Thursday, March 09, 2006

Ending privacy by regulation?

As I was procrastinating from doing what I should be doing (namely making some calls to people I do not want to talk to today), I came across the latest attempt at legislation by regulation from the government. Apparently, the IRS wants to adopt a rule which would allow tax preparers to sell a client's financial information.

Under this rule, along with the other myriad of things which people do not look at when they sign, they want tax preparers to slip in a form that asks if you want to have your information shared. Currently, tax-preparers are allowed to share your information only with others only as it pertains to doing the person's taxes. Makes sense to me.

Apparently some people find this new proposed regulation to be desireable. The author of that blog makes a couple of good points. He notes that the new regulation would require tax-preparers to disclose if they outsource your information to sub-contractors (here or overseas). It also extends the coverage of the regulation to people who are not bound by the old rule (which apparenlty covers only CPAs, attorneys, and certain other types of tax-preparers).

If that was all that the regulation did, then it would be a good thing. However, the proposed regulation takes ti further. Not only can the tax-preparer share your information for tax preparation services, but they can now sell the information. According to the release on the proposed rule, the tax-preparer's notice must only disclose the types of purposes that the information is being allowed to be used. Conceivably, if worded properly, an unscrupulous tax-preparer could word this in such a way as to allow the sale of your information for virtually any pupose. And as long as you, most likely hurriedly, signed the form, your information would be allowed to pass out into the public.

Furthermore, there is a recognition in the rule, and the warning which is required by the proposed rule, that there is no way to control what happens to the information once it passes out into the hands of a third party. The third party, not being under the control of the tax-preparer, could then resell it to another party who is not bound by the restrictions in the initial release.

In reading this proposed rule, it is clear. Once again the Administration's appointees are trying to erode consumer protections by sugar coating with something palatable. It appears that if the IRS was actually interested in the protection of consumer privacy, then it would have ommitted the provision allowing the sharing of information beyond what is needed to actually prepare the taxes.

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