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Section 7216 Disclosure Consent and Engagement Letter

A Section 7216 Consent and Engagement Letter can be used by tax preparers to obtain consent from taxpayers when they are preparing returns that could potentially be a compliance risk, such as in the case of registered domestic partners.

Section 7216 of the United States tax code prevents preparers from knowingly or recklessly disclosing or using tax return information.

CountingWorks has developed a Section 7216 Consent and Engagement Letter for RDPs. However, the documents have not been reviewed by an attorney, legal authority or sanctioned by any governmental agency. Therefore, you use them at your own risk.

Illustrated is a possible Section 7216 Consent for RDPs. Modify as needed for your practice. You may wish to have your legal counsel review the final form.

Also included is a possible Engagement Letter for RDPs. Modify as needed for your practice. You may wish to have your legal counsel review the final form.

The Section 7216 Consent and Engagement letter was drafted for the sole use of Counting Works students in their personal tax practices. Any other use or reproduction in whole or in part is not authorized.

Caution

The Section 7216 Consent cannot be combined with an engagement letter. All Section 7216 consents must be included in a separate document that contains the mandatory Sec 7216 language and must be in 12-point font. Thus, the RDP partners must sign a separate Sec 7216 disclosure and engagement letter.

Consent to Disclosure of Tax Return Information between Registered Domestic Partners

Federal law requires this consent form be provided to you. Unless authorized by law, we cannot disclose, without your consent, your tax return information to third parties for purposes other than the preparation and filing of your tax return. If you consent to the disclosure of your tax return information, Federal law may not protect your tax return information from further use or distribution.

Preparing the tax returns of registered domestic partners includes some unique complications. For California purposes, the partners must file as married individuals(1) but for Federal purposes the partners must file as unmarried individuals(2). Sec 7216 of the Internal Revenue Code(3) bars disclosure of tax return information to third parties without informed consent. Thus, for Federal tax purposes, disclosing the tax information of one partner to the other partner is technically a violation of Sec 7216, even though the community and separate property allocation form provided by the IRS asks for the name and SSN of both partners.

Therefore, this firm requires your mutual consent to disclose and share tax return information with your Registered Domestic Partner before your 2024 Federal tax returns can be prepared.

You are not required to complete this form. However, because this firm’s ability to disclose tax return information to your registered domestic partner affects this firm’s ability to provide tax preparation, we may decline to provide you with service if you do not complete the form. You have the opportunity to have your own legal representative review and advise you on all matters related to the services, including this letter, prior to signing the acknowledgement that this letter contains. If you agree to the disclosure of your 2022 tax return information to your registered domestic partner, your consent is valid for time that you specify (but not less than one year). We strongly suggest the period be 4 years so that it includes the statute of limitations for the 2024 return. If you do not specify the duration of your consent, your consent is valid for one year.

Federal law requires community property rules(4) to be applied in the preparation of Registered Domestic Partner returns. You must also understand and acknowledge that preparing the returns of both parties involves inherent conflicts of interest (5) for the person being asked to prepare the returns. Therefore, before this firm can prepare your return, you must acknowledge that this firm cannot place information on either return that conflicts with information used in preparing your registered domestic partner’s return. Additionally, if this firm represents both parties, conversations, or other communications between either party with this firm are not considered confidential and are available to the other party. You must consent to the sharing of tax return information needed to complete and file both parties’ returns.

We, [insert names of RDPs: __________ and _________], Registered Domestic Partners, consent to the disclosure of our tax return information to [insert preparer’s name] for the purposes described above and acknowledge that conflicts of interest may exist in the preparation of our separate federal tax returns.

Duration of our joint consent (defaults to one year if left blank): _____________

This consent is not valid unless signed by both Registered Domestic Partners.

RDP Taxpayer Signature: ______________________________ Date: _________

If you believe your tax return information has been disclosed or used improperly in a manner unauthorized by law or without your permission, you may contact the Treasury Inspector General for Tax Administration (TIGTA) by telephone at 1-800366-4484, or by e-mail at [email protected].

California Law (SB 1827 effective January 1, 2007) – requires registered domestic partners (RDPs) to use the same filing status as married couples. Thus, they must use the married joint, married separate or surviving spouse (if otherwise qualified) filing status for their California return(s).
Defense of Marriage Act (DOMA), Public Law 104-199 –The Supreme Court ruled in the Windsor case that DOMA §3 violates the Equal Protection Clause of the Fifth Amendment. , Following the Windsor ruling, the Internal Revenue Service (IRS) in Revenue Ruling 2013-14 provided guidance for same sex married (SSM) couples that treats SSM couples legally married in jurisdictions that recognize their marriages as married for federal tax purposes. The Supreme Court in 2015 ruled in Obergefell that the 14th Amendment requires a state to license a marriage between two people of the same sex and to recognize a same sex marriage that was lawfully licensed and performed out of state. However, the Supreme Court rulings and IRS’ revenue ruling do not extend to registered domestic partnerships, civil unions or similar formal relationships that aren’t marriages recognized under state law. Therefore, for federal purposes an RDP individual cannot be considered a “spouse,” which affects certain issues related to RDP individuals’ Federal tax returns.
IRC §7216 – is a section of the Internal Revenue Code that prohibits preparers of tax returns from knowingly or recklessly disclosing or using tax return information for purposes other than preparing the return.
Chief Counsel Advice 201021050 – has concluded that California registered domestic partners are subject to the community property laws and therefore should report one-half of all community income, including compensation for personal services or income from community property, on their federal tax returns.
Treas. Dept. Circular 230 §10.29, Conflicting Interests – a practitioner may not represent potential conflicting interests in his or her practice before the IRS unless the practitioner reasonably believes that the representation of any party before the Service will not be adversely affected; and all parties represented by the practitioner who have an interest in the matter before the Service expressly consent in writing to the representation after the practitioner has fully disclosed the potential conflict. A practitioner may not represent a party in his or her practice before the IRS if the representation of the party may be materially limited by the practitioner’s own interests, unless the practitioner reasonably believes the representation will not be adversely affected and the client consents after the practitioner has fully disclosed the potential conflict, including disclosure of the implications of the potential conflict and the risks involved.

