Does the Taxpayer First Act (TFA) apply only to customers who complete Form 4506-T, providing consent to us obtaining a copy of their tax return information directly from the IRS, or does it also apply to the redisclosure of information received directly from the taxpayer? Also, does the TFA apply to commercial loan participations when we share the taxpayer’s information with participating banks? If so, should we provide a written disclosure to commercial loan applicants requesting they consent to the sharing of financial information with other financial institutions for loan participation purposes?

The TFA’s consent requirement applies only to tax return information provided by the IRS. It does not apply to the redisclosure and use of information received directly from the taxpayer. However, a customer’s tax return information remains subject to financial privacy laws, which may require the customer’s consent before disclosure to a third party, unless an exception applies. Additionally, we believe the TFA’s consent requirement would apply to commercial loan participations, so we recommend obtaining commercial loan applicants’ written consent before sharing their tax return information with other loan participants.

The TFA amended the Internal Revenue Code to require that “[p]ersons designated by the taxpayer under this subsection to receive return information shall not use the information for any purpose other than the express purpose for which consent was granted and shall not disclose return information to any other person without the express permission of, or request by, the taxpayer.” This consent requirement applies when the “Secretary [of the Treasury]” discloses “the return of any taxpayer, or return information with respect to such taxpayer, to such person or persons as the taxpayer may designate . . . .” Consequently, the TFA’s consent requirement applies only when the IRS provides a taxpayer’s tax return information to a person designated by the taxpayer, not when a taxpayer provides its own tax return information directly to a person.

However, a customer’s tax return information remains protected by both Illinois and federal privacy laws and, absent an exception, should not be shared with third parties without the customer’s consent. For example, Regulation P includes an exception to its opt-out requirements for sharing information with examiners, but there may be other situations to which no exception applies and for which your customer’s consent will be required.

Regarding commercial loan applicants, the Internal Revenue Code defines a “taxpayer” as “any person subject to any internal revenue tax” and a “person” as “an individual, a trust, estate, partnership, association, company or corporation.” Consequently, we believe you would be required to obtain a commercial loan applicant’s written consent before sharing their tax return information obtained from the IRS with a third party, such as a loan participant.

For resources related to our guidance, please see:

Internal Revenue Code, 26 USC 61039(c) (“The Secretary may, subject to such requirements and conditions as he may prescribe by regulations, disclose the return of any taxpayer, or return information with respect to such taxpayer, to such person or persons as the taxpayer may designate in a request for or consent to such disclosure, or to any other person at the taxpayer’s request to the extent necessary to comply with a request for information or assistance made by the taxpayer to such other person. However, return information shall not be disclosed to such person or persons if the Secretary determines that such disclosure would seriously impair Federal tax administration. Persons designated by the taxpayer under this subsection to receive return information shall not use the information for any purpose other than the express purpose for which consent was granted and shall not disclose return information to any other person without the express permission of, or request by, the taxpayer.”)

Illinois Banking Act, 205 ILCS 5/48.1(a)(4) (“Financial records” protected by the Illinois Banking Act’s privacy requirements include “any other item containing information pertaining to any relationship established in the ordinary course of a bank’s business between a bank and its customer, including financial statements or other financial information provided by the customer.”)

Regulation P, 12 CFR 1016.3(q)(2)(i) (“Personally identifiable financial information” protected by Regulation P’s privacy requirements includes “(A) Information a consumer provides to you on an application to obtain a loan, a credit card, a credit union membership, or other financial product or service; . . . (E) Any information that a consumer provides to you or that you or your agent otherwise obtain in connection with collecting on, or servicing, a loan or a credit account; . . .”)

Regulation P, 12 CFR 1016.15(a) (“Exceptions to opt out requirements. The requirements for initial notice in § 1016.4(a)(2), for the opt out in §§ 1016.7 and 1016.10, and for service providers and joint marketing in § 1016.13 do not apply when you disclose nonpublic personal information: (1) With the consent or at the direction of the consumer, provided that the consumer has not revoked the consent or direction; . . . (7)(iii) To respond to judicial process or government regulatory authorities having jurisdiction over you for examination, compliance, or other purposes as authorized by law.”)

Internal Revenue Code, 26 USC 7701(a) (“(1) Person. The term ‘person’ shall be construed to mean and include an individual, a trust, estate, partnership, association, company or corporation. . . . (14) Taxpayer. The term ‘taxpayer’ means any person subject to any internal revenue tax.”)