Your Tax Return Could Reveal Private Information

April 12, 2006 — -- Connie Barber of Philadelphia assumed her private financial information stayed between her and the IRS.

"Absolutely, I think it's going to be safe because it's going right to the IRS," Barber said. "I think that's the only people who have that information."

Like many taxpayers, she never knew her tax preparer could share or even sell her information, and all it took was her signature.

Here's how it works: Say you take your return to any of the big tax preparers and you want your refund right away. Your financial information is given to a bank that advances the money.

But then you have no control over what that bank does with your information.

It's been the law since the mid-1970s. But so much has changed since then, most notably, the risk of identity theft.

So the IRS is proposing a new regulation. The problem? Consumer advocates say the change makes the situation worse.

It will allow more tax preparers to give your information to virtually any third party who can then market products to you.

"The government tells us that we must turn over very private, personal financial information to them or we go to jail," said Beth McConnell of the Pennsylvania Public Interest Research Group. "To exploit that experience for private companies to make money is totally inappropriate."

But IRS Commissioner Mark Everson said the agency tries to protect the taxpayer by adding more explicit disclaimers, even typed in larger fonts. "So that when a taxpayer shares information with their preparer, he or she is well aware that it can in turn be reshared, go overseas or to financial institutions," he said.

If you don't want that, the IRS says simply don't sign.

But with 10 million victims of identity theft last year, attorneys general for nearly every state have signed a letter to the IRS saying they've got problems with the change, too.

"We don't think any taxpayer should be in the situation where they could sign away their rights to privacy," McConnell said.