Staffing
What AI Can and Cannot Do in Tax Industry Today
What AI Can and Cannot Do in Tax Industry Today
Namrata Jain
March 13, 2026
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6 Situations Where 7216 Consent Letter is Legally Required
There are a lot of misconceptions about the 7216 consent letter. The biggest one? Tax firms need it only when they offshore tax prep. Section 7216 regulations for CPAs were drafted by the IRS to keep taxpayers data secure. And it is needed when you offshore tax prep. But you’ll need in other scenarios as well.
In this blog, we will discuss 6 scenarios where Section 7216 compliance for tax preparers is applicable. Let’s begin.
- Using tax info beyond return preparation
- Sharing with another U.S. firm
- Marketing or advertising
- Offshore outsourcing
- Using AI providers
- Data-sharing programs
Table of Contents
When is a 7216 consent letter legally required under IRS rules?
The core rule of Internal Revenue Code (IRC) Section 7216 is that a tax return preparer cannot knowingly or recklessly disclose or use taxpayer information for any purpose other than preparing the tax return, unless the taxpayer gives explicit, written consent or a specific regulatory exception applies.
Here is an explanation of six common situations where securing a formal, written 7216 consent is legally required (or disclosure is prohibited altogether) because the activity goes beyond basic tax preparation:
Using Tax Information Beyond Return Preparation
7216 Consent is required when the preparer uses the tax data they collected to decide which non-tax services or products to offer the client. This is defined as a “use” of the information.
- Requirement: A written Consent to Use is mandatory.
- Example: If a preparer determines from the client’s return data that the client is eligible to contribute to an Individual Retirement Account (IRA), the preparer is “using” that tax information when they then ask the client if they would like to open an IRA. This “use” must be consented to. Similarly, using tax return information to solicit and facilitate a client’s enrollment in health insurance available through a marketplace requires consent.
- Why it’s Required: The regulations define “use” as referring to, or relying upon, tax return information as the basis to take or permit an action. This ensures the taxpayer controls whether their financial data is leveraged for additional solicitations.
Sharing with Another U.S. Firm for Substantive Advice
While you can share data with another U.S. tax firm for simple mechanical tasks (like data processing or e-filing) without consent, you must get consent if the second firm will make important decisions or give specialized tax advice that affects the final tax amount.
- Requirement: A written Consent to Disclose is mandatory.
- Example: A preparer must get consent before sharing a client’s information with another firm if the second firm is asked to provide advice on whether the client can claim a specific business deduction because this involves a “substantive determination”.
- Why it’s Required: Disclosure without consent is only allowed if the services provided by the recipient are not substantive determinations or advice affecting the reported tax liability.
Marketing or Advertising (Beyond Simple Tax Preparation Lists)
A tax firm can keep a basic list of names and contact details to promote only its tax preparation services. However, using tax data for marketing any non-tax services or using sensitive financial details in advertisements (even anonymously) requires consent.
- Requirement: A written Consent to Use and/or Consent to Disclose is mandatory, depending on the scope.
- Non-Tax Solicitation: If the marketing is to solicit business for products like mortgages, life insurance, or IRAs, consent is required.
- Advertising with Dollar Amounts: If a firm wants to create marketing material that includes aggregate refund and credit dollar amounts (e.g., “Our clients received $1 million in refunds”) for non-fundraising activities, it requires consent to both use and disclose the data.
Offshore Outsourcing (Disclosure to International Preparers)
If any part of the tax return preparation process involves disclosing a taxpayer’s information to someone, including an employee or affiliate of the same firm, who is physically located outside the United States, consent is required.
- Requirement: A written Consent to Disclose is mandatory.
- SSN Restriction: A preparer located in the U.S. cannot obtain consent to disclose the taxpayer’s Social Security Number (SSN) to a preparer located outside the United States. The SSN must be redacted or masked before disclosure abroad.
- Why it’s Required: This disclosure needs explicit explanation to the taxpayer, advising them that if they consent, federal agencies may not be able to enforce U.S. laws that protect the privacy of that information against the offshore preparer.
Data-Sharing Programs (e.g., Relational EFINs)
In some electronic filing or volunteer tax assistance (VITA/TCE) programs, the process automatically shares taxpayer data with a third party (like a software provider or sponsor). Because this sharing is a “disclosure” to an outside party, the taxpayer must approve it before filing the return electronically.
- Requirement: A written Consent to Disclose is mandatory.
- Examples:
- Relational EFINs: If a site uses relational EFINs, the software provider shares return data with a primary sponsor, requiring consent to disclose. If consent is denied, the return generally cannot be e-filed.
- Global Carry-Forward: This optional consent allows a taxpayer’s personal, demographic, and financial information to be shared across all VITA/TCE sites so their next year’s return can be pre-populated anywhere. This requires consent to disclose.
Using AI Providers (Auxiliary Services Requiring Substantive Determination)
If the AI tool merely transfers data or calculates tax based on inputs (mechanical process), consent is not required. If, however, the AI analyzes the data to determine the proper application of law or interprets a complex deduction for the preparer, it involves a substantive determination, necessitating consent.
- Requirement: A written Consent to Disclose is mandatory.
- Note on Software Registration: Any information furnished to register tax return preparation software is considered tax return information and is protected by Section 7216.
At Credfino, we go beyond basic tax prep outsourcing. We act as your consultative partner. From helping you forecast staffing needs to assisting you in being 7216-compliant, we design secure, scalable workflows that protect client data and boost your firm’s efficiency.
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Let’s get on a strings-attached exploratory call and discuss how we can help in tax season by providing skilled offshore tax accountant and being 7216-ready when sending work offshore.
Disclaimer
The information provided on this blog is for educational and informational purposes only and is based on the author’s understanding of IRS regulations, including Section 7216, at the time of writing. It should not be construed as legal or professional advice. Tax laws and compliance requirements can change, and their application may vary based on individual circumstances.
While every effort has been made to ensure accuracy, the author and this website make no warranties or representations regarding the completeness, reliability, or accuracy of the content. Readers are strongly encouraged to conduct their own research and consult with a qualified tax attorney, CPA, or compliance professional before acting on any information or suggestions found on this site.
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