Disclosure Consent Forms (Sec. 7216) Explained – Q&A

By Stanley Rose September 8, 2023

Introduction

A number of questions have come up recently regarding the purpose behind accountants’ need to collect Section 7216 Disclosure Consent Forms from clients. In our own case, the increase in questions arose after recent emails were sent to our clients, requesting updated consents. This article will explain what these consents are, and why we need them. We will start by explaining the title of these forms and expand a bit from there, using a Q&A format.

Questions and Answers

Q1 – What exactly is meant by “Section 7216 Disclosure Consent Forms?”

A1 – The form is the vehicle for a client confirming its consent for its accountant to disclose personal details to a third party. Section 7216 of the Internal Revenue Code (and related laws penned by the Treasury Department) prescribe the mandatory need for these consents and the formal means by which the consent is obtained. The rules apply to nearly all tax return preparers.

Q2 – What is meant by “disclosure” and “personal details?”

A2 – Disclosure means any form of sharing information, and personal details refers to data that a tax accountant collects in its role preparing a tax return, which reports very sensitive data, like Social Security numbers, bank account numbers, ownership of entities, and sources and amounts of income.

Q3 – Can you give me an example of the need for, and use of, the consent?

A3 – A very common example involves a client who is borrowing money from a bank – personally, or as a business owner. The lender will request extensive data from the borrower, including documents like Forms W-2, 1040, and Schedules K-1. Because the borrowers know that their tax accountants have ready access to these documents, they often will ask us to provide them to their lender. The lender is the third party, and the sensitive data is in the accountant’s possession, and the consent is needed to enable us to provide it to that third party.

Q4 – Why can’t I simply call my accountant, or send an e-mail, to provide the “consent?”

A4 – There is a distinction between (1) your request for us to share information and (2) your authorization (consent) to share it. The request can take any form you like, but the Treasury Department has written lengthy rules (Revenue Procedure 2013-14 and Regulations 301.7216) describing the format of the consent, and Sec. 7216 makes it a criminal offense to provide data without proper consent using that format. The rules go into tremendous detail, listing not only the content of the consent form (which must be a stand-alone document, with very precise wording) and an expiration date, but also things like the required size of paper on which the consent is provided, and minimum font size – both in general, and relative to other text content, if provided electronically.

Q5 – This is nuts.  Why such nit-picky rules?

A5 – The rules were written in the 1970s, but were expanded greatly about a dozen years ago, after a very large tax return provider provided substantial personal information of its clients to an affiliate for marketing purposes. Technically, the consent may have been provided under looser-at-the-time rules, but the authorization probably was buried in tiny print, dozens or hundreds of pages deep in a software agreement form that most of us usually agree to without reading. With identity theft becoming increasingly common, Congress and Treasury wanted consent to be much more prominent – thus, today’s speed bump.

Q6 – Why is authorization requested in advance, before the need arises?

A6 – We provide the forms in advance as a courtesy. You do not need to complete it, though, until and unless you ask us to share your information with a third party. Recall the distinction described above between your (1) request for us to provide information and your (2) consent – two separate things. If there are parties that you believe will need such information in the future, you can expedite our delivery of it by authorizing it in advance (rather than fumbling with the disclosure form while sitting in your banker’s office). Listing the names of your attorney, bookkeeper, banker, or other advisor on this form, and authorizing us now to provide information can mean that when the time comes, a simple phone call from you will be all we need (the request) – because you have preauthorized us to share information (the consent).

We will never share your information with anyone absent a very specific request from you, even though we have that authorization on file in advance.

Also, if a previous authorization omits a name of someone you want us to provide information to, simply fill out another one and provide it to us. We will keep both on file, where they will remain dormant until you call or e-mail us to ask us to share something.

Note that you don’t need to provide the consent at all; you can always ask us to provide copies of your documents directly to you, and you, in turn, can provide them to the third party.

Q7 – Who does the consent form apply to . . . individuals . . . businesses?

A7 – Consent is required any time tax providers are asked to provide a client’s information to a third party, regardless of whether the client is an individual or an entity. The consent must be in a highly specific format for individual taxpayers, meaning those who file forms in the 1040 series. For them, there is an actual consent form. For other types of taxpayers (like businesses), the consent can come in a different format (letter, e-mail, etc.), but still must contain highly specific information, with the same type of content found on the consent form used by 1040 series clients. For that reason, accountants often will ask their non-individual clients to provide consent using the preformatted form – it simply is easier for all involved.

Conclusion

Hopefully the explanations above make sense of the Sec. 7216 consent forms that have become such a prominent feature of today’s tax return preparer/client relationship. As pesky as they are, there is a purpose for them, and protecting you from identity theft is the primary reason for their existence.

For more information, please contact Stanley Rose or your BNN tax advisor at 800.244.7444.