Taxpayers' expanded ability to authorize disclosure of return information.

Taxpayers now can authorize disclosure of return information to designated persons without providing a written document to the IRS. This change results from amendments to Sec. 6103(c) made by the Taxpayer Bill of Rights II. Before the change, under Sec. 6103(c), the taxpayer's request for, or consent to, such disclosure had to be in writing. Earlier this year, the Service published temporary and proposed regulations to implement the new rules.

Purpose and Impact of Change

The legislative history to the 1996 amendment indicates that the change was intended to promote transition to a paperless tax system. Congress further recognized that for the IRS to modernize more effectively its tax administration system, it was necessary to promote use of electronic communications through FAX machines, computers and communications networks.

The new regulations set forth the procedures under which taxpayers can authorize orally a disclosure of return information to a designated person, allowing them to resolve issues with the Service in a more efficient manner. For example, a taxpayer now can consent orally to disclosures by the IRS to persons accompanying the taxpayer to meetings or participating in telephone conversations with Service personnel. Often, the decision to include third parties in meetings or calls is not made until immediately prior to their commencement, and the appropriate paperwork is not in place that allows them to begin as scheduled. Such disruptions should no longer occur.

Authorization Procedures

As has been the case with written requests or consents, the IRS will not disclose return information to a third party pursuant to a nonwritten request or consent, unless it can confirm the identities of the taxpayer and the designee. Therefore, the regulations provide that a disclosure pursuant to a nonwritten request will be made only after the Service has:

* Obtained sufficient facts underlying the request for information or assistance from the taxpayer that allow it to determine the nature and extent of the information or assistance requested, to comply with the taxpayer's request;

* Confirmed the identities of the taxpayer and the designee; and

* Confirmed the date, nature and extent of information or assistance requested (Temp. Regs. Sec. 301.6103(c)-1T(c)(2)).

Although taxpayers now can provide oral consents to disclose their return information, the new rules do not eliminate the need to file Form 2848, Power of Attorney and Declaration of Representative, to authorize a third party to represent the taxpayer before the IRS. If a taxpayer wishes to have a representative meet with the Service and have ongoing negotiations in connection with the taxpayer's issues, Form 2848 should be executed and filed. That will allow the IRS to deal directly with the representative without the taxpayer's presence.

Although not covered by the new regulations, but nevertheless as a result of the 1996 amendment to Sec. 6103(c), individual taxpayers can authorize the Service to discuss with their paid return preparers return issues by checking the "yes" box near the Form 1040 or Form 1040EZ signature space. This authorization applies only to the individual who signed the return authorization and only to that year's return.

If the "yes" box is checked, the IRS can contact the individual taxpayer's preparer if any issues arise during the processing of the return, without the need to involve the taxpayer directly. In addition, this designation provides authorization for the preparer to contact the Service in response to any notices issued to the taxpayer about math errors, offsets and return preparation. Such notices still will be mailed only to the taxpayer directly, unless a separate authorization is provided to the IRS. While this "paid preparer authorization" is somewhat limited, it does assist in situations in which contacting the preparer directly is the most efficient manner to address questions.

With these changes, Congress and the Service are moving toward a more modernized system of tax administration. In conjunction with this goal, the IRS is attempting to balance its desire to assist taxpayers with its obligation to protect their privacy. The regulations under Sec. 6103(c) are a step in the right direction.

FROM RUTH PEREZ, J.D., AND DONALD T. ROCEN, J.D., LL.M., WASHINGTON, DC

Robert Zarzar, CPA
Partner
Washington National Tax Service
PricewaterhouseCoopers
Washington, DC