Taxpayer Information Is Confidential: How to Protect Yours

Protect Your Privacy as a Taxpayer

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The terms of Internal Revenue Code Section 6103 prohibit the IRS and your tax professional from disclosing your tax information to anyone without your explicit consent. Your tax professional can't even release your information to the IRS unless you give her your permission, and the IRS and its employees can't release any information to your tax professional unless you give the IRS permission.

A few other entities can gain access to your information, however, in some isolated circumstances.

How Do You Grant Permission?

You can grant permission to release your tax information using Form 8821, the IRS Tax Information Authorization, or Form 2848, the IRS Power of Attorney and Declaration of Representative.

Use the Power of Attorney form if you want your tax preparer, a family member, or other trusted person to handle your affairs with the IRS. You would only use Form 8821 if you want your tax preparer to receive information from the IRS about your taxes, but not to act on your behalf.

Either form allows you to set certain timeframes for sharing the information, such as by citing that authorization is only given through a certain date.

You also have the right to revoke your authorization at any time. Both forms give detailed instructions for how to go about this.

Some Exceptions to the Rule

The IRS lists five circumstances under which your tax information can legally and ethically be shared with certain others.

  1. The IRS can disclose your information to your state's taxing authorities, but the state must make its request in writing.
  2. Your tax information can be provided to law enforcement, but only if law enforcement has a valid court order for accessing it.
  3. IRC Section 6103(k)(6) is a bit vaguer. It "allows the IRS to make limited disclosures of return information in the course of official tax administration investigations to third parties if necessary to obtain information that is not otherwise reasonably available." "Tax administration investigations" translates to audits and similar probes. If you or another party are being audited, and if your tax record provides vital, necessary information to that investigation, the IRS can share only that information.
  4. The IRS can share your tax information with the Social Security Administration, but only to establish your liability for FICA taxes. It can't divulge any other data or information. SSA employees are bound by the same code of ethics as the IRS, and this exception doesn't extend to state Social Security administrators. It's only valid at the federal level.
  5. Your information can be shared if you authorize it using Form 8821 or Form 2848.

IRC Section 6103 Applies to the President, Too

You might recall that on April 3, 2019, the Chairman of the House Ways and Means Committee requested from the IRS copies of President Donald Trump's tax returns from 2013 through 2018. The IRS appropriately responded that the Internal Revenue Code stood in the way of compliance.

The Secretary of the Treasury responded to the request on May 6, stating that the Department of Justice had effectively said, "No, sorry," citing that violating the code lacked "a legitimate, legislative purpose."

President Trump isn't the only commander in chief to ever find himself dealing with IRC Section 6103. The code was amended and strengthened in 1973 after President Richard Nixon tried to access certain tax returns for "improper purposes."

When Your Right to Confidentiality Has Been Violated

You can bring a civil lawsuit for damages if you find that the IRS or your tax preparer has disclosed your tax information without your consent. The IRS imposes steep penalties against tax preparers who disclose tax return information without your permission. If your tax preparer asks you if it's OK to share your information with third parties, you have an absolute right to say no.

Take Preventative Measures

Get a written copy of your tax professional's privacy policy before you commit to doing business with him. You can ask about how your tax information will be shared among employees and other company officials if you feel the privacy policy is too lenient. You can also ask for amendments to create a stricter privacy policy if you feel you need one.

Many tax professionals have a very strict privacy policies, but not all do, so be sure to ask.