Rev. Rul. 79-114

Advice has been requested whether section 7216 of the Internal Revenue Code of 1954 requires a tax return preparer to have the formal consents of a taxpayer to use information from a tax return under the circumstances described below.

X, a corporation owned by farmers, makes short term and intermediate term loans to the farmers. In addition, X provides business counseling services and an electronic records program for farmer-borrowers. As an extension of the records program, X initiated a tax return preparation service to assist farmers in the preparation of their Federal income tax returns. X is not a corporate fiduciary as defined by section 301.7216-2(f) of the Regulations on Procedure and Administration. X extracts and uses information from the tax return of a customer taxpayer for (1) business counseling of that customer; (2) planning and servicing the customer's loans or applications for loans; (3) soliciting business counseling and loan business from the customer taxpayer if the customer does not already use X for these purposes; and (4) compiling general anonymous statistical data, such as average tax rates, for the use of X and for public dissemination.

Section 7216(a) of the Code provides a criminal penalty if any tax return preparer discloses or uses any information furnished for the preparation of a tax return or declaration of estimated tax. Statutory exceptions are provided in section 7216(b)(1) and (2), and regulatory exceptions prescribed by the Secretary of the Treasury are authorized under section 7216(b)(3).

X's proposed uses of a customer's tax return information in the current business counseling of that customer and in the current planning and servicing of loans for the customer do not come within any of the statutory or regulatory exceptions.

Accordingly, the tax return information cannot be used by X unless the individual customer executes separate written consents for each separate use or disclosure, under section 301.7216-3(b) of the regulations.

With respect to X's proposed uses of tax return information for soliciting additional business, section 301.7216-3(a)(1) of the regulations specifically applies, and provides that if a tax return preparer has obtained from the taxpayer a consent described under section 301.7216-3(b), the preparer may use the tax return information of such taxpayer to solicit from the taxpayer any additional current business, in matters not related to the Internal Revenue Service, which the preparer provides or offers to the public. The request for such consent may not be made later than the time the taxpayer receives the completed tax return, and if the consent is not granted, no follow-up request may be made. Section 301.7216-3(a)(1)(i) further provides, however, that this authorization to use tax return information of the taxpayer does not apply to the solicitation of additional business to be furnished at some indefinite time in the future.

Accordingly, because X currently offers the services of business counseling, and of planning and servicing farmer's loans or applications for loans, X may use information from a customer's tax return for soliciting of these additional businesses, only if X requests the separate written consents of such customer before the customer receives the tax return completed by X, and if such consents are in accord with the requirements under section 301.7216-3(b) of the regulations, from that customer. However, X cannot use information from a customer's tax return to solicit such customer for business services unrelated to the Internal Revenue Service which X does not presently offer, but may furnish at some indefinite time in the future.

With respect to X's proposed use of tax return information for compiling anonymous statistical data, section 301.7216-3(a)(2) of the regulations specifically applies and provides that if a tax return preparer has obtained the required written consent of the taxpayer, the preparer may disclose the tax return information to such third persons as the taxpayer may direct. Accordingly, X must obtain a separate written consent from a customer taxpayer before it may extract information from that customer's tax return for purposes of compiling general anonymous statistical data for its own use or for public dissemination.