Treasury, IRS Announce Clarifications to Handling Subcontractors

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This week the Treasury Department and the IRS announced a proposed regulation to clarify the restrictions that apply to confidential tax return information that the IRS releases to contractors and, in turn, subcontractors, performing tax administration services. The proposed regulation clarifies that subcontractors must comply with the same strict protocols as contractors in handling return information. The proposed regulation clarifies that subcontractors, like contractors, are subject to civil and criminal penalties for improper disclosure.

The Internal Revenue Code protects the privacy of return information, but permits disclosure for tax administration purposes to IRS employees and IRS contractors. Under the Code, an IRS contractor may see return information if access to the information is necessary to process returns, program equipment, or perform other contractual services. The IRS and its contractors must comply with strict protocols in handling return information, and are subject to civil and criminal penalties for improper disclosure.

The proposed regulation clarifies the treatment of subcontractors, who may perform services similar to the services performed by contractors.

While contractors have long been used to perform specific services for Federal agencies, including the IRS, today's proposed regulation clarifies that IRS privacy protections apply to all contractors and subcontractors.

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