Guidance Necessary To Facilitate Electronic Tax Administration-Updating of Section 7216 Regulations, 1058-1075 [08-1]

Agencies

• Internal Revenue Service
• DEPARTMENT OF THE TREASURY

[Federal Register Volume 73, Number 4 (Monday, January 7, 2008)]
[Rules and Regulations]
[Pages 1058-1075]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 08-1]


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DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Part 301

[TD 9375]
RIN-1545-BA96


Guidance Necessary To Facilitate Electronic Tax Administration--
Updating of Section 7216 Regulations

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Final regulations.

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SUMMARY: This document contains regulations to update the rules 
regarding the disclosure and use of tax return information by tax 
return preparers. Among other things, the regulations finalize rules 
for taxpayers to consent to the disclosure or use of their tax return 
information by tax return preparers.

DATES: Effective Date: These regulations are effective January 7, 2008.
    Applicability Date: The regulations apply to disclosures or uses of 
tax return information occurring on or after January 1, 2009.

SUPPLEMENTARY INFORMATION:

Background

    This document contains amendments to the Regulations on Procedure 
and Administration (26 CFR Part 301) under section 7216 of the Internal 
Revenue Code. These regulations strengthen taxpayers' ability to 
control their tax return information by requiring that tax return 
preparers give taxpayers specific information, including who will 
receive the tax return information and the particular items of tax 
return information that will be disclosed or used, to allow taxpayers 
to make knowing, informed, and voluntary decisions over the disclosure 
or use of their tax information by their tax return preparer.
    Section 7216 imposes criminal penalties on tax return preparers who 
knowingly or recklessly make unauthorized disclosures or uses of 
information furnished to them in connection with the preparation of an 
income tax return. In addition, tax return preparers are subject to 
civil penalties under section 6713 for disclosure or use of this 
information unless an exception under the rules of section 7216(b) 
applies to the disclosure or use.
    Section 7216 was enacted by section 316 of the Revenue Act of 1971, 
Public Law 92-178 (85 Stat. 529). In 1988, Congress modified the 
section by limiting the criminal sanction to knowing or reckless, 
unauthorized disclosures. Public Law 100-647 (102 Stat. 3749). At the 
same time, Congress enacted the civil penalty that is now found in 
section 6713. Public Law 100-647, Sec.  6242(a) (102 Stat. 3759). In 
1989, Congress further modified section 7216, directing the Treasury 
Department to issue regulations permitting disclosures of tax return 
information for quality or peer reviews. Public Law 101-239, Sec.  
7739(a) (103 Stat. 3759).
    The Treasury Department and the IRS proposed regulations under 
section 7216 on December 20, 1972 (37 FR 28070). Final regulations were 
issued on March 29, 1974 (39 FR 11537). These regulations are divided 
into three parts: Sec.  301.7216-1 for general provisions and 
definitions; Sec.  301.7216-2 for disclosures and uses that do not 
require formal taxpayer consent; and Sec.  301.7216-3 for disclosures 
and uses that require formal taxpayer consent. Since the regulations 
were adopted in 1974, the Treasury Department and the IRS have amended 
Sec.  301.7216-2 on occasion, but Sec. Sec.  301.7216-1 and 301.7216-3 
have remained unchanged.
    A notice of proposed rulemaking (REG-137243-02) was published in 
the Federal Register (70 FR 72954) on December 8, 2005. Concurrently 
with publication of the proposed regulations, the IRS published Notice 
2005-93, 2005-52 I.R.B. 1204 (December 07, 2005), setting forth a 
proposed revenue procedure that would provide guidance to tax return 
preparers regarding the format and content of consents to disclose and 
consents to use tax return information under Sec.  301.7216-3.
    Written comments were received in response to the notice of 
proposed rulemaking. A public hearing was held on April 4, 2006. 
Commentators appeared at the public hearing and

[[Page 1059]]

commented on the notice of proposed rulemaking.
    All comments were considered and are available for public 
inspection upon request. This preamble summarizes most of the comments 
received by the IRS and Treasury Department. After consideration of the 
written comments and the comments provided at the public hearing, the 
proposed regulations under section 7216 are adopted as revised by this 
Treasury decision.
    Concurrently with publication of these regulations, the IRS is 
publishing a revenue procedure and an advanced notice of proposed 
rulemaking. The revenue procedure provides guidance on the format and 
content of consents to disclose or use tax return information under 
Sec.  301.7216-3 for taxpayers filing a return in the Form 1040 series, 
e.g., Form 1040, Form 1040NR, Form 1040A, or Form 1040EZ. The revenue 
procedure also provides specific guidance for electronic signatures 
when a taxpayer filing a return in the Form 1040 series executes an 
electronic consent to the disclosure or use of the taxpayer's tax 
return information.
    The advanced notice of proposed rulemaking requests comments 
regarding a proposed rule under Sec.  301.7216-3 that a tax return 
preparer may not obtain a consent to disclose or use tax return 
information for the purpose of the tax return preparer soliciting, or 
the taxpayer obtaining, a refund anticipation loan (RAL) or certain 
other products.

Summary of Comments

1. Preamble

    Some commentators recommended that the final regulations specify 
the existing revenue rulings, notices, and other guidance under section 
7216 that continue to have effect under the final regulations. While 
the final regulations do not identify all guidance that has continuing 
effect, the section of this Treasury decision entitled ``Effect on 
Other Documents'' specifies guidance that Treasury and the IRS have 
determined as contrary to the regulations.
    One commentator requested that the preamble of the regulations 
clarify whether a tax return preparer may offer for sale an insurance 
policy that will reimburse the taxpayer additional tax the taxpayer is 
required to pay under certain circumstances involving errors by the tax 
return preparer. Section 7216 and the regulations thereunder govern 
only a tax return preparer's disclosure or use of tax return 
information. To the extent that a tax return preparer offers a product, 
such as insurance, where the offer is based on the disclosure of tax 
return information to a third-party, or where use of such tax return 
information serves as the basis for making the offer, section 7216 and 
the regulations thereunder only govern whether use or disclosure of the 
tax return information requires taxpayer consent.

