Current provisions in tax code section 7216 set criminal penalties for tax preparers that make unauthorized use or disclosure of tax return information. In hearings in Washington this week, the IRS asked for public comment on whether to rewrite the current tax law.
The proposed rule changes would allow tax preparers to share tax payers personal information with any outside party, for marketing and other purposes, providing they warn the consumer. Furthermore, the IRS claims that the rule changes are not significant enough to warrant a regulatory hearing to determine their legality.
If upheld, the new tax code revisions would take effect 30 days after approval, which would likely place them in the books for the current 2006 tax year, in time for filing in April 2007.
The new rules address situations in a digital era where problems like identity theft have become more common. What the IRS is attempting to achieve through such regulation is to extend and strengthen consent and warning requirements for disclosure of information, in order to clarify that it applies to both paper tax returns and electronic tax returns, according to an IRS spokesperson.
"We are making this change because current regulations are 32 years old – we never envisioned the type of technology we have now," said an IRS spokeswoman. "The current regulation is silent on the issue of consent regarding electronic transmission."
The proposed regulations will update existing use and disclose rules. "Use" is described as what the tax preparer can do with tax information internally. "Disclosure" is what tax preparers can do with that information externally – or with companies outside of those that are affiliated with the IRS.
Among the changes are two key revisions: new and additional rules regarding taxpayers electronic consent for sharing tax return information with third parties, as well as guidelines for tax preparers for disclosing consumer information. The proposed changes also alter the definition of "tax return information" to include additional information than what taxpayers "literally furnish to a tax return preparer," according to the IRS proposal.