IRC 301.7216-2(d) Auxiliary Services Disclosure: What a Tax Return Information Service Provider Means for CPAs Using AI Notetakers

Short answer: under 26 CFR 301.7216-2(d)(1), a tax return preparer may disclose tax return information to another preparer or contractor located in the United States — without taxpayer consent — for the purpose of obtaining auxiliary services in connection with return preparation, so long as the services provided are not substantive tax determinations. In plain English: your tax software vendor is fine. A general-purpose AI notetaker that stores your audio in its cloud, trains its models on your inputs, or routes data offshore generally is not fine without a signed, pre-call §301.7216-3 consent from the client.

Why this question matters for CPAs during tax season

If you are a CPA fielding back-to-back calls in February and March about a client's W-2 income, dependents' SSNs, estimated-tax penalties, and a CP2000 notice, every one of those calls contains "tax return information" within the meaning of the statute. 26 CFR § 301.7216-1 defines disclosure as "the act of making tax return information known to any person in any manner whatever" — a broad definition that reaches an AI vendor's servers the moment your microphone transmits audio of the conversation.

Section 7216(a) prescribes a criminal penalty for preparers who knowingly or recklessly disclose or use that information for anything other than preparing the return. As Cornell's reproduction of §301.7216-1 makes explicit, a violation is a misdemeanor with a maximum penalty of up to one year in prison, a fine of not more than $1,000, or both, plus costs of prosecution. IRC § 6713 adds $250 per unauthorized disclosure, capped at $10,000 per calendar year. The default rule for every CPA is therefore confidentiality, not disclosure.

What 26 CFR 301.7216-2(d) actually says about auxiliary service providers

The exception you're looking for lives in subsection (d) of the permissible-disclosure regulation. Rev. Rul. 2010-4 paraphrases the operative language precisely: "Section 301.7216-2(d)(1) provides that a tax return preparer may disclose, without taxpayer consent, tax return information of a taxpayer to another tax return preparer located in the United States for the purpose of obtaining auxiliary services in connection with the preparation of any tax return, so long as the services provided are not substantive determinations or advice affecting the tax liability reported by taxpayers."

Three things make the safe harbor work:

• U.S. location. The contractor must be in the United States (or a U.S. territory or possession). Any offshore element flips you into §301.7216-3 consent territory.
• Written notice. As explained in this plain-English guide to §7216 and AI, Regulation 301.7216-2(d) "lets you disclose to other preparers and to contractors in the United States who help prepare the return, with a written notice of sections 6713 and 7216."
• Not substantive advice. The vendor cannot be providing substantive tax determinations — it is in a supporting, mechanical role.

Any vendor you push tax return information through under this exception becomes, in the IRS's view, a tax return preparer themselves. The regulation is explicit that "contractors receiving tax return information pursuant to this section are tax return preparers under section 7216 because they are performing auxiliary services in connection with tax return preparation." That matters: it means your SaaS vendor is bound by the same criminal statute you are.

Does tax software qualify? Yes. Does ChatGPT? Probably not.

The cleanest statement of how §301.7216-2(d) applies to modern software comes from Thomas A. Gorczynski's analysis of §7216 and AI. He writes that "tax preparation software serves a direct, necessary role in preparing the return, and disclosure to those providers generally falls under the auxiliary services exception in Treas. Reg. §301.7216-2(d). The software exists to prepare the tax return."

The analysis flips for general-purpose AI tools. As the keptpdf summary puts it, the questions you need answered for any AI vendor are: Where is the data processed? What does the vendor do with your inputs? "Keeping them, training on them, or letting staff review them each widen who knows the information." An AI meeting notetaker that uploads your call audio to a cloud, retains it for 30 or 90 days, and runs product improvement on de-identified transcripts is doing all three.

How Otter.ai Business and Fireflies.ai Pro stack up against the auxiliary services test

Let's apply the three-part §301.7216-2(d) test to the two cloud notetakers most CPAs are evaluating this season.