2. Section 301.7216-1 Penalty for Disclosure or Use of Tax Return 
Information

A. Statutory Provisions
    Some commentators recommended that Treasury and the IRS seek 
legislative changes to section 7216. More specifically, these 
commentators recommended that the amount of the section 7216 criminal 
penalty be increased, that the amount of the section 6713 civil penalty 
be increased, and that the Code be amended to provide a private right 
of action against tax return preparers. Another commentator recommended 
amending section 7216 to provide a means to abate the penalty in cases 
where reasonable cause and good faith is established. This commentator 
also recommended that Treasury and the IRS not attempt to regulate the 
disclosure or use of tax return information in the context of a 
criminal statute, section 7216, but that only civil penalties should 
apply.
    Requests for statutory changes to sections 7216 and 6713 are 
outside of the scope of these regulations. Section 7216 expressly 
provides for Treasury to promulgate regulations to exempt certain 
disclosures or uses of information from the statute's criminal 
sanction. Although Treasury and the IRS do not have the regulatory 
authority to provide for a reasonable cause exception under section 
7216, the criminal penalty provided for by that statute is premised on 
a finding of knowing or reckless conduct.
B. Tax Return Preparer
    One commentator requested expanding the definition of tax return 
preparer to include clerical staff involved in preparation of a tax 
return. Because the definition of tax return preparer in the 
regulations already encompasses clerical staff involved in the 
preparation of a return, no change is needed to address this comment.
    While approving of the generally broad scope of the term ``tax 
return preparer,'' one commentator expressed concern that the term did 
not cover employees of tax return preparers who do not personally 
assist in the preparation of tax returns or the provision of auxiliary 
services. That commentator recommended that section 7216 should 
nonetheless apply to any employee. This comment was not adopted. The 
statute applies only to persons ``engaged in the business of preparing, 
or providing services in connection with the preparation of, returns.'' 
The regulations, however, do not permit disclosure by one employee of a 
tax return preparer to another employee of the tax return preparer on 
the basis of employment status alone. See Treas. Reg. Sec.  301.7216-
2(c).
    Based on recent amendments to section 7701(a)(36) of the Code 
(which post-amendment applies more generally to tax return preparers 
other than income tax returns), the final regulations were revised to 
omit the language in the proposed regulations pertaining to the lack of 
uniformity of the definition of tax return preparer provided in section 
7701(a)(36) and the definition of tax return preparer for purposes of 
section 7216.
C. Tax Return Information
    Some commentators expressed concern that the definition of tax 
return information encompasses an overly broad amount of information. 
One commentator recommended that a taxpayer's name, address, telephone 
number, e-mail address, and identification number should not be treated 
as tax return information. Another commentator recommended that a 
taxpayer's name, address, and other contact information should be 
available for a tax return preparer to use to provide the taxpayer with 
any information that the tax return preparer believes may be of 
interest to the taxpayer. These recommendations regarding tax return 
information were not adopted because information revealing the identity 
of, or how to contact, a person is information central to one's privacy 
and deserving of treatment as tax return information when submitted 
for, or in connection with, the preparation of a tax return. Section 
301.7216-2(n), however, permits tax return preparers to make limited 
use of taxpayer's contact information to offer tax information or 
additional tax return preparation services to previous customers.
    One commentator recommended eliminating language from the 
regulations providing that information maintained in a form that is 
associated with the tax return preparation becomes tax return 
information regardless of how the information was initially obtained. 
The commentator questioned whether non-tax return information could 
become tax return information as a result of the manner in which it is

[[Page 1060]]

stored and maintained by the tax return preparer. Treasury and the IRS 
agree that section 7216 protects only information furnished to a tax 
return preparer for, or in connection with, the preparation of a return 
and that information does not become tax return information merely by 
the method in which the information is stored. The language in the 
proposed regulations that is the subject of the comment was included to 
recognize that the protections of section 7216 may extend to 
information furnished by persons other than the taxpayer, including 
information furnished by one person within a firm to a tax return 
preparer employed by the same firm. In that situation, the information 
in the hands of the tax return preparer would be tax return information 
even if the person furnishing the information had obtained it other 
than in connection with the preparation of a tax return. Because this 
rule is evident from other provisions of the regulations, and the 
language commented upon may create confusion, the language has been 
removed from these regulations.
    One commentator expressed concern that the proposed regulations 
improperly expand upon section 7216 by defining ``tax return 
information'' to include information derived or generated from tax 
return information. The commentator commented that section 7216 
protects only information furnished to tax return preparers, and data 
that a tax return preparer derives from that information should not be 
considered data furnished to the tax return preparer. The commentator, 
therefore, recommended removing this language from the regulations.
    The commentator's recommendation was not adopted. Information that 
a tax return preparer would typically derive from other information 
furnished in connection with the preparation of a return could include 
information on the taxpayer's entitlement to deductions, credits, 
losses or gains, the amounts thereof, and the amount of tax due. It 
would frustrate the purpose of the statute not to protect this 
information when a taxpayer has furnished the tax return preparer the 
means to derive it.
    Similarly, the same commentator stated that the proposed 
regulations improperly expand upon the statute by defining ``tax return 
information'' to include ``information received by the tax return 
preparer from the IRS in connection with the processing of such 
return.'' The commentator recommended eliminating this language from 
the regulations. This recommendation was not adopted. The statute 
protects information furnished to a tax return preparer for, or in 
connection with, preparation of a return and does not require that the 
taxpayer have furnished the information.
    Some commentators approved of the proposed regulations' definition 
of tax return information, but expressed concern that Example 1 in 
Sec.  301.7216-1(b)(3)(ii) suggests that information supplied to 
register tax preparation software is not tax return information unless 
the tax return preparer states during the registration process that it 
will provide updates to registrants. These commentators, therefore, 
recommended deleting that fact from the example. This recommendation 
was adopted to explicitly provide that all information furnished to 
register tax return preparation software is tax return information.
    Some commentators expressed concern that if information furnished 
to register tax return preparation software was treated as tax return 
information, then tax return preparers would be required to obtain 
consent from taxpayers prior to updating the tax return preparation 
software. To address this concern, section 301.7216-2(c) of the 
regulations has been revised.
D. Disclosure and Use
    One commentator stated that the definition of ``use'' is overly 
broad. The commentator proposed that the ``use'' of tax return 
information should not include tax return preparers informing taxpayers 
of the availability of products and services that tax return preparers 
offer that could benefit taxpayers. As an example, the commentator 
stated that informing a taxpayer about the availability of a refund 
anticipation loan based on the taxpayer's tax return information should 
not be a ``use'' of tax return information. This recommendation was not 
adopted. The regulations require consents for tax return preparers to 
use tax return information so that taxpayers themselves determine 
whether they want additional information regarding products and 
services that might benefit them. The potential uses of tax return 
information should be clearly described by tax return preparers and the 
potential uses must be consented to by taxpayers before such uses 
occur.
    Two commentators recommended that tax return preparers should be 
responsible for subsequent disclosures or uses of tax return 
information by third parties to whom tax return preparers made an 
authorized disclosure of tax return information. This recommendation 
was not adopted because section 7216 does not apply to third parties 
who are not tax return preparers.
E. Providing Auxiliary Services
    Section 301.7216-1(b)(2)(iii) of the proposed regulations provides 
that a person is engaged in the business of providing auxiliary 
services in connection with the preparation of tax returns as described 
in paragraph (b)(2)(i)(B) of that section if, in the course of the 
person's business, the person holds himself out to tax return preparers 
or to taxpayers as a person who performs auxiliary services, whether or 
not providing the auxiliary services is the person's sole business 
activity and whether or not the person charges a fee for the auxiliary 
services. One commentator recommended broadening the definition of 
auxiliary services to include analysis of data for purposes of 
monitoring the tax return preparer's business for fraud prevention and 
provision of data storage services. These services as well as similar 
services are typical of the types of auxiliary services that can be 
provided to tax return preparers as contemplated by Sec.  301.7216-
1(b)(2)(iii) and are already covered by the broad definition of 
auxiliary services in the regulations. The same commentator also 
recommended broadening the definition of auxiliary services to include 
the analysis of customer activity to improve services and assistance in 
connection with preparation for taxpayer audits. These services are 
already addressed in other parts of the regulations. See Sec. Sec.  
301.7216-2(o) and 301.7216-2(k).
F. Exclusions Under Sec.  301.7216-1(b)(2)(v)
    One commentator recommended that the express exclusion under Sec.  
301.7216-1(b)(2)(v) of the proposed regulations of certain persons from 
the definition of tax return preparer should be extended to include 
persons who provide ``a broad range of financial products and services 
* * * to customers of tax return preparers, including savings, 
transaction, and retirement accounts.'' The commentator's 
recommendation was not adopted as the regulations do not provide an 
exhaustive list of the persons identified as excluded from the 
definition of tax return preparer. To the extent the service providers 
suggested to be excluded by the commentator provide services only 
incidentally related to the preparation of the return, these persons 
would be excluded under the regulation.
G. Hyperlinks
    One commentator recommended that the regulations should not treat 
as a

