Tax information and privacy

The Treasury Department on Thursday updated 1974 regulations -- issued before the age of electronic filing -- that require "tax professionals" to get informed consent from their clients before disclosing tax information to third parties or using it for non-return purposes.

The IRS also announced it was considering a ban on tax preparers using information for the purpose of selling products such as Refund Anticipation Loans, under which taxpayers receive "instant refunds" but can be hit with high interest rates.

Consumer groups took issue with the rules when they came out in draft form in 2006, complaining they could actually open the way for preparers to sell information to unrelated marketers, exposing consumers to identify theft.

The IRS responds there's no change in the basic principle that taxpayers, not the government, should control their own tax information. Sharing the information can't be banned outright, they argue, because there are some cases in which taxpayers may want preparers to share data, as when they apply for a mortgage.

The new rules -- which go into effect in January 2009 -- also stipulate that consent forms must identify the intended purpose of disclosure and the recipients. Taxpayers must be informed that they are not required to sign consents; consent documents must be in easy-to-read, 12-point type; preparers must not repeat consent requests once taxpayers decline to give their consent; and when tax preparation is done offshore, Social Security numbers must be redacted.

The changes are fine as far as they go. But they're a bit like reforming the way we deal with the waste products of the flatulent elephant living in the corner of the dining room, without asking why there's a flatulent elephant living in the corner of the dining room in the first place.

The main group of Peeping Toms who government auditors have found improperly rummaging through Americans' confidential tax forms to extract juicy bits of private gossip are not private tax preparers -- who the taxpayer at least gets to choose, or choose to do without -- but rather IRS employees themselves, over whose access to this data the poor taxpayer has no control whatsoever.

The best solution -- especially if the government contends, "Taxpayers, not the government, should control their own tax information" -- would be to stop encouraging or requiring Americans to submit so much private information in the first place.

The term "tax preparer" itself was largely unknown before World War II. It's an employment category entirely drummed up by the absurd complexity of the current tax code. If the "1040" tax form were simplified into a postcard on which the taxpayer merely multiplied his or her income by a specified percentage -- no deductions, no loopholes -- the millions of productive hours currently wasted on "tax preparation" would vanish, and we could get back to doing something better with our time.

Well, everyone except the "tax preparers," of course. They would presumably have to find employment doing something other than annually re-attaching the government bells and collars around the necks of the remainder of the bleating flock.