What counts as tax return information?
The regulations define it broadly: “any information, including, but not limited to, a taxpayer’s name, address, or identifying number, which is furnished in any form or manner for, or in connection with, the preparation of a tax return of the taxpayer” (Treas. Reg. §301.7216-1(b)(3), as quoted by the IRS). That covers far more than the numbers on the return.
What the IRS said about AI in June 2026
IRS Office of Professional Responsibility Issue 2026-19 (June 24, 2026), “Introductory Guidelines for Responsible AI Use in Federal Tax Practice,” applies existing Circular 230 rules to AI:
- Due diligence (§10.22): thoroughly review all AI-created documents before they go to a client or the IRS, including facts, citations and calculations.
- Fees (§10.27): don’t bill for time not actually spent; pass on AI cost savings openly.
- Competence (§10.35): understand how AI systems work, their limits and risks.
- Firm procedures (§10.36): train staff, set secure data-handling protocols, and vet outsourced or third-party AI tools, with all steps documented.
- Written advice (§10.37): don’t rely on AI output without verification.
- Disclosure (§§6713, 7216; Circular 230 §10.51(a)(15)): the IRS says practitioners “must strictly handle all client data using only secure, enterprise-approved AI.”
Your options for client data and AI
| Option | What it means | Watch out for |
|---|---|---|
| Keep client data out | Use AI only for research and anonymized questions | Real anonymization is harder than deleting the name |
| Get compliant consent | Written consent before the disclosure; for 1040-series clients, the format in Rev. Proc. 2013-14 | Consent must be specific; a general “we use technology” clause doesn’t do it |
| Rely on a regulatory exception | Treas. Reg. §301.7216-2 permits certain disclosures to service providers assisting with return preparation | Whether a general-purpose AI service qualifies is unsettled; confirm with an advisor |
| Process it locally | Run AI on hardware the firm controls, so the data isn’t disclosed to an AI provider | You still need security, access controls and review |
Checklist for a tax practice using AI
- Inventory the AI toolsIncluding AI features inside software you already use.
- Map client dataWhich tools receive tax return information, and under what terms.
- Choose a path per toolKeep data out, consent, exception or local.
- Write the proceduresTraining, data handling, vendor vetting: §10.36 expects them documented.
- Review every outputFacts, figures and citations before anything leaves the firm.
- Bill honestlyReflect AI efficiencies in fees.
Where AdminOnsite fits
AdminOnsite runs the models on a Mac mini in your office, so client email, workpapers and prior-year files it works on are processed there and not sent to an AI provider. It drafts, summarizes, searches and reminds; preparers make every determination. We don’t make compliance claims, and whether your setup meets §7216 is a question for your own advisor. See AI for accounting firms.
Questions
Can CPAs use ChatGPT with client data?
Not with identifiable tax return information in a personal account. With a business plan, the conservative reading is that compliant written consent is needed unless an exception clearly applies; many firms anonymize or keep the data local. Confirm with your advisor.
What are the penalties under §7216?
Criminal: a fine of up to $1,000, up to a year in prison, or both, for knowing or reckless unauthorized disclosure or use. Civil (§6713): $250 per disclosure, up to $10,000 a year.
Did the IRS approve any AI tools?
No. Issue 2026-19 says firms must vet third-party AI tools themselves and document that they did.
Does running AI locally make §7216 irrelevant?
No. The rules on use of return information still apply, and so does Circular 230. Local processing means the data isn’t disclosed to an AI provider.
Where can I find the consent format?
Rev. Proc. 2013-14 sets out the format and required language for consents from 1040-series taxpayers.
Sources, checked November 13, 2026
- IRS Office of Professional Responsibility, Issue 2026-19: Introductory Guidelines for Responsible AI Use in Federal Tax Practice (June 24, 2026)
- 26 U.S.C. § 7216 (Cornell LII)
- 26 U.S.C. § 6713 (Cornell LII)
- IRS Rev. Proc. 2013-14 (consent format for § 7216)
- 26 CFR § 301.7216-2: permitted disclosures without consent (eCFR)