Accounting

Not as a clause inside the letter. For Form 1040 filers, Rev. Proc. 2013-14 requires the consent to be a separate written document, on paper or electronic, though it may be attached to the engagement letter. It must include the mandatory statements, be signed and dated by the taxpayer, and be in place before the disclosure or use it covers.

Scale the checking to the reliance. Amounts that go onto a return or into financial statements, and output that supports a significant judgment, warrant a full tie-out to source. Lower-risk uses, such as a first-pass summary a senior will rewrite, can use targeted checks. Track error rates and tighten checks where reviewers keep finding problems.

No. Treasury regulations list what counts as authority for substantial authority purposes, such as the Code, regulations, rulings and court cases, and state that conclusions in treatises, periodicals and opinions of tax professionals are not authority. An AI answer can point to authorities, but the preparer has to read and weigh the primary sources themselves before relying on a position.

Record the question and facts, the AI tool and account type, the session date, every authority the tool surfaced and confirmation that someone read each primary source, authorities found independently including adverse ones, the conclusion and the standard it meets, and any citation the tool produced that was wrong or did not exist. A reviewer should be able to follow the reasoning without opening the AI tool.

It can help draft, summarize and flag issues, but the firm stays responsible for the return. Treat AI output as a draft that a credentialed preparer reviews, and hold features that suggest tax positions to the same review standard as staff work. If a vendor's AI makes substantive determinations, ask counsel how the Section 7216 rules on disclosures to other preparers apply.

Not reliably. NIST's Generative AI Profile notes that language models can give logical-sounding steps even when the answer is wrong, so asking the same tool to confirm its work tests consistency, not accuracy. Validation means tracing amounts, facts and citations to source documents and authorities outside the tool, then recording who checked them.

Generally, yes, when it receives confidential client information. Interpretation 1.700.040 of the AICPA Code treats disclosure to a third-party service provider as a threat to the confidentiality rule. Before disclosing, the member either contracts with the provider to keep the information confidential and obtains reasonable assurance about its procedures, or obtains specific client consent.

Yes. In Microsoft Entra ID you can limit user consent so staff can only approve apps from verified publishers for low-impact permissions, and turn on the admin consent workflow so other requests go to an administrator. Revoking existing consents takes extra steps, so review current app permissions at the same time.

On a fixed date written into the approval, such as April 30 or the extension deadline, never an open-ended phrase like "after tax season." At expiry, the owner either closes the exception with evidence or brings it back to the approver for a fresh, dated renewal. An exception that quietly rolls into the next season becomes an undocumented gap in the WISP.

California Board of Accountancy regulation 16 CCR 54.1(b) says that if confidential client information may be disclosed to persons or entities outside the United States in connection with the services, the licensee must inform the client in writing and obtain the client's written permission. Firms should confirm where each AI vendor processes data and ask counsel how the rule applies.

Only as a starting point. Circular 230 requires due diligence, and it presumes diligence when a practitioner relies on another person's work after using reasonable care in supervising and evaluating that person. Written advice must also relate the applicable law and authorities to the facts. In practice, treat AI output as a lead to verify, record what was checked, and have a reviewer confirm the primary authorities before the position is used.

Yes, with a Microsoft Purview DLP policy for the Microsoft 365 Copilot location. Microsoft documents that the policy can prevent Copilot from using files and emails with chosen sensitivity labels when it generates responses. The labeled item may still appear as a citation, but its content is not used. The control only works on files and messages that actually carry the label.

Treat them as taxpayer data. The FTC Safeguards Rule, at 16 CFR 314.4(c)(6), requires secure disposal of customer information no later than two years after it was last used for the customer, unless a business or legal reason requires keeping it. Confirm the data was migrated and backed up, then wipe or destroy the drives and record the method and date.

The Safeguards Rule at 16 CFR 314.4(e) requires covered financial institutions, which the IRS says includes tax preparers, to provide personnel with security awareness training that is updated as necessary. The rule does not name specific lures, so firms often use current IRS warnings, such as the new client and EFIN scams, as training content.

Not as of Oct. 17, 2026. The IRS announced Tax Professional Awareness Week for the week of Oct. 19, 2026 to help preparers get ready for the 2027 filing season, but the opening date for accepting 2026 returns had not been published. Firms should watch IRS.gov news releases, which typically announce the date before the season begins.

