IRS Weighs Data Release

The Internal Revenue Service is considering a rules change that for the first time would allow tax preparers to share customers' tax return data with unaffiliated third parties.

The agency held a hearing Tuesday on the proposed new "revenue procedure," which expands existing rules regarding release of taxpayer data, according to the IRS. Current rules--in existence for 30 years--permit sharing data with companies that are affiliated with the preparer, according to Michelle Lamishaw, an IRS spokesperson.

"It was always true that when you went to a [tax] return preparer they could ask if it was okay to give you additional information on services they provide, based on sharing info with affiliates," Lamishaw says. Expanding sharing with third-parties is "so taxpayers have the option of choosing among [more] services."

The changes would allow sharing with investment banks and other financial services companies.

Improved Consent

Both the existing and proposed rules require customer consent before a preparer can share their tax information. The proposed procedures would attempt to make the consent more obvious with clearer language and additional warnings, Lamishaw says.

Under the new rules, first proposed last December and available at the IRS Web site, the consent form would have to be presented by itself on a separate page and would have to include the following wording: "We generally are not authorized to disclose your tax return information for purposes other than the preparation and filing of your tax return. We may disclose your tax return information to third parties only if you consent to each specific disclosure."

Customers would also have to specifically consent to having their tax data sent offshore for outsourced tax preparation, an increasingly common practice.

Preparers Not Liable

"The good thing is that [the proposal] improves the consent procedures," says Chris Hoofnagle, senior counsel and west coast office director of the Electronic Privacy Information Center.

But Hoofnagle notes that tax preparers, though responsible for what happens to tax data shared with affiliates, are not responsible for information shared with third parties--a warning included in the required language of the proposed consent.

Hoofnagle says that he favors the potential changes for the "fully informed, voluntary consent," but notes that there's "a concern that even with a separate paper, people would just sign the big stack."

IRS Contracts With Private Debt Collectors

The IRS is expanding its dealings with third-party services in other arenas, too. In March, it contracted with three private firms to begin collecting owed taxes this summer, according to spokesperson John Lipold. The IRS will give the firms taxpayer names, contact information, and amounts owed.

"Private debt collectors will be held to the same strict privacy standard as IRS employees," Lipold wrote in response to questions. Penalties for mishandling the data could include fines and jail time, he wrote, but privacy advocates expressed concern about the release of information.