IRS rule change could mean more sold returns

Taxpayers not paying attention to the forms prepared for them by commercial tax preparers could soon find their personal financial information being sold more widely to data brokers and marketers.

The Internal Revenue Service is proposing to alter some privacy protections that consumer groups say would allow tax preparers greater leeway to sell personal financial information from the documents or even copies of the entire return itself.

The IRS has scheduled a hearing for April 4 on the proposal, part of a package of revisions the agency says are designed to safeguard information. One, for example, would require written taxpayer consent before a tax firm sends a return overseas for processing.

Tax preparation firms can already sell — with written consent from the taxpayer — information from an individual's return to affiliated groups, such as any other part of a holding company affiliated with them. The IRS proposal would drop the affiliation requirement, enabling anyone to buy the information.

Sen. Barack Obama, D-Ill., said in a letter last week to IRS Commissioner Mark Everson that taxpayers often hastily sign documents and tax forms prepared by commercial firms without reading them.

With the proposed rule, personal income and demographic data could then be easily sold with that written consent, opening up greater risks for identity theft, he said.

Jean Ann Fox of the Consumer Federation of America said Tuesday taxpayers need to feel confidant that their private financial information on tax returns won't fall into the hands of others. The more people with access to the information, the greater chance it will be misused, she said.

"We've had a rash of instances where credit card and other companies have data breaches," Fox said. "I can't think of anything as comprehensive or intrusive as having our tax information breached."

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The consumer federation and two other organizations — the U.S. Public Interest Group and the National Consumer Law Center — asked the IRS earlier this month to strike the proposed change.

Everson said in an e-mail response to an Associated Press query that the agency's intent is to strengthen taxpayer privacy in its proposal.

"For over 30 years, under the law, return preparers have been able to disclose tax return information with the consent of taxpayers," Everson wrote. "These new rules strengthen taxpayer protection by clarifying the consent standard."

IRS spokeswoman Nancy Mathis said in an interview that "the taxpayer is the one who has the final say on how the tax return can be used, no matter by whom."

The proposal was first published in the Federal Register last December but received only scant attention before the three consumer groups put out a news release on it March 8. The Philadelphia Inquirer carried a story on it Tuesday.