The IRS published its 2026 Dirty Dozen in IR-2026-30 on March 5, 2026. The list covers IRS impersonation by email and text, AI-enabled IRS phone impersonation, fake charities, misleading tax advice on social media, IRS Online Account identity theft, abusive Form 2439 claims, bogus self-employment tax credits, ghost preparers, inflated noncash charitable deductions, overstated withholding, spear-phishing and malware aimed at tax professionals, and aggressive Offer in Compromise marketing. Item 11 is the one written for tax firms.

IRS guidance says to email dataloss@irs.gov with the subject "W2 Data Loss," including the business name, EIN, a contact, a summary of the loss and the number of employees affected, without attaching any employee data. It also directs businesses to statealert@taxadmin.org for state reporting and to file a complaint with the FBI's IC3.

The IRS asks tax professionals not to reply or click links, and to send the message to phishing@irs.gov with the subject line "Spearphishing," then report it to the Treasury Inspector General for Tax Administration and delete it. Forwarding the email as an attachment preserves the header data the IRS uses to trace the sender. Reports to the FTC and IC3 are also accepted.

Stakeholder Liaisons are IRS contacts assigned by geography who receive data theft reports from tax professionals. The IRS says that if theft is reported quickly, it can take steps to block fraudulent returns filed in clients' names. Liaisons are listed by state on IRS.gov, so it helps to record your local contact in your incident plan before busy season.

Deleting helps contain the exposure, but it does not answer whether a notice duty applies. Capture what was uploaded, when, and by whom before deleting, because that record supports the firm's Section 7216, FTC Safeguards Rule and state breach analysis. Vendor terms decide how long deleted content stays on their systems. OpenAI, for example, says deleted chats are scheduled for permanent deletion within 30 days.

Yes. Endpoint DLP tools such as Microsoft Purview can classify content at the moment it is pasted into a browser and audit it, block it with an override, or block it outright. Rules apply to named groups of websites, so a firm can block pastes to public AI sites while allowing its approved tool. Separate rules cover file uploads.

Weekly during filing season. IRS Publication 4557 tells preparers to check e-File Application and PTIN accounts weekly for the total returns filed and to deactivate unused EFINs. A count higher than the returns the practice actually filed is a sign of data theft and should be reported to the IRS Stakeholder Liaison.

Microsoft's Purview service description does not list Endpoint DLP for Microsoft 365 Business Premium. It lists Endpoint DLP under Microsoft 365 E5/A5/G5, the Microsoft Purview Suite and E5 Information Protection and Governance, among others, while Business Premium is listed for DLP in Exchange, SharePoint and OneDrive. Confirm current licensing before planning browser DLP rules.

Record the tool and the step it performed, the source documents it worked from, the checks performed and their results, any errors found and how they were resolved, and who reviewed the work and when. Keep the original output alongside the corrected version when the differences affect the conclusion.

Yes, with the right license. Entra entitlement management can expire an access package on a set date, which Microsoft lists under Entra ID P2 or ID Governance. Lifecycle Workflows can disable an account on the leave date stored in its profile, listed under Entra ID Governance. On Business Premium alone, a named person must disable seasonal accounts on schedule.

Microsoft Entra ID keeps sign-in and audit logs for 7 days on the free tier and 30 days on Entra ID P1 or P2. If you want a longer history for a shadow AI review or an incident, export the logs or route them to Azure storage now, because upgrading later does not bring back older data.

Only in certain cases. The IRS says clients should complete Form 14039, the Identity Theft Affidavit, if they receive an IRS notice or letter, or if their e-filed return is rejected because of a duplicate Social Security number. The preparer's report to the Stakeholder Liaison is what lets the IRS start screening returns tied to the stolen data.

After three failed attempts, the client cannot use the e-signature option for that form. IRS Publication 1345 requires the ERO to obtain a handwritten signature on Form 8878 or 8879 instead. Signatures returned by mail, fax, email or hand delivery are handled as handwritten signatures, not remote e-signature transactions.

Yes. IRS Publication 1345 accepts identity verification that meets NIST SP 800-63 Level 2 with knowledge-based authentication, or a higher assurance level. NIST's current guidance, SP 800-63A-4, finalized in July 2025, says knowledge-based verification shall not be used for identity verification, so some firms choose a stronger method such as ID document and selfie checks.

