NCPA - National Center for Policy Analysis


April 4, 2006

While many taxpayers assume their returns are private, IRS rules adopted in 1974 allow commercial tax preparers to share information from returns with affiliates, or sell it to third parties, with the taxpayers' permission. Millions of taxpayers sign away privacy each year when their returns are prepared. Companies can then try to sell them everything from retirement accounts to controversial loans, often at rates that would make a loan shark blush, says USA Today.

Now, the IRS wants to change the rules. The proposed rules would make consent more specific and clearer to taxpayers. They'd require a "warning" to consumers that once returns are disclosed, the preparer "has no control over" what third parties do with it.

According to USA Today:

  • Disclosures are a boon to tax preparers and businesses working with them, not the taxpayer. Why should taxpayers share highly personal data to assist marketing?
  • Preparers often pitch "refund anticipation loans," which allow taxpayers expecting a refund to get their money within two days. That bit of convenience comes at a high cost with fees of as much as $130 for loans that sometimes last less than two weeks.
  • In this digital age, hardly a month goes by without news of some company losing credit card or other personal data through a security breach. Disclosing tax information opens the possibility that return data could be mishandled as well.

Taxpayers deserve explicit consent forms explaining what information they're giving up and warning of the possible dangers. Better yet, if Congress has any interest in protecting its constituents rather than its campaign contributors, it might want to require that preparers stick to doing taxes, instead of turning tax time into a bazaar for selling other financial products, says USA Today.

Source: Editorial, "For sale: Your 1040; IRS plan would give consumers better warning about data sharing," USA Today, April 4, 2006.


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