IRS regulations prompt debate over privacy

/ Source: The Associated Press

Should tax preparers, even with taxpayers’ permission, be allowed to sell or disclose information that customers put on their returns?

New privacy regulations issued by the IRS, explored at an IRS hearing Tuesday, have consumer groups, tax professionals and state governments asking that question and urging tax collectors to tighten the rules.

The proposed changes would adjust regulations that require tax professionals to get permission before using or disclosing information on customers’ tax returns.

Several consumer groups interpret the current rules to restrict outside companies from using taxpayers’ personal data for marketing purposes. But the IRS says the regulation never imposed such a restriction, and that companies have always had the power to disclose information if a taxpayer agrees.

Attorneys general from 47 states told the IRS that the rules should prohibit or greatly restrict the use of tax return information for marketing purposes.

“There is simply too much at risk for American taxpayers, particularly with respect to the ongoing scourge of identity theft, to increase the likelihood that their most personal information will be stolen or misused,” they wrote in a letter to IRS Commissioner Mark Everson.

Representatives from two tax preparation companies told IRS officials that they oppose the idea of selling information from their clients’ tax returns to outside businesses.

“The rule must clearly prohibit the sale or rental of tax return information by the tax preparer to third parties,” said Barbara Lawler, chief privacy officer at Intuit Inc.

Intuit, which makes TurboTax software, does not sell or rent customer data, she said.

Murray Walton, vice president and compliance officer at H&R Block, told the officials, “We find the idea of selling tax return information repugnant.”

Beth McConnell, speaking on behalf of three consumer groups, urged the IRS to prohibit the use of tax return information for any marketing or solicitation.

“Taxpayers rely heavily on paid preparers, creating an enormous potential for exploitation,” she said.

Sen. Barack Obama, D-Ill., and other members of Congress have introduced bills that would ban the sale of tax return information to other companies.

The IRS last year drafted revisions to the privacy rules that require tax preparers to get permission before using or disclosing information provided on a tax return. The tax collectors say the recommended changes to regulations first laid down in 1974 update the rules for modern, electronic business methods.

The current regulations say a tax preparer can disclose information to a third party if the taxpayer gives consent. Tax preparers can also market other financial products to their customers if the products are sold by an affiliated group within the company.

One change proposed in the new regulations would let tax preparers market financial products sold by other companies to their tax clients if those clients consent.