US Taxpayer Privacy Is A Thing Of The Past, According To Government Report

The Internal Revenue Service (IRS) has always received a great deal of personal information about U.S. individuals and businesses with the understanding of confidentiality of such information. However, bit by bit Congress has removed privacy protections and allowed the confidentiality of taxpayers’ personal information to be breached more and more, according to a recent report to Congress.

While taxpayers are required to provide this information to IRS under penalty of fine or imprisonment, confidentiality of information reported to IRS is widely held to be a critical element of taxpayers’ willingness to provide information to IRS and comply with the tax laws.

As a general rule, anything reported to IRS is held in strict confidence — Internal Revenue Code (IRC) Section 6103 states that federal tax information is confidential and to be used to administer federal tax laws except as otherwise specifically authorized by law {Emphasis added}.

Although tax information is confidential, nondisclosure of such information is not absolute. Section 6103 contains some statutory exceptions, including instances where Congress determined that the value of using tax information for non-tax purposes outweighs the general policy of confidentiality.

The trouble with such a process is that the federal courts have been silent on this confidentiality issue leaving the very same people — who benefit from tax collection, information collection and disbursement of fund and information — to make decisions as to what exemptions to Section 6103 are allowed.

Since making amendments to Section 6103 in 1976, Congress has expanded the statutory exceptions under which specified taxpayer information can be disclosed to specific parties for specific purposes. Today, Section 6103 exceptions enable law enforcement agencies to use relevant tax information to investigate and prosecute tax and non-tax crimes and allow federal and state agencies to use it to verify eligibility for need-based programs and collect child support, among other uses.

Periodically, new exceptions to the general confidentiality rule are proposed, and some in the tax community have expressed concern that allowing more disclosures would significantly erode privacy and could compromise taxpayer compliance.

In evaluating such proposals, it is important that Congress consider both the benefits expected from a disclosure of federal tax information and the expected costs, including reduced taxpayer privacy, risk of inappropriate disclosure, and negative effects on tax compliance and tax-system administration, according to the Government Accountability Office (GAO).

The Fair Information Practices are not precise legal requirements. Rather, they provide a framework of principles for balancing the need for privacy with other public policy interests, such as national security, law enforcement, and administrative efficiency. Included in the practices is the principle that the collection and use of data should be limited to specific purposes and that individuals should have ready means of learning about the collection and use of information about them.

And according to many legal scholars, therein lays the problem.