What Is Tax Information Privacy?
Definition and Examples of Tax Information Privacy
The issue of tax information privacy is covered by Internal Revenue Code Section 6103. The code, 26 U.S. Code § 6103, prohibits the Internal Revenue Service 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 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 in some isolated circumstances.
What Is Tax Information Privacy?
IRC Section 6103 expressly protects your tax returns and personal information from dissemination by the IRS or other parties who have access to them. They cannot be shared except under some very narrow circumstances.
You might recall that the Chairman of the House Ways and Means Committee requested copies of President Donald Trump's tax returns from 2013 through 2018 from the IRS on April 3, 2019. 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 declined, 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."
- Alternate name: 26 U.S. Code § 6103
- Alternate name: IRC Section 6103
How Tax Information Privacy Works
Tax information privacy law is a blanket approach, and it recognizes five specific exceptions under which your tax information can be legally and ethically shared with certain others:
- The IRS can disclose your information to your state's taxing authorities if the state makes its request in writing.
- Your tax information can be provided to law enforcement, but only if law enforcement has a valid court order for accessing it.
- IRC Section 6103(k)(6) "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.
- 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.
- Your information can be shared if you authorize it using Form 8821 or Form 2848.
Protecting Your Rights
Many tax professionals have a very strict privacy policies, but not all do, so be sure to ask.
How to 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 another trusted person to handle your affairs with the IRS. You can cite the exact acts that you're authorizing them to take.
You would 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.
Violations of Tax Privacy
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. You can also file a complaint directly with the IRS if you have knowledge or reason to believe that someone within the agency has violated your privacy.
The IRS imposes steep penalties against tax preparers who disclose tax return information without your permission. You have an absolute right to say no if your tax preparer asks you if it's OK to share your information with third parties.
- Internal Revenue Code Section 6103 addresses tax information privacy.
- The code prohibits the IRS and your tax professional from disclosing your tax information to most others without your written consent.
- The law does acknowledge several exceptions to tax information privacy, including provisions for state tax authorities and law enforcement agencies who can have access to your information under certain circumstances.
- You can grant your consent for your information to be shared with certain entities and individuals by submitting Form 8821 and/or Form 2848 to the IRS.