Four tax preparation software companies failed to comply with government rules that require the sharing of tax-related info to be done only with specific disclosures and full tax-payer consent, according to an audit released by the Treasure Inspector General for Tax Administration (TIGTA) in the United States.
“According to Treasury Regulation § 301.7216-3, tax return information may not be used or disclosed except as specifically permitted or when the taxpayer provides consent.”
The Internal Revenue Service (IRS) partners with tax professionals and other entities that assist taxpayers in meeting their tax obligations. Before partnering with these professionals and entities, the IRS conducts suitability checks. But the IRS does not have awareness of the full scope of information that an online provider routinely collects, beyond what is filed with the IRS, or shared with third parties.
Further, the guidance for obtaining taxpayer consent to use or disclose taxpayer information does not specifically address the use of pixels, such as those used by Facebook and Google to track information on a website.
These pixels are basically a piece of code that website owners can place on their website. The pixel collects data that helps businesses track conversions from ads, optimize ads, build target audiences for future ads, and re-market to people that have already taken some kind of action on their website. That’s nice for the advertisers, but the combined information of all these pixels potentially provides the recipients with an almost complete portrait of your browsing behavior.
The audit was performed after TIGTA received a congressional letter raising concerns about the data sharing practices of online tax filing companies. This letter spoke of data sharing methods that used a pixel to capture an individual’s entries on the online tax filing companies’ website, which then sent data entered for the preparation of online tax returns to a third party to focus marketing and advertisement efforts to each user.
In other words, information that is highly regulated was collected and shared outside the rules of those regulations, which could have allowed for invasions of privacy.
TIGTA acknowledged that it shared similar concerns and that it was in the process of conducting a separate but related review.
TIGTA did not disclose the names of the four companies that were the subject of these investigations, but in a follow-up letter from 3 senators and a member of congress they mention TaxSlayer, H&R Block, TaxAct, and Ramsey Solutions.
The review found that the audited companies’ consent statements did not comply with the requirements of Treasury Regulation § 301.7216. Specifically, the consent statements did not clearly identify the intended purpose of the disclosure and the specific recipient(s) of the tax return information.
Based on the results TIGTA advised the IRS to update their revenue procedure to include language that consent statements must identify the purpose of disclosure and specific recipient(s); evaluate whether any updates are needed to the guidance regarding data sharing practices, e.g., the use of pixels; and identify and implement potential solutions that will ensure that online providers comply with the regulatory requirements of taxpayer consent statements.
The IRS has taken actions to address the previously reported deficiencies with the suitability check processes and procedures for tax preparation companies. For example, the IRS:
- Updated procedures to ensure consistency with initial and continuous suitability checks.
- Established a consistent adjudication process for applicants with a criminal history.
- Modified procedures to systemically create cases requiring research and resolution for tax compliance issues.
- Modified procedures to accept only electronic fingerprint cards.
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