IRS proposes tighter privacy rules

The IRS has proposed guidelines on the disclosure and use of income tax filer’s information by tax return preparers to strengthen privacy in the era of electronic filing.

Tax return preparers may not disclose or use tax return information for purposes other than tax return preparation without the knowing, informed and voluntary consent of the taxpayer.

IRS drafted its existing regulations in the early 1970s before the advent of many business practices and technology uses that support the electronic preparation and transmission of tax returns by preparers.

The proposed regulations http://www.irs.gov/newsroom/article/0,,id=151368,00.html broaden the definitions of “tax return preparer” and “tax return information,” revise the manner and form of obtaining taxpayer consent to use or disclose tax return information, and add a requirement to obtain taxpayer consent before preparers send tax return information offshore.

“Safeguarding of tax return information is critical. Americans ought to know when their tax returns are being outsourced and prepared abroad,” said IRS commissioner Mark Everson in a statement.

A tax return preparer who hires contractors that will need access to tax return information to repair computers or data files would have to notify those contractors that they will also be subject to the privacy restrictions, IRS said.

Rep. Ed Markey (D-Mass.) first raised the privacy concerns related to outsourcing tax preparation services in early 2004, according to Everson.

“This requirement should help ensure that taxpayers retain control over who gets access to sensitive personal information about their finances, since consumers are unlikely to agree to have their tax returns sent to countries with weak privacy protections,” Markey said.

The proposed regulations are open to public comment for 90 days after their publication in the Federal Register. The IRS will conduct a public hearing on the proposed regulations April 4, 2006.

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