The 90-Day Consent Rule for CPA Firm Sales: What It Covers—and What §7216 Actually Allows
If you’re buying or selling an accounting practice, you’ve probably heard some version of this rule: notify the clients, wait 90 days, and if they don’t object, their files can transfer to the buyer.
That is directionally useful, but it mixes together two different bodies of law:
Professional ethics and state rules governing client records and practice transitions; and
Federal tax-privacy law under IRC §7216 governing tax return information.
There is an important distinction between the two. And, importantly, §7216 does not necessarily require an accounting firm to obtain individual written consents from every taxpayer before transferring its tax files to the buyer in connection with the sale of the tax preparation business.
Here is how the rules fit together.
Part 1: The 90-Day Rule Comes From Professional and State Client-Record Rules
Professional ethics rules and state accountancy regulations may require a selling CPA firm to notify clients before their records are transferred to a successor firm.
Depending on the applicable jurisdiction, those rules may permit a notice stating that the client’s consent to transfer will be presumed if the client does not object within a specified period—often 90 days.
The important point is that this is a professional-ethics or state-law requirement, not an IRC §7216 rule.
The requirements vary by jurisdiction, so the parties should determine:
What notice the seller must provide;
Whether affirmative consent is required or non-response can constitute consent;
How long the client must be given to object;
What records may transfer; and
What records the seller must retain.
Those requirements remain important even where §7216 independently permits the transfer of tax return information.
Part 2: §7216 Applies—but It Contains an Important Sale-of-Business Exception
IRC §7216 generally prohibits a tax return preparer from disclosing tax return information or using it for purposes other than tax return preparation unless the taxpayer consents or a regulatory exception applies.
Tax return information is defined extremely broadly. It can include not only the tax return itself, but information furnished in connection with preparing the return.
That broad general rule sometimes leads to the conclusion that every taxpayer must sign a separate §7216 consent before his or her tax files can move to the purchaser of an accounting practice.
But that conclusion overlooks an important interaction between Treasury Regulations §§301.7216-2(m) and 301.7216-2(n).
§301.7216-2(m): Retained Tax Records
Section 301.7216-2(m) expressly permits a tax return preparer to retain tax return information, including copies of tax returns, in either paper or electronic format.
Critically, the regulation then provides that the transfer rules in §301.7216-2(n) also apply to the transfer of the records and related papers covered by §301.7216-2(m).
That cross-reference matters.
§301.7216-2(n): Transfers in Connection With a Sale
Section 301.7216-2(n) permits a taxpayer list to be transferred when the transfer occurs in connection with the sale or other disposition of the compiler’s tax return preparation business.
If §301.7216-2(n) were read by itself, it would be easy to conclude that the exception applies only to a narrow taxpayer list containing information such as names, addresses, email addresses, telephone numbers, entity classifications and return form numbers.
But §301.7216-2(m) expressly incorporates §301.7216-2(n)’s transfer rules for the retained tax records and related papers covered by §301.7216-2(m).
Reading those provisions together, the better interpretation is that the sale exception is not limited to the stripped-down taxpayer list.
It also permits the transfer of the seller’s retained tax records—including electronically maintained tax records—in connection with the sale or disposition of the tax return preparation business.
Accordingly, a separate affirmative §7216 consent from every taxpayer should not be required merely to transfer those tax records to the purchaser as part of the sale.
Electronic Records Are Not Treated Differently
This is particularly important in modern accounting-practice acquisitions, where the “client files” may really mean terabytes of information stored in tax software, document-management systems and cloud platforms.
Section 301.7216-2(m) expressly contemplates tax return information and copies of tax returns maintained in paper or electronic form.
The fact that the seller is migrating electronic client data to the buyer rather than handing over physical file cabinets does not, standing alone, change the §7216 analysis.
The question is why the information is being transferred.
When the records are transferred in connection with the sale or disposition of the tax return preparation business, §§301.7216-2(m) and (n) provide the relevant regulatory pathway.
What About Due Diligence Before Closing?