[[Page 1061]]

disclosure by a tax return preparer the situation where a taxpayer is 
transferred from the tax return preparer's website to a different 
website and the taxpayer separately enters information on the different 
website. This recommendation was not adopted because the regulations 
already do not treat this fact pattern as a disclosure by the tax 
return preparer.

3. Section 301.7216-2 Permissible Disclosures or Uses Without Consent 
of the Taxpayer

A. Disclosures to the IRS
    Section 301.7216-2(b) of the proposed regulations provides that tax 
return preparers may disclose to the IRS any tax return information the 
IRS requests to assist in the administration of electronic filing 
programs. One commentator requested limiting this rule to ``specific 
necessary purposes, such as compliance by electronic return 
originators.'' This recommendation was not adopted. Return information 
in the hands of the IRS is already protected from unauthorized 
disclosure. See, e.g., section 6103.
    Other commentators expressed concern regarding whether Sec.  
301.7216-2(b) permitted disclosures of tax return information to the 
IRS in general. Because the purpose of these regulations is to protect 
taxpayers from the unauthorized uses and disclosures by tax return 
preparers, and because tax return information in the hands of the IRS 
is already protected from unauthorized disclosure, Sec.  301.7216-2(b) 
has been modified to clarify that return preparers may disclose any tax 
return information to the IRS for any purpose.
B. Use By Tax Return Preparer for Purposes of Updating Software
    Section 301.7216-2(c)(1) of the final regulations has been revised 
to provide that if a tax return preparer provides software to a 
taxpayer that is used in connection with the preparation or filing of a 
tax return, the tax return preparer may use the taxpayer's tax return 
information to update the taxpayer's software for the purpose of 
addressing changes in IRS forms, e-file specifications and 
administrative, regulatory and legislative guidance or to test and 
ensure the software's technical capabilities without obtaining the 
taxpayer's consent under Sec.  301.7216-3.
C. Disclosure to a Tax Return Preparer Within the Same Firm Located 
Outside of the United States
    Section 301.7216-2(c) of the proposed regulations generally 
provides that an officer, employee, or member of a tax return preparer 
in the United States may disclose tax return information to another 
officer, employee, or member of the same tax return preparer located 
within the United States. Section 301.7216-2(c)(1) of the proposed 
regulations provides that the taxpayer must give consent under Sec.  
301.7216-3 prior to any disclosure of tax return information by an 
officer, employee, or member of a tax return preparer in the United 
States to an officer, employee, or member of the same tax return 
preparer located outside of the United States or any territory or 
possession of the United States. One commentator expressed concern that 
this rule was too strict with respect to multinational companies and 
employees on assignment outside of the United States. This commentator 
stated that such taxpayers anticipate that their tax return information 
will be disclosed outside of the United States. This commentator 
recommended that consent under Sec.  301.7216-3 should not be required 
with respect to disclosures when the taxpayer is a multinational 
company or an individual taxpayer employed or on assignment outside of 
the United States and that an engagement letter explaining potential 
circumstances involving disclosures overseas ought to be permitted in 
these situations.
    This recommendation was not adopted. As explained in the preamble 
to the proposed regulations, the Treasury Department and IRS believe 
that a separate explanation is required under these circumstances in 
order to advise taxpayers that their tax return information is being 
disclosed to tax return preparers located outside the United States. 
The final regulations, however, address the commentator's request for 
additional flexibility with respect to the form and manner of the 
consent for taxpayers other than individuals. For tax return preparers 
providing tax return preparation services to taxpayers who do not file 
an income tax return in the Form 1040 series, e.g., Form 1040, Form 
1040NR, Form 1040A, or Form 1040EZ, a consent to disclose tax return 
information outside the United States may be in any format, including 
an engagement letter to a client, as long as the consent provides 
sufficient information to enable the taxpayer to provide informed 
consent. For tax return preparers providing tax return preparation 
services to taxpayers who file an income tax return in the Form 1040 
series, the regulations provide that the Secretary may issue guidance, 
by publication in the Internal Revenue Bulletin, prescribing the form 
and manner of the consent to disclose tax return information, including 
disclosure of return information outside the United States. This rule 
is consistent with the general rule adopted by these final regulations 
with respect to a tax return preparer's request for consent to disclose 
tax return information. See section 301.7216-3(a)(3).
    Additionally, one commentator recommended that, rather than provide 
limitations on the disclosure of tax return information by a tax return 
preparer within the United States to another tax return preparer of the 
same firm who is located outside of the United States, the regulations 
should instead permit such disclosures without consent if the tax 
return preparer of the same firm outside of the United States consents 
to adhere to the rules of section 7216. This recommendation was not 
adopted because it does not inform taxpayers that their tax return 
information will be disclosed outside of the United States or allow 
taxpayers to control the decision whether their information is 
disclosed overseas.
D. Disclosures to Other Tax Return Preparers
    Section 301.7216-2(d) of the proposed regulations provides that 
disclosures between tax return preparers are authorized when the 
disclosures (i) assist in the preparation of a return; (ii) the 
services provided by the recipient of the disclosure are not 
substantive determinations or advice affecting a taxpayer's reported 
tax liability; and (iii) the disclosure is to a tax return preparer 
located in the United States. Two commentators expressed concern that 
the phrase ``substantive determinations or advice'' is a vague standard 
and recommended the use of examples in the regulations that adequately 
define the phrase. The final regulations clarify the meaning of 
substantive determinations and provide an example to illustrate the 
operation of this rule.
    One commentator recommended adopting the professional ethics rules 
of the American Institute of Certified Public Accountants (AICPA) on 
outsourcing in lieu of Sec.  301.7216-2(d) of the proposed regulations. 
Rule 102 of the AICPA Code of Professional Conduct requires that, prior 
to sharing confidential client information (such as a tax return) with 
a third-party service provider, an AICPA member must inform the client, 
preferably in writing, that the member may use a third-party service 
provider when providing professional services to the client. Unlike the 
rules in the regulations, the AICPA Code of Professional Conduct does 
not require that the client consent

