Wednesday, April 5, 2006
Current regulations permit tax preparers to share tax return information with the consent of the taxpayer only for purposes related to tax preparation. For example, some taxpayers opt to have their tax return information used to evaluate their eligibility for certain financial products, such as a refund anticipation loan or a home mortgage.
Under the proposed rules, tax return information can be shared for one year with any third party, including marketing firms and other data brokers, if the taxpayer consents. The IRS draft provides some guidance on format and content of consent to disclose forms to ensure that taxpayer consent is "knowing and voluntary."
In their letter, Attorney General Abbott and other state attorneys general first recommended an outright ban on marketing and non-preparer use of tax return information, noting that allowing such sharing of information undercuts the government's goal of having taxpayers provide full and accurate information to their tax preparers. The state attorneys general also suggested several safeguards to ensure protection of that information, should the IRS proceed with the proposed regulations.
The state attorneys general urged the IRS to ensure that taxpayer consent is in fact "knowing and voluntary" by requiring the use of a mandated document, separate from other tax preparation forms, that meets specific formatting and content requirements in addition to those set out in the proposed regulations. NAAG suggested that the IRS regulations prohibit obtaining consent to multiple uses or multiple disclosures in the same document so that taxpayers do not unintentionally give "blanket consent" and lose control over what happens to their information.
Additionally, NAAG recommended that the consent form should advise the taxpayer that they are not required to disclose tax return information in order to obtain tax preparation or any other services. The proposed regulations should also be modified to prohibit tax preparers from making any service conditional on taxpayers' agreeing to share personal return information.
NAAG also strongly discouraged allowing for the disclosure of entire tax returns, instead suggesting that regulations prohibit a tax preparer from using or disclosing information from a tax return that is not required to obtain a product or service the taxpayer has specifically agreed to. For example, if the taxpayer consented to share tax return information to learn more about retirement accounts, the tax preparer should not be allowed to share the taxpayer's medical information or other information not relevant to the product.
NAAG also recommended that the IRS adopt provisions that would ban the use of lotteries, raffles, and other similar games as a way to entice taxpayers' into sharing their return information.
"Taxpayers entrust their tax return preparers with sensitive information and deserve responsible behavior in return," added Attorney General Abbott. "Proper safeguards can keep identity thieves at bay and give taxpayers secure access to the products and services in which they may be interested."
Other states signing onto the letter include Alabama, Alaska, Arizona, Arkansas, California, Colorado, Connecticut, Delaware, District of Columbia, Florida, Georgia, Hawaii, Idaho, Illinois, Iowa, Kansas, Kentucky, Louisiana, Maine, Maryland, Massachusetts, Michigan, Mississippi, Missouri, Montana, Nevada, New Hampshire, New Jersey, New Mexico, New York, North Dakota, Ohio, Oklahoma, Oregon, Pennsylvania, Rhode Island, South Carolina, South Dakota, Tennessee, Utah, Vermont, Virginia, Washington, West Virginia, Wisconsin, and Wyoming.
The IRS met on April 4 to consider the proposed regulations.