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IRS Proposal Allows Income Tax Info To Be Sold

April 15 is a date that many Americans don’t remember fondly because it represents more anxiety than pleasure. The Internal Revenue Service (IRS) does not reveal the terms of endearment, even for those who can avail of income tax refunds after filing their tax returns each year. But it is tax return preparation that has become increasingly complex over the years, which continues to drive many filers to third-party tax preparers such as accounting firms and tax preparation services. Tax professionals are relied upon by many taxpayers to avoid the risk of making mistakes in order to adequately comply with the requirements of the confusing IRS Code.

The concern of taxpayers is not only to ensure that their income tax returns are filed correctly and legally, but also to protect their most sacred and valuable information from theft, misuse or abuse. Therefore, the most recent proposed changes to the IRS Code, published in the Federal Register on December 8, 2005, prompted consumer advocates and members of the United States Congress to challenge such a change to IRS Code Section 7216-3. But the recommended changes became known not only to the public, but also to members of Congress, just three weeks before the April 4, 2006, public hearing on these new rules at IRS offices.

Unfortunately, the public comment period for the hearings closed on March 8, 2006, while the proposed changes were discovered by consumer protection organizations, not MPs. Worryingly, the manner in which the proposed changes are drafted and the likely stealthy way in which such changes are made as part of an overhaul of the Code, which has not been amended since 1974, is likely. related to electronic business transmission and the emergence of technology since the 1970s.

The new language would require all taxpayers who use a third-party tax preparation service to specifically sign documents that involve the sale of tax information data to outside marketers, database brokers or financial institutions. In addition, signed documents will be required to allow such a US taxpayer to conduct such tax affairs offshore, for example in India. However, the interpretation of actual language in the newly proposed code, including the risks associated with taxpayers signing such documents unknowingly, has caused doubts. The concern is that when a taxpayer is overwhelmed with so many documents to execute, they are not properly warned about what they are actually signing.

According to IRS Commissioner Mark Everson, the proposed changes actually improve the protection of taxpayer information and are “not significant.” But on closer inspection, they increase the chances of identity theft and fraud not just in the United States, but around the world, where preventing security breaches is based on a code of honor rather than a law. Thus, the US tax return is available for selection, larger and more detailed than any other personal financial document.

While the basis of the IRS’s proposed code changes is the use of electronic transmissions and new software technologies in the tax return system, the sale of information and the offshoring of tax preparation are not directly related to the tax filing mechanism. The IRS also argues that the 1974 Code, or our current tax law, already allows taxpayers to profit by selling tax client information. However, this information specifically refers only to the taxpayer’s “affiliate” company. With the new changes, taxpayers will be allowed to sell their tax information to any third party, related or not.

However, there is a “disclaimer” printed on the third-party consent form that clearly states: “Once your tax return information is released to a third party based on your consent, we have no control over what that third party does with your taxes. If the third party refuses to release your tax return information If it uses or discloses it for any purpose other than what you authorized, under federal tax law, we are not responsible for its further use or disclosure, and federal tax law cannot protect you from that disclosure.”

Thus, any third party may sell such information to any other third-party business without any reporting by the taxpayer or the taxpayer or the IRS after prior consent has been granted. The duration of said agreement will probably be limited to one year. But without accountability mechanisms, the deadline will remain unenforced.

How the IRS can argue that such new rule changes will allow for better privacy controls is questionable at best. There is less research on privacy controls in India because US law does not apply to any tax preparation in India or any offshore location. Steven Ladd, CEO of Copanion, Inc. and a Certified Public Accountant for over 25 years, testified at the April 4th IRS Public Hearing. “Security flaws in offshore tax preparation are fueling cyber terrorism by individuals who would victimize every family in our country,” he said. Ladd, who ran an accounting firm in New Hampshire, went to Bangalore, India, to offshore his tax preparation business to save on overhead costs.

After spending more than 60 hours there with several large and small firms, Ladd was “shocked at the lack of adequate security in all of them.” It states that “Offshore taxpayers (including data entry workers, accountants, supervisors, IT staff, consultants and owners) must provide the taxpayer’s name, address, Social Security number, date of birth, telephone number, salary, mutual fund broker, bank and bank accounts with routing numbers. This is the ultimate pot of gold for an identity thief. 1040s are like an open wallet just waiting to be picked off by a career pickpocket.” And Ladd suggests adding a warning specifically about tax preparation received from foreign companies. USA

Bankrate.com consumer magazine examined data brokers Choice Point and DocuSearch and the cost of various pieces of information on a US tax return: education history $12.00; credit history $9.00; worker’s compensation record $18.00; bankruptcy information $26.50; military record $35.00; Social security number $8.00; date of birth $2.00; address $.50; phone number $.25. How much information other than the 1040 form will be sold has not yet been decided. Not only is the taxpayer not compensated for the information, but advocacy organizations have additional caveats. Taxpayers who are not familiar with the new rules, who are not trained, or who receive commissions or rewards for clients to allow third-party use and offshoring of their data, can potentially exploit the taxpayer.

A March 2006 letter from the attorneys general of 47 states to IRS Commissioner Everson stated: “There is too much at stake for American taxpayers to increase the likelihood that their most private information will be compromised, especially with the ongoing scourge of identity theft. stolen or misused.” Sen. Barack Obama (D-IL), as well as Sen. Charles Schumer (D-NY) and other members of Congress, have proposed introducing legislation that would ban the sale of tax return information to third-party companies if the new rules are approved. But the law is still silent on future tax preparation offshoring for self-return preparers.

What remains clear, however, are the uncertainties surrounding surveillance data once taxpayers allow their data to be sold and/or stored offshore without restriction to data brokers, marketers or financial institutions or any third party in the open market. . More importantly, in the long run, public confidence in the sanctity of the US income tax system will be damaged and irrevocably lost.

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