[[Page 1062]]

to the disclosure of tax return information when substantive 
determinations or advice are sought from third parties. Under the AICPA 
rules, AICPA members who use third-party service providers remain 
responsible for the work done by the service providers and they must 
contract with the third-party service provider for the service provider 
to monitor the confidentiality of the client's information to the 
third-party Service provider. The commentator's recommendation that the 
regulations adopt only the protections of the AICPA ethics rules was 
not adopted. The Treasury Department and the IRS are concerned that 
taxpayers and tax return information would not be adequately protected 
if a tax return preparer could disclose tax return information to any 
third-party service provider without taxpayer consent to that 
disclosure.
    One commentator recommended modifying Sec.  301.7216-2(d) of the 
proposed regulations to allow disclosures between franchisors and 
franchisees in the tax return preparation business according to the 
terms of their franchise agreement. The commentator's recommendation 
was not adopted because the existence of a written franchise agreement 
should not affect the confidentiality of a taxpayer's tax return 
information.
    One commentator critiqued Sec.  301.7216-2(d) because it will limit 
the benefits tax return preparation firms may enjoy from using foreign 
outsourcing. Foreign outsourcing is not prohibited by the final 
regulations, which permit the disclosure of tax return information 
outside of the United States if the taxpayer consents to such 
disclosure. One commentator recommended that tax return preparers 
should be allowed to disclose tax return information to third-party 
service providers subject to the requirements of the privacy provisions 
of Title V of the Gramm-Leach-Bliley Act, Public Law 106-102 (113 Stat. 
1338) (GLBA). Specifically, the commentator proposed that the 
regulations should permit tax return preparers to: (1) Execute a 
written contract with a service provider limiting the service 
provider's disclosure or use of tax return information; (2) select and 
retain service providers that are capable of safeguarding tax return 
information; and (3) implement contractual provisions requiring service 
providers to develop and maintain appropriate information safeguards. 
This recommendation was not adopted. While the requirements of section 
7216 and these regulations do not override any requirements or 
restrictions of the GLBA, the sensitivity of tax return information 
justifies affording tax return information stronger protections than 
other information subject to the GLBA.
E. Disclosure Pursuant to an Order of a Court, or an Administrative 
Order, Demand, Request, Summons or Subpoena Which is Issued in the 
Performance of its Duties by a Federal or State Agency, the United 
States Congress, a Professional Association Ethics Committee or Board, 
or the Public Company Accounting Oversight Board
    One commentator recommended that the title of proposed Sec.  
301.7216-2(f) be revised to add the word ``request'' following the word 
``demand,'' to align the subsection's title with the regulation's 
language in Sec.  301.7216-2(f)(5). This recommendation was adopted in 
the final regulation.
    One commentator recommended replacing the phrase ``professional 
ethics board'' in proposed Sec.  301.7216-2(f) with the phrase 
``certain professional association ethics committees or boards.'' The 
commentator noted that this change would avoid confusion as to whether 
the reference to professional ethics boards means governmental entities 
that control licensing for CPAs or whether the phrase would include 
professional associations that have boards or committees that 
discipline their members, such as the AICPA or state and local bar 
associations. This recommendation was adopted, in part, by changing the 
phrase ``professional ethics board'' to ``professional association 
ethics committee or board.'' Section 301.7216-2(f)(4)(ii) separately 
addresses disclosures to government entities charged with licensing, 
registration, or regulation of tax return preparers.
    One commentator recommended permitting disclosure of tax return 
information without taxpayer consent pursuant to disclosures required 
by Federal or State laws and administrative rules, but did not identify 
any specific rule or law that required a disclosure in circumstances 
contrary to either the preexisting regulations or the proposed 
regulations. Preexisting regulations already permitted disclosures 
pursuant to an order of a court or a Federal or State agency. These 
final regulations permit disclosures pursuant to an order of a court or 
an administrative order, demand, summons or subpoena that is issued in 
the performance of its duties by a Federal or State agency, the United 
States Congress, a professional association ethics committee or board, 
or the Public Company Accounting Oversight Board. The protections 
offered by limiting disclosures to responses to specific governmental 
or quasi-governmental requests provide appropriate protection for 
taxpayer privacy.
    One commentator expressed concern about proposed Sec.  301.7216-
2(f)(5) and the safeguarding of tax return information received by a 
professional association board or committee conducting an ethics 
investigation. The commentator recommended revising Sec.  301.7216-
2(f)(5) to expressly prohibit professional associations from publishing 
as part of any resulting professional disciplinary determination the 
tax return information of a taxpayer furnished to them during an ethics 
investigation of a preparer unless the taxpayer provides consent. This 
recommendation was not adopted because section 7216 does not provide 
for penalties against third parties who receive tax return information 
in this context.
    One commentator recommended rewording proposed Sec.  301.7216-
2(f)(6) to provide the following: ``A written request from the Public 
Company Accounting Oversight Board (PCAOB) in connection with an 
inspection under section 104 of the Sarbanes-Oxley Act of 2002, 15 
U.S.C. 7214, or an investigation under section 105 of such Act, 15 U.S. 
7215, for use in accordance with such Act.'' The commentator noted that 
this wording describes more clearly the situations in which disclosures 
to the PCAOB are permitted, and to permit registered firms and their 
associated persons to comply with their disclosure obligations under 
the Act. This recommendation was adopted.
    One commentator expressed concern that permitting the disclosure of 
tax return information pursuant to a subpoena issued by the United 
States Congress is inconsistent with the rules regarding disclosures by 
the IRS to Congress under section 6103(f). The commentator stated that 
the regulations may provide a method to avoid the specific disclosure 
rules of section 6103(f), which are designed to protect taxpayers and 
prevent Congressional abuse of returns or return information. Another 
commentator recommended eliminating the term ``demand'' in Sec.  
301.7216-2(f)(4)(i) because the commentator believes the term is too 
broad and could permit any Federal agency to simply ask for tax return 
information even if the agency does not have authority to issue 
``formal legal orders'' compelling the disclosure. These 
recommendations were not adopted. Both Congress and Federal agencies 
are presumed to act in accordance with the law and there are

