A proposal by the Internal Revenue Service (IRS) to permit tax preparers to sell tax information to third parties for marketing purposes if the taxpayer has signed a consent, drew little attention when it was first published in December as part of a set of proposed changes to Section 6103 of the tax code. Section 6103 covers disclosure of taxpayer information. But now, some members of Congress and consumer groups are questioning the change.
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It is hard to understand why any taxpayer would ever sign such a consent, CNNMoney.com says. Taxpayers have nothing to gain, an editorial in the Houston Chronicle says. “The only parties that stand to profit by the proposal are large tax preparers and the marketing firms who would buy and use the data.”
Consumer advocates fear that the consent could be buried in a pile of documents the taxpayers is asked to sign or could be presented in a hard-to-understand format. Jean Ann Fox of the Consumer Federation of America said that taxpayers could be duped into releasing their information and risk “having that information in a database somewhere,” according to the Washington Post. She said that the proposed change “essentially turns tax return information into a commodity for the highest bidder.”
The IRS says that the new rules were drafted to cover electronic transmission and other business practices, including “offshoring” of tax preparation work, that were not contemplated at the time current rules were adopted, the Post reports.
Senator Charles Grassley, who has tried to block the changes in Section 6103, called the changes too much of an “open-ended use of taxpayer information, the Wall Street Journal reports. Nina Olson, chief of the office of the National Taxpayer Advocate, is also fighting the change. “I think this is a bad trend, and it is a step in the wrong direction," she told the Journal.
The IRS has released proposed wording and formats for the consent that it believes will safeguard taxpayers. The consent should include the names of the preparer and the taxpayer; and disclosure of the intended use of the information; for example, “refund anticipation loans, balance due loans, mortgage loans, mutual funds, individual retirement accounts, and life insurance.” It should include a statement of purpose and the identification of tax return information to be disclosed or used.
The IRS proposal mandates that the paper consent form be formatted on 8-1/2 by 11 inch paper. It also requires that the electronic consent form “be provided on one or more computer screens. All of the text on each screen must pertain solely to the disclosure or use the consent authorizes. The text of the consent must be easily readable and meet the following specifications: the size of the text must be at least the same size as, or larger than, the normal or standard body text used by the website or software package for direction, communications or instructions; and there must be sufficient contrast between the text and background colors to ensure easy reading.”
Some large tax preparation companies oppose the new rules which they say make the consent process too difficult, the Post reports. H&R Block doesn’t sell taxpayer information, a spokesperson for the company told CNNMoney. The company continues to ask for consent to share client information with H&R Block financial and mortgage advisers and the HSBC bank, which offers refund anticipation loans.
In any case, taxpayers should ask whether there is a consent among any of the papers they have been asked to sign, CNNMoney advises, even though the rules have not been made final.
The IRS has scheduled open hearing on the rules changes for April 4. The proposed consent language and formats can be found on the IRS web site at www.irs.gov/pub/irs-drop/n-05-93.pdf