Volume 4, No. 1
IRS Issues Final Regs on Disclosure of Return Information; Takes Closer Look at Refund Anticipation Loans
Almost one year after issuing proposed regs governing the disclosure of taxpayer return information, the IRS has finalized the regs. At the same time, the IRS released guidance about the content of taxpayer consents to disclosure and warned that it may tackle refund anticipation loans (RALs) in future regs.
- Take-Away Point. The IRS, despite encouragement from some sectors of the tax preparation community, did not relax the consent rules to permit more "informal" consent requests. To the contrary, the IRS tightened the rules. The final regs mandate not only the content of consent requests, but even the form, down to the type size, to avoid, in the agency's words, "fine print" consent requests. However, the final regs allow preparers to obtain consent through engagement letters.
Disclosure
Soon after the proposed regs were released, some members of Congress and consumer advocates expressed concern that they would allow practitioners to sell taxpayer data to third parties, particularly for marketing purposes. "This reflects a fundamental misunderstanding of the proposed regs," the IRS stressed in the final regs. Practitioners may not disclose a taxpayer's return information without obtaining prior consent, unless there is an authorized exception, the final regs reiterate.
Consent
The consent must identify the purpose of the disclosure and the recipient(s), along with the particular use of the information. Paper and electronic consents from any Form 1040 series taxpayer must meet very specific requirements, especially about readability. Mandatory consent is also required if the tax information will be disclosed to a preparer outside the United States.
Affiliated Group
The final regs eliminate the affiliated group provision. Few tax preparation firms, the IRS reported, have related corporations under common ownership that sell IRAs, home equity loans or other financial products. Removal of this provision, the IRS stressed, will not weaken taxpayer protections.
RALs
The IRS also announced that it is considering prohibiting preparers from disclosing or using taxpayer return information to sell RALs, refund anticipation checks (RACs) and audit insurance. The IRS requested comments on whether RALs and related products create incentives to inflate taxpayer refunds, a practice that critics charge is rampant in the industry.
Effective Date
The final regs do not apply for 2008. They kick in for disclosures and uses of return information after Dec. 31, 2008.
|
