Wednesday, March 22, 2006

Your tax files for sale? IRS says go for it

Yes it is true.  The IRS wants to allow tax-preparation companies to sell your information to marketers. 
As tax day in the US draws nearer this story is getting more coverage.  In fact, tonight it was a featured story on CNN's Lou Dobbs Tonight
Lou called the story "The Best Government Money Can Buy".   I think it qualifies for Ripley's Believe It Or Not.
Sadly, if this proposed regulatory change takes effect without sufficient consumer awareness and public education millions of people may
unknowingly sign away their right to privacy.  Senior citizens and those that do not carefully read the fine print of documents provided
by their tax preparers can easily fall prey.  The impact will be long term and irreversible and the increased risk of identity theft staggering. 
If you have never written an elected official about anything it may be time to reconsider.    

The original article can be found on here:
Thursday, March 9, 2006 (SF Chronicle)
Your tax files for sale? IRS says go for it
Kathleen Pender

   The Internal Revenue Service has proposed a new rule that would let tax
preparers sell or share a client's tax-return information with third
parties, as long as they got the client's consent.

   Three consumer organizations on Wednesday called the proposal shocking and
urged the IRS to drop it.

   They fear that many taxpayers could be rushed or duped into signing the
consent form when they are signing their tax returns and related
documents. They could end up losing control over financial data they
wouldn't want their closest friends or family to see, much less outside
marketing and database firms.

   "If you have someone doing the paper shuffle -- sign here, sign here, sign
here -- there is tremendous opportunity for mischief," says Ed
Mierzwinski, consumer program director with the U.S. Public Interest
Research Group.

   The proposal is part of a larger plan for overhauling the decades-old
section of the IRS code that regulates how tax preparers can use and
disclose confidential taxpayer information.

   A hearing on the overall proposal is scheduled for April 4.

   Current law generally prohibits tax preparers from using a client's
financial information for anything other than completing the tax return.
However, preparers can use this information to sell "currently offered"
products or services, such as refund anticipation loans and investment
products, if they obtain the customer's consent. They can also share this
sensitive information with an "affiliated group," again with consent.

   The proposed regulations would let tax preparers share return information
with nonaffiliated groups as well, with the customer's OK.

   The IRS, with a straight face, says the existing prohibitions against
sharing confidential data with outside parties "restrict the ability of
taxpayers to control and direct the use of their own tax return
information as they see fit. The proposed regulations adopt an approach
that ensures taxpayers are provided with a meaningful opportunity to
consent to the use and disclosure of their tax return information.
Accordingly, the proposed rules revoke the affiliated-group and currently
offered restrictions."

   To its credit, the IRS does propose specific rules regarding the format,
content and font size of consent forms. Each consent would require a
separate paper or electronic document. The consent must identify each type
of product or service for which the tax preparer may solicit tax-return
information. It also must specify which parts of the tax return are being

   The form would have to say: "Warning: Once your tax return information is
disclosed to a third party per your consent, we have no control over what
that third party does with your tax return information. If the third party
uses or discloses your tax return information for purposes other than the
purposes for which you authorized the disclosure, under Federal tax law,
we are not responsible for that subsequent use or disclosure, and Federal
tax law may not protect you from that disclosure."

   It's hard to imagine that anyone would sign the form after reading that
warning. But if no one would consent, then why even allow it?

   The IRS provided no comment beyond the proposal and a press release, which
heralded a provision that would prohibit tax preparers from sending tax
returns overseas without the customer's consent. Some U.S. companies have
started outsourcing tax prep work to places like India.

   The offshore restriction was needed because "it is difficult ... to pursue
a criminal action ... or to collect a civil penalty" from a tax preparer
outside the United States, the IRS said in its proposal.

   H&R Block and Jackson Hewitt, two of the largest tax-prep outfits, did not
return requests for a comment.

   The IRS published the proposal in the Federal Register in early December,
but it has not gotten much attention until now.

   Before this week, only three comment letters had been filed and none was
related to the third-party data-sharing provision, according to Heather
Bennett, an editor with Tax Notes, a trade publication.

   The public comment period ended Wednesday, the same day the consumer
groups filed their objection. In addition to U.S. PIRG, the groups were
the National Consumer Law Center and the Consumer Federation of America.

   "Everyone thinks the IRS is the Fort Knox of taxpayer information," says
Mierzwinski of U.S. PIRG. "Anyone who knows its history knows it is not."

   He says he sees this new proposal as "part of a trend toward privatization
of the government."

   For the past few years, the IRS has let more than a dozen commercial
tax-preparation companies advertise on its Web site. The companies offer
free tax-prep software to select groups of people and provide links to
their own Web site from (For a history of this odd alliance,
see my Jan. 16 column, online at

   Consumer groups have opposed this alliance because it might look like the
government is endorsing these companies. Also, many companies use their
"free" offers to sell customers on other products such as refund
anticipation loans, which can carry exorbitant interest rates.

   Chi Chi Wu, an attorney with the National Consumer Law Center, says
privacy protections are essential because of the "largely voluntary nature
of the U.S. tax system. Our system depends on taxpayers providing detailed
personal financial information to the federal government to ensure
accurate payment of taxes, the lifeblood of government."

Copyright 2006 SF Chronicle

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