Who Else Reads Your Tax Information?

April 4, 2006 — -- A proposed privacy-enhancing change to U.S. tax regulations has the unique distinction of angering both consumer advocates and the companies that might profit from selling information about taxpayers.

The Internal Revenue Service will hold a hearing today to discuss a proposed new regulation that would alter the method by which professional tax preparers gain consent from consumers to share their tax information with third parties. The IRS said the new rule would make it clearer to consumers that their tax information might be shared.

"It requires that tax preparers must tell taxpayers that if you give consent, things can happen to your information that you may not want to happen," said IRS spokeswoman Nancy Mathis. "The tax preparer can do nothing -- absolutely nothing -- with a tax filer's information without that consent."

The new regulation spells out specific language about the sharing of information, and is meant to serve as a "strong warning" to filers. In electronic filings, the consent agreement would appear alone on one screen page, in at least 12-point type, to ensure that the warning doesn't get lost in the fine print of the rest of the tax return. The goal is give consumers a clear understanding of who might receive their information, Mathis said.

Three consumer groups asked the IRS last month to drop the proposal, saying it would "allow commercial tax preparers to share and even sell confidential taxpayer information to third party marketers and database brokers."

Jean Ann Fox, a spokeswoman for the Consumer Federation of America, said that rather than clarifying the consent procedure, the IRS should work to make sure tax preparers can't share information for any reason. Fox said sharing tax information with third parties, even with consent, leaves consumers open to unwanted marketing and could compromise privacy and raise the possibility of identity theft.

"We're trying to close the loophole that lets tax preparers sell personal information. We think that the new regulation will allow tax preparers to sell your information to an even wider group of marketers," Fox said.