Caroline Rule wrote an article for the CPA Journal titled “Considerations for Tax Return Preparers Outsourcing Overseas.”
Caroline addresses regulatory challenges that U.S.-based tax return preparers face when outsourcing return preparation overseas. Offshore contracting for tax preparation and related work has grown exponentially in recent years, although the IRS recognized as early as 2006 that “foreign outsourcing is not prohibited … if the taxpayer consents to such disclosure.” See Notice of Proposed Rulemaking, Reg-137243-02.
It is key that return preparers obtain a client’s consent before disclosing their tax information outside the United States. IRC §7216 imposes a criminal penalty of up to a year’s imprisonment and a fine on a preparer who knowingly or recklessly discloses any information furnished by a client in connection with tax preparation—unless disclosure is permitted by Treasury Regulations. Related civil penalties for wrongful disclosure under §6713 have no intent requirement.
Extensive Treasury Regulations under §7216 prescribe when disclosures are permissible, how a tax preparer may obtain a client’s consent, and what provisions must be included in the consent. For non-1040 taxpayers, the consent may be part of a client engagement letter, so long as it contains all provisions required by Treas. Reg. 301.7216-3. For 1040 taxpayers, a return preparer must also comply with Rev. Proc. 2014-13. In addition, practitioners must fulfil the requirements of the Federal Trade Commission’s (FTC) Safeguards Rule under the Gramm-Leach-Bliley Act, since tax return preparers are “financial institutions” for purposes of the act. State laws may impose additional data privacy and consumer protection laws, and codes of practice may impose other requirements.
Caroline provides an in-depth analysis of the federal regulations that apply to disclosing tax return information to preparers outside the United States and explains how to properly obtain the client’s prior consent to disclosure overseas in writing.
You can learn more about the regulatory framework surrounding foreign outsourcing of tax preparation by reading the complete article here.
About Caroline
Caroline’s practice focuses on complex civil and criminal tax matters, including sensitive audits by the IRS and state tax authorities, issues regarding “tax shelters,” failure to report offshore assets, abatement of penalties, and residency issues. Caroline has achieved outstanding results for individuals and corporations under investigation by the IRS and other governmental and regulatory agencies, as well as by state and federal prosecutors’ offices in New York and around the country. She also advises accountants and accounting firms about when and how they may outsource work offshore in compliance with confidentiality requirements of the Internal Revenue Code, Treasury Regulations, and the FTC Safeguards Rule under the Gramm-Leach-Bliley Act.