IRS Publication 1345 requires the Electronic Return Originator to keep Forms 8878 and 8879 for three years from the return due date or the IRS received date, whichever is later. The forms are not sent to the IRS unless requested, and EROs may store them as electronic images if the system meets Revenue Procedure 97-22.

Yes. IRS Publication 1345 allows taxpayers to e-sign Forms 8878 and 8879 when the return is e-filed through an ERO whose software verifies the taxpayer's identity first and keeps an audit trail of the signing. If the taxpayer fails verification three times, the ERO must get a handwritten signature instead.

Yes, for remote signings. The IRS states that identity verification must be completed every time a taxpayer electronically signs Form 8878 or 8879. The only exception is a taxpayer who signs in person and has a multi-year relationship with the ERO. A verification completed last season does not carry forward to this season's remote signature.

Generally, yes. 16 CFR 314.4(c)(6) requires secure disposal of customer information no later than two years after it was last used to serve that customer, unless it is needed for business operations or another legitimate purpose, required by law, or not reasonably feasible to target. Firms must also periodically review their data retention policy.

Only with a documented exception. The FTC Safeguards Rule, 16 CFR 314.4(c)(5), requires multifactor authentication for anyone accessing an information system unless the firm's Qualified Individual approves reasonably equivalent or more secure access controls in writing. Common replacements put a second factor in front of the system, such as a remote access gateway that requires MFA or limiting access to managed firm devices whose own sign-in requires MFA.

Yes. Business associate status comes from the definition in 45 CFR 160.103: providing a service such as legal or accounting work that involves receiving PHI from a covered entity. HHS treats business associates as directly liable for Security Rule compliance and breach notice whether or not an agreement exists. A missing agreement is a compliance gap for both the firm and its client.

Auditors use AI to tie out schedules, scan full populations of transactions for anomalies, summarize contracts such as leases and debt agreements, and draft first-pass review notes. The auditor stays responsible for every conclusion, so each AI output is checked against source documents, and the firm's quality management records should show how each tool was chosen, configured and reviewed.

Yes. In IR-2026-106, the IRS stated that the MFA requirement applies to tax preparation firms regardless of size. The FTC Safeguards Rule, 16 CFR 314.4(c)(5), requires MFA for any individual accessing any information system unless the Qualified Individual approves reasonably equivalent or more secure controls in writing.

IRS Publication 4557, Safeguarding Taxpayer Data, is the IRS guide to protecting client information for tax and accounting professionals. It explains the FTC Safeguards Rule obligations that apply to preparers and recommends specific controls, including anti-malware on all devices, drive encryption, multi-factor authentication and minimum password lengths. Publication 5708 provides a sample WISP built on it.

The Security Six are the baseline protections in the IRS Taxes-Security-Together Checklist: activate anti-virus software, use a firewall, use two-factor authentication when it is offered, use backup software or services, use drive encryption, and create and secure virtual private networks. They are a starting point. A firm's written information security plan should describe how each one is implemented.

No. The IRS says its toll-free assisters cannot accept third-party notification of tax-related identity theft. Tax professionals report client data theft to their local IRS Stakeholder Liaison instead, who notifies IRS Criminal Investigation and others within the agency. Liaisons are listed by state on IRS.gov, so the contact belongs in the firm's incident response plan.

Yes. IRS Publication 5708 provides a sample written information security plan for tax and accounting practices, and Publication 4557 gives broader safeguarding guidance. A template is a starting point; the plan should describe your firm's actual systems, vendors, and procedures.

It is an annual campaign by the IRS and its Security Summit partners, held in early December, that warns taxpayers, businesses and tax professionals about identity theft and scams before filing season. The 10th annual week took place in the first week of December 2025 and reminded tax professionals of their legal obligation to keep a Written Information Security Plan and use multi-factor authentication.

Every PTIN expires on December 31 of the year it was issued, so preparers renew each fall for the coming year. The 2026 renewal fee was $18.75. Online renewal takes under 15 minutes, while a paper Form W-12 can take about six weeks to process. Line 11 of the current Form W-12 includes the data security acknowledgment.

Line 11 of Form W-12 (Rev. October 2025) asks preparers to check Yes or No to a statement that they are aware paid tax return preparers are required by law to create and maintain a written information security plan protecting all taxpayer information. The line refers preparers to IRS Publications 5708 and 4557.

