7216 and the ACA

So the latest weekly newsletter from NATP recommends "We suggest you begin communicating this information to your clients now. Remember that §7216 Disclosure Rules prohibit you from using your clients' tax information to determine whether or not you think they need to complete the hardship application" ... so they recommend notifying all your clients.

Well, using that logic, I'm prohibited from notifying clients who are homeowners to bring in their mortgage statements? NATP is saying I cannot use my clients tax returns in order to send them specific advice!? Yeah, right.

There are concurrent conversations about ethics, confidentiality, providing tax return copies....this may fit in nicely.

We've had the 7216 discussion before. This specific one came up on either TA or maybe on CalCPA's TaxTalk Yahoo! discussion group. In general, 7216 prohibits us from using tax return info without client permission except in enumerated circumstances. The one we hashed out here was the exception for the lawful practice of public accountancy, which generally will only apply to PAs and CPAs. There is a similar carve-out for the practice of law. AFAIK, the hardship exemption application is not part of any tax-filing procedure. I'm fairly certain a lawyer/return preparer could fit the application into the practice of law. It might be harder for the CPA to make the same argument, but that might depend on the client relationship and state law. For the rest of us, they're probably right. It's not like a mortgage statement, which is an existing client record used in return preparation.

Of course, this is all off the top of my head and there may be another exception it falls under.

it seems like 7216 would apply if a preparer wanted to help the client apply for a hardship exemption from the health insurance marketplace so they can be issued an exemption certificate number. it would apply because the application has nothing to do with preparing or filing their tax return.

in most other cases, you should just be able to use Form 8965 to indicate they qualify for an exemption. And since this is part of the preparation of their return, 7216 shouldn't apply.

Definitely there are situations when we can't disclose or 'filter' client data in terms of offering other services, but advising clients beforehand, how to avoid the tax penalty, oops, I mean the "individual shared responsibility payment" is within the purview of our tax practice, I'd say, even if pre-selecting clients who may be affected, without stepping over that line. It seems NATP's recommendation is taking 7216 too far in this situation.

NATP is saying I cannot use my clients tax returns in order to send them specific advice!? Yeah, right.

This may turn out to be excessively cautious, but ACA is so hot politically that some well-meaning professionals may get burned in unexpected ways. The fact that an insurance provision has tax implications, even fairly direct tax implications, is not enough protection at this point.

For comparison, one wouldn't be permitted to provide investment advice by screening all tax returns for clients who could benefit by switching a stock portfolio to municipal bonds. It would directly impact their tax liability, one might even say taxation is the only purpose, but investment advice is still a non-tax service.