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How CPA firms are complying with IRS disclosure requirements while hiring offshore staff?

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How CPA firms are complying with IRS disclosure requirements while hiring offshore staff?

In recent years, the accounting landscape has witnessed a transformative shift, with an increasing number of CPA firms turning to offshore staffing solutions. This trend, driven by the quest for operational efficiency, cost savings, and access to a broader talent pool, has reshaped how CPA firms approach their daily operations and long-term strategies.

Parallel to this evolution is the emphasis on safeguarding client data, especially when it traverses international borders. The IRS, recognizing the potential risks and the need for transparency, has instituted specific disclosure requirements. These mandates underscore the importance of ensuring that clients are well-informed and their confidential information remains protected, even when their financial data is being processed miles away from home. This confluence of operational change and regulatory adherence sets the stage for a deeper exploration into how CPA firms navigate the complexities of offshoring while staying compliant.

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IRS Disclosure Requirements

The Internal Revenue Code (IRC) section 7216 and its accompanying regulations are pivotal when it comes to the disclosure of taxpayer information. Specifically, this section addresses situations where tax return preparation might reveal or utilize a taxpayer’s tax return data without the taxpayer’s prior authorization. Violating section 7216 can lead to federal criminal charges, making it imperative for CPAs to be well-versed with these regulations.

When CPA firms consider offshoring services, one of the primary concerns is the sharing of client data overseas. However, it’s essential to understand the rigorous operations and procedures that top offshoring companies, like KMK, adhere to. This ensures the safety and privacy of taxation data, allowing CPA firms to reassure their clients about data protection and the absence of security breaches.

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Key Points from the IRS Disclosure Requirements:

Protected Tax Data: The Treasury Regulations section 301.7216-1(b)(3) defines protected tax data as any information, including but not limited to a taxpayer’s name, location, or identification number, that is provided in any form for the preparation of a tax return. This encompasses data provided by the taxpayer, third-party data given to the tax return preparer, and information obtained from tax return data.

Exceptions: While IRC section 7216 provides a general prohibition against disclosing or using a taxpayer’s return information without specific consent, there are exceptions. For instance, disclosure is permissible to those within a tax preparer’s firm assisting in the preparation of a return. Another exception is when a tax return preparer provides software to a taxpayer for the purpose of completing or submitting their tax return, especially to accommodate changes in IRS forms or e-file requirements.

Sample language for disclosure in accordance with 7216

Federal law requires us to obtain your consent to disclose tax return information to third parties including those located offshore for purposes of assembling information, calculations, diagnostics, and processing of various IRS tax resolution forms and supporting schedules by obtaining an Internal Revenue Code Section 7216 Disclosure and Consent.  You are not required to provide this consent as such.

 You, _______________________ authorize ________________________________ to disclose, any and all information contained in federal income tax returns ( Forms 1040, 1040A, 1040EZ, 1040NR, 1120, 1120S, 1065, 941, 940, etc.) and any other tax return forms and schedules as deemed necessary, to any third party as referred above for the purpose of assembling information, calculations, diagnostics, and processing of various IRS tax resolution forms and supporting schedules.

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Embracing the Disclosure Requirements:

CPA firms have lately overcome the initial hesitance of obtaining client consent for offshoring. The initial reluctance stemmed from concerns about client reactions to their data being shared offshore and the potential risk of losing clients. However, candid communication has been the key. CPA firms have transparently conveyed the necessity of offshoring, especially given the challenges of handling large volumes of tax returns with onshore staff alone. This candid approach has even been appreciated by clients.

While the IRS disclosure requirements for offshoring might seem daunting at first, they are manageable with the right approach and partnership. Offshoring, when done correctly and transparently, can be a boon for CPA firms, allowing them to handle larger volumes of work efficiently while ensuring compliance with all regulatory requirements.

Stay IRS compliant in offshore hiring. Book your consultation here.

Embracing the Offshore Model Without Worry

The decision to hire offshore staff brings with it a set of considerations, especially around IRS disclosure requirements. Initially, there might be apprehensions about obtaining client consent for sharing their data offshore. The underlying concern often revolves around how clients would perceive this move and the potential risk of client attrition.

However, a paradigm shift has been observed in recent times. CPA firms, recognizing the immense value and efficiency that offshore staffing offers, have started to address these concerns head-on. Instead of viewing the IRS disclosure requirements as a hurdle, they’ve turned it into an opportunity for transparent communication with their clients.

The key lies in candidly explaining the reasons behind the move to offshore staffing. With the accounting industry facing challenges like a shortage of skilled professionals, especially during peak tax seasons, offshore staffing emerges as a practical solution to ensure timely and efficient service delivery.

Moreover, many sectors, from IT to customer service, have been leveraging offshore support for years. CPA firms are simply aligning with this broader trend, ensuring they remain competitive and efficient in their service delivery. By being upfront about the reasons and benefits of offshoring, firms can build trust and understanding with their clients.

In essence, while IRS disclosure requirements necessitate certain protocols, they don’t inhibit CPA firms from harnessing the benefits of offshore staffing. Through open dialogue and a commitment to maintaining high standards, CPA firms can integrate offshore teams into their operations, ensuring both compliance and optimal service delivery.

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The world of accounting is rapidly evolving, with offshore staffing emerging as a strategic lever for CPA firms to pull. By harnessing the expertise and efficiency of offshore teams, CPA firms can not only enhance their operational capabilities but also navigate the intricate landscape of IRS disclosure requirements with confidence. The synergy between offshore expertise and onshore client needs has the potential to redefine service delivery standards in the accounting industry.

However, as with any strategic decision, it’s crucial for CPA firms to continuously evaluate and refine their offshore partnerships. Ensuring adherence to IRS guidelines is not just about compliance; it’s about building trust and demonstrating a commitment to safeguarding client data. In this journey, collaboration becomes paramount. Partnering with offshore teams that are equally committed to understanding and adhering to IRS regulations can make all the difference.

In closing, as the accounting industry continues to chart its future course, offshore staffing stands out as a beacon of opportunity. For CPA firms willing to embrace this model, the rewards are manifold – from operational excellence to robust compliance. The key lies in choosing the right offshore partners and fostering a collaborative environment built on transparency, trust, and mutual respect.

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About KMK

At KMK, we understand the intricacies of the accounting world and the evolving needs of CPA firms. As a leading offshore accounting and tax service company, we’re committed to helping CPA firms navigate the challenges and opportunities of offshore staffing. Our expertise extends beyond just providing accounting services; we’re dedicated to ensuring that our partners remain compliant with IRS disclosure requirements.

Our team of over 475+ professionals is well-versed in the latest IRS guidelines, and we prioritize transparent communication, ensuring that our CPA firm partners can confidently and candidly discuss offshoring with their clients. With a deep understanding of the strategic advantages of offshore staffing, KMK stands as a trusted ally for CPA firms, helping them achieve operational excellence while ensuring adherence to regulatory standards. Our commitment to excellence and collaboration positions us as a preferred partner for CPA firms looking to harness the benefits of offshore staffing.