IRS Moves to Tighten Up Disclosures that Allow Tax Preparers to Sell Your Personal Information

I've often commented that marketing is the root cause of identity theft. For years, our information has been "gathered and sold" AND a lot of the "gatherers" have done a lousy job of protecting it.

After all, we seem to read about this data being compromised every week.

Lately, we've all read about the IRS phishing attacks and how to protect ourselves. But did you know that by signing releases when you have someone do your taxes authorizes your preparer to sell your information?

Some might argue that this puts your information at as much risk as clicking on one of those "phishy" e-mails circulating around the internet. Especially when data is being breached at record rates by criminals, who normally use it to commit financial crimes in your name.

Here is an interesting analysis from USA Today:

Now, the IRS wants to change the rules, and at a hearing today in Washington, the agency is bound to get an earful. Consumer advocates have criticized the IRS for what they see as plans to loosen the rules. Major tax preparers have blasted the agency for adding what they regard as needless confusion.

Actually, the IRS is on the right track. The proposed rules would make consent more specific and clearer to taxpayers. They'd require a "warning" to consumers that once returns are disclosed, the preparer "has no control over" what third parties do with it.

That warning is a needed eye-opener for consumers, who now may give away their privacy simply by failing to read fine print:

• Disclosures are a boon to tax preparers and businesses working with them, not the taxpayer. Why should taxpayers share highly personal data to assist marketing?

• Preparers often pitch "refund anticipation loans," which allow taxpayers expecting a refund to get their money within two days. That bit of convenience comes at a high cost. A report last April by the Brookings Institution found common fees of $130 for loans that sometimes last less than two weeks. On an annualized basis, the interest can exceed 200%. The loans, Brookings found, take a significant chunk of low-income taxpayers' refund dollars - an estimated $740 million in 2003.

• In this digital age, hardly a month goes by without news of some company losing credit card or other personal data through a security breach. Disclosing tax information opens the possibility that return data could be mishandled as well.

To sum it up USA Today commented:

Better yet, if Congress has any interest in protecting its constituents rather than its campaign contributors, it might want to require that preparers stick to doing taxes, instead of turning tax time into a bazaar for selling other financial products.

Here is the full story by USA Today:

For sale: Your 1040 (USATODAY.com)

In case anyone is interested in how many data breaches have occurred in the past couple of years, here is a pretty eye-opening chronology from the Privacy Rights Clearinghouse.

Of course, my personal advice is to "Just Say No," when your tax preparer asks you to sign your "identity" away.