[[Page 1063]]

other limitations on their abilities to seek tax return information.
F. Disclosure for Use in Securing Legal Advice, Treasury 
Investigations, or Court Proceedings
    Final section 301.7216-2(g) has been revised to confirm that a tax 
return preparer may disclose tax return information to an attorney for 
purposes of the preparer securing legal advice.
G. Tax Return Preparers Working for the Same Firm
    Section 301.7216-2(h)(1)(ii) provides that a tax return preparer's 
law or accounting firm does not include any related or affiliated 
firms. Some commentators expressed concern that this rule reduces the 
application of the Sec.  301.7216-2 exceptions for tax return preparers 
that are structured as separate legal entities, but are closely 
related. One commentator recommended that the regulations be revised to 
provide that the ``same firm'' standard be determined in a manner 
similar to the rules for qualified employee plans for a single 
employer. This recommendation was not adopted. Taxpayers should have a 
clear understanding with whom they are dealing. Adopting this 
recommendation would require that a taxpayer understand complex rules 
about which separate legal entities are part of the ``same firm'' as 
their tax return preparer to be able to understand who might receive 
their tax return information. Additionally, a tax return preparer has 
the ability to obtain consent from a taxpayer to disclose tax return 
information to a related or affiliated firm.
H. Disclosure or Use of Tax Return Information in Preparation for Audit
    One commentator recommended that a tax return preparer should be 
permitted to disclose tax return information to another tax return 
preparer so that the second tax return preparer can provide assistance 
in connection with the audit of a return under the law of any State or 
political subdivision thereof, the District of Columbia, or any 
territory or possession of the United States. This comment was not 
adopted because Sec.  301.7216-2(k) already permits such disclosures.
I. Payment for Tax Preparation Services
    Section 301.7216-2(l) provides that a tax return preparer may 
disclose and use, without the taxpayer's written consent, tax return 
information that the taxpayer provides to the tax return preparer to 
pay for tax preparation services to the extent necessary to process the 
payment. One commentator recommended applying this rule to the 
collection of payments. This recommendation was adopted. The exception 
under Sec.  301.7216-2(l) for the collection of payments is subject to 
the same limitations as the rule for processing payments. Only tax 
return information that the taxpayer provided to the tax return 
preparer to pay for tax return preparation services may be used to 
collect payment. This limitation precludes tax return preparers from 
using any other tax return information to collect on delinquent 
payments.
J. Lists for Solicitation of Tax Return Business
    Section 301.7216-2(n) of the proposed regulations provides that a 
tax return preparer may compile and maintain a separate list containing 
solely the names, addresses, e-mail addresses, and phone numbers of 
taxpayers whose tax returns the tax return preparer has prepared or 
processed. The proposed regulations also state that this list may be 
used by the compiler solely to contact the taxpayers on the list for 
the purpose of offering tax information or additional tax return 
preparation services. One commentator recommended adding that no 
mention of services or products other than those related to tax 
preparation services may be made. Treasury and the IRS agree that the 
prohibition on using the list to solicit business other than tax return 
preparation services could be strengthened, and have modified Sec.  
301.7216-2(n) to address the commentator's concern.
K. Producing Statistical Information in Connection With Tax Return 
Preparation Business
    Section 301.7216-2(o) of the proposed regulations permits a tax 
return preparer to use tax return information to prepare anonymous 
statistical compilations for limited purposes related to management or 
support of the tax return preparer's business. Two commentators 
recommended that the disclosure or use of tax return information in 
statistical compilations should be limited to ``internal management'' 
because ``support'' might be read to allow a tax return preparer to 
target specific customers with advertising. This recommendation was not 
adopted because Sec.  301.7216-2(o) specifically prohibits the 
disclosure or use of statistical compilations in connection with, or in 
support of, businesses other than tax return preparation, and use of 
lists to solicit additional tax return preparation business is 
specifically governed, and limited, by Sec.  301.7216-2(n).
    One commentator recommended that statistical compilations of tax 
return information that do not identify taxpayers should not be 
considered ``tax return information'' for purposes of section 7216. The 
commentator stated that if statistical information is treated as ``tax 
return information,'' such a rule could prevent tax return preparers 
(especially tax return preparers that are publicly traded) from 
reporting essential data to financial regulators or to market 
participants to provide an accurate picture of the tax return 
preparer's performance and financial condition. In response to the 
concern raised by the commentator, the final regulation was modified to 
provide that the compiler of the statistical compilation may not 
disclose the compilation, or any part thereof, to any other person 
unless the disclosure of the statistical compilation is made in order 
to comply with financial accounting or regulatory reporting 
requirements or occurs in conjunction with the sale or other 
disposition of the compiler's tax return preparation business.
    One commentator recommended that tax return preparers located 
within the same firm should be permitted, without obtaining consent, to 
use tax return information for ``the management, support or maintenance 
of the tax return preparer's business.'' This recommendation was not 
adopted. Because the regulations already permit a tax return preparer 
to use tax return information to prepare statistical compilations for 
limited purposes related to management or support of the tax return 
preparer's business, it is unclear how the commentator's recommendation 
would further aid in the management or support of a tax return 
preparer's business.
    One commentator recommended that the regulations require that 
``taxpayer identifying'' data, such as names and social security 
numbers, be redacted from statistical information. This recommendation 
was not adopted. The regulations already require that statistical 
compilations must be ``anonymous.''
L. Quality or Peer Reviews
    Section 301.7216-2(p) of the proposed regulations provides that a 
quality or peer review may be conducted only by attorneys, certified 
public accountants, enrolled agents, and enrolled actuaries who are 
eligible to practice before the Internal Revenue Service. Some 
commentators recommended that this subsection of the proposed 
regulations should be revised to permit other professionals to 
participate in quality or peer reviews.

