(Washington, D.C.) – At a Senate hearing today, U.S. Senator Patty Murray (D-Wash) told the IRS Commissioner that she strongly opposes an IRS plan that would make it easier for tax preparers to sell taxpayers’ private financial records to telemarketers and other third parties. She urged IRS Commissioner Mark Everson to re-examine the proposal and prohibit the sharing of taxpayer information.
“The IRS should not be an accomplice in selling taxpayer information,” Murray told the IRS Commissioner. “Taxpayers deserve more privacy, not less.”
“What consumer really wants to have their dinner interrupted by a telemarketer who’s looking at a copy of their private tax return?” Murray asked. “I hope the IRS will take a fresh look at these regulations and provide an outright prohibition on this information being shared with anybody.”
In March, the IRS proposed changes to its privacy policy that would modernize procedures for tax preparation firms to sell an individual’s tax records to third parties. While a firm would need to get a taxpayer’s signature, Murray noted that many Americans may not realize they are signing away their privacy rights.
“We know how this works,” Murray said. “It is 4 p.m. on April 15th, you’re signing the last piece of paper the tax preparer’s put in front of you. You’re signing everything as fast as you can.”
Murray wrote to Everson on March 22nd to express her concerns. Today, Murray used her position as the top Democrat on the committee that oversees the IRS to question Commissioner Everson about the proposal. (The committee is the Senate Appropriations Subcommittee on the Transportation, Treasury, the Judiciary, and Housing and Urban Development)
MURRAY: Why you are providing any opportunity for tax preparers and their affiliates to use personal financial data to sell mortgages, mutual funds, IRA accounts, or life insurance? Don’t taxpayers already have innumerable opportunities to shop for services like that without subjecting their personal tax returns to perusal by marketers?
EVERSON: What we are trying to do here is have a balanced approach. This piece of the law has been in effect for over 30 years, but the world has changed since that time. . . .I guess the better question is whose information is it? Is it the taxpayer’s information or is it the government’s information? We, at the IRS, as you know, don’t share information with anybody, so it’s a question of preparers . . . . [W]hat we’re trying to do is provide a really clear protection . . . But we don’t think, that under statue now, we could say: you aren’t free to share your information with that preparer.
During the hearing, Murray also questioned Commissioner Everson about the agency’s shortfalls in fairly collecting taxes, inaccurate assistance provided by the IRS to taxpayers, and a flawed plan to close taxpayer assistance centers.
Senator Murray’s opening statement and a transcript of her questioning Commissioner Everson follow:
Exactly ten days ago, millions of taxpayers scurried to the post office to file their 2005 tax return right at the deadline. American taxpayers have come to expect certain things when it comes to the way their taxes are prepared, processed, and collected in this country. First they expect honesty. They expect that, like themselves, the vast majority of their neighbors are paying what they owe and that the IRS is there to ensure that everyone pays their fair share. Second, they expect integrity. They expect that their taxes will be processed correctly, especially if they have paid a tax preparation firm to do it for them. Third, they expect privacy. They expect that the personal financial information that they share with the IRS will be kept private and will stay private whether it’s in the hands of tax preparers or the IRS. Finally, they expect some help. They expect that, if they need some help understanding the very complex tax code, the IRS will be there to assist them. Those are all reasonable expectations. Unfortunately, today the IRS is falling short of meeting those expectations.
Rather than everyone paying his or her fair share, it has become clear that we have a huge tax gap in this country – estimated at $345 billion. That’s the difference between the amount that Americans owe and the amount that the IRS actually collects. I want to note that the IRS Commissioner deserves some credit for being outspoken on this problem.
When it comes to taxes being prepared accurately, the IRS has, at times, had a spotty record in providing accurate tax advice to inquiring citizens. Now, we see more recent reports indicating that even the tax preparation professionals are doing an inadequate job preparing people’s taxes, exposing our citizens to potentially significant fines and tax debts.
When it comes to keeping taxpayer information private, we have seen several instances where IRS contractors have been granted inappropriate access to taxpayers’ information, access they don’t need to do their job.