Otter.ai Business ($19.99/user/month annual)

Pricing is confirmed by multiple current reviews of Otter's own pricing page: tldv's July 2026 breakdown lists Business at "$30 USD per user/month (billed monthly) or $20 USD per user/month (billed annually)," and MeetGeek's 2026 pricing analysis notes that Otter's data storage region is "US" and that HIPAA sits behind the Enterprise tier only.

The §7216 problem is in the fine print. Meetergo's pricing teardown flags that "recordings sit on AWS in the US, and Otter's privacy policy states it trains its own AI on de-identified audio and transcripts." Training on de-identified transcripts is a use beyond return preparation, which is the exact thing §301.7216-2(d) does not cover. For a CPA call containing a client's name and SSN, that use pushes you into §301.7216-3 and requires a signed, specific consent before the call — or you need Otter's Enterprise tier with a HIPAA/BAA add-on, which per Spokenly's 2026 pricing roundup is "custom and adds SSO, SCIM, HIPAA add-on, and Otter API access."

Fireflies.ai Pro ($10/seat/month annual)

Fireflies' pricing is attractive on paper. ParrotNotes' pricing review confirms Pro at $10/seat/month annual with 8,000 minutes of storage, and Laxis's 2026 Fireflies review notes Fireflies' claim that meeting content is never used to train AI models and that SOC 2 Type II and GDPR compliance are available on every plan.

But the same Laxis review is blunt about what's missing on Pro: "HIPAA, BAAs, private storage and custom retention are Enterprise-only, so a clinic on Pro isn't covered." The same logic applies to a tax practice. Without private storage and custom retention, your audio sits in Fireflies' shared cloud at default retention windows. If a breach there exposes client SSNs, LegalClarity's §7216 analysis notes bluntly that "a data breach caused by inadequate security measures can constitute an unauthorized disclosure under Section 7216, compounding the preparer's legal exposure." Enterprise, which per Castmagic's Fireflies review adds "the rules engine, SSO and SCIM, audit logs, HIPAA compliance, private storage and a dedicated account manager," is $39/seat/month billed annually only.

Comparison table: cloud notetakers vs. on-device transcription under §7216

The written-notice contract: what §301.7216-2(d) actually requires in your vendor agreement

If you decide to proceed with a cloud notetaker under the auxiliary-services exception, you cannot rely on their standard click-wrap terms of service. You need language in the contract that gives written notice of §§ 7216 and 6713 to the vendor as a receiving "tax return preparer." The IRS's Rev. Rul. 2010-4 underscores that the auxiliary service provider "is prohibited from the further use or disclosure of the tax return information... for purposes other than those related to the provision of the auxiliary services... or as otherwise expressly permitted under sections 7216 and 6713."

In practice, that means your vendor contract must restrict the vendor from training on your inputs, sharing them with sub-processors not covered by the same restriction, or retaining them longer than you authorize. For most cloud AI vendors, that language is only available at the enterprise tier — and sometimes not at all.

When you actually need §301.7216-3 written consent from the client

The moment any one of these facts is true, you leave the (d) safe harbor and need a signed, pre-disclosure consent from the client that complies with Rev. Proc. 2013-14:

• Any processing or human review happens outside the United States.
• The vendor uses the audio or transcript for training, product improvement, analytics beyond operations, or marketing.
• Retention extends beyond what is necessary to deliver the service.
• The vendor's staff can access the content for anything other than operating the service.

And consents must be real. As one CPA firm's confidentiality standard explains: "any use or disclosure beyond preparing your return generally requires your consent, and a buried checkbox does not count. Consents must be knowing, voluntary, in writing, and specific: what information, who receives it, and for what purpose. They are signed before the use or disclosure, never after."

Why offshore processing is a hard stop

Many AI notetakers rely on third-party inference providers whose geographic footprint is opaque. That is a §7216 red flag. A 2026 §7216 compliance explainer notes that "disclosure to a preparer outside the United States always requires consent, and SSNs must be masked unless specific safeguards and a separate consent are in place," and that "the permitted-disclosure exception for preparer-to-preparer assistance is limited to preparers located within the United States."

