IRS Draws More Fire Over Taxpayer Privacy

by Mike Godfrey, Tax-News.com, Washington

02 May 2006

Further objections were raised at a Senate hearing last week against an Internal Revenue Service plan that would make it easier for tax preparers to sell taxpayers' private financial records to telemarketers and other third parties.

"The IRS should not be an accomplice in selling taxpayer information," Senator Patty Murray (D-Wash) told IRS Commissioner Mark Everson. "Taxpayers deserve more privacy, not less."

In March, the IRS proposed changes to its privacy policy that would modernize procedures for tax preparation firms to sell an individual's tax records to third parties. However, while a firm would need to get a taxpayer's signature, Murray noted that many Americans may not realize they are signing away their privacy rights.

"What consumer really wants to have their dinner interrupted by a telemarketer who's looking at a copy of their private tax return?" Murray asked.

"I hope the IRS will take a fresh look at these regulations and provide an outright prohibition on this information being shared with anybody."

The Internal Revenue Service disputes the notion that its proposals on the use of taxpayer information by tax preparers would reduce privacy protections.

"What we are trying to do here is have a balanced approach," Everson responded. "This piece of the law has been in effect for over 30 years, but the world has changed since that time."

He added: "I guess the better question is whose information is it? Is it the taxpayer's information or is it the government's information?"

"We, at the IRS, as you know, don't share information with anybody, so it’s a question of preparers...[W]hat we're trying to do is provide a really clear protection...But we don’t think, that under statute now, we could say: you aren't free to share your information with that preparer."

In a recent letter to IRS Commissioner Mark Everson, Nancy Johnson, a senior member of the House Ways and Means Committee, which oversees the IRS, said that the agency should "protect Americans’ privacy, not let it be sold to the highest bidder.”

However, the IRS claims that the 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," the IRS has stated.

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