Talking to your clients about signing a 7216 consent form

Are you nervous about asking 1040 clients to sign a 7216 consent form? Has this anxiety prevented you from relieving workload compression with offshore outsourcing services?

We’ll cover everything your firm needs to know about Section 7216 for 1040 tax preparation outsourcing. Obtaining client consent isn’t the hurdle you might expect.

What is a 7216 consent form? 

Internal Revenue Code Section 7216 is a provision that prohibits tax professionals from knowingly or recklessly disclosing taxpayer information. Clients must provide signed consent before their return is given to third-party individuals who provide “substantive determinations or advice affecting the tax liability reported by taxpayers.” Clients must also provide consent before their information is shared outside the United States for any reason.

In plain English, you must obtain 7216 consent if: 

1. You plan to use a 1040 client’s information for anything other than tax return preparation. 
   
2. You plan to share your 1040 client’s information outside the United States. 

If your firm provides additional services, like financial consulting, you already request 7216 consent. Adding a second 7216 request for using offshore services is a minor adjustment for most firms. 

Do all outsource services require 7216 consent? 

Although outsource vendors access taxpayer information as a third party, not all services are subject to Section 7216. Most 1040 outsource companies do not review, approve, or sign tax returns. They do not make executive decisions on returns, nor provide advice to taxpayers.

Since tax preparation alone does not meet the threshold for “substantive determinations or advice,” outsourcing to onshore preparation facilities usually won’t require 7216 consent. Offshore tax preparation, on the other hand, requires consent because regulations apply to all individuals outside of the U.S.

What about 7216 consent for SurePrep solutions? 

Question: Is taxpayer consent required when using SurePrep software products?
Answer: No.

Question: Is taxpayer consent required when using SurePrep’s onshore services?
Answer: No.

Question: Is taxpayer consent required when using SurePrep’s offshore services? 
Answer: Yes, for 1040 outsourcing. 7216 consent is not required for business tax return outsourcing.

7216 consent form templates and requirements 

All 7216 consent forms must include… 

• The name of the taxpayer 
• The name of the tax return preparer 
• The name of the recipient 
• The intended purpose of disclosure 
• The specific tax return information being disclosed 
• An area for the signature and date 

Consent forms distributed by paper must be 8.5 x 11 inches at minimum, with at least 12-point font. The form must be signed before any client information is disclosed. You and your client can agree on any duration of time for which the consent will remain effective. If no timeframe is included on the form, consent will expire after one year.

Many outsource vendors offer their own 7216 templates. Click here for sample forms that SurePrep provides to offshore outsource customers→

Obtaining 7216 consent from clients is easy 

When Section 7216 came into effect in 2009, there was widespread anxiety about client push-back. Alarmist articles in tax and accounting publications questioned whether offshore outsourcing would remain a viable option. But the Great Push-Back never happened. More than a decade later, offshore outsourcing remains an industry-wide practice.

SurePrep works with over 33,000 tax professionals. Our clients include 3 of the Big 4, over half the top 100, and thousands of small- to mid-sized firms. In our experience, most firms send Form 7216 alongside the engagement letter and receive signatures without issue. Once in a rare while, a client may ask about the form. There are two tried methods for addressing these questions without friction:

1. Explain to the client that offshore outsourcing is the reason you can offer them a great rate. Supply a prepared summary sheet of your security protocols. Most clients will be happy with this answer. 
   
2. Offer a more expensive in-house option for clients who still do not feel comfortable signing the 7216 consent form. Some clients will be understanding of the higher price-point and gladly pay the extra fee for peace of mind. 

You can preempt questions by explaining the cost-saving benefits on the 7216 form itself. Clients are understanding when they see that savings are passed onto them. Emphasize that only the tax preparation is outsourced and that your firm is still in charge of final review.

If you follow these best practices for communicating openly with clients about 7216 consent, you’ll maintain strong relationships. As one SurePrep customer put it:

We just treat it as part of our on-boarding process. We get very few questions about it. I think the first year that we rolled it out, there were a handful of clients that asked about it and most of them said, ‘If it’s going to save me money on your fees, then use it.

Beth Attebery, Partner, Henry Levy Group.

Don’t miss out on outsource cost-savings 

Offshore tax preparation outsourcing is significantly more economical than onshore. Don’t let Section 7216 anxiety be the reason you miss out. Outsourcing is a cost-effective way to prepare more returns without adding staff. It’s also a fast, easy way to alleviate workload compression. With today’s widespread staffing issues, more firms will turn to outsourcing than in previous years. SurePrep offers both onshore and offshore options.

If offshore is still outside your budget, you may want to consider partial outsourcing. With partial outsourcing, a combination of automation software and trained staff will:

1. Organize your workpapers and assemble binders 
   
2. Run workpapers through OCR to extract data 
   
3. Verify data before it exports to your tax software 

This is 80% of the work you would receive with a full outsourcing option, but only 20% the cost. SurePrep’s partial outsourcing option is called 1040SCANverify. For more information, watch our webinar, Why Does 1040SCANverify Popularity Continue to Trend Up? 

Why does 1040SCANverify popularity continue to trend up?

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Disclaimer: The information contained within this document is provided for informational purposes only and is not intended to and must not be taken as a substitute for obtaining accounting, tax, legal, or other professional advice from a tax professional (e.g., an Enrolled Agent, CPA, attorney, etc.). No warranty or representation, express or implied, is made by SurePrep, part of Thomson Reuters, nor does SurePrep, part of Thomson Reuters, accept any liability with respect to the information and data set forth herein. Distribution hereof does not constitute legal, tax, accounting, investment, or other professional advice. You should consult a professional advisor and/or legal counsel prior to acting on the information set forth herein.