[[Page 1064]]

This recommendation was not adopted. The restriction helps to prevent 
unauthorized disclosures of tax return information by limiting 
participation in such reviews to those persons subject to Circular 230, 
31 CFR Part 10.
M. Extraction of Tax Return Information Within Software Only for the 
Purposes of Reducing Repetitive Data Entry
    One commentator recommended that the use of computer software 
designed to assist with the preparation of an income tax return should 
be allowed without consent to ``extract'' certain tax return 
information once entered, such as the taxpayer's name and address, and 
reprint such information in required fields on the same return in order 
to eliminate repetitive data entry. This comment was not adopted 
because the regulations do not prohibit such a use of tax return 
information where the information is being used for the permitted 
purpose of preparing the taxpayer's tax return.

4. Proposed Sec.  301.7216-3: Disclosures and Uses Authorized by 
Taxpayer Consent

A. Consent To Disclose Tax Return Information
    Some commentators expressed concern that the proposed regulations 
authorize the IRS to make available for sale to third parties its 
internal records and data containing tax return information. This 
concern reflects a fundamental misunderstanding of the proposed 
regulations. The proposed regulations do not address any disclosure of 
tax return information by the IRS; the proposed regulations address 
only the disclosure and use of tax return information by tax return 
preparers. Separate laws, including section 6103, strictly protect the 
confidentiality of returns and return information in the hands of IRS 
employees and others.
    Some commentators expressed concern that the proposed regulations 
would loosen the current rules regarding a tax return preparer's 
ability to disclose a client's tax return information. This concern is 
based on a misunderstanding of the purpose and content of the proposed 
and preexisting regulations. Section 301.7216-3(a)(1) of the proposed 
regulations provides that, unless section 7216 or Sec.  301.7216-2 
authorizes the disclosure of tax return information, a tax return 
preparer may not disclose a taxpayer's tax return information prior to 
obtaining consent from the taxpayer. Since 1974, section 301.7216-
3(a)(2) has provided that, ``[i]f a tax return preparer has obtained 
from a taxpayer a consent * * *, he may disclose the tax return 
information of such taxpayer to such third persons as the taxpayer may 
direct.'' Thus, the proposed regulations contained the same substantive 
rule that has been in place for over 30 years. Throughout the long-
standing existence of former Sec.  301.7216-3(a)(2), there has been no 
objection to the provision that allowed taxpayers to provide informed 
consent to tax return preparers disclosing tax return information to 
third parties.
    Nonetheless, commentators criticized the proposed rule, stating 
that it could allow tax return preparers to induce clients into 
providing unknowing or inadvertent consents to sell or otherwise 
disclose tax return information. Furthermore, they argue that 
disclosure to third parties could result in identity theft. Thus, one 
solution these commentators recommend is to prohibit taxpayers from 
ever consenting to the disclosure of their tax return information.
    The Treasury Department and IRS did not adopt the commentators' 
recommendation. Rather, the final regulations retain the general rule 
that has been in place for more than 30 years recognizing that 
taxpayers should have control over their own tax return information and 
that taxpayers should, with appropriate limits and safeguards, be able 
to direct tax return preparers to disclose tax return information as 
taxpayers see fit. This rule parallels the statutory rule in section 
6103(c) that allows taxpayers to consent to the IRS disclosing returns 
or return information to third parties of the taxpayer's choosing.
    In addition, this rule is consistent with the privacy protection 
regime in the Health Insurance Portability and Accountability Act 
(HIPAA), Public Law 104-191 (110 Stat. 1936). HIPAA permits health care 
providers and health plans to disclose information about health status, 
provision of health care, or payment to a third-party if they have 
obtained authorization from the individual patient.
    While identity theft is a significant concern, Treasury and the IRS 
do not believe a generalized concern regarding the potential for 
criminal activity by third parties should preclude taxpayers from being 
able to direct the disclosure of tax return information to third 
parties for legitimate reasons of the taxpayer's own choosing, 
particularly in the absence of any evidence that disclosure of tax 
return information by tax return preparers has been a source of 
identity theft problems.
    While the idea of a complete prohibition on consent to disclosure 
was rejected, Treasury and the IRS did revise Sec.  301.7216-3(b)(5), 
based on several factors. These factors include: (1) The fact that it 
is not necessary for tax return preparers to disclose certain taxpayer 
identifying information to other tax return preparers who are assisting 
them in preparing a return; (2) the important role a social security 
number (SSN) plays in the tax administration process, and the 
heightened potential for misuse when an SSN is readily associated with 
confidential information, such as tax return information; and (3) the 
heightened concern about the theft of an individual's confidential 
information resulting from disclosures outside the United States. 
Section 301.7216-3(b)(4) now provides that a tax return preparer 
located within the United States, including any territory or possession 
of the United States, may not obtain consent to disclose a taxpayer's 
SSN to a tax return preparer located outside of the United States or 
any territory or possession of the United States. Thus, if a tax return 
preparer located within the United States obtains consent from a 
taxpayer to disclose tax return information to another tax return 
preparer located outside of the United States, as provided under 
Sec. Sec.  301.7216-2(c) and 301.7216-2(d), the tax return preparer 
located in the United States may not disclose the taxpayer's SSN, and 
the tax return preparer must redact or otherwise mask the taxpayer's 
SSN before the tax return information is disclosed outside of the 
United States. If a tax return preparer located within the United 
States initially receives or obtains a taxpayer's SSN from another tax 
return preparer located outside of the United States, however, the tax 
return preparer within the United States may, without consent, 
retransmit the taxpayer's SSN to the tax return preparer located 
outside the United States that initially provided the SSN to the tax 
return preparer located within the United States. Where a taxpayer-
client requests that a tax return preparer within the United States 
transfer the return preparation engagement to a tax return preparer 
located outside the United States, the preparer must still redact or 
otherwise mask the taxpayer's SSN before the information is disclosed 
and, in this situation, it will be incumbent upon the taxpayer to 
provide the SSN directly to the tax return preparer located abroad.
    Some commentators recommended that the regulations provide 
taxpayers with the ability to informally initiate a request for the 
disclosure of tax return information from their tax return

