New Taxpayer Privacy Issues

Based on statistics gathered by the IRS, around 80% of taxpayers use either paid preparers or a third party software program to assist them with the filing of their annual tax returns.  Because of these findings, Congress and the IRS are passing regulations to ensure that taxpayer information is protected and safeguarded by tax preparers.

Though restrictions relating to use and disclosure of tax return information has been part of the tax code since the 1970s.  New restrictions (which expand on these older restrictions) are being passed which were put into place to protect taxpayers.  For example, a tax preparer is required to obtain the consent of the taxpayer before they can use or disclose the taxpayer’s information.  When requesting this consent from the taxpayer to use their information, the tax preparer must spell out exactly what they are going to use the information for.  In addition, tax preparers cannot bully their client into granting consent by conditioning the performance of their services on receiving disclosure rights from their clients (consent must be given freely and voluntarily).

While these new regulations place a lot of restrictions on when a tax preparer needs to obtain consent from a taxpayer, it also spells out the situations for when a tax preparer does not need to obtain consent.  For example, a tax preparer does not need to obtain consent from a taxpayer to present documents when under order of a valid subpoena issued by a court, nor do they need to obtain consent to prepare a state tax return with the taxpayers federal information.

Even though these new regulations are in place does not mean taxpayers should take them for granted.  Taxpayers should learn their privacy rights and make sure that tax preparers follow these newly implemented regulations to protect their clients.

If you have any questions or would like more information, please contact:

Andrew Johnson
302-656-6632
AJohnson@CoverRossiter.com