A recent congressional report is spotlighting major tax preparation companies’ dissemination of sensitive taxpayer data to Big Tech firms such as Meta (parent company of Facebook) and Google. The 54-page report, Attacks on Tax Privacy, details the findings of a 7-month long investigation spearheaded by Sen. Elizabeth Warren, D-Mass., and Senate Finance Committee Chair Ron Wyden, D-Ore.
In a letter to the IRS summarizing the report, the lawmakers’ participating in the investigation wrote, “the findings of this report reveal a shocking breach of taxpayer privacy by tax prep companies and by Big Tech firms that appeared to violate taxpayers’ rights and may have violated taxpayer privacy law.”
Key findings of the lawmakers’ investigation include:
- Tax prep companies such as TaxSlayer, H&R Block, and Tax Act for years have used computer code (pixels) to send millions of taxpayers’ data to Meta, Google, and other Big Tech firms.
- Taxpayer data collected and shared included taxpayers’ full names, contact information, filing status, approximate AGI, names of dependents, and approximate federal tax owed.
- Meta has confirmed its use of sensitive taxpayer information for advertising purposes.
Is Sharing Taxpayer Data with Big Tech Illegal?
The not-so-new notion of tax prep companies sharing sensitive taxpayer data without consent is certainly disconcerting, but is it illegal? Former National Taxpayer Advocate Nina Olson previously analyzed this issue, calling it “labyrinthine,” when The Markup, a journalism outlet, initially reported the data sharing last November.
A few noteworthy code sections and regulations aiding in that analysis include:
- IRC § 6103, which states that tax returns and return information shall be confidential;
- IRC § 7216, a criminal statute, which prohibits both the disclosure of taxpayer information by any person engaged in return preparation and the use of such information for any purpose other than to prepare the return.
- Reg. 301.7216-1, promulgated under IRC § 7216, which broadly defines a tax return preparer to include “[a]ny person who is engaged in the business of providing auxiliary services in connection with the preparation of tax returns, including a person who develops software that is used to prepare or file a tax return and any Authorized IRS e-file Provider…”
Additionally, as for when disclosure by a tax return preparer could be authorized and not subject to criminal penalty under IRC § 7216, Treas. Reg. 301.7216-2 lists the instances where disclosure or use can be made by a return preparer in the course of preparing a tax return without taxpayer consent. And Treas. Reg. 301.7216-3 describes when disclosure is permitted only with the taxpayer’s consent.
Ultimately, Olson identified a few instances where the capturing of taxpayer data by these major tax prep companies could potentially trigger violations under § 7216 for a lack of proper consent. Further, after the lawmakers’ investigation and analysis in the July 2023 report, it appears likely that these return prep companies did not sufficiently meet the standards of consent required to share taxpayer data with third parties for non-preparation purposes.
“Through the Meta Pixel and Google’s business tools, the tax prep companies investigated in this report – TaxAct, TaxSlayer, and H&R Block – recklessly disclosed and misused the personal tax return information of potentially millions of taxpayers,” the lawmakers’ report states. Additionally, the lawmakers are calling on the IRS, the Treasury Inspector General for Tax Administration, the Federal Trade Commission, and the Department of Justice to investigate and prosecute accordingly.
Class Action Complaint Filed Against Google
Stay updated with more breaking tax-related developments by subscribing to Tax Bytes with Jessica Jeane, J.D.