If you cannot get a written representation from the vendor that all storage and processing of your meeting content stays within the United States, you cannot rely on §301.7216-2(d). You need the client's written consent before the call under §301.7216-3, with the specific offshore-disclosure language mandated by Rev. Proc. 2013-14.

How Basil AI solves this: on-device transcription removes the disclosure

The simplest way to satisfy §7216 for your client calls is to not disclose the information at all. Basil AI runs transcription entirely on-device using Apple's Speech Recognition framework on the Apple Neural Engine. The audio never touches a server. There is no vendor cloud. There are no sub-processors. There is no training pipeline, no retention schedule to audit, no BAA to negotiate.

Under §301.7216-1, a disclosure is "the act of making tax return information known to any person" — and no third person becomes aware when transcription happens inside the Secure Enclave of your own Mac. The §301.7216-2(d) analysis becomes moot: there is no auxiliary service provider receiving the data. You don't need a written-notice vendor contract. You don't need a §301.7216-3 consent (though you still want client disclosure for professional-ethics reasons). You eliminate the compliance surface area rather than managing it.

For CPAs, that matters most during peak season when you don't have time to run a vendor diligence project in the middle of a call. The on-device model also addresses Apple's privacy-by-design posture and dovetails with the broader shift toward private edge AI we've covered in our guide to bot-free, on-device meeting notes.

What this means for a CPA firm this tax season

Here is a decision checklist, in the order most firms should run it:

• Default to on-device. For client calls involving SSNs, income, or IRS matters, use a tool that transcribes locally. You remove §7216 as a vendor-management problem.
• If you must use a cloud notetaker, buy the enterprise tier that includes private storage, custom retention, and a BAA-style data-processing contract that satisfies the written-notice requirement of §301.7216-2(d). On Fireflies that's $39/seat/month; on Otter that's custom-priced Enterprise.
• Never use free or Pro-tier cloud notetakers for substantive tax calls. The retention and training terms almost always fail the (d) test.
• If any processing is offshore, get a §301.7216-3 consent before the call. Follow Rev. Proc. 2013-14 exactly — mandated language, specific recipient, signed before disclosure, not conditioned on service.
• Document the written notice. Whatever vendor you choose should receive explicit written notice they are a §7216 recipient. Keep it in your workpapers.
• Train staff that "it's just a meeting assistant" is not an answer. As The Tax Adviser emphasizes, "any disclosure of taxpayer information that goes beyond what is necessary for the tax return preparation process requires the taxpayer's consent under Sec. 7216," and that consent must be obtained before disclosure.

For related reading on how this plays out in other regulated contexts, see our analysis of AI meeting assistants for financial advisors and what compliant AI meeting notes actually means.

The bottom line: is Otter Business or Fireflies Pro worth it for a CPA?

For a solo CPA or small firm on calls all day during tax season, the honest answer is: not the Pro/Business tiers. At $19.99/user/month, Otter Business keeps your audio on AWS and trains on de-identified transcripts — a use that falls outside §301.7216-2(d) and triggers §301.7216-3 consent requirements for every client whose call it records. At $10/seat/month, Fireflies Pro doesn't offer the private storage or BAA you'd need to make a defensible auxiliary-services argument; those are at the $39 Enterprise tier.

The math changes once you factor in the §7216 risk. A $12,000-a-year Otter Business deployment for a 50-person firm (per Activepieces' pricing analysis) still leaves you managing a vendor whose default use terms don't fit the auxiliary-services exception. Compare that to a one-time App Store purchase of an on-device transcription app that never discloses anything to anyone — the §7216 analysis simply disappears. That's the architectural advantage of edge AI for regulated work, and the whole reason Basil exists.

Transcribe client calls without triggering §7216

Basil AI runs 100% on-device. Audio of your client calls never leaves your Mac or iPhone, so there's no disclosure to a third-party service provider — and no §301.7216-2(d) auxiliary-services contract to negotiate.