House Lawmakers Probe IRS Privacy Plans

March 29, 2006

IRS Commissioner Mark Everson told House lawmakers Wednesday that proposed changes to privacy rules governing tax preparers who handle taxpayers' personal information simplify and tighten the standards.

The proposal alarmed some consumer groups, which fear the changes could open taxpayers to more widespread disclosure or sale of personal information.

The Internal Revenue Service said the recommended alterations force companies to tell consumers more about how they use information if the taxpayer consents to its disclosure. The tax collectors also said it grants tax preparers only one new power: the ability to advertise financial products sold by other companies to their tax clients if those clients consent.

Everson told Rep. Joseph Knollenberg, R-Mich., chairman of the House Appropriations subcommittee that oversees the IRS budget, that the uproar surrounding the proposed revision is "a classic Washington case."

On one side, Everson said, consumer groups do not want companies to market financial products to people getting their tax returns prepared. "They're screaming about this," he said.

On the other side, he said, are companies opposed to increased disclosure rules. They're "standing by silently and saying nothing in hopes that the regulation will be killed," Everson said.

The IRS wants to make changes to regulations, laid down in 1974, requiring that tax preparers get consent from a taxpayer to use or disclose information provided on a tax return. The tax collectors say the old rules need to be updated now that many tax returns are prepared electronically.

The regulations say a tax preparer can disclose tax return information to a third party if the taxpayer gives consent. They also say a tax preparer can market other financial products to clients if those products are from an affiliated group, such as a bank or lender within the same holding company.

The IRS wants to drop the requirement that companies must be affiliated for tax preparers to have permission to market other financial products to their clients.

Several consumer groups say that change eliminates a restriction on outside companies getting hold of taxpayers' personal data for marketing purposes. But the IRS says the regulation has always allowed outside companies to use tax return information if the taxpayer consents.

Tom Ochsenschlager, vice president for taxation at the American Institute of Certified Public Accountants, made the same argument and said consumer groups have misinterpreted the current rules.

The debate under way over the proposed changes shows that people are "just now realizing the information could have been shared all along," he said. "It also speaks to the fact that it wasn't commonly done in the past."

Taxpayer Advocate Nina Olson, whose office helps taxpayers resolve their disputes with the IRS, agreed that current regulations allow tax preparers to disclose taxpayer information to anybody if the taxpayer consents.

"That's the current state of affairs," she said.

Olson said she worked to make sure the new regulations added protections for consumers, including a warning that information disclosed to a third party can used repeatedly.

The proposed regulations would give taxpayers more detail about the information that can be disclosed and how it could be used. The consent would allow use of that information for one year, not indefinitely. Tax preparers could not force taxpayers to agree to disclose information as a condition for getting a tax return prepared.

Copyright: Associated Press

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