Page 3 - Be Aware of 26 U.S.C. § 7216: You May, to Your Surprise, Be a Tax Return Preparer

These are only a few examples of the ways in which you may, by assisting in the preparation of
taxpayer clients’ tax returns, become a tax return preparer in the course of your regular legal
practice.

Tax Return Information and Its Use and Disclosure

The questions then become the following:

What is tax return information?

What constitutes use of that information?

What constitutes disclosure of that information?

The term tax return information is expansive, meaning any information (including a
taxpayer’s name, address, and identifying number) that the taxpayer furnishes to a tax return

preparer or third party, or that a tax return preparer derives from other tax return
information that is in any way connected with the preparation of the taxpayer client’s tax
return(s). 26 C.F.R. 301.7216 1(b)(3)(i). Information is considered to have been furnished “in
connection with tax return preparation,” and is therefore tax return information, if the
taxpayer would not have furnished the information to the tax return preparer other than for

the tax return preparer to prepare or assist in preparing a tax return. 26 C.F.R. 301.7216 1(b)(3)
(i)(D). Conversely, tax return information does not include information that is identical to tax
return information but that you obtained other than in connection with the preparation of a
tax return. 26 C.F.R. 301.7216 1(b)(3)(i)(C).

The definitions of disclosure of tax return information and use of tax return information are
equally broad. “The term disclosure means the act of making tax return information known to
any person in any manner whatever.” 26 C.F.R. 301.7216 1(b)(5) (emphasis in original). For
example, you would disclose tax return information if you provided a taxpayer client’s tax

documents to another employee of your firm who might be assisting in representing the
client. Similarly, “[u]se of tax return information includes any circumstance in which a tax
return preparer refers to, or relies upon, tax return information as the basis to take or permit
an action.” 26 C.F.R. 301.7216 1(b)(4)(i). For example, you would use tax return information if
you make a recommendation to a taxpayer client or offer a service to the client based on
knowledge you gained from the client’s tax return information. Cf. 26 C.F.R. 301.7216 1(b)(4)(ii).

Note that information obtained from clients not in connection with tax return preparation
services—even information that may at some point be used to assist in preparing a tax return
—is not deemed tax return information until it is used in connection with the preparation of a
tax return.

Exceptions to Use and Disclosure Prohibitions