A practical guide to navigating disclosure rules, client consent, and compliance workflows
Highlights
- 7216 consent is required for disclosing taxpayer info beyond core prep.
- 7216 consent isn't required for onshore tax prep outsourcing.
- SafeSend helps streamline the client consent process with signature conditions.
7216 compliance is a key consideration for tax firms looking to leverage outsourcing services or bring in team members from outside of the United States. Here’s what you need to know about 7216 consent, when it’s necessary, and why it’s becoming standard practice for many tax firms.
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When is 7216 consent required?
What are the requirements for 7216 compliance?
How to manage tax client consent
How SafeSend streamlines 7216 compliance
Finding a 7216 compliance process that works for you
When is 7216 consent required?
7216 compliance prohibits tax professionals from knowingly or recklessly disclosing taxpayer information without authorization. In plain terms, you need 7216 consent for the following:
- Offshore outsourcing: Sharing 1040 client information with service providers outside the United States.
- Third-party advisory services: Disclosing taxpayer information for “substantive determinations or advice affecting tax liability.” Standard tax prep doesn’t meet this threshold.
- Non-preparation purposes: Using client information for anything other than tax return preparation (e.g., promotional materials)
You don’t need consent when:
- Using an outsource vendor within the United States
- Outsourcing business tax returns
- Sharing information among your own firm members
What are the requirements for 7216 compliance?
Your 7216 compliance forms must include:
- The taxpayer’s name
- The tax return preparer’s name
- The recipient’s name (outsourcing vendor)
- The intended purpose of disclosure
- Specific tax information being disclosed
- Signature and date area
Consent duration can be specified by mutual agreement (defaults to one year). Consent letters can include any additional writing so long as the following language is included:
“Federal law requires this consent form be provided to you. Unless authorized by law, we cannot disclose your tax return information to third parties for purposes other than the preparation and filing of your tax return without your consent. If you consent to the disclosure of your tax return information, federal law may not protect your tax return information from further use or distribution.
You are not required to complete this form to engage our tax return preparation services. If we obtain your signature on this form by conditioning our tax return preparation services on your consent, your consent will not be valid. If you agree to the disclosure of your tax return information, your consent is valid for the amount of time that you specify. If you do not specify the duration of your consent, your consent is valid for one year from the date of signature.”
How to manage tax client consent
Some tax practices hesitate to seek much needed outsourcing help for fear that their clients might feel uncomfortable handing data over to a third party. However, 1040SCANverify customers that outsource offshore have received almost zero pushback. Here are some best practices your firm can when talking to clients about 7216 compliance:
- Integrate with engagement letters: Attach the 7216 consent form to your engagement letter. This normalizes the process as standard business practice.
- Emphasize value: Be transparent about how outsourcing helps your firm continue to offer speedy, quality tax service at a fair rate.
- Provide security documentation: Address concerns proactively with a summary sheet detailing the security protocols that the outsourcing service follows. Most reputable vendors should already have this on hand.
- Maintain oversight: Remind clients that your firm oversees final review of all returns. Outsourcing increases efficiency without diminishing quality standards.
- Offer alternatives: If clients remain uncomfortable, your firm can ultimately prepare returns in-house but note this may result in higher fees due to increased internal resources.
How SafeSend streamlines 7216 compliance
Having a smooth 7216 signature process is almost impossible without client-friendly collaboration tools. That’s why SafeSend accounts for 7216 compliance with conditional e-signing requirements.
SafeSend clients can e-sign any document your firm sends them without having to incorporate third-party e-signature vendors. You can even set up signature conditions that must be met before clients can continue. That means Form 7216 signatures can be marked as a mandatory part of your engagement letter process — no need to worry about clients skipping over it.
Finding a 7216 compliance process that works for you
7216 compliance doesn’t block efficient operations or positive client relationships. When positioned as standard practice enabling cost-effective service, most clients readily authorize with little hesitation.
Success requires:
- Integration: Seamless inclusion in engagement letters
- Transparency: Clear explanation of outsourcing benefits
- Security: Proactive communication about client data protection
- Technology: Platforms like SafeSend that automate signature workflows
By following these practices, your firm should be in a great position to embrace offshore outsourcing without jeopardizing your client relationships. To see what other technology hacks might be missing from your client collaboration and tax preparation processes, check out our white paper: “Mind the gap: Identifying gaps in your software this tax season” for exclusive insights.
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