IRS Code Section 7216 governs how tax-return preparers can use and disclose tax-return information. It predates modern AI by decades, but it applies cleanly once you read it: any use or disclosure of return information outside the preparation of the return itself requires specific taxpayer consent. AI workflows that touch return data have to be designed with that rule in mind.
The rule in one paragraph
Under 7216, a tax-return preparer cannot use or disclose tax-return information for any purpose other than preparing the return without the taxpayer's consent. Consent must be specific about what is being used or disclosed and for what purpose. Use means any manipulation of the information; disclosure means making it known to another party.
How this applies to AI
The question is whether the AI vendor's handling of return information constitutes a use or disclosure outside preparation. The answer depends on the architecture:
- If the AI runs inside the preparer's environment and is used for preparation, it's typically fine.
- If the AI runs inside a vendor's environment but only for the purpose of preparation, with no training on the data and no other use, it's often acceptable under a service-provider exception — but the contract needs to say so specifically.
- If the AI vendor uses the data for any other purpose — training models, marketing, analytics — specific consent is required.
Practical architecture for tax AI
For our DMV tax engagements, the architecture is designed to stay inside the preparation exception:
- Private or access-controlled deployment — data inside the firm's boundary.
- No model training on client financial data, contractually enforced.
- Minimum-necessary data flow into automation layers.
- Human review before any client-facing or filing-related output.
- Retention policies aligned with the firm's 7216 posture.
Consent forms for uses outside preparation
If the firm wants to use AI for anything outside the preparation exception — marketing analytics, client segmentation, cross-engagement pattern analysis — the firm needs to obtain specific 7216-compliant consent from each taxpayer. Generic consent won't cover it. The safer approach is to scope AI narrowly to preparation-adjacent work.
Where the rule gets ambiguous
Client portals that use AI to surface prior-year comparisons, answer questions, or help clients collect documents generally fit inside the preparation exception. But the specific facts matter, and a careful firm will document its 7216 analysis for each AI-touching workflow.
This is not legal or tax advice. Your firm's 7216 analysis is yours to make. What we can help with is the architecture so the analysis is straightforward. Scope an engagement. For the broader tax-AI framing see AI intake for tax prep firms during filing season.