IRS plans to allow preparers to sell data Critics said the proposed regulation could lead to a loss of privacy for clients.

[David Farber <dave () farber net>]

Begin forwarded message:

From: "Gelles, Jeff" <jgelles () phillynews com>
Date: March 21, 2006 3:18:46 PM EST
To: Dave Farber <dave () farber net>
Subject: for IP?

Dave --
The IP list might be interested in what the IRS is up to with its  
privacy
rules -- this story ran in the Inquirer today:

Posted on Tue, Mar. 21, 2006


IRS plans to allow preparers to sell data
Critics said the proposed regulation could lead to a loss of privacy for
clients.

By Jeff Gelles
Inquirer Staff Writer

The IRS is quietly moving to loosen the once-inviolable privacy of  
federal
income-tax returns. If it succeeds, accountants and other tax-return
preparers will be able to sell information from individual returns -  
or even
entire returns - to marketers and data brokers.

The change is raising alarm among consumer and privacy-rights  
advocates. It
was included in a set of proposed rules that the Treasury Department  
and the
IRS published in the Dec. 8 Federal Register, where the official notice
labeled them "not a significant regulatory action."

IRS officials portray the changes as housecleaning to update outmoded
regulations adopted before it began accepting returns electronically.  
The
proposed rules, which would become effective 30 days after a final  
version
is published, would require a tax preparer to obtain written consent  
before
selling tax information.

Critics call the changes a dangerous breach in personal and financial
privacy. They say the requirement for signed consent would prove  
meaningless
for many taxpayers, especially those hurriedly reviewing stacks of  
documents
before a filing deadline.

"The normal interaction is that the taxpayer just signs what the tax
preparer puts in front of them," said Jean Ann Fox of the Consumer
Federation of America, one of several groups fighting the changes. "They
think, 'This person is a tax professional, and I'm going to rely on  
them.' "

Criticism also came from U.S. Sen. Barack Obama (D., Ill.). In a  
letter last
Tuesday to IRS Commissioner Mark Everson, Obama warned that once in the
hands of third parties, tax information could be resold and handled  
under
even looser rules than the IRS sets, increasing consumers'  
vulnerability to
identity theft and other risks.

"There is no more sensitive information than a taxpayer's return, and  
the
IRS's proposal to allow these returns to be sold to third-party  
marketers
and database brokers is deeply troubling," Obama wrote.

The IRS first announced the proposal in a news release the day before  
the
official notice was published, headlined: "IRS Issues Proposed  
Regulations
to Safeguard Taxpayer Information."

The announcement did not mention potential sales of tax information.  
It said
the proposed rules were guided by the principle "that tax return  
preparers
may not disclose or use tax return information for purposes other  
than tax
return preparation without the knowing, informed and voluntary  
consent of
the taxpayer."

IRS spokesman William M. Cressman defended the proposal in similar  
terms.

"The heart of this proposed regulation is about the right of  
taxpayers to
control their tax return information. The idea is to emphasize taxpayer
consent and set clear boundaries on how tax return preparers can use or
disclose tax return information," Cressman said in an e-mail response to
questions.

Cressman said he was unable to explain "why this issue has come up at  
this
time other than our effort to update regulations that date back to  
the 1970s
and predate the electronic era."

Not all the changes have drawn opposition.

Beth A. McConnell, director of the Pennsylvania Public Interest Research
Group (PennPIRG), said she welcomed a requirement that a taxpayer  
would need
to consent to overseas processing of any portion of a tax return.

"That's a positive development, but I don't think it's worth giving  
up our
tax returns' privacy for," said McConnell, who plans to testify on  
behalf of
the U.S. Public Interest Research Group at an April 4 IRS hearing in
Washington on the rule changes.

McConnell accused the IRS of using the new limit on overseas  
processing to
dress up changes that would chiefly benefit tax preparers, marketers and
data brokers.

"That's a disturbing trend among Washington officials lately," McConnell
said. "They'll offer a modest consumer protection in one area in  
exchange
for dramatic weakening of consumer protections in another area, and  
then try
to convince the public that it's all in our interests."

Critics of the proposal said it could do more than open up sales of tax
information to data brokers and marketers, because it could undermine
taxpayer confidence in the entire tax system.

"Privacy protections for tax information are especially critical  
given the
largely voluntary nature of the U.S. tax system," said Chi Chi Wu, a  
tax-law
specialist at Boston's National Consumer Law Center.

Wu and other critics said they were uncertain who or what was behind the
proposed changes in IRS privacy rules, which currently prohibit tax
preparers from selling returns to third parties for marketing  
purposes, and
require written consent if they want to use it for marketing by  
companies
under their own corporate umbrella.

Officials at H&R Block and Jackson-Hewitt, two of the nation's largest
tax-preparation firms, did not respond to requests for comment. Cressman
said the IRS had so far received only about a dozen comments on the
proposal.

"I think this just flew under the radar screen for so many people,"
McConnell said.

Although the formal comment period ended March 8, Cressman said late
comments "may receive consideration if they are sent to the IRS  
promptly."
Consumer advocates are urging taxpayers who oppose the changes to  
contact
the agency and Washington lawmakers.

Where to Write

It's too late to comment electronically, but the IRS may still consider
written comments. Mail them to:

CC:PA:LPD:PR (REG-137243-02)

Room 5203

Internal Revenue Service, Box 7604

Ben Franklin Station, Washington, D.C. 20044.

ONLINE EXTRA

Read the IRS's proposed new rule via:

http://go.philly.com/IRS21.


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Contact staff writer Jeff Gelles at 215-854-2776 or  
jgelles () phillynews com.




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