The Markup, a nonprofit newsroom that investigates how powerful institutions are using technology to change our society, has learned that major tax filing services such as H&R Block, TaxAct, and TaxSlayer have been transmitting sensitive financial information to Facebook when Americans file their taxes online without obtaining consent from customers in potential criminal violation of IRC §7216.
According to the article by Simon Fondrie-Teitler, Angie Waller, and Colin Lecher, "the data, sent through widely used code called the Meta Pixel, includes not only information like names and email addresses but often even more detailed information, including data on users’ income, filing status, refund amounts, and dependents’ college scholarship amounts". In addition, she noted that, "The information sent to Facebook can be used by the company to power its advertising algorithms and is gathered regardless of whether the person using the tax filing service has an account on Facebook or other platforms operated by its owner Meta."
The Markup article noted that the tax filing service TaxSlayer "sent personal information to Facebook as part of the social media company’s “advanced matching” system, which gathers information on web visitors in an attempt to link them to Facebook accounts. The information gathered through the pixel on TaxSlayer’s site included phone numbers, the name of the user filling out the form, and the names of any dependents added to the return. As with TaxAct, specific demographic information about a user was obfuscated but still usable for Facebook to link a user to an existing profile."
According to The Markup they "reviewed the tax preparation websites for disclosures [in accordance with IRC §7216] that specifically mentioned Meta or Facebook but did not find them. Instead, some companies included relatively broad disclosure agreements."
Disclosure and Use of Tax Information
The IRS prohibits the disclosure of any return or return information under IRC §6103 obtained in any manner in connection with a service and includes tax filing software providers. Return information includes a taxpayer’s identity, the nature, source, or amount of his income, payments, receipts, deductions, exemptions, credits, assets, liabilities, net worth, tax liability, tax withheld, deficiencies, overassessments, or tax payments. In addition, information provided in the course of registering one's purchase of tax preparation software is " return information".
In general, the regulation under IRC §7612 requires tax return preparers – including volunteer preparers – who intend to use or disclose a taxpayer’s tax return information for a purpose other than current, prior and subsequent return preparation, to obtain taxpayer consent and provide taxpayers with specific information. This includes:
Who will receive their tax return information, and
The particular items of tax return information that will be disclosed or used.
Based on The Markup article it is evident that none of the listed tax filing services complied with the the disclosure requirements under IRC §7216.
What are Consents?
Consents are paper or electronic documents that contain specific information, including the names of the tax return preparer and the taxpayer. In accordance with IRC §7216(a)(3):
The consent must specify the tax return information to be disclosed or used;
The consent must identify the specific recipient or recipients to which the information will be disclosed;
The consent must identify the particular use authorized;
The consent must identify must be signed and dated; and
The consent may specify a duration but if no duration is specified, the consent is limited to one year from the date of signing.
When are Consents not Required?
Exceptions to required consents can be found in IRC §7216(2). Some instances where consents are not required include:
Disclosures to the IRS
Disclosures to other U.S. based tax return preparers that assist in preparing the return
To create lists for solicitation of tax return preparation business
To produce certain limited statistical compilations in connection with tax return preparation business that includes return counts, credit counts or refund counts (without dollar amounts) provided that it does not include any personally identifiable information or cells with data from fewer than ten tax returns.
What are the Two Types of Consents At Issue?
Use
Disclosure
Consent to Use
Example A: A site wants to use tax return information to generate solicitations for products or services other than tax return preparation, such as mortgages or Individual Retirement Accounts (IRAs). To determine whether this service may be of interest to a taxpayer, the partner or sub- partner will need to use some of the tax return data. If the taxpayer consents to the use, the partner can use their tax return information to determine whether this service will benefit them.
If the taxpayer denies the consent, the partner cannot use their tax return information; however, the taxpayer cannot be denied tax return preparation services. The return can be prepared and e-filed by the site.
Consent to Disclose
A consent to “disclose” allows the partner to disclose the taxpayer’s tax return information to determine whether the taxpayer will benefit from services offered such as financial advisory and asset planning.
Example: A site produced an anonymous statistical compilation of tax return information obtained during the filing season. The next filing season the site wants to disclose portions of the anonymous statistical compilation from aggregated figures containing data from ten or more tax returns in connection with the marketing of its financial advisory and asset-planning services. The site is required to receive taxpayer consent before disclosing the tax return information contained in the anonymous statistical compilation because the disclosure is not being made in support of the site’s tax return preparation business.
If the taxpayer denies the consent, the partner cannot disclose their tax return data; however, the taxpayer cannot be denied tax preparation services. The return can be prepared and e-filed by the site.
Electronic Signature Requirements
IRS Revenue Procedure 2013-14 provides specific requirements for a taxpayer’s electronic signature to consent to disclose or use taxpayer’s tax return information. Unless an exception is granted,
All consents to disclose or use tax return information must be physically signed by the taxpayer.
A verbal consent is not an affirmative action and therefore not acceptable as a valid consent.
Conclusion
IRC §7216 requires tax return preparers, volunteers and tax filing software services to obtain taxpayer consent to use or disclose taxpayer information and to provide taxpayers with specific information. This includes who will receive their tax return information and the particular items of tax return information that will be disclosed or used. Taxpayers are advised to review broadly worded disclosure agreements and ensure services providers include an option to decline disclosure or use of their tax return data.
Copyright 2022 Mark Sullivan Consulting, PLLC
Disclaimer: This article is for information purposes only and cannot be cited as precedent or relied upon in a tax dispute before the IRS. Additional information can be found a
Fondrie-Teitler, Simon, "Tax Filing Websites Have Been Sending Users Financial Information to Facebook", The Verge (11/22/22)