What is 7216 Consent?
7216 consent is a provision under Section 7216 of the Internal Revenue Code (IRC) that requires tax preparers to obtain explicit written consent from clients before disclosing their tax return information for purposes other than tax preparation. This means that if you plan to share client data with third parties, whether for additional services or outsourcing, you must inform your clients and get their approval first.
The consent is designed to protect taxpayer privacy and ensure that their sensitive data is only used for the specific purposes they’ve authorized. While many tax preparers are aware of 7216 in the context of offshoring, the reality is that this consent applies any time you share or use client data for anything beyond the initial tax return preparation.
Why is 7216 Consent Crucial When Hiring Offshore Tax Preparers?
The rise of offshore tax preparation has raised important concerns about data security and privacy. While hiring offshore tax preparers can be cost-effective and beneficial, it comes with a unique set of risks, particularly around the protection of client information. This is where 7216 consent comes into play.
- IRS Compliance
The IRS has strict rules in place regarding how taxpayer data should be handled, especially when it is shared with third parties like offshore service providers. By requiring written consent, 7216 ensures that your firm remains compliant with these regulations. Failing to obtain this consent can result in legal consequences and damage to your firm's reputation.
- Data Security and Protection
When you hire offshore preparers, you may be sharing highly sensitive client information, such as Social Security numbers, financial data, and tax documents. Without proper consent, you risk violating your clients’ privacy rights. Furthermore, if data security protocols are not properly followed, your firm and clients are vulnerable to cyberattacks, data breaches, and fraud.
By securing 7216 consent, you help mitigate these risks. It ensures that your clients are aware of how their data will be used and where it will be shared, providing them with peace of mind. Additionally, it holds your offshore preparers accountable for adhering to stringent data protection standards.
- Building Client Trust
Clients are entrusting you with their most sensitive personal information. Having them sign the 7216 consent form demonstrates transparency and reinforces trust. It shows that you take their privacy seriously and are committed to complying with IRS regulations.
How to Obtain 7216 Consent
Obtaining 7216 consent should be a clear, transparent process. Here are some steps you can follow:
- Explain the Form to Your Clients
Many clients may not be familiar with 7216 consent, so it’s essential to explain it to them clearly. Let them know that the form is required by the IRS to ensure that their data is only shared for tax-related purposes or other services they explicitly approve.
Make it clear that without their consent, you will not be able to share their data with third parties, including offshore preparers or financial institutions.
- Highlight the Benefits
Help clients understand the benefits of signing the consent form. These may include:
- Access to Expanded Services: Signing the consent allows them to take advantage of additional services, like tax planning or financial advice, that could save them money.
- Improved Service Quality: With consent, you can use advanced software and tools to offer personalized strategies and enhanced services.
- Streamlined Processes: Outsourcing tax prep to offshore professionals can help speed up the process and reduce costs, benefiting both you and your clients.
- Address Concerns About Data Security
Clients might have concerns about the security of their data, especially when it's being sent overseas. Assure them that you are following all IRS security guidelines and that any offshore tax preparer you hire will have the necessary data protection measures in place, such as encryption, secure file transfer methods, and strict privacy policies.
- Make It Easy to Sign the Form
Make the process as smooth as possible for your clients. Use electronic signatures through platforms like DocuSign, which allows clients to sign the form securely online. This eliminates paperwork and makes it easier for them to give their consent, even if they're remote or busy.
What to Include in the 7216 Consent Form
When you draft the 7216 consent form, make sure it contains the following key elements:
- Purpose: Clearly state why you need to share client information (e.g., to allow offshore preparers to handle tax returns).
- Scope: Specify what types of information will be shared (e.g., tax documents, financial records, Social Security numbers).
- Duration: Indicate how long the consent is valid, usually for one year, and make it clear that it will need to be renewed if applicable.
- Recipients: List the third parties that will receive the information, such as offshore preparers, financial institutions, or software providers.
- Client’s Choice: Include a statement letting the client know that they are not required to sign the form to use your services. You must also make it clear that the consent is valid for the agreed-upon duration.
Ensuring Compliance When Hiring Offshore Preparers
When working with offshore tax preparers, it's crucial to follow the IRS’s Taxes-Security-Together Checklist. This list outlines the minimum security protocols that should be followed to protect client data, including:
- Anti-virus software to guard against malware and viruses.
- Firewalls to prevent unauthorized access.
- Two-factor authentication to ensure that only authorized users can access sensitive data.
- Data encryption to secure stored and transmitted data.
- Virtual private networks (VPNs) to protect internet traffic.
Make sure that your offshore tax preparers adhere to these measures to keep your clients’ data safe.
Conclusion: Protect Your Firm and Clients with 7216 Consent
As the tax preparation industry continues to evolve, outsourcing services—especially to offshore teams—becomes more common. But with these opportunities come significant responsibilities. 7216 consent is not just a formality; it’s a critical step to ensure you comply with IRS regulations, protect sensitive client information, and maintain the trust of your clients.
Before you hire offshore tax preparers, make sure you have a clear understanding of 7216 consent and how it impacts your business. By doing so, you'll avoid legal issues, safeguard your client relationships, and provide top-notch services while ensuring that you’re fully compliant with IRS requirements.
