By Barry J. Friedman, CPA
Future-thinking firms are taking advantage of the latest and greatest technologies to elevate efficiency at all levels of operation. From automating tax document preparation to delivery of financial statements via portals, technology is at the heart of a well-run and profitable practice. But what about beyond core tax and accounting workflow? Technology certainly has a place in relation to compliance—for example with Internal Revenue Code Section 7216. Disclosure and Use mandates set forth in 7216 are complex and demand significant time investment. Tech-savvy firms realize that technology is the answer to streamlining the compliance process and are starting to transition from traditional, manual processes to a technology-driven approach.
Effective since January 1, 2009, 7216 has largely gone ignored. And though some firms have put forward notable effort to comply with Consent to Disclose regulations, many have yet to implement a system to manage 7216 to the full letter of the law. Disclosure regarding third-party entities is just one small slice of the 7216 pie. It’s the far bigger and more complex Consent to Use piece that demands the most attention.
Under Consent to Use of Tax Return Information, firms are obligated to obtain the client’s permission to use their tax information for any purpose outside of preparing and filing the return. This not only includes providing data to outside institutions such as banks or mortgage companies, but also relates to sending clients information, such as educational articles or marketing literature for services that are not tax-related. To understand the complexity of complying with Consent to Use, consider the following example:
A firm sends out a monthly newsletter (print or digital) to all tax-only clients. Articles provide clients with information on estate planning, IRA & 401(k) investment tips, and other small business accounting guidance. Because the mailing list is comprised of the firm’s tax-only clients, consent forms are required from each client to send non tax related articles. Additionally, consent forms need to be obtained to send information about the firm or marketing notices about firm services. Without a system to track and monitor Consent to Use activity, firms face an administrative nightmare.
Progressive firms are applying powerful applications to handle 7216 efficiently. Leading compliance systems provide a sophisticated, paperless solution to manage Consent to Disclosure and Consent to Use data. Best-of-breed systems, for example BizActions Compliance Center, offer Form Builder technology to create custom consent forms. This technology allows firms to embed forms within a personalized email and send to clients in minutes. Clients electronically sign forms, complete with a time stamp, and press a submit button. These top-of-the-line systems provide pre-written IRS-required text that can easily be inserted into forms—as well as handle non-7216 compliance tasks, such as when approval is required to send any type of information at a client's behest (e.g., financial statements to banks or tax return copies to other CPAs, banks, or mortgage brokers).
Leading firms are using the most advanced technologies to operate at peak efficiency. Beyond automating tax and accounting workflows, these firms are also adopting technology to streamline compliance tasks—saving hours of manual work and mitigating the potential for criminal sanctions and civil fines due to non-compliance. If you have not yet, it may be time look at automated Compliance Center solutions to easily manage 7216.
About the author:
Barry J. Friedman, CPA, Chief Executive Officer of BizActions
Barry brings more than 35 years of experience in accounting and technology marketing to BizActions. Previously, he was the founder and CEO of GovCon, where he developed an online electronic commerce community that brought together thousands of IT contractors and hundreds of government entities. Prior to that he was the CEO of Friedman and Fuller, an accounting and business consulting firm that was sold to American Express. He earned a MBA in business administration from Loyola College.