Don't let the IRS share, sell your sensitive tax data

A proposal by the Internal Revenue Service to permit tax preparers to sell or share a client's tax-return information with marketers, data brokers and other private third parties has sparked anger from several consumer groups.
Their anger is justified, the proposal is dangerous, and it should be scuttled. Sharing sensitive financial information with third parties has potential to invade privacy and to invite identity theft. Uncle Sam should know better than to sanction such high-stakes risk-taking.
What happened?
Earlier this week, the Public Interest Research Group, the National Consumer Law Center and the Consumer Federation of America filed objections to the proposal with the IRS.
The proposal is part of a larger plan for reforming longstanding IRS tax codes that regulate how accountants and tax preparers can use and disclose confidential taxpayer information. Current law mandates maximum privacy for tax filers.
As Chi Chi Wu, an attorney with the National Consumer Law Center, argues, 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.
But more than just full and honest disclosure to the government is at risk.
There could be no guarantee that individuals' personal tax records would not fall into unscrupulous hands that would use the information fraudulently. At a time when public and private sectors have built up elaborate security systems to prevent identity theft, this is no time for the federal government to move in the opposite direction.
Consent form is instructive
To be fair, the proposal does require a consent form to be signed by the individual taxpayer. But who's to say that a taxpayer may sign the form because she was in a rush or did not fully understand its ramifications.
"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.
Fortunately for the consumer, the consent form raises its own red flag in this 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."
IRS and its image
In recent years, the IRS has been billing itself as a kinder and gentler tax collection bureaucracy. Selling individuals' intensely private records to the highest bidder would surely cause some to question the agency's commitment to that consumer-friendly image.
The IRS even tries to give its proposal a positive spin. It says 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." Unfortunately, taxpayers would surrender that control to the IRS once they sign the dotted line.
Current law generally prohibits tax preparers from using a client's financial information for anything other than completing the tax return. In this case, the status quo ought to be preserved.