The Confidentiality of Tax Information

    

confidential tax information

Your tax return is full of sensitive information. Everything from your first and last name and address to your Social Security number is listed on this form.

Given the highly personal details on your return, you expect the IRS to handle it with the utmost discretion. You could feel more assured about the manner in which it is reviewed, filed, and stored by learning to what degree in the current IRS tax code your return will be kept confidential.

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Section 6103 of the IRS Tax Code

Under section 6103 in the current IRS tax code, it is illegal for your tax return or any information on it to be shared. This section prohibits anyone working for the IRS or state, county, or local tax department to divulge your personal tax filing details including your Social Security number or how much money you earn. It also extends to former employees as well.

If someone shares your private tax filing information from your return, this person could be charged with a felony. Both government and non-government employees, current and former, may not even share information from income earning statements like your W-2, 1099, and 1098.

Penalties for Disclosing Information from Your Return

The IRS tax code makes it a felony for tax employees to disclose information from people’s tax returns without proper authorization. If someone is caught breaking this law, he or she could face a number of penalties.

In particular, someone found guilty of this offense could be sentenced up to five years in prison. Additionally, they may also have to pay up to $5,000 in fines as well as any court costs for prosecuting the case.

If the person caught disclosing people’s tax return information is a federal employee, the law dictates that this individual must be fired from their job. The law does not extend to state or local government employees, however, or employees of private companies.

Further, it is against the law to pay a tax employee for another person’s private tax information. If a person is caught trying to buy access to taxpayers' confidential information, this person could likewise face jail time and pay steep civil fines.

There are exceptions to this tax code. Under specific circumstances, the IRS may share information from a taxpayer’s income tax return with authorized people, businesses, or organizations.

Exceptions to Section 6103

The IRS has allotted for specific criteria in which tax return information would be shared with others. Before any information can be given from a tax return, the requesting party must meet these requirements. Depending on the circumstances, the IRS may also require a specific form be filled out and submitted in order for the private details to be divulged.

For example, the IRS makes an exception about releasing private information if it is necessary for:

In some instances, the IRS may require a court order before details from a tax return can be released.

In other instances, the IRS will release information as long as the requesting party has submitted the required forms and paid any appropriate fees. Form 2848 is used for Power of Attorney and Declaration of Representative.

This form allows another person to represent you before the IRS and take action like signing returns and making agreements on your behalf. Only people who are admitted to practice before the IRS can be approved through the use of this form, however.

Form 8821 is used for Tax Information Authorization. It can be sent to an account management center if you want someone to inspect or receive your confidential tax information. The form only authorizes access to the return that you specify. It cannot be used to access information found on several years’ worth of returns.

Other exemptions under Section 6103 include:

  • (d): Information can be shared with state agencies responsible for tax administration.
  • i(1): Tax information can be shared with law enforcement who have a court order for the investigation and prosecution of non-tax criminal laws.
  • k(6): Limited disclosures of tax return information not otherwise reasonably available can be disclosed to third-parties during the course of official tax administration investigations.
  • l(1): Tax information can be disclosed to the Social Security Administration in the carrying out of responsibilities under the Social Security Act.
  • e(6): Information can be shared through powers of attorney and other designees.
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Authorizing Disclosure

Under the tax code, the IRS will disclose information from your return if you authorize it. An example of this authorization would be if you were to apply for a mortgage.

The bank may need proof of your income from your tax return. You can fill out Form 4506 and pay the required fee to authorize the IRS to send your tax return to the bank. If you only want certain details from your return to be released, you would use Form 4506-T, which is free and does not require a fee to be paid. You should put the authorized party’s information on line five of that form.

You should note, however, that once you authorize the release of information to a third-party, the IRS cannot prevent that person or business from divulging those details to unauthorized parties. Depending on the recipient’s privacy policy, that information might be released without penalty.

Third-Party Privacy Policies

Before you authorize a third-party like a tax professional to have access to information from your tax return, you should ask to review its privacy policy. Many tax professionals have strict privacy policies in place. However, others do not and allow for information to be shared freely with others.

If you do not feel that the privacy policy of your tax professional is strict enough, you could ask for a new one regarding your tax information. You have the right to demand your information be closely guarded and not shared with others. You should make sure the privacy policy meets your own standards for protecting your private tax return information.

The IRS prohibits information from your tax return from being shared with unauthorized others. However, it does make exceptions to this rule. You can protect your own tax return details by learning under what circumstances they could be divulged to third-parties.

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