Not with a built-in type. Purview's built-in sensitive information types include U.S. Social Security numbers, ITINs, U.S. bank account numbers and ABA routing numbers, with no Employer Identification Number type. Firms can create a custom sensitive information type for the IRS's XX-XXXXXXX format and require nearby keywords such as EIN or employer identification number to cut false matches.

The rule does not mention AI. It does require covered firms, including tax preparers, to monitor and log the activity of authorized users and detect unauthorized access to or use of customer information, under 16 CFR 314.4(c)(8). When staff put client data into an AI tool, that tool is part of the systems holding customer information, so its activity belongs in the firm's logging and review.

Under 16 CFR 314.6, a firm that maintains customer information on fewer than 5,000 consumers is exempt from four requirements: the written risk assessment, continuous monitoring or penetration testing, the written incident response plan, and the Qualified Individual's annual written report. Everything else, including MFA, encryption, training, access controls and vendor oversight, still applies.

At the time employment ends. The IRS sample WISP in Publication 5708 says terminated employees' logins and passwords will be disabled at the time of termination, and Publication 4557 says to deactivate passwords and user names immediately. Setting an end date when the account is created, then verifying the next day, keeps removal from depending on memory.

No. IRS Publication 4557 tells firms to prevent password sharing and make sure each employee with access to taxpayer accounts uses a unique password, and the IRS sample WISP in Publication 5708 states the firm will not have shared passwords or accounts. Named logins also show who did what and let the firm remove one person cleanly.

A knowing or reckless violation of Section 7216 is a misdemeanor punishable by up to one year in prison and a fine of up to $1,000. Section 6713 adds a civil penalty of $250 per improper disclosure or use, capped at $10,000 per calendar year. Those amounts rise to $1,000 and $50,000 when the disclosure is connected to identity theft.

It can be. The regulations define disclosure as making tax return information known to any person in any manner whatever, and a public AI service is a third party. The rules include exceptions and a written consent process, and whether a specific vendor fits one is a question for counsel. A free consumer chatbot used with a personal account is unlikely to fit any of them.

It must name the preparer and taxpayer, state the purpose, identify the information and recipient, and be signed and dated by the taxpayer. For Form 1040 filers, Rev. Proc. 2013-14 adds format rules: a separate document, at least 12-point type on paper, mandatory statements in a set order, affirmative opt-in, and a one-year default duration if none is stated.

Treasury regulations define a tax return preparer to include an employee who performs services that assist in preparing returns as part of the job, and the text does not distinguish by hours or season. A seasonal preparer or intern who helps prepare returns is covered, so the firm's AI rules on client data should apply to them from the first day.

A security exception is an approved, time-limited departure from a specific written policy or control, usually with compensating controls and an expiry date. Risk acceptance is a broader leadership decision to tolerate an identified risk without fully reducing it. A seasonal preparer working on an approved MFA alternative until enrollment finishes is an exception. Deciding, on the record, not to fund a planned control this year is risk acceptance.

Keep one short record per approved tool: its purpose, who approved it and when, the vendor's data terms, the firm's configuration, the validation performed before use, staff training and a change log. On each engagement, record which tool was used, for what step and who reviewed the output. That links the firm's AI responses to evidence that they operated.

They cover technological resources, which includes AI tools used on engagements. SQMS No. 1 requires that appropriate technological resources be obtained or developed, implemented, maintained and used. Firms evaluate their quality management systems within one year of implementation, by December 15, 2026, so the firm should be able to show how AI tools were chosen, configured and reviewed.

Generally, no. SQMS No. 1 applies to firms that perform engagements under the SASs, SSAEs and SSARSs, such as audits, reviews, compilations, financial statement preparations and attestation work. A practice that only prepares tax returns does not perform those engagements. Its AI use is still covered by the AICPA Code's confidentiality rules, Section 7216 and the FTC Safeguards Rule.

SQMS No. 1 sets the firm-wide system of quality management, including risk assessment, resources, monitoring and the annual evaluation. SQMS No. 2 covers engagement quality reviews: when one is required, who is eligible to perform it, and how the review is performed and documented. AI tool records sit under SQMS No. 1, while an engagement quality reviewer may look at how AI was used on a specific engagement.