And now we have a new regulatory proposal from the IRS to modernize the rules that pertain to privacy. In some cases, that proposal actually makes it easier for taxpayer information to be sold to private vendors. Let me be clear. Taxpayers deserve more privacy, not less. If taxpayers really want salesmen to have access to their tax returns, they can mail it to them themselves. The IRS should not be an accomplice in selling taxpayer information.
I recognize that the IRS’s new privacy proposal is complicated. Some aspects of it can be seen to improve privacy while some aspects, certainly, can be seen to degrade it. But for me, the question isn’t whether we should make it slightly harder or easier for an individual taxpayers’ information to be sold. For me, the question is whether any of this taxpayer information should be sold to anybody, ever. What consumer wants to have this information available to marketing firms? What consumer really wants to have their dinner interrupted by a telemarketer who’s looking at a copy of their private tax return? If those taxpayers are out there, I don’t know any of them. So, I hope the IRS will take a fresh look at these regulations and provide an outright prohibition on this information being shared with anybody.
When it comes to the taxpayers getting help from the IRS, the IRS is moving in the wrong direction by trying to cut back on taxpayer services. Worse still, when the IRS tried to minimize the impact of these service cuts, they couldn’t even get it right. Last year, Commissioner Everson testified to us of his desire to close almost seventy taxpayer assistance centers across the nation. He told us that these reductions would only be made after his careful analysis of the location, costs, demographics, and workloads of these centers. Many of us in Congress, including the Chairman and myself, had deep-seated doubts about the wisdom of the Commissioner’s proposal. As a result, we added language to the Fiscal Year 2006 Appropriations Act that prohibited the Commissioner from closing these centers until the Inspector General completed a study on the impacts of reducing taxpayer services on compliance and assistance. The Act further directed the IRS to consult with and get approval from the Appropriations Committees prior to any such eliminations, consolidations, or reorganizations of the workforce. Well, the Inspector General has now reported that the data the IRS used to close these centers was faulty and outdated. The report makes clear that the IRS was hastily pulling together inaccurate data simply for the purpose of defending its plan to close these centers without any real regard for the needs of the local citizens. The record with this proposal raises the question as to whether this Subcommittee should believe any representation from the IRS when it comes to the availability of adequate taxpayer services.
Officially, the President’s Budget for Fiscal Year 2007 does not include formal cuts to taxpayer services, though it is notable that the increase is less than the rate of inflation. However, included in this budget is more than $84 million in so-called efficiencies – areas where the IRS intends to make budget cuts next year with consequences that are either unknown or unexplained.
Mr. Chairman, I hope we will pursue, today, exactly what efficiencies the Commissioner intends to launch next year, so we don’t find out after the fact that the taxpayers have once again lost access to important forms of assistance in preparing their taxes. Taxpayers should not have their reasonable expectations dashed again.
[Unofficial, partial transcript by Murray’s office.]
SENATOR MURRAY: Mr. Everson, I wrote to you March 22nd to express my opposition to the proposed regulations regarding the privacy of taxpayer information. In some respects, the proposed regulations tighten some of those restrictions, but in other ways they really loosen them. I know it’s with taxpayer signoff, but it would allow them to sell it to unaffiliated third parties. My view, personally, is that taxpayers are not likely to want their information going to marketers at all. I would like you to share with this committee why you are providing any opportunity for tax preparers and their affiliates to use personal financial data to sell mortgages, mutual funds, IRA accounts, or life insurance. Don’t taxpayers already have innumerable opportunities to shop for services like that without subjecting their personal tax returns to perusal by marketers?
