminal penalties for the disclosure of confidential tax return data by tax preparers.

The primary motivation for the new regulations is concern by Congress and the IRS about the confidentiality of income tax return data. Another concern is the perceived abuse in the area of refund anticipation loans (RAL). RALs are short-term cash advances against a taxpayer's anticipated income tax refund. A controversial proposal that was also issued with these regulations would create a complete ban on the use of information obtained during tax preparation for the marketing of RALs.

Tax preparers must understand their new responsibilities for confidentiality and disclosure of taxpayers' information. In addition, they need to know the answers to a number of important questions raised by these regulations.

The revised rules (TD 9375 and TD 9409) include many of the original rules from the pre-existing regulations issued in the 1970s but also provide many more examples and specific details. The first of diree regulations issued under IRC section 7216 explains and defines a tax preparer. The second regulation explains the types of disclosures that do not require taxpayer consent, such as disclosure of tax return information to an IRS employee. The third regulation covers the consent to disclose or the proper use of information by the tax preparer. These rules significantly tighten up the requirements for a taxpayer's consent and should be understood by anyone professionally preparing a tax return.

Penalties Under IRC Sections 6713 and 7216

Two provisions of the tax code cover disclosure or use of return information by a tax return preparer. Civil penalties are imposed under IRC section 6713 for improper disclosure of tax return information. A $250 penalty is imposed for each such unauthorized disclosure or use to a maximum of $10,000 in a calendar year.

Both civil and criminal penalties are imposed under IRC section 7216. A violation of IRC section 7216 is a misdemeanor, with a maximum fine of not more than $10,000 or up to one year in prison, or botii, togetiier with the costs of prosecution. Section 7216(a) applies to disclosures made "knowingly or recklessly." Because neitiier the tax code nor congressional committee reports define "knowingly" or "recklessly," it presumably applies to negligent as well as intentional releases of information.

Tax Preparer

A "tax return preparer" includes any person who is engaged in the business of preparing or assisting in preparing tax returns. It also includes any person who is engaged in the business of providing auxiliary services in connection with the preparation of tax returns. All persons who develop software used to prepare or file a tax return along with any audiorized IRS e-file providers are also included.

Example. Firm B is a tax return preparer and an authorized IRS e-file provider. B employs one individual, Q, to solicit the necessary tax return information for the preparation of a tax return; anotiier individual, R, to prepare the return on the basis of the information that is furnished; a secretary, S, who types the information on the returns into a computer; and an administrative assistant, T, who uses a computer to file electronic versions of the tax returns. In this example, only R is a tax return preparer for purposes of IRC section 7701(a)(36), but all four employees are tax return preparers for purposes of IRC section 7216.

A key term in the new definition is whemer tax preparers "hold themselves out. …

The rest of this article is only available to active members of Questia

Already a member? Log in now.

Notes for this article

Add a new note
If you are trying to select text to create highlights or citations, remember that you must now click or tap on the first word, and then click or tap on the last word.
One moment ...
Default project is now your active project.
Project items

Items saved from this article

This article has been saved
Highlights (0)
Some of your highlights are legacy items.

Highlights saved before July 30, 2012 will not be displayed on their respective source pages.

You can easily re-create the highlights by opening the book page or article, selecting the text, and clicking “Highlight.”

Citations (0)
Some of your citations are legacy items.

Any citation created before July 30, 2012 will labeled as a “Cited page.” New citations will be saved as cited passages, pages or articles.

We also added the ability to view new citations from your projects or the book or article where you created them.

Notes (0)
Bookmarks (0)

You have no saved items from this article

Project items include:
  • Saved book/article
  • Highlights
  • Quotes/citations
  • Notes
  • Bookmarks
Notes
Cite this article

Cited article

Style
Citations are available only to our active members.
Buy instant access to cite pages or passages in MLA, APA and Chicago citation styles.

(Einhorn, 1992, p. 25)

(Einhorn 25)

1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

Cited article

New Rules and Penalties for Disclosure of Tax Data Could Land Tax Preparers in Jail
Settings

Settings

Typeface
Text size Smaller Larger Reset View mode
Search within

Search within this article

Look up

Look up a word

  • Dictionary
  • Thesaurus
Please submit a word or phrase above.
Print this page

Print this page

Why can't I print more than one page at a time?

Help
Full screen

matching results for page

    Questia reader help

    How to highlight and cite specific passages

    1. Click or tap the first word you want to select.
    2. Click or tap the last word you want to select, and you’ll see everything in between get selected.
    3. You’ll then get a menu of options like creating a highlight or a citation from that passage of text.

    OK, got it!

    Cited passage

    Style
    Citations are available only to our active members.
    Buy instant access to cite pages or passages in MLA, APA and Chicago citation styles.

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn, 1992, p. 25).

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn 25)

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences."1

    1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

    Cited passage

    Thanks for trying Questia!

    Please continue trying out our research tools, but please note, full functionality is available only to our active members.

    Your work will be lost once you leave this Web page.

    Buy instant access to save your work.

    Already a member? Log in now.

    Oops!

    An unknown error has occurred. Please click the button below to reload the page. If the problem persists, please try again in a little while.