[[Page 1065]]

preparers without formally following the consent rules of Sec.  
301.7216-3. This recommendation was not adopted. As a practical matter, 
it would be difficult to distinguish when a taxpayer informally 
initiates a request for the disclosure of tax return information and 
when tax return preparers merely claim that a taxpayer initiated the 
request for disclosure. Additionally, tax return preparers are always 
free to provide taxpayers their own returns and taxpayers may disclose 
tax return information to others directly.
    Other commentators recommended that the regulations should prohibit 
disclosure to third-party solicitors and not allow taxpayers to consent 
to disclosures for the purpose of receiving solicitations because the 
risks to the taxpayer of providing consent inadvertently are too great 
in comparison to the benefit of receiving solicitations from third 
parties. This recommendation was not adopted because it denies 
taxpayers the ability to control and direct the disclosure of their own 
tax return information. If taxpayers do not wish to receive offers or 
solicitations from third parties, they can simply refuse to provide the 
consent needed for third parties to receive their tax return 
information. If a tax return preparer obtains written consent under 
circumstances that make the consent unknowing or uninformed, the 
consent would be invalid under the requirements of the regulations.
B. Consent To Use of Tax Return Information
    Section 301.7216-3 of the preexisting regulations provides that a 
consent to use tax return information does not apply for purposes of 
facilitating the solicitation of the taxpayer's use of any services or 
facilities furnished by a person other than the tax return preparer, 
unless the other person and the tax return preparer are members of the 
same affiliated group of corporations within the meaning of section 
1504. The proposed regulations removed this ``affiliated group'' 
limitation because the affiliated group concept has little application 
in the context of modern return preparation businesses. The proposed 
regulations also reflected a determination by the IRS and Treasury 
Department that a taxpayer's ability to consent to a preparer's use of 
tax return information to solicit additional business should not be 
limited by arbitrary factors largely beyond the taxpayer's knowledge or 
control, such as the size, diversity, or organizational structure of 
the tax return preparer. Some commentators expressed concern that 
removal of the ``affiliated group'' limitation would make it easier for 
tax return preparers to disclose tax return information to third 
parties for marketing purposes. This comment reflects a 
misunderstanding of the nature of a consent governing a tax return 
preparer's use of tax return information. Use consents are limited to 
what a tax return preparer can do with tax return information in the 
tax return preparer's own hands; use consents cannot be used in 
connection with disclosures to third parties. Thus, identity theft or 
other abuses by third parties could not arise from taxpayers providing 
use consents to tax return preparers.
    Further, prohibiting the commercial use of tax return information 
outright would result in no longer allowing legitimate uses of tax 
return information that have evolved over time as standard commercial 
practices. For example, tax return preparers could not use tax return 
information to advise taxpayers of strategies that may positively 
affect the taxpayers' finances such as individual retirement accounts 
or qualified tuition programs, or of the taxpayers' eligibility to 
participate in government benefit programs, such as food stamps.
C. Prohibit Tax Return Preparers From Disclosing Tax Return Information 
for Any Reason Unrelated to the Preparation of a Tax Return
    Many commentators recommended prohibiting tax return preparers from 
disclosing tax return information for any purpose unrelated to the 
preparation of tax returns. This recommendation was not adopted because 
there are many legitimate purposes for the disclosure of tax return 
information identified in Sec.  301.7216-2, such as the disclosure of 
tax return information for the reporting of a crime or for an ethics 
investigation. Similarly, there are legitimate purposes, other than tax 
return preparation, when a taxpayer would choose to consent to the tax 
return preparer's disclosure of tax return information.
    As an alternative, some commentators recommended that the 
regulations prohibit or greatly restrict the use or disclosure of tax 
return information for marketing purposes. They specifically 
recommended banning tax return preparers from disclosing tax return 
information in association with taxpayers seeking refund anticipation 
loans (RALs) and similar products. Treasury and the IRS did not adopt 
this recommendation because it was not contained in the proposed 
regulations and could have a significant impact on existing business 
practices. Concurrently with the publication of these final 
regulations, however, Treasury and the IRS are requesting comments on a 
proposed rule that, if ultimately adopted as final, would prohibit tax 
return preparers from using or disclosing tax return information for 
the purpose of soliciting, or the taxpayer obtaining, a RAL or certain 
other products.
    Commentators also recommended that disclosure of tax return 
information by tax return preparers should be conditioned upon the 
existence of an agreement by third parties receiving the information 
that the tax return information will not be used for any purpose other 
than the purpose for which the information was provided. This 
recommendation was not adopted because policing agreements by third 
parties are outside the scope of section 7216. Section 7216 governs 
only the actions of tax return preparers.
D. Obtaining Consent Through Engagement Letters
    Some commentators recommended that when the regulations require 
consent to disclose or use tax return information, tax return preparers 
should be permitted to obtain such consent from ``large taxpayers,'' 
such as large corporations, through an engagement letter. These 
commentators observed that it is ordinary business practice for tax 
return preparers and large taxpayers to negotiate and set the terms of 
the provision of services, including the preparation of income tax 
returns, in an engagement letter. This recommendation was adopted. 
Treasury and the IRS agree that requiring multiple, separate consents 
would impose a significant burden and could frustrate these taxpayers' 
ability to comply with tax laws and other regulatory and reporting 
requirements. Section 301.7216-3(a)(3) has been modified to provide a 
set of requirements regarding the format and content of consents to 
disclose and use tax return information with respect to taxpayers 
filing income tax returns in the Form 1040 series, e.g., Form 1040, 
Form 1040NR, Form 1040A, or Form 1040EZ, and a separate set of 
requirements regarding the format and content of consents to disclose 
and use tax return information with respect to taxpayers filing all 
other tax returns. Under Sec.  301.7216-3(a)(3)(iii), for tax return 
preparers providing tax return preparation services to taxpayers who do 
not file an income tax return in the Form 1040 series, a consent to use 
or a consent to disclose may be in any format, including an engagement 
letter to a client, as long as the consent