EVERSON: I appreciate the question Senator. This is an important question, and I’ve testified on it several times already. First thing I’d like to say is, we are taking a lot of comments on this, and I’ve gotten a lot of letters. We’ve actually had hearings on this, which we do with important regulatory proposals. We’re going to assess all of those. What we are trying to do here is have a balanced approach. This piece of the law has been in effect for over 30 years, but the world has changed since that time. The regulatory review, as prompted as much as anything, by Congress, in terms of inquiries on the outsourcing, the preparation of tax returns overseas, and in India, where no one was aware of them happening. So, we are trying to move to make better protections here. I guess the better question is whose information is it? Is it the taxpayer’s information or is it the government’s information? We, at the IRS, as you know, don’t share information with anybody, so it’s a question of preparers. I guess we don’t think, that under current law, the IRS can say: you as individuals don’t have a right to share information with [for example, Senator] Kit Bond if you want to. The question is, what we’re trying to do is provide a really clear protection, so that in the event that that arrangement starts to take place, you have a clear detailed consent, a warning as to what would happen. But we don’t think, that under statue now, we could say: you aren’t free to share your information with that preparer.
MURRAY: Do you think there is a critical mass of people in this country who want their information sold?
EVERSON: No, I don’t. What I do think though is this gets to Senator Dorgan’s remark. Certain firms, the big firms, they now have integrated services. And they are providing a range of services, like IRAs or advice, to taxpayers. Other smaller firms are the trusted, real financial advisors to somebody once a year. They sit down and get their health checkup, financially, if you will. They say, how are you doing? And they may be able to advise someone to get the IRA on behalf of a bank or whatever else. The other thing, I think I pointed out to your staff, we are very concerned about the possible implication of this to the VITA [Volunteer Income Tax Assistance] sites. Those are programs that, as you are aware, operate around the country. Over 2 million returns were prepared this year. They principally are very exciting to communities, because people come in, they file largely for the EITC, that money goes out into the community; but they, the coalitions that are out there, do other things, they help get the people banked or other benefit programs. You may know, in your own state, the VITA program there processed 2.8% of the returns last year, as opposed to 1.6% nationally. Our people are very concerned that if we move to an outright prohibition of any sharing that you’d kill that program. And that all the good things that are happening for those people, where there is a bundling of services, wouldn’t be allowed. So, it’s a complicated issue Senator.
MURRAY: I am very concerned about this being abused. You know, we know how this works. It is 4 p.m. on April 15th, you’re signing the last piece of paper the tax preparer’s put in front of you. You’re signing everything as fast as you can. I’ve heard that taxpayers actually want you to loosen this requirement that pertains to the way they get consent from taxpayers to sell their information. Do you think there is any chance in the world that the final rule is going to loosen consent procedures under your proposal?
EVERSON: Loosen consent procedures? By that you mean change the consent form that we propose?
MURRAY: Yes.
EVERSON: I think that clearly the consent procedures are much tighter, but I don’t want to say anything precise. I think that would be wrong under the APA, for me to comment as to what the final rule will look like. I’m not involved in that at this stage. But we are, really, honestly, looking at this and it is a tough issue.
MURRAY: Well, under your proposed regulations, you require written consent from the taxpayer if the taxpayer wants to process that overseas. You justified that requirement because, as a commissioner, you don’t have any enforcement authority to prosecute abuses overseas. If you don’t have authority to protect taxpayers privacy overseas, why are you allowing this information to go overseas at all?
EVERSON: I don’t think that we have the authority to stop that. I think that that’s something that is done by private parties. There’s no law that says that people can’t contract out. It’s a far broader question. It is not different from a company hiring a subcontractor to develop parts for an auto or something else.
MURRAY: But the law says that you have to enforce privacy.
EVERSON: Yes.
MURRAY: So you are telling us you can’t enforce the law? So why are we allowing these to go overseas?
EVERSON: Well, I think we are attempting to strengthen control over the privacy through just this proposal. The other thing I would indicate is we have increased our promoter, or our investigations, if you will, of return preparers dramatically in the last two years. A year ago we had 125 reviews taking place. This year we have over 500 reviews taking place. My understanding is, perhaps this is a question for Mr. George, that the provisions of 7216 are actually largely enforced by TIGTA [Treasury Inspector General for Tax Administration]. So there is a shared responsibility on this.
MURRAY: My time is up. Mr. Chairman, I am deeply concerned about this privacy issue. I think that most people assume that their taxpayer information is private and goes to the IRS. I think we need to be very, very careful that is doesn’t become some kind of marketing program.
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