Engagement Letter – Registered Domestic Partners

This firm appreciates the opportunity to prepare your personal income tax returns for 2024 and 2025 estimated taxes. This letter sets forth the services this firm provides as part of the tax preparation process, states potential conflicts of interest and outlines your responsibilities as clients.

The returns will be prepared based on information and documentation you provide without independent verification by this firm. This firm will provide you with tax organizers to assist you in gathering and organizing the required tax return data to keep the tax preparation fees to a minimum. You will make available information about all your income and deductions so that substantially correct amounts of income and tax can be properly reported. It is your responsibility to maintain, in your records, the documentation necessary to support the data used in preparing your tax returns. This firm is not responsible for the disallowance of doubtful deductions or inadequately supported documentation, nor for resulting taxes, penalties, and interest.

You are expected to promptly provide requested follow-up materials and any missing information. If this firm has not received all your tax return information in early April, we may not be able to complete the return before the filing due date. If your returns are not filed by midnight on April 15, 2025, you may be subject to late filing and/or late payment penalties.

This firm is responsible for preparing only the returns listed above. The preparation fee does not include responding to inquiries or examination by taxing authorities. However, the firm is available to represent you and the fees for such services are at the firm’s standard rates and would be covered under a separate engagement letter.

It is understood that anything you tell this firm during the interview for the preparation of your tax return is confidential, but not protected from the IRS or state tax authority. In addition, the firm cannot disregard the implications of any information you provide in the process of preparing your return. Any of the work papers used to prepare your returns, as well as the communications between you and this firm, can be summoned by the IRS in a legal action against you. If this is of concern to you, you should discuss this with legal counsel prior to engaging this firm for the preparation of your returns.

This firm will use its best judgment to resolve questions in your favor where a tax law is unclear, if there is a reasonable justification for doing so. Whenever we are aware that a possibly applicable tax law is unclear or that there are conflicting interpretations of the law by authorities (e.g., tax agencies and courts), we will explain the possible positions that may be taken on your return. We will follow whatever position you request, so long as it is consistent with the codes, regulations and interpretations that have been promulgated. If the IRS or a state tax agency should later contest the position taken, there may be an assessment of additional tax plus interest and penalties. We assume no liability for any such additional tax, penalties, or assessments.

If you were registered as domestic partners as of 12/31/2024, you are required to file as married individuals for California purposes and unmarried individuals for Federal purposes applying community property rules. For California, you and your partner have the option of filing a joint return or filing married separate returns for 2024. Where one partner passed away in 2022 or 2023, the surviving partner may qualify to file using the surviving spouse with qualified dependent filing status.

If you file a joint California return, you are accepting joint and/or separate responsibility for any California tax assessed on the return. Be especially concerned if there is an unpaid liability on the final return as submitted; you can be held separately liable for the full amount of the underpayment. If you have any questions about your potential liability, please ask.
If a jointly filed California return is later challenged by the California Franchise Tax Board (FTB) and any additional tax is assessed, each filer can be held liable for the full additional tax. If you are separated or contemplating termination of the domestic partner registration, you may wish to make sure any dissolution agreement reflects that any additional California tax for the 2022 year will be paid by the individual who generated the additional income. However, this will not prevent the FTB from assessing the tax or attempting to collect it from both parties if the return was filed jointly.
If a joint CA return is prepared for you that is later challenged by the FTB, this firm will not be allowed to represent either of you separately and will only be able to represent both of you if the representation can be provided objectively and with written consent from both of you.
If you are contemplating termination of the domestic partner registration or were previously married to or registered to another client of this firm, you must understand that preparing the returns of both can involve inherent conflicts of interest for the person being asked to prepare the returns. Therefore, before this firm can prepare your return, you acknowledge that this firm cannot place information on your return that conflicts with information used in preparing a former registered domestic partner’s or former spouse’s return. Additionally, if this firm represents both parties, conversations, or other communications by either party with this firm are not considered confidential and are available to the other party. In fact, this firm may be required to disclose any oral or written communications between this firm and one party to the other party.

Sec 7216 of the Internal Revenue Code bars disclosure of tax return information to third parties without informed consent. Under Federal law, Registered Domestic Partners are not recognized as being married, and so Registered Domestic Partners would be considered “third parties” with respect to disclosure rules. Thus, for Federal tax purposes, disclosing the tax information of one partner to the other partner is technically a violation of Sec 7216. In addition, community property rules must be applied when preparing individual Federal returns for Registered Domestic Partners. For these reasons you will also be required to jointly consent to the disclosure of your tax information and acknowledge the inherent conflicts of interest when preparing your separate Federal returns. A separate document is used for this purpose.

Fees for services will be at the firm’s standard rates for preparing returns plus out-of-pocket expenses, plus charges for extra time required to segregate community and separate income and to allocate community income. In some circumstances, a retainer may be required. Payment for service is due when rendered and, in some circumstances, interim billings may be submitted as work progresses and expenses are incurred.

You will be provided with copies of the completed returns. It will be your responsibility to review the documents carefully to verify that the information is correct and accurate before signing and filing the returns or signing the authorization for this firm to electronically file the returns.

Both Registered Domestic Partners Must Sign: