IRS Section 7216 and Third-Party Tax Support: A Practical Guide for U.S. Firms

Author : AcoBloom International | Published On : 14 Sep 2026

Modern tax practices often rely on outside support to manage increasing workloads, but sharing taxpayer information with another organization requires careful attention to confidentiality. IRS Section 7216 provides important rules concerning the use and disclosure of tax return information by tax return preparers. For U.S. accounting firms that work with contractors, outsourcing providers, software vendors, or other third parties, understanding these requirements can help create a more responsible and organized workflow.

Outsourcing can provide valuable operational support, but firms should not treat client information like ordinary business data. Before information is shared, the firm should understand why it is being shared, who will have access to it, and what rules apply to the particular situation.

Why Third-Party Support Is Common in Tax Practices

Accounting firms have changed the way they operate over the years.

Many practices now use cloud accounting platforms, digital document systems, remote employees, contractors, and specialized service providers. These arrangements can help firms manage workload and serve clients more efficiently.

At the same time, each additional person or organization involved in the workflow can create another point where taxpayer information is accessed or transferred.

That does not mean firms should avoid outside support. It means they need a clear process for managing confidential information.

Understanding the Purpose of Section 7216

Section 7216 addresses the use and disclosure of tax return information by tax return preparers.

The IRS explains that tax return preparers generally may not knowingly or recklessly disclose or use tax return information for purposes other than preparing or assisting in preparing a tax return unless an applicable exception applies.

This basic principle is important because tax professionals often receive information that could be useful for other purposes.

A client may provide details about income, investments, business activity, expenses, family circumstances, and other financial matters. The fact that a firm has access to that information does not necessarily mean it can use it for any purpose it chooses.

Tax Return Information Is Broader Than the Final Return

One common misunderstanding is that confidentiality rules apply only to the completed tax return.

In practice, information collected or developed during the preparation process can also be relevant.

Financial statements, source documents, taxpayer identification information, income records, expense information, and other supporting details may all form part of the information handled during tax preparation.

This means firms should think about protecting information throughout the entire process rather than only after a return has been completed.

What Does Disclosure Mean?

Disclosure generally involves making tax return information available to another person or organization.

This could happen when information is sent to an outside contractor, shared with a service provider, or provided to another party.

The circumstances matter.

Tax professionals should determine whether the disclosure falls within an applicable exception or whether taxpayer consent or another requirement applies.

The rules can be detailed, so firms dealing with unusual situations should seek appropriate professional guidance rather than relying on assumptions.

What Does Use Mean?

The rules also address the use of tax return information.

A firm might use client information internally for preparing a return, but it may later want to use the same information for another business purpose.

That second use may require separate consideration.

For example, information collected during tax preparation should not automatically be repurposed simply because it is already available inside the firm's system.

This is why internal policies are important.

Employees should understand that having access to information does not necessarily mean they have unlimited permission to use it.

Outsourcing Tax Preparation Work

Tax preparation outsourcing can provide accounting firms with additional capacity during busy periods.

An external team may help with data preparation, organizing documents, bookkeeping-related work, tax preparation support, or other defined responsibilities.

However, before taxpayer information is provided to an outside team, the accounting firm should evaluate the arrangement under the applicable Section 7216 rules.

The firm should understand what information will be shared and why.

It should also establish appropriate confidentiality and security procedures with the provider.

Choosing an Outsourcing Provider

Selecting an outsourcing partner should involve more than comparing service prices.

A tax firm should consider the provider's experience, communication practices, security controls, quality procedures, and ability to work with the firm's systems.

The provider should also understand the confidential nature of taxpayer information.

Questions worth considering include:

• How is client information accessed?
• Who can view the information?
• How is information transferred?
• How are employees trained?
• What happens when an employee leaves?
• How are security incidents handled?
• What review process is used for completed work?

The answers can help a firm determine whether the provider is appropriate for its workflow.

Written Agreements Can Reduce Confusion

A clear written agreement can establish expectations between a tax firm and an outside provider.

The agreement may address responsibilities, confidentiality, information security, permitted access, communication procedures, and other operational requirements.

The IRS has also advised tax professionals to evaluate service providers' security practices and address appropriate safeguards when entering into relationships involving taxpayer information.

Written expectations are particularly useful when multiple teams are involved in the same client engagement.

Client Consent Has Specific Requirements

In situations where taxpayer consent is required, firms should not assume that a casual email or verbal statement is sufficient.

The IRS has established requirements concerning the form and content of consents for certain uses or disclosures of tax return information.

Tax professionals should therefore review the applicable rules carefully before asking clients to authorize a use or disclosure.

When the situation is complicated, obtaining advice from a qualified tax or legal professional can help avoid unnecessary compliance problems.

Protecting Information During Remote Work

Remote work has become common across the accounting industry.

Employees and contractors may access financial systems from home offices or other locations. While remote work can improve flexibility, it also creates additional security considerations.

Tax firms should establish clear rules for accessing client information outside the office.

These may include approved devices, secure connections, multifactor authentication, controlled access, and procedures for storing documents.

The objective is to ensure that convenience does not weaken confidentiality.

Security and Section 7216 Work Together

Section 7216 deals with the use and disclosure of tax return information, while cybersecurity controls help protect that information from unauthorized access.

Both areas deserve attention.

The IRS continues to encourage tax professionals to maintain a Written Information Security Plan designed to protect taxpayer information. Its guidance emphasizes that the plan should be appropriate to the size and complexity of the practice and the sensitivity of the information it handles.

Security measures can include multifactor authentication, encryption, backups, access controls, employee training, and incident-response procedures.

Limiting Access Within the Firm

Not every employee needs access to every client's information.

A firm can reduce unnecessary exposure by using role-based access.

Employees should receive the access required to perform their responsibilities and no more than necessary.

Access should also be reviewed when employees change positions or leave the organization.

This approach can help reduce the risk of accidental disclosure and make it easier to identify who has access to sensitive information.

Training Employees on Confidentiality

Policies are only effective when employees understand them.

New staff should receive appropriate training before handling taxpayer information.

Training can explain what information is confidential, when information may be shared, how documents should be handled, and who should be contacted when an employee is unsure about a request.

Regular reminders can also help keep confidentiality requirements fresh.

A short internal training session may prevent a much larger problem later.

Managing Software Vendors

Software is another part of the modern tax workflow.

Accounting firms may use tax preparation platforms, document-management systems, cloud storage, electronic signature tools, and other applications.

Before entering client information into a system, firms should understand how the provider handles and protects that information.

Software selection should consider security, access controls, data storage, vendor policies, and the firm's obligations concerning taxpayer information.

Technology should make the workflow easier without creating unnecessary compliance risks.

Handling Information After the Engagement

Confidentiality does not become irrelevant when a tax engagement ends.

Firms should have policies for retaining and disposing of records according to applicable requirements.

Old documents should not remain accessible indefinitely simply because nobody has considered removing them.

A structured record-retention process can help businesses understand what information needs to be retained, where it is stored, who can access it, and when appropriate disposal may occur.

Building an Internal Review Process

A tax firm can create a simple review process for information-sharing decisions.

Before sharing taxpayer information with an outside party, employees can ask:

1. Why is this information needed?
2. Who will receive or access it?
3. Is the disclosure or use permitted?
4. Is taxpayer consent required?
5. What security controls apply?
6. Has the appropriate documentation been completed?

This type of checklist can help employees slow down and consider the issue before information is transferred.

What Outsourcing Should Not Change

Outsourcing should not change the firm's commitment to client confidentiality.

Moving a task outside the organization does not mean responsibility disappears.

The accounting firm should continue to maintain appropriate oversight and should understand how taxpayer information is handled by its external partners.

The provider should function as part of a controlled workflow rather than as an entirely separate process with little visibility from the firm.

Reviewing the Relationship Over Time

An outsourcing relationship should be reviewed periodically.

Technology changes. Employees change. Workloads change. Providers may introduce new systems or processes.

A firm should periodically confirm that its current procedures still make sense.

This can include reviewing access permissions, contracts, security controls, communication procedures, and the types of information being shared.

Regular reviews can help identify problems before they become serious.

Common Mistakes to Avoid

One mistake is assuming that every disclosure to a contractor is automatically permitted.

Another is treating a general confidentiality agreement as a complete solution to every Section 7216 issue.

Firms should also avoid giving external teams unnecessary access to client information.

Finally, businesses should not overlook employee training. Even strong technology controls can be undermined if staff do not understand how confidential information should be handled.

Final Thoughts

IRS Section 7216 is particularly relevant in today's tax environment because accounting firms increasingly rely on external teams, cloud platforms, contractors, and specialized service providers.

Outsourcing can improve efficiency and help firms manage workload, but taxpayer information needs to remain protected throughout the process.

A thoughtful approach starts with understanding what information is being shared and why. From there, firms can establish appropriate permissions, review consent requirements when applicable, create clear agreements, train employees, and maintain strong information-security practices.

The IRS continues to emphasize the importance of protecting taxpayer information and maintaining appropriate security controls.

For U.S. tax professionals, compliance should be part of the everyday workflow rather than something considered only when a problem occurs. With clear procedures and responsible third-party management, firms can benefit from modern outsourcing models while continuing to protect the confidential information entrusted to them by their clients.