What is the 7216?
Section 7216 is a portion of the Internal Revenue Code that covers rules and consent requirements relating to the disclosure or use of tax return information by tax return preparers. For example, a return that includes any sort of bank product is covered under Section 7216.
Enacted in 1971, the section sets out criminal penalties and prohibits preparers of tax returns from knowingly or recklessly disclosing or using tax return information. Since its creation, Section 7216 has been tightened, with a stricter interpretation of violation established in 2008.
2010 saw additional guidance arrive via revenue rulings from the IRS, Revenue Ruling 2010-4 and Revenue Ruling 2010-5. The rulings upheld that preparers following the guidance in these rulings are not liable for penalties under sections 7216 and 6713 and will not be liable for civil or criminal penalties under IRC section 7216 for disclosing or using tax return information in situations as described.
Penalties for violators can be civil or criminal. Criminal violators can be fined up to $1,000 or get up to a year in prison – or both. In addition, a civil penalty of $250 for each unauthorized disclosure or use of tax return information by a tax return preparer can be imposed, up to a total of $10,000 for any calendar year.
Two separate forms are most often used to comply with Section 7216: a Consent to Use form, and a Consent to Disclose form.
A Consent to Use form must be obtained prior to using the taxpayer’s information for any purpose other than to prepare or e-file the return. This would apply to offering the taxpayer any type of product such as an IRA or a bank product based on taxpayer information. The tax preparer is not permitted to sign the Consent to Use screen on the taxpayer’s behalf.
A Consent to Disclose form must be obtained prior to sharing taxpayer’s information with a third party, such as a bank. As with the Consent to Use, the tax preparer may not sign the Consent to Disclose on the taxpayer’s behalf.
Other consent forms may apply in certain cases. The American Institute of CPAs (AICPA) lists four such consent forms on its Section 7216 Guidance Page.
Note that Section 7216 and its consent forms don’t apply just to bank products. If a tax preparer is disclosing the taxpayer’s information to any third party for any reason other than to prepare or e-file the return – whether it’s for audit assistance, financial planning, mortgage assistance, health care enrollment, or any other third-party service – Section 7216 says consent forms must be obtained and completed.