The regulations separately address due diligence conducted in anticipation of a sale.
Section 301.7216-2(n) recognizes qualifying due diligence as occurring “in conjunction with” the proposed sale or disposition of the tax return preparation business.
The regulation requires an appropriate written confidentiality agreement restricting further disclosure or use of the information for purposes unrelated to the proposed acquisition.
That distinction matters:
Due diligence is a disclosure made to evaluate the proposed transaction. The closing transfer is the actual transfer of the business and its records.
Parties should therefore continue to limit diligence disclosures to information reasonably necessary to evaluate the transaction and use appropriate confidentiality protections.
What Happens After Closing?
Section 7216 is principally concerned with unauthorized disclosure and use of tax return information. It does not prohibit using tax return information for its core purpose: preparing tax returns.
Once the purchaser has lawfully acquired the tax preparation business and its records, §7216 generally does not require the purchaser to obtain a new consent merely to use that information in connection with preparing the taxpayer’s subsequent returns.
Other uses are different.
If the purchaser wants to use tax return information for marketing unrelated products, disclose it to unrelated third parties, or otherwise use it for purposes that do not fall within §7216 or one of its regulatory exceptions, a taxpayer consent may still be required.
The sale exception is not permission to use client tax information for anything the purchaser wants.
So Do You Still Send the 90-Day Notice?
Potentially, yes—but for a different reason.
The fact that §7216 permits a transfer in connection with the sale of a tax preparation business does not override state accountancy rules, professional ethical obligations, contractual confidentiality obligations or other laws governing client records.
That means a transaction may still require a 90-day client notice or another client-transition procedure even though a separate federal §7216 consent is not required.
This is why it is important not to treat the “90-day rule” and “§7216 consent” as interchangeable concepts.
They answer different questions.
A Better Two-Track Playbook
Track A — Professional Ethics and State Client-Record Requirements
Determine the rules applicable to the selling firm and its licensed professionals.
If applicable:
Send the required client notice;
Identify the successor firm;
Give the client whatever opportunity to object is required;
Observe any applicable waiting period; and
Maintain evidence of the notice and responses.
Track B — IRC §7216
For tax return information:
During diligence: Use appropriate confidentiality protections and limit disclosure to the transaction-related diligence purpose.
At closing: The better reading of §§301.7216-2(m) and (n) permits retained tax records—including electronic records—to transfer with the tax return preparation business without obtaining an individual §7216 consent from every taxpayer.
After closing: Use the transferred information for tax preparation and other purposes expressly permitted by §7216 and its regulations. Obtain taxpayer consent where the purchaser intends a disclosure or use that is not otherwise authorized.
The Common Mistake: Reading §301.7216-2(n) Without §301.7216-2(m)
The most confusing part of this analysis is that §301.7216-2(n), standing alone, looks like an extremely narrow exception.
It describes a limited taxpayer list and then says that list may be transferred in connection with the sale of the tax preparation business.
If you stop reading there, the natural conclusion is:
“Only the client list can transfer without consent; the actual tax files cannot.”
But §301.7216-2(m) supplies the missing piece. It addresses the actual retained tax records, expressly includes records kept electronically, and incorporates §301.7216-2(n)’s transfer rules.
That cross-reference changes the analysis.
The Takeaway
A CPA-firm sale can implicate both professional client-record rules and IRC §7216, but those rules should not be conflated.
A state or professional rule may require client notice, a waiting period, or an opportunity to object.
For federal §7216 purposes, however, the better reading of Treasury Regulations §§301.7216-2(m) and (n) is that tax records retained by the selling preparer—including electronic records—may be transferred to the purchaser in connection with the sale or disposition of the tax return preparation business without obtaining a separate affirmative §7216 consent from every taxpayer.
That does not mean §7216 is irrelevant.
It means §7216 applies—and the regulations provide an exception for this particular transfer.
As always, the parties should separately evaluate state accountancy rules, professional ethical requirements, contractual confidentiality obligations, data-security requirements, and the purchaser’s intended post-closing uses of client information.
