IRS Online Data Proposal Spurs Concern
The Internal Revenue Service has proposed a one-year pilot program in California to use electronic mail to speed the delivery of personal tax information to mortgage companies, credit bureaus and lenders.
The test, which will be limited to a handful of lenders in the state, is raising alarms among privacy advocates who say that the system would make sensitive tax information so easy to transmit that more businesses could demand it. They fear it would be hard to stop the companies from reselling the information to firms that want to compile lucrative repositories of Americans’ most personal financial data.
The IRS proposal would be an electronic version of a service that already exists in the realm of envelopes and stamps. Taxpayers seeking loans or credit already may authorize the IRS to provide portions of their tax returns to third parties, but the process can take weeks. The new system would zip the data within 24 hours.
IRS officials say that they have done everything they can to ensure that personal privacy will be protected under the proposed system.
“We are talking simply about automating a process that already exists on paper,” said Robert E. Barr, the IRS’ assistant commissioner for electronic tax administration and head of IRS efforts to move more services online. In fact, he said, less information would be available electronically than is now sent through the mail.
Privacy advocacy groups are not concerned about the current policy but argue that moving such data online opens up a new set of risks.
“Paper doesn’t move as easily as bits do,” said Marc Rotenberg of the Washington-based Electronic Privacy Information Center. “I’m not sure that’s a service you really want to improve the efficiency of.”
If third parties began passing around taxpayers’ returns, it could tear down the congressionally mandated protections surrounding disclosure of tax information, said Evan Hendricks, who first publicized the quietly issued IRS proposal in his newsletter, Privacy Times. “There’s absolutely nothing wrong with good customer service,” Hendricks said, but “there’s just a lot of temptation when such sensitive data is involved, and it’s worth so much money.”
Advocates like Hendricks see a time when providing tax return information becomes a broad requirement for credit applications, job applications and more. “The concern is, pretty soon is everybody going to want to see your tax return for everything?” said Mary J. Culnan, a privacy expert at Georgetown University’s McDonough School of Business.
“Companies have strong coercive power,” she argued, saying that before long the whole presumption behind the privacy of tax information could change. “If people don’t want to provide their tax returns to everybody, it’s, ‘What are you hiding?’ ”
The conflict--and the heat of the emotions aroused--show the perils of reform in a world where privacy is fragile and tempers short. IRS officials say that because the new system allows consumers to tailor the amount of information given-- from more than 200 lines of financial data available on many tax returns to as few as 20--it promises “an almost tenfold increase in privacy” over the paper system, in which the authorized third party receives the whole return, Barr said.
The IRS also is writing provisions into its contracts with the companies in the pilot program that will prohibit reselling data, reserve the agency’s ability to monitor compliance and yank the privilege of getting data electronically if the participant abuses the program.