[[Page 1066]]

complies with the requirements of Sec.  301.7216-3(a)(3)(i).
E. Conditioning Services on Consent
    Section 301.7216-3(a)(1) provides that a consent to use or disclose 
tax return information must be knowing and voluntary. Section 301.7216-
3(a)(1) has been modified to clarify that to condition the provision of 
services on the taxpayer's consent will make the consent involuntary 
and invalid unless Sec.  301.7216-3(a)(2) applies.
    Section 301.7216-3(a)(2) provides that a tax return preparer may 
condition its provision of preparation services upon a taxpayer's 
consenting to disclosure of the taxpayer's tax return information to 
another tax return preparer for the purpose of performing services that 
assist in the preparation of, or provide auxiliary services in 
connection with the preparation of, the tax return of the taxpayer. One 
commentator requested a clarification regarding whether a tax return 
preparer with offices within and outside of the United States is 
permitted to condition its provision of tax preparation services to a 
taxpayer outside of the United States on the taxpayer consenting to 
disclosure. The final regulations permit a tax return preparer with 
offices within and outside of the United States to condition its 
provision of tax preparation services to a taxpayer on the taxpayer's 
consenting to disclosure to a return preparer located outside the 
United States. An example was added to the final regulations to clarify 
this rule.
    Other commentators recommended that the regulations should prohibit 
tax return preparers from conditioning the provision of any services 
upon consent. This recommendation was adopted by inserting the word 
``any'' before ``services'' in Sec.  301.7216-3(a)(1), to which Sec.  
301.7216-3(a)(2) provides the only exception.
F. Requests To Consent After Completed Tax Return Provided to Taxpayer
    Proposed section 301.7216-3(b)(2) provides that a tax return 
preparer may not request a taxpayer's consent to disclose or use tax 
return information after the tax return preparer provides a completed 
tax return to the taxpayer for signature. Commentators suggested that 
there may be legitimate circumstances where a request to consent is 
necessary in light of taxpayer preferences and is part of client 
service provided by the preparer. Specifically, the commentators gave 
the example of a taxpayer requesting that his or her tax return 
preparer disclose the past three years of the taxpayer's tax returns to 
his or her attorney for purposes of preparing the client's estate plan. 
Under the proposed regulation, a request for consent to disclose would 
be untimely in this situation, even though the taxpayer requests the 
disclosure as part of the client service provided by the tax return 
preparer. As indicated by the provisions regarding solicitation of 
other business that were included in the previous final regulations, 
the Treasury Department and IRS believe that taxpayers should not be 
the subject of repetitive solicitation requests for business made by 
tax return preparers after the tax preparation engagement has ended. 
Consistent with previous final regulations, the final regulation in 
section 301.7216-3(b)(2) has been modified to state that a tax return 
preparer may not request a taxpayer's consent to disclose or use tax 
return information for purposes of solicitation of business unrelated 
to tax return preparation after the tax return preparer provides a 
completed tax return to the taxpayer for signature. Under the final 
regulations, the preparer would not be precluded from requesting 
consent to disclose the past three years of the taxpayer's tax returns 
to his or her attorney for purposes of preparing the client's estate 
plan according to the example provided by commentators.
G. Prohibition on Multiple Requests for Consent
    Proposed section 301.7216-3(b)(3) provides that if a taxpayer 
declines to provide consent to a disclosure or use of tax return 
information, a tax return preparer cannot make another request for 
consent. Some commentators recommended that the regulations permit a 
tax return preparer to clarify the purpose and extent of the consent if 
necessary after the taxpayer declines to provide consent, and that such 
a clarification should not be treated as a second request by the tax 
return preparer to obtain a consent. Another commentator stated that 
tax return preparers should be permitted to request consent whenever 
they wish so long as the consent properly describes the nature of, and 
reasons for, potential disclosures or uses. The commentators' 
recommendations were based upon the recognition that there may be 
legitimate reasons for the preparer to more thoroughly explain the 
request for consent and how the consent relates to the tax preparation 
engagement. However, Treasury and the IRS are concerned that lack of 
restrictions regarding multiple requests for consent regarding the same 
or similar request may cause undue pressure to consent where there are 
repetitious requests. In light of these concerns, section 301.7216-
3(b)(3) has been modified to provide that, for purposes unrelated to a 
tax preparation engagement, if a taxpayer declines a request for 
consent to the disclosure or use of tax return information, the tax 
return preparer may not solicit from the taxpayer another consent for a 
purpose substantially similar to that of the rejected request. Under 
this rule, there is no prohibition regarding the taxpayer independently 
asking the tax return preparer about a disclosure or use of the 
taxpayer's same tax return information after a declined consent 
request.
H. Multiple Disclosures or Multiple Uses Within a Single Consent Form
    Section 301.7216-3(c)(1) of the proposed regulations provides that 
a taxpayer may consent to multiple disclosures within the same written 
document, or multiple uses within the same written document. One 
commentator recommended permitting taxpayers to consent to multiple 
disclosures and multiple uses with the same form. Another commentator 
recommended prohibiting a taxpayer from consenting to multiple 
disclosures within the same written document, or multiple uses within 
the same written document, in order to avoid potential taxpayer 
confusion. These recommendations were not adopted.
    The proposed rule was intended to emphasize that disclosure and use 
are two distinct concepts, and a taxpayer may consider consenting to 
one and not the other. The comments to the proposed regulations 
demonstrated that there is potential for confusion regarding the 
distinction between disclosure and use. Treasury and the IRS believe it 
is appropriate to require separate consents in situations where there 
is a probability that the taxpayer could become confused over the 
distinction between use and disclosure. Section 301-7216-3(c)(1) of the 
final regulations provides that for taxpayers who are filers of returns 
in the Form 1040 series, the proposed rule is retained. The rule 
requiring separate consents is limited to individuals because use or 
disclosure of that tax return information involves situations where 
confusion is most likely to occur.
I. Disclosure of All Information Contained Within a Return
    Section 301.7216-3(c)(2) of the proposed regulations provides that 
a consent authorizing the disclosure of all information contained 
within a return must set forth an explanation of the reason why a 
consent authorizing a more limited disclosure of tax return information 
is unsatisfactory for the

[[Page 1067]]

purpose of the consent. Some commentators characterized this 
requirement as burdensome in certain situations and recommended 
eliminating this requirement. Commentators reasoned that a third party 
service provider, such as the taxpayer's attorney, may request a copy 
of the return and the requirement to provide an explanation would 
interject the preparer between the requirements imposed by the third 
party service provider and the taxpayer. In light of these concerns, 
section 301.7216-3(c)(2) of the final regulations modifies this 
provision to provide that where a consent authorizes the disclosure of 
a copy of the taxpayer's tax return or all information contained within 
a return, the consent must provide that the taxpayer has the ability to 
request a more limited disclosure of tax return information as the 
taxpayer may direct.
    Some commentators concerned with marketing of tax return 
information recommended that disclosure of the entire tax return should 
not be permitted under any circumstances. The commentators' rationale 
was that disclosure of the entire return is never necessary f