Under the FTC Safeguards Rule, 16 CFR 314.4(c)(5), the firm's Qualified Individual approves any alternative to multi-factor authentication, and the approval must be in writing. The alternative must be a reasonably equivalent or more secure access control. The rule does not provide for simply turning MFA off for a user because filing season is busy.

Under 26 CFR 1.6107-1(b), the signing preparer must keep a copy of each return, or a list showing the taxpayer's name, TIN, tax year and return type, for three years after the close of the return period. The return period runs from July 1 to June 30, so a return filed in April 2026 must be kept until at least June 30, 2029.

Yes. The rule's definition of financial institution, at 16 CFR 314.2(h)(2)(viii), includes an accountant or other tax preparation service in the business of completing income tax returns. Covered firms must maintain a written information security program meeting 16 CFR 314.4, scaled down somewhat for firms with fewer than 5,000 consumers.

The IRS says to report the theft to your local IRS Stakeholder Liaison right away, because speed is critical to blocking fraudulent returns. Its data theft guidance also lists the state tax agencies (through the Federation of Tax Administrators), state attorneys general, the FBI, the Secret Service if directed, local police and affected clients. If the event involves the information of 500 or more consumers, the FTC Safeguards Rule also requires notice to the FTC within 30 days of discovery.

It depends on what the feature does and how the vendor uses the data. The regulations allow disclosure to software contractors and processing services within limits, but uses outside the exceptions, such as substantive advice from another preparer or vendor use of data for its own purposes, generally require the taxpayer's signed written consent. Tax counsel should review each feature.

It depends on the vendor. Drake Software states that Windows Server 2016 is no longer supported after Drake Tax 2025, while UltraTax CS and Lacerte still list it in their current requirements. Vendor support is separate from Microsoft support, which ends January 12, 2027. Check every program on the server, including prior-year versions kept for amended returns.

Not to a free or personal account. Uploading a return to a public AI service makes tax return information known to a third party, which can be a disclosure under Section 7216. If the firm wants AI help with client files, use a firm-managed business account whose data terms counsel has reviewed, and remove client identifiers where the task allows.

Automation bias is the tendency to accept output from an automated system without enough scrutiny. NIST's Generative AI Profile (NIST AI 600-1) describes it as excessive deference to automated systems and lists over-reliance among the risks of generative AI. In an accounting firm it shows up when staff accept an AI calculation or research answer because it looks polished, without tying it to source documents.

A CPA engagement letter typically sets out the services and their scope, what is excluded, the responsibilities of the client and the firm, fees and billing, timing and deliverables, and terms such as record retention. It is also where the firm gives the client written notice that third-party service providers, including AI vendors, may receive confidential client information.

According to the IRS, anyone with a Social Security number or an individual taxpayer identification number can get an Identity Protection PIN, including people living abroad. The six-digit PIN prevents someone else from filing a tax return using that number. Taxpayers request it themselves, so tax practices typically tell clients how to sign up rather than requesting it for them.

It applies to financial institutions under FTC jurisdiction that are not banks or other entities overseen by another federal regulator. The rule's own examples in 16 CFR 314.2 include mortgage brokers, many auto dealers, and accountants or other tax preparation services in the business of completing income tax returns. Firm size changes which requirements apply, not whether the rule applies.

Not for the work a CPA firm signs. Circular 230 and the AICPA standards hold the practitioner and the firm responsible for returns, advice and engagements, whatever tool produced the first draft. AI can take over routine drafting and first-pass analysis, which raises the value of the verification and judgment skills staff accountants build early in their careers.

Yes. Microsoft supports an in-place upgrade from Windows Server 2016 directly to Windows Server 2019, 2022 or 2025. It keeps the same hardware, so it suits a server with several years of life left. Before upgrading, confirm every program on it, including prior-year tax software, supports the new version, and test a restore from backup.

If staff use AI tools with client information, the plan should address them. The FTC Safeguards Rule requires access controls, monitoring of authorized users and oversight of service providers, and the IRS reminds tax professionals that federal law requires a written information security plan. A short AI section names approved tools, prohibited data and the controls that enforce the rule.

At least once a year and whenever something material changes. IRS Publication 5708 tells firms to review the plan at least annually or whenever there is a material change, and 16 CFR 314.4(g) requires tax preparers to adjust their security programs after material changes to operations, testing results or risk assessments.