Is Your Tax Information Safe?

Does the thought of strangers poring over your tax return make you squirm? If so, it may come as an unpleasant surprise that a proposed change to privacy regulations issued by the IRS would enable tax preparers to sell or disclose information on client tax returns without permission.

The change to current regulations--which require preparers to disclose information only with the consent of the taxpayer--has raised the ire of taxpayers, tax preparation companies and legislators alike. "The proposed IRS rules would allow the companies that do your taxes to sell your private information to whom-ever they want--credit card companies, telemarketers, junk mail distributors," says Sen. Barack Obama (D-IL), who sponsored a Senate bill that would pre-empt the IRS' plan. "Our tax returns contain personal and confidential information that no American would ever want sold to the highest bidder--Social Security numbers, information about children, income, assets and debts."

Critics of the change point out that transmitting personal financial information increases the risk of identity theft or financial fraud. "Taxpayers should feel confident that the details of their personal finances will be protected by the professional tax preparers to whom they are entrusted," says Rep. Melissa Bean (D-IL), who sponsored companion legislation in the House. "Yet, IRS rules make it easier for that information to be sold, transmitted and potentially stolen. This bill is necessary to secure the peace of mind taxpayers deserve."

Jennifer Pellet is a New York City freelance writer specializing in business and finance.

This article was originally published in the September 2006 print edition of Entrepreneur with the headline: Privacy, Please.