How irs section 7216 works
The rule applies broadly to anyone who prepares tax returns for compensation, including firms that use an outsourced or offshore team to help prepare returns under the related Treasury regulation. Consent must be obtained before the information is disclosed, must meet specific content and format requirements, and cannot be a blanket, indefinite consent.
A firm that sends client data to a preparer outside the US must disclose that the information is going outside the country and get the client's written consent to that specific disclosure, separate from any general engagement letter language. Consent that is bundled with other unrelated terms or is not clear about the disclosure does not meet IRS requirements.
Example
A US accounting firm wants an offshore preparation team to help draft returns during tax season. Before sending any client data, the firm sends each client a compliant consent form stating their return information will be disclosed to a preparer located outside the United States, and files signed consents before any client file is shared with the offshore team.
IRS Section 7216 in QuickBooks Online vs Xero
Not software-specific: Section 7216 consent is a legal and process requirement rather than something QuickBooks Online, Xero or tax software enforces directly. Firms typically manage signed consent forms through their practice management or document system, such as Karbon or TaxDome, to keep an auditable record of which clients have consented.
Common mistakes
- Sending client tax data to an offshore preparation team before obtaining the specific written consent Section 7216 requires, which exposes the firm to civil and potential criminal penalties.
- Burying the required disclosure inside a general engagement letter instead of a standalone, compliant consent form, which does not meet the IRS's specific content and format requirements.
- Treating a single blanket consent as covering every future tax year or engagement, which is not valid since consent cannot be indefinite or open-ended under the rule.
Why it matters
Section 7216 compliance protects an accounting firm from civil and criminal exposure while it uses outsourced or offshore preparation support to handle tax season volume. For a firm's clients, a clear, specific consent form also builds trust that their tax return information is handled with proper disclosure and permission rather than passed along quietly to a third party.
Related terms
How LedgerBPO handles irs section 7216
We provide firms with Section 7216-compliant consent templates to collect before any client tax data is shared with our preparation support team, and we never sign or file a return ourselves, your firm reviews and signs every return. This keeps your consent process defensible and your client relationships fully in your firm's control.