IRC §7216 and Offshore Tax Preparation: What U.S. CPA Firms Need to Know Before the 2027 Tax Season
How CPA firms can approach taxpayer consent, information security, and offshore tax staffing with greater confidence.
As U.S. CPA firms prepare for the 2027 tax filing season, many are looking beyond traditional hiring to build sustainable tax preparation capacity. Offshore tax professionals, particularly those based in the Philippines, can help firms manage growing workloads, improve turnaround times, and provide support throughout the year.
But before introducing an offshore tax team, there is an important compliance consideration that every CPA firm should understand: Internal Revenue Code Section 7216 (IRC §7216).
For firms handling sensitive taxpayer information, offshore staffing involves more than hiring qualified professionals. It also requires understanding when taxpayer consent is necessary, how tax return information may be disclosed, and what safeguards should be implemented.
The encouraging news is that offshore tax preparation can be incorporated into a CPA firm's operating model while accounting for these requirements. The key is to establish the appropriate procedures before offshore professionals begin accessing client information.
What Is IRC §7216?
IRC §7216 is a federal law that governs the disclosure and use of tax return information by tax return preparers.
In general, the law restricts tax return preparers from knowingly or recklessly disclosing or using taxpayer information for unauthorized purposes. Certain disclosures are permitted under applicable exceptions, while others require the taxpayer's prior consent.
The regulations under 26 CFR §§301.7216-2 and 301.7216-3 explain when disclosure is permissible without consent and when consent must be obtained.
For CPA firms considering offshore tax preparation, one distinction is particularly important:
When tax return information is disclosed by a U.S. preparer to a tax return preparer located outside the United States, taxpayer consent is generally required before that disclosure occurs.
This applies even when the offshore professional is working exclusively for one U.S. CPA firm.
Does IRC §7216 Apply to Offshore Tax Preparers in the Philippines?
Yes. Offshore tax preparation arrangements involving access to U.S. tax return information must be evaluated under IRC §7216 and its regulations.
Consider a CPA firm in the United States that engages a dedicated tax preparer based in the Philippines.
The offshore professional may be responsible for:
Preparing draft individual or business tax returns
Organizing tax workpapers and supporting schedules
Reviewing source documents
Assisting with tax extensions
Resolving preparation-related review comments
Updating returns based on the U.S. firm's instructions
Even though the work supports the CPA firm's normal operations, providing that professional with access to tax return information can constitute a disclosure to a preparer located outside the United States.
Under Treasury Regulation §301.7216-2(c), the requirement for consent can apply even when the overseas recipient is an employee or member of the same tax preparation firm.
The relevant consideration is not simply whether the offshore professional works for your firm. It is also where the professional is located and whether the arrangement involves disclosure of protected tax return information.
Similarly, engaging a U.S.-registered staffing company does not automatically eliminate offshore disclosure considerations when the individuals accessing the information are physically located overseas.
How Should CPA Firms Obtain Taxpayer Consent?
Obtaining taxpayer consent does not necessarily require an unnecessarily complicated client experience.
However, the consent process must meet the applicable regulatory requirements and should be designed before taxpayer information is disclosed overseas.
Under §301.7216-3, a valid disclosure consent generally needs to identify:
The tax return preparer and taxpayer involved in the consent.
The purpose of the disclosure, such as obtaining offshore assistance with tax return preparation.
The intended recipient or recipients, subject to applicable rules for different types of taxpayers.
The information being disclosed, described with sufficient specificity.
The taxpayer's authorization, including the required signature and date.
Consent must be obtained before the applicable disclosure. It cannot retroactively authorize a disclosure that has already occurred.
CPA firms should also determine the appropriate consent duration. Under the regulations, when no duration is specified, consent generally remains effective for one year from the date it is signed.
For firms that engage offshore professionals on an ongoing basis, tracking consent status should become part of their regular client onboarding and tax preparation procedures.
Form 1040 Returns Require Additional Attention
The rules for individual tax returns can be more specific than those applicable to business tax returns.
For taxpayers filing Form 1040-series returns, Revenue Procedure 2013-14 prescribes additional requirements concerning the format, content, mandatory statements, and electronic signatures used in taxpayer consents.
For example, Form 1040 consent documents generally must be separate from the engagement letter, although they may be provided as attachments.
For taxpayers not filing Form 1040-series returns, the regulations allow greater flexibility in consent format, including appropriate provisions within engagement letters, provided the applicable requirements are satisfied.
