The US Internal Revenue Service this week disputed reports which have suggested that its proposals on the use of taxpayer information by tax preparers would reduce privacy protections.
Late last month, Connecticut Congresswoman, Nancy Johnson objected to the proposals, arguing that they would allow confidential tax returns to be sold to marketing companies and data brokers.
Johnson is a senior member of the House Ways and Means Committee, which oversees the Internal Revenue Service (IRS).
In a letter to IRS Commissioner Mark W. Everson, Johnson argued that confidential tax and financial information should be given every protection.
“Right now Americans are fulfilling their civic duty by filing their income tax returns with the IRS. They expect their tax returns to be kept confidential, even if they use a tax-preparer to navigate our complex income tax code,” Johnson wrote, concluding that:
“The IRS should protect Americans’ privacy, not let it be sold to the highest bidder.”
In a statement released this week, however, the tax authority hit back, announcing that:
"The IRS is committed to safeguarding taxpayers' information. The tax information held by the IRS is private and protected. A proposed rule change would strengthen taxpayers' control over their tax information now in the hands of tax preparers or tax software companies."
"The proposed rule says the taxpayers should receive proper warnings and consent notices that allow them to make an informed decision over the disclosure or use of their tax information by their preparer."
It went on to add that:
"Federal law prohibits tax return preparers from disclosing information given to them by their customers except in limited circumstances. This rule (set forth in section 7216 of the Internal Revenue Code) applies to private return preparers and is in addition to the strong protection provided by section 6103 against disclosure of return information by the government."
"Current regulations under section 7216, largely unchanged since 1974, permit return preparers to disclose their customers’ tax return information to third parties if the customer gives consent. The current regulations also set forth, in summary terms, the form of the consent the customer must give."
"Since 1974, the manner in which tax returns are prepared has changed dramatically and the rules governing customer consent are in dire need of updating. For example, internet-based return preparation was non-existent in 1974, so an updated rule needs to be published to address customer consent in that context."
"In December 2005, the Treasury Department and the IRS issued proposed rules to update the 1974 regulations. Contrary to some recent press reports, the proposed rules significantly tighten existing requirements regarding the customer consent a return preparer must obtain to disclose the customer’s tax return information to third parties."
"Under the proposed rules, if a return preparer wants to obtain consent, it must give the customer a strong warning. The mandated language for the warning is attached. Existing rules contain no such warning."
A public hearing on the matter is set to take place today.
The full text of the IRS' Proposed Disclosure Regulations can be found in the Tax News Resources section.
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