How to Evaluate AI Tax Software Add-Ons Before They Read Client Files

Tax and practice management vendors are adding AI assistants that summarize client files, draft client emails and answer questions about a return. Because the feature lives inside software the firm already trusts, it is easy to switch on without a second look, yet an improper disclosure of tax return information can bring Section 7216 criminal penalties and Section 6713 civil penalties. This checklist shows how a CPA firm or tax practice can evaluate an AI tax software add-on before it reads client data.

Is an AI add-on covered by your existing tax software agreement?

Not necessarily. An AI add-on can come with its own product terms, send data to a different processor and be switched on by default, so treat it as a new service until you have confirmed otherwise.

Ask three questions before anything else. Does the AI feature have separate terms or a separate data processing addendum? Does it send client data to a third-party model provider that is not named in your original agreement? Is it enabled for all users, or only when an administrator turns it on? The answers decide how much of the review below you need.

Does Section 7216 consent apply to AI tax software?

It can. Section 7216 limits how a tax return preparer may disclose or use tax return information, its exceptions for software and processing are narrow, and uses outside those exceptions generally need the taxpayer's written consent.

Section 7216 and its regulations make a knowing or reckless improper disclosure or use a misdemeanor, and section 6713 adds a civil penalty of $250 per improper disclosure or use, capped at $10,000 per calendar year. The regulations define disclosure broadly, as making tax return information known to any person in any manner whatever.

The exceptions in 26 CFR 301.7216-2(d) allow a preparer to disclose return information to another preparer located in the United States to help prepare a return, including through an electronic tax return processing service, as long as the services are not substantive determinations or advice. They also allow disclosure to a contractor for programming, maintenance, repair, testing or procurement of software, only to the extent necessary, with written notice of the section 6713 and 7216 requirements. Outside the exceptions, 26 CFR 301.7216-3 requires a knowing and voluntary written consent, signed and dated by the taxpayer, before the preparer discloses or uses the information.

An AI feature that suggests tax positions, or a vendor term that lets the provider use client data to improve its models, raises questions those exceptions may not answer. Where a specific feature falls is a question for your tax counsel.

What do the AICPA Code and FTC Safeguards Rule require of AI vendors?

Both expect a contract that binds an AI vendor receiving client data to confidentiality and safeguards, plus reasonable assurance that the vendor follows it. The AICPA Code also allows the client's specific consent instead.

• AICPA Code interpretation ET 1.700.040 expects a member, before disclosing confidential client information to a third-party service provider, to contract with the provider to keep it confidential and be reasonably assured the provider has appropriate procedures, or else obtain the client's specific consent.
• Tax preparers are financial institutions under the FTC Safeguards Rule. Section 314.4(f) requires selecting service providers capable of maintaining appropriate safeguards, "requiring your service providers by contract to implement and maintain such safeguards," and periodically assessing them. Our FTC Safeguards Rule checklist for tax preparers covers the rest of the rule.
• IRS Publication 4557, Safeguarding Taxpayer Data, is the IRS's practical guide for meeting these duties.
• For firms that perform accounting and auditing engagements, SQMS No. 1 includes a quality objective for technological resources, which covers AI tools used on engagements.

How do you evaluate an AI tax software add-on, step by step?

Work through the feature the same way you would a new vendor, then decide who may use it and for what.

1. Check the admin console. Confirm whether the feature is on, for which users, and who can change that.
2. Collect the AI-specific terms: product terms, data processing addendum, privacy notice and subprocessor list.
3. Trace the data path. Which client data can the feature read, where is it processed (including whether it leaves the United States), and which model provider receives it?
4. Confirm training and retention. Look for a written commitment that client data is not used to train or improve models, and a defined retention period.
5. Ask about human review: when vendor staff can view prompts or outputs, and why.
6. Define what the feature does. Summarizing a document is different from suggesting a tax position.
7. Test access controls. The feature should respect existing role permissions, sign in through your identity provider with multifactor authentication, and keep logs you can export.
8. Confirm the contract covers confidentiality and safeguards in the terms the AICPA Code and Safeguards Rule describe.
9. Decide on consent with counsel: whether the use fits a section 7216 exception or needs written taxpayer consent.
10. Write it down. Add the approved uses to your AI policy and your written information security plan (the same plan your PTIN renewal asks about), and train staff before filing season.

What should your firm do this quarter?

Finish the review before the filing season makes changes harder.

• Inventory AI features across tax, practice management, document and portal software.
• Turn off any feature that has not been reviewed, then enable it deliberately once approved.
• Run the ten steps above for each feature in use.
• Update your WISP for the 2027 filing season to cover approved AI tools.
• Remind staff not to paste client documents into consumer AI tools, and check that the AI apps on their workstations match your policy.

How s90 helps

s90 reviews AI add-ons for CPA firms from the technical side: we check admin settings, trace where client data goes, confirm retention and logging, and set guardrails and new-app alerts so unreviewed AI features do not reach client data. We document each decision for your WISP and fold it into your 18-month technology plan. Your tax counsel makes the section 7216 calls. If a vendor has just announced an AI feature, we are glad to help you evaluate it before filing season.