The date of April 15 is not necessarily a date that many Americans refer to fondly, because it represents more anxiety than joy. The Internal Revenue Service (IRS) also doesn’t get any sweet terms even for those who could enjoy an income tax refund when filing their tax returns each year. But it is specifically tax return preparation, which has become increasingly complex over the years, that continues to drive many taxpayers to third-party tax preparers, such as accounting firms and tax preparation services. . In order to properly comply with the requirements of the intricate IRS Code, many taxpayers have extended their trust to tax professionals to avoid the risk of making mistakes.
It is also in the interest of taxpayers not only that the preparation of their income tax return is filed correctly and legally, but that the handling of the most sacred and valuable information of taxpayers is protected against theft, misuse or abuse. Therefore, the latest proposed changes to the IRS Code, as published in the Federal Register on December 8, 2005, have prompted consumer protection advocates and members of the United States Congress to take issue with said change to Section 7216-3 of the IRS Code. But the recommended changes only came to light not only to the public but also to members of Congress, just three weeks before a public hearing on these new rules at IRS offices, which took place on April 4, 2006.
Unfortunately, the public comment period for the hearing closed on March 8, 2006 at the same time that consumer advocacy organizations, not legislators, discovered the proposed changes. The way the proposed changes have been worded and the possibly surreptitious manner in which those changes were made as part of a revision of the Code, which has not been changed since 1974, is puzzling. Supposedly, the rewording is an effort to modernize the Code. Code with rules relevant to electronic business transmissions and the advent of technology since the 1970s.
The new language will require all taxpayers using a third-party tax preparation service to specifically sign documentation that provides for the sale of tax information data to third-party marketers, database brokers, or financial institutions. Additionally, signed documentation would be required to allow said US tax preparer to offshore said tax work, such as specifically to India. But the interpretation of the actual language in the proposed new Code, including the risks of taxpayers unknowingly signing such documents without knowing their implications, is what has raised questions. What is of concern is whether the taxpayer will be adequately warned about what he is really signing, when he is overwhelmed with a large number of papers to execute.
According to IRS Commissioner Mark Everson, the proposed changes actually improve the protection of taxpayer information and “are not significant.” But upon closer examination, the chances of identity theft and fraud are rising not only in the US but around the world in India, where prevention of security breaches relies heavily on a passcode. honor instead of what is dictated by law. Thus, a much larger and more detailed US tax return than any other personal financial document is ready to be harvested.
Although the basis for the IRS’s proposed code changes is the use of electronic transmissions and new software technologies in the tax filing system, the sale of offshore tax preparation and information is not directly related to the mechanics of the tax return. The IRS also argues that the 1974 Code, or our current tax law, already provides for tax preparers to profit from a tax client’s information by selling it. But that information specifically refers to an “affiliated” company of the tax preparer only. With the new changes, tax preparers could sell tax information to any third party, affiliated or not.
However, there is a “warning” printed on the third party permission consent form that clearly states: “Once your tax return information is disclosed to a third party with your consent, we have no control over what that third party discloses.” third party does with his tax return. If the third party uses or discloses your tax return information for purposes other than the purpose for which you authorized the disclosure, under federal tax law, we are not responsible for that further use or disclosure, and federal tax law may don’t protect him from it. divulgation.”
Therefore, any third party may sell such information to any other third party business without disclosure to the taxpayer or any liability on the part of the tax preparer or the IRS, once initial consent is given. The term of validity of said consent would supposedly be limited to one year. But without accountability mechanisms, the term will remain unenforced.
How the IRS can argue that these new rule changes would allow for better privacy controls is dubious at best. Regarding privacy controls in India, there is even less scrutiny, as the US arm of law does not extend to any tax preparation in India or any offshore location. Steven Ladd, CEO of Copanion, Inc. and a certified public accountant for more than 25 years, testified at the IRS public hearing on April 4. He stated, “Security lapses in foreign tax preparation encourage cyberterrorism by those who would victimize every family in our country.” Ladd, who operates an accounting firm in New Hampshire, went to Bangalore, India, looking to offshore his own tax preparation business to save on overhead costs.
After spending more than 60 hours with various companies large and small there, Ladd was “shocked by the lack of adequate security present at all of them.” He said: “Offshore tax preparers (including data entry workers, accountants, supervisors, IT staff, consultants and owners) can see the taxpayer’s name, address, Social Security number, date of birth, phone number, salaries, mutual fund broker, bank and bank accounts with their routing numbers. It’s the ultimate pot of gold for an identity thief. 1040s are like an exposed wallet waiting to be stolen by a career pickpocket.” And Ladd is specifically proposing to add a caveat related to outsourced tax preparation outside of the United States.
Bankrate.com, a consumer magazine, investigated data brokers Choice Point and DocuSearch and the value of various pieces of information contained on a US tax return: educational history $12.00; credit history $9.00; $18.00 worker’s compensation record; bankruptcy information $26.50; military record $35.00; Social Security Number $8.00; date of birth $2.00; address $.50; phone number $.25. And how much other information will potentially be sold from a 1040 form has not been addressed. Not only does a taxpayer enjoy no compensation for the information, but advocacy organizations have further warnings. Untrained tax preparers, unfamiliar with the new rules, or those who earn a commission or remuneration for having clients authorize third-party use and offshoring of their information can potentially exploit the taxpayer.
A March 2006 letter to IRS Commissioner Everson from 47 state attorneys general stated, “There is simply too much risk for American taxpayers, particularly with respect to the current scourge of identity theft, to increase the likelihood that their most personal information will be stolen or misused”. Senator Barack Obama (D-IL), as well as Senator Charles Schumer (D-NY) and other members of Congress, plan to introduce legislation that would prohibit the sale of tax return information to third-party companies, should new rules are approved. But so far the law is silent on offshoring future tax preparation for those taxpayers who prepare their returns themselves.
What becomes clear, however, are the uncertainties with information control once taxpayers give their consent to allow their information to be sold to data brokers, merchants or financial institutions or to any third party on the open market, without limitation, and/or is relocated. . More important in the long run is whether public confidence in the sanctity of the US income tax system will suffer and be irrevocably lost.
