Privacy Rules Meet the Electronic Age: A Marketing Perspective

By Jill M. Kovalich, Director of Marketing, Konowitz, Kahn & Company, P.C.

As marketing initiatives take root and grow in accounting firms seeking to differentiate themselves in a crowded market space, Internal Revenue Code Section 7216 can become a hurdle. This article explores the impact of recent Section 7216 updates on marketing functions within CPA firms. It does not provide any legal advice or definitive interpretation of the code.

With the unprecedented global economic challenges we face today, client retention is more important than ever, and growing our client base poses an even bigger challenge. Email technology enables us to put our company messages and services in front of clients, prospects, referral sources, and professional associates easily and frequently in a highly targeted way. In turn, they pick and choose the content they want to read. The marketing end result is improved brand awareness and relationships – all of which contribute to revenue growth.

For more than 30 years, Section 7216 has been in place to give taxpayers protection and control over their tax return information that is held by tax return preparers. In addition to all the financial data and documents gathered for the preparation of taxes, tax return information also includes general contact information like name, address, social security number, phone, and email address.

As of January 1, 2009, Section 7216 has been updated to address an age of electronic communications, email, and e-file capabilities. When the original code was drafted, none of these existed – nor did social media, viral marketing campaigns, or blogs. Today, they are inextricably woven into our everyday business and personal worlds.

Section 7216 expands the definition of tax return preparer to encompass those in a support role who may assist the CPA, such as administrative and clerical staff [Sec. 301.7216-1(2)(D)(vi)]. While the marketing manager or staff might not be considered in this group directly, his or her efforts are clearly affected.

Consider the information the marketing department creates and distributes to clients – newsletters, staff announcements, greeting cards, letters, and brochures that cross-sell products and services. They may not necessarily contain only tax-related information. And, if that’s the case, it’s time to pursue client consent. If you want to send tax-related information to tax clients, you do not need to obtain consent. However, if you want to send non-tax information to tax clients, you must obtain consent.

Consent is absolute and can get a bit tricky, depending on the content and delivery method you use to communicate with your tax clients and the source of that contact information. Section 301.7216-1(a) states the penalties for disclosure or use of tax return information. It outlines the criminal penalty for tax return preparers “who knowingly or recklessly disclose or use tax return information for a purpose other than preparing a tax return.” Violation of Section 7216 is a misdemeanor with a maximum penalty of one year of imprisonment, a fine of $1,000 for each violation, or both. A civil penalty is contained in related Section 6713(a) allowing for penalties of $250 for each such disclosure, not to exceed $10,000 in any calendar year. Therefore, it is extremely important to pay serious attention to the requirements of obtaining tax clients’ consent.

The consent form can be provided in paper or electronic format (see Revenue Procedure 2008-35, section 5). Among the many criteria for the required consent, a few that stand out are:

  • The consent must be obtained prior to sending non-tax information (the use or disclosure of tax return information).
  • The client consent must be informed, voluntary, and separate from the engagement letter and include specific language and text size (see Sec. 4 of Rev. Proc. 2008-35).
  • If the client declines consent, you may not solicit their consent again.
  • If you do not specify a time limit for the consent, it is effective for one year from the date it is signed.

If the marketing department uses an outside mailing house to fulfill a mailing to tax clients, this brings into play a need for consent to disclose to a third party. This also affects senders of electronic newsletters who distribute them through a third party entity. If your uploaded client list is not encrypted and that third party has access to it, you will need to obtain clients’ consent to disclose to a third party.

While in many cases you need to obtain a client’s consent, you should also be aware of one in which it is not necessary: clients for whom your firm prepares taxes and also provides other services. If you have obtained a client’s contact information in the course of providing those other services and not only from tax return information, then you do not have to obtain consent.

For the marketer, here are a few ways to clear the hurdles that 7216 may place in your path:

  • Keep tax-only client lists separate from other client lists.
  • Establish procedures for consent forms and communicate them to staff.
  • Control your electronic mailing lists and know how your data is being handled by questioning the internet marketing entity you use about their security processes and access to your lists.
  • Keep a reliable record in your database of who has and has not provided consent, so you are able to easily identify them when you pull lists for marketing communications.
  • Inform the partners and gain their support of marketing efforts so that you can reliably protect your clients and the firm with strict compliance.

This information only skims over the salient points of Section 7216 updates and potential obstacles for marketing departments. It is best to fully read and understand the code and implement proper controls to protect clients’ rights to their personal information and assure compliance on behalf of the firm.

There are areas in the Section 7216 updates that are left up to interpretation. Therefore, seeking legal counsel experienced in IRS codes and regulations is strongly recommended.


Internal Revenue Bulletin Rev. Proc. 2008-35.

Treasury Regulation 301.7216 (26 CFR Part 301 Section 7213)

AICPA, Tax Section E-Alert, “The Latest on Implementing Section 7216!” February 16, 2009.

Roger Russell, “IRS advisory report spotlights communication, economic downturn,” WebCPA™, January 5, 2009.

Annette Nellen, CPA, Esq., “New Disclosure Rules and Procedures Effective January 2009 – Are You Ready?,”, January 2009.

Greg Jamouneau, “New Regs Govern Overseas Disclosure of Taxpayer Information,” Journal of Accountancy, January 22, 2009.

Internal Revenue Service News Release, IR-2008-2, “Treasury and IRS Give Taxpayers Greater Control over Information Held by Tax Preparers; Propose Marketing Restrictions on RALs,” January 3, 2008.

Internal Revenue Service Publication 4600 (5-2007), “Safeguarding Taxpayer Information Quick Reference Guide for Business.”

PDI Global, Inc., “What you need to know about regulations under IRC Section 7216 and how they affect your marketing efforts,” 2009.

Association of Accounting Marketing,, IRS Regulation 7216 Information and Resources section, April 2009.

Jill M. Kovalich is the director of marketing at Konowitz, Kahn & Company, P.C. She has been working in sales, technology marketing, training, and services marketing for more than 20 years developing strategic marketing plans and creative vision for products and services new to market. Kovalich holds a B.A. in Public Relations and Communication Arts from Marywood University in Scranton, Pennsylvania and an M.A. in Organization Development and Training from Emerson College, in Boston, Massachusetts. She was an assistant instructor for business and organizational communications at Harvard University’s Commission on Extension, a public speaking instructor at Emerson College, and a guest lecturer for undergraduate and graduate courses in international marketing at the University of Hartford’s Barney School of Business. She is currently preparing a presentation on branding best practices to deliver at an international conference in Washington, D.C., this coming June. She can be reached at 203-239-6888 or at