03.22.06

Cantwell Questions IRS Plan to Green-Light Sale of Private Taxpayer Data

Senator: Data disclosure could put privacy at risk, aid identity thieves

WASHINGTON, DC – Wednesday, U.S. Senator Maria Cantwell (D-WA) questioned an IRS proposal to permit tax preparers to sell private taxpayer data to third parties, including data-brokers and telemarketers.

“The federal government should be careful about sanctioning the sale of private information, especially at a time when identity theft is America’s fastest growing crime,” said Cantwell. “I’m going to do all I can to make sure private data isn’t up for sale to the highest bidder.”

With few exceptions, federal law prohibits tax preparers from using financial information provided by clients for purposes other than completing tax returns. However, an IRS proposal currently under consideration would permit income-tax preparers to sell or share information from a client’s tax return with third parties. While tax preparers would have to obtain written consent before selling or sharing this data, many taxpayers who sign consent forms may not be fully aware that they are authorizing the sale of personal information.

“When taxpayers who don’t read all the fine print end up signing away the privacy of their financial information, we have a problem,” said Cantwell. “We need to do more, not less to protect private information on taxpayers, their children, spouses, and business transactions. The IRS needs to seriously reexamine this plan.”

At present, with the taxpayer’s written consent, tax preparers may use tax return information to sell related products and services such as refund anticipation loans, and can share the information with affiliated groups such as financial planners or mortgage brokerages. However, other uses and disclosure of the information by tax preparers is prohibited. The current IRS proposal would allow the sale of taxpayer data to a far wider range of individuals and businesses. To protect taxpayer privacy, Cantwell wrote a letter to IRS Commissioner Mark Everson Wednesday urging prompt reconsideration of the plan.

[The text of Cantwell’s letter to IRS Commissioner Everson follows below]

March 22, 2006

Commissioner Mark Everson
Internal Revenue Service
U.S. Department of the Treasury
1111 Constitution Avenue, NW
Washington, DC 20224


Dear Commissioner Everson:

I am writing to express my concerns with the Internal Revenue Service proposal to allow preparers of federal income-tax returns to sell or lease information contained in tax returns. As you know, tax documents require the disclosure of highly sensitive financial information, the improper release of which may place taxpayers at significant risk for privacy violations and identity theft.

I recognize that the proposed rule will require a tax preparer to obtain written consent from a client before tax information can be sold or leased; however, I am concerned that this will not provide taxpayers with adequate protection. In an effort to meet filing deadlines, taxpayers may sign the consent form without fully appreciating that they are signing away the privacy of their financial information.

Tax preparers are privy to sensitive information including financial documents, business disclosures, and personal data on spouses and children. Taxpayers have a reasonable expectation that this information will be handled with proper care, and should not have to face the threat of its sale and resale to marketers and database brokers.

I am concerned that the agency may not have fully anticipated the negative consequences that could result from this proposed change. With identify theft the fastest growing crime in America; we need to do more, not less to strengthen privacy standards. The presence of social security numbers on most tax forms raises the threat of identity theft, should this information be resold or handled without precaution. Last year, there were over 500,000 new victims of identity theft and, during this coming year, approximately one person per minute will have his or her identity stolen. In 2004, Washington state ranked eighth in the nation in identity theft crimes, up from tenth in 2003. I am concerned that this change will both weaken privacy rights and make taxpayers more vulnerable to fraud.

In light of these concerns, I strongly urge you to reconsider this proposed rule. I appreciate your immediate attention to this issue.

Sincerely,

Maria Cantwell
United States Senator

###