For firms preparing Form 1065, Form 1120, Form 1120-S, and individual returns, it is important not to assume that a single consent format automatically satisfies every situation.
Can CPA Firms Describe Offshore Professionals as Part of Their Own Team?
Many CPA firms use a dedicated offshore staffing model in which professionals are assigned exclusively to one firm, follow its procedures, and work directly with its U.S.-based managers.
From an operational perspective, this arrangement allows offshore professionals to function as an integrated part of the firm's accounting or tax department.
However, operational integration and legal employment arrangements are not necessarily the same thing.
When preparing taxpayer consent documents, firms should accurately describe the recipient of the information and avoid language that could misrepresent the actual staffing arrangement.
Depending on the circumstances, this may involve identifying the relevant overseas service provider or offshore recipient and explaining the professional's relationship with the U.S. CPA firm.
The appropriate wording should reflect the actual structure and satisfy the applicable consent requirements.
For CPA firms, the objective should be straightforward: communicate the arrangement clearly, professionally, and accurately without overstating or obscuring how taxpayer information will be accessed.
A well-prepared consent document should support informed client authorization while remaining consistent with the firm's normal client communication practices.
What About Social Security Numbers and Other Sensitive Taxpayer Information?
One of the most important aspects of offshore tax preparation involves protecting personally identifiable information, including Social Security numbers.
Under Treasury Regulation §301.7216-3(b)(4), special limitations apply to the disclosure of Social Security numbers from U.S. tax return preparers to preparers located outside the United States when Form 1040-series information is involved.
As a general rule, Social Security numbers must be masked or redacted before disclosure overseas unless the specific regulatory exception is satisfied.
That exception requires applicable taxpayer consent and adequate data protection safeguards meeting IRS requirements, including requirements applicable to both the U.S. and overseas preparers.
CPA firms should therefore avoid assuming that general taxpayer consent automatically authorizes the unrestricted disclosure of Social Security numbers.
Appropriate information access, masking procedures, and other safeguards should be determined as part of the firm's compliance review.
Does Keeping Tax Files on U.S. Servers Eliminate Consent Requirements?
Not necessarily.
Many CPA firms prefer to maintain tax software, client documents, and supporting records within their existing U.S.-controlled systems.
Offshore professionals may connect using approved technologies such as remote desktop, virtual private networks (VPNs), or secure cloud platforms.
These arrangements can help firms maintain greater control over access permissions, document handling, and system security.
However, keeping the files on U.S. servers does not automatically eliminate disclosure concerns when an offshore tax preparer can view or otherwise access the protected information.
Security controls and taxpayer consent serve different purposes.
Access controls help protect information. Consent requirements govern whether certain disclosures are authorized.
A well-structured offshore tax operation should account for both.
Five Practical Steps Before Hiring Offshore Tax Preparers for 2027
CPA firms do not need to wait until the filing season begins to address offshore staffing requirements.
In fact, establishing the appropriate procedures before onboarding creates a more organized and predictable transition.
1. Review Your Existing Tax Return Preparation Workflow
Identify the types of returns handled by your firm, the information offshore professionals would need, and which tasks would remain with U.S.-based reviewers.
This helps determine the scope of access and the compliance requirements relevant to the proposed arrangement.
2. Establish an Appropriate Taxpayer Consent Process
Work with qualified legal or compliance advisors to evaluate your existing engagement documents and develop suitable consent procedures.
For Form 1040-series clients, incorporate the additional requirements of Revenue Procedure 2013-14.
Ensure that applicable consent is properly obtained and recorded before offshore access begins.
3. Define Information Security Requirements
Determine how offshore professionals will access your tax software, documents, and client information.
Consider controls such as:
Company-managed workstations
Multi-factor authentication
Role-based system permissions
Client-approved VPN or remote desktop access
Restrictions on local downloads where supported
Confidentiality and information handling procedures
Access monitoring and documented offboarding
The specific controls should reflect your firm's risk assessment and applicable requirements.
4. Establish Clear Supervision and Review Responsibilities
Offshore tax professionals should work within a documented workflow that identifies responsibilities for return preparation, technical review, approval, and filing.
The U.S. CPA firm should retain appropriate control over tax positions, professional judgment, client communications, and final deliverables.
Clear workflows improve both accountability and quality.
5. Build the Team Before Peak Filing Season
Hiring in advance gives your firm time to screen candidates, test technical qualifications, complete onboarding, configure secure access, and provide training.
