Posted On April 27, 2016

Protecting data privacy, pt 2: the tax prep industry (and others)

In part one of this post, we discussed a recent government report documenting ongoing problems during the recent filing season with tax refund fraud based on identity theft.

We also took note of the increasing demands made by legitimate business groups, such as the mortgage industry, to gain access to taxpayer information.

In this part of the post, we will look in more detail at the privacy of tax return data amid such demands.

The key point is that, in an era in which identity theft is such a serious threat, keeping your tax information private is a constant concern.

One way to help protect yourself is choose your tax preparer carefully. After all, in order for your preparer take care of your tax filing, you have to allow the preparer access to the personal information on the return. This includes information such as your Social Security number

Generally tax preparers are required to keep this information private. But when the information is electronic, there is of course always the threat of it being hacked into or compromised in some way or shared with a third party.

Like tax preparers, tax-prep software providers have rules that limit access to private data. These providers aren’t supposed to disclose any personal data about you without your consent.

As with tax preparers, however, it is always possible that the data held by tax-prep firms like Turbo Tax will be misused.

There is also the issue of access to tax data within government agencies. Employees of the IRS and state revenue agencies are supposed to report misuse of the data by other employees. Misuse could take the form, for example, of looking at a celebrity’s tax return for a non-work purpose.

Other government agencies may also seek tax data. The State Department, for example, is now empowered to revoke passports for taxpayers with certain levels of tax debt. Fortunately, the IRS and State have agreed that sharing all of a taxpayer’s information won’t be necessary for that purpose.