An Internal Revenue Service proposal to use electronic mail to speed the delivery of personal tax information to mortgage companies, credit bureaus and lenders has raised alarms among privacy advocates.
The critics say that the system would make sensitive tax information so easy to transmit that more businesses could demand to see it. And they fear there would be less to stop the companies from reselling the information to firms that want to compile lucrative repositories of Americans' most personal financial data.
The IRS proposal, which would create a one-year pilot program in California, would be an electronic version of a service that already exists in the realm of envelopes and stamps. Taxpayers seeking loans or credit already may authorize the IRS to provide portions of their tax returns to third parties, but the process can take weeks. The new system would zip the data within 24 hours.
IRS officials say that they have done everything they can to ensure that personal privacy will be protected under the proposed system.
"We are talking simply about automating a process that already exists on paper," said Robert E. Barr, the IRS's assistant commissioner for electronic tax administration and head of IRS efforts to move more services online. In fact, he said, less information would be available electronically than is now sent through the mails.
But privacy advocacy groups argue that moving such data online opens up a new set of risks.
"Paper doesn't move as easily as bits do," said Marc Rotenberg of the District-based Electronic Privacy Information Center. "I'm not sure that's a service you really want to improve the efficiency of."
If third parties began passing around taxpayers' returns, it could tear down the congressionally mandated protections surrounding disclosure of tax information, said Evan Hendricks, who first publicized the quietly issued IRS proposal in his newsletter, Privacy Times. "There's absolutely nothing wrong with good customer service," Hendricks said, but "there's just a lot of temptation when such sensitive data is involved, and it's worth so much money."
Advocates like Hendricks see a time when providing tax return information becomes a broad requirement for credit applications, job applications and more. "The concern is, pretty soon is everybody going to want to see your tax return for everything?" said Mary J. Culnan, a privacy expert at Georgetown University's McDonough School of Business.
"Companies have strong coercive power," she argued, saying that before long the whole presumption behind the privacy of tax information could change. "If people don't want to provide their tax returns to everybody, it's, 'What are you hiding?' "
The conflict--and the heat of the emotions aroused--show the perils of reform in a world where privacy is fragile and tempers short. IRS officials say that because the new system allows consumers to tailor the amount of information given--from more than 200 lines of financial data available on many tax returns to as few as 20--it promises "an almost tenfold increase in privacy" over the paper system, in which the authorized third party receives the whole return, Barr said.
The IRS also is writing provisions into its contracts with the companies in the pilot program that will prohibit reselling data, reserve the agency's ability to monitor compliance and yank the privilege of getting data electronically if the participant abuses the program.
Barr said the purpose of the proposal, which appeared last month in the Federal Register, is to generate comments from the public and to test the concepts behind it; he has made appointments with leading privacy advocates to discuss the program. "I'm looking forward to sitting down and understanding what their concerns are," he said.
The Clinton administration's "privacy czar," Peter Swire of the Office of Management and Budget, said through a spokesman that he had been briefed on the proposal and believed that the IRS had given serious consideration to privacy issues.
The privacy advocates agree that the agency has indeed done everything within its power to protect consumer privacy--but they counter that, absent stronger protection from Congress, the most that a federal agency can do is scarcely enough.
Culnan said that the government doesn't have a strong record on enforcing privacy rules. She pointed to a recent report from the General Accounting Office that showed that the Postal Service did little to keep businesses from using the information in change-of-address forms to build junk mail databases, despite restrictions on the use of that data. "There's a contract there, and everybody looks the other way," Culnan said.
Robert Gellman, a Washington privacy consultant who has worked extensively with the federal government, said the attempts to protect privacy are "all positive stuff," but insists that it's not enough, since once the program goes beyond the manageable size of the pilot program into thousands of users, "The IRS will never be able to examine for certain what they are doing with the data." (Barr said he will be able to police the program, pointing to a 70-person office he already maintains to ensure the integrity of online tax filers.)
Gellman scoffs at another supposed layer of protection for the program--that taxpayers would have to sign a separate authorization form to allow the companies to resell their data. "That's a nice try, but if I can get you to sign one authorization I can get you to sign another," he said. The result, Gellman predicted, is that IRS records will become the basis for the next generation of deadly-accurate junk mail, telemarketing and snooping.
For Gellman, however, there is an even more troubling issue: "Since when is a mortgage company a customer of the IRS? Is the whole government going to become an information service for the private sector? . . . I don't see why this is the role of the IRS. I think the right answer is to say, 'We don't do this--that's not our function.' "
CAPTION: Tax forms contain lots of data that could be sent quickly via e-mail.