It also allows more time to address taxpayer consent and documentation requirements before deadlines become pressing.
The result is a more deliberate approach to expanding tax preparation capacity rather than relying on last-minute hiring decisions.
How Accountant Offshore Supports U.S. CPA Firms
At Accountant Offshore Inc., we believe successful offshore staffing requires more than sourcing qualified accountants.
Our approach is built around helping U.S. CPA firms establish dedicated teams in the Philippines that work within their existing operating structures.
We support:
Dedicated tax professionals. Our recruitment process focuses on identifying candidates whose experience aligns with each CPA firm's tax software, return types, technical requirements, and workflow expectations.
Client-controlled systems. We support access arrangements through client-approved solutions such as VPNs, remote desktop connections, secure cloud platforms, and role-based permissions.
Managed equipment and IT coordination. Our operating model includes company-supported equipment, endpoint support, IT assistance, and coordination with client security requirements.
Local employment and operational support. We handle Philippine recruitment coordination, employment administration, payroll, benefits, and other agreed operational requirements.
Integration with U.S. teams. Our professionals can work schedules aligned with U.S. business hours and follow the CPA firm's established preparation, review, and reporting procedures.
Importantly, Accountant Offshore provides staffing and operational support. Each CPA firm remains responsible for determining its legal and professional compliance obligations, obtaining any required taxpayer consents, establishing appropriate information access, and supervising its tax engagements.
Our goal is to make building an offshore team more organized, transparent, and manageable while supporting the firm's own standards and expectations.
Learn more about our Offshore Tax Staffing Services and Security & Compliance Support.
Frequently Asked Questions
Is taxpayer consent always required when hiring an offshore tax preparer?
Not every activity involving offshore personnel raises identical requirements. However, when a U.S. tax return preparer discloses protected tax return information to a tax preparer located outside the United States, prior taxpayer consent is generally required under the applicable regulations.
Firms should evaluate the actual information involved, the recipient, and the purpose of the disclosure.
Can offshore tax preparers work exclusively for one CPA firm?
Yes. Dedicated staffing arrangements allow professionals to focus on the workflows and requirements of a specific CPA firm. Exclusivity, however, does not remove otherwise applicable taxpayer consent obligations.
Can a CPA firm include offshore disclosure consent in its engagement letter?
The answer depends in part on the type of taxpayer. Form 1040-series consents are subject to additional document and format requirements, while the regulations provide more flexibility for taxpayers not filing Form 1040-series returns.
Does IRC §7216 apply to offshore bookkeeping and CAS work?
The analysis depends on the services performed and whether information obtained in connection with tax return preparation is being disclosed or used. Not every ordinary bookkeeping activity is automatically treated as a tax return information disclosure, but firms offering both tax preparation and accounting services should carefully assess how protected information is shared.
Does Accountant Offshore provide IRC §7216 consent forms?
Accountant Offshore supports the operational aspects of offshore tax staffing. CPA firms should work with their own qualified legal or compliance advisors to prepare and approve consent documents appropriate to their clients and staffing arrangements.
Final Thoughts: Responsible Offshore Staffing Starts With Preparation
Offshore tax preparation is not simply a strategy for adding capacity. It is an opportunity for CPA firms to build a more structured and sustainable way of delivering tax services.
As firms prepare for the 2027 filing season, successful offshore integration should begin with three priorities: selecting the right professionals, establishing secure and well-managed workflows, and understanding the applicable taxpayer information disclosure requirements.
IRC §7216 should be part of that planning process, not an afterthought.
When firms address these considerations early, they can approach offshore staffing with greater clarity while maintaining the professional standards their clients expect.
Planning to expand your tax preparation team before the 2027 filing season?
Accountant Offshore Inc. helps U.S. CPA firms recruit dedicated tax professionals in the Philippines, with transparent pricing, managed equipment, IT coordination, and ongoing local operational support.
Schedule a consultation with Accountant Offshore to discuss your tax staffing requirements and how an offshore team can fit into your firm's existing operations.
Regulatory References
26 CFR §301.7216-2 — Permissible Disclosures or Uses Without Consent
26 CFR §301.7216-3 — Disclosure or Use Permitted With Taxpayer Consent
Disclaimer: This article is provided for general informational purposes and does not constitute legal, tax, or regulatory compliance advice. CPA firms should consult qualified professional advisors regarding their particular circumstances and applicable requirements.
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