Critics of IRS tax-return proposal urge changes

One of the nation's largest purveyors of tax-preparation software on Tuesday urged the Internal Revenue Service to enact rules that would ban the sale or rental of tax-return information.

"The rule must clearly prohibit the sale or rental of tax-return information by a tax preparer to third parties," Intuit Chief Privacy Officer Barbara Lawler wrote. "This is a critical public policy principle that must be embodied by the final rule."

Lawler was one of several representatives from the public and private sectors who weighed in during an IRS hearing. The discussion centered on the IRS' December 2005 proposal to modernize rules governing tax preparers' use of their customers' annual tax filings. The IRS has said it needs to update the rules because they were enacted more than 30 years ago, predating electronic filing and the modern Internet.

The proposal has drawn fire from lawmakers, editorial writers at major newspapers, companies such as Intuit, consumer-protection groups and the National Association of Attorneys General. They charge that the rule would undermine consumers' confidential relationship with their tax preparers. They added that it would damage privacy rights.

The proposal would let tax preparers sell customer tax returns to unaffiliated third parties with customers' consent. The plan would update rules by covering electronic forms of consent. An IRS spokeswoman said the agency has no planned timeframe for enacting the changes.

The IRS said on its Web site that the new rule would "tighten existing requirements regarding the customer consent a return preparer must obtain" to disclose data.

But a Congressional Research Service analysis published last week found that the IRS' proposal would "permit broader disclosure." Among other things, the analysis said the new rule would not limit the selling or sharing of customer information to affiliated companies.

"Not every taxpayer might understand the real impact of providing their consent," Beth McConnell, director of Pennsylvania's Public Interest Research Group, said on Tuesday.

She noted that preparers could sell the information to unregulated entities such as data brokers like ChoicePoint.

"Taxpaying information is a window into your financial soul," she said. "Marketers would love access to this information. I don't think consumers should have to make a choice. The assumption should be the information should be private."

Other groups, such as the American Institute of Certified Public Accountants, said in written comments that consumer groups' concerns are overblown.

Lawmakers in the House and the Senate have written letters expressing their concern to IRS Commissioner Mark Everson. They also have introduced legislation that would ban the selling or sharing of people's tax information.