DOJ Urged to Look Into Tax Prep Companies’ Privacy Practices

Democrat lawmakers have asked the U.S. Department of Justice (DOJ) to investigate major tax preparation companies’ data privacy practices — accusing them of sharing protected, sensitive taxpayer information without proper consent.

“[F]our online tax preparation companies broke the law by sharing legally protected and sensitive taxpayer information with Big Tech firms without properly obtaining taxpayer consent,” say Senators Elizabeth Warren (D-MA), Ron Wyden (D-OR), and Richard Blumenthal (D-CT), and Representative Katie Porter (D-CA) in an October 18 letter to the DOJ. They cite a September Treasury Inspector General for Tax Administration (TIGTA) audit report of the companies that found their consent procedures to be inadequate.

The letter is the latest in a series of efforts by Democrats to counter what they call improper sharing of sensitive taxpayer data with tech companies via “pixels” on tax prep company websites used to track visitor activity. According to the lawmakers, Meta uses the activity data for advertising and to train AI algorithms. A 2023 congressional investigative report also found privacy issues with the Google Analytics pixel tool.

TaxSlayer, H&R Block, TaxAct, and Ramsey Solutions are specifically called out in the October letter. The lawmakers accuse the companies of violating Reg §301.7216-3, which prohibits a tax return preparer from disclosing or using a taxpayer’s tax return information without written consent.

TIGTA’s audit report evaluated four unnamed tax software companies, and concluded that while the companies did obtain taxpayer consent, “the consent statements did not clearly identify the intended purpose of the disclosure and the specific recipient(s) of the tax return information.”

According to TIGTA, taxpayers would need to review the companies’ privacy agreements, user agreements, and taxpayer consent statements collectively to understand what they are consenting to — but those documents are “scattered.” Because of this, taxpayers may have difficulty understanding what they are “allowing the software company to do with their personal tax information,” TIGTA concluded.

TIGTA recommended that the IRS update Rev Proc 2013-14 — which provides guidance to tax preparers on taxpayer consent format and content — to clarify that a consent statement must identify the purpose of the disclosure and specific recipients.

TIGTA also called on the agency to assess whether any updates are needed to Rev Proc 2013-4 or Reg § 301.7216-3 to account for tax prep companies’ use of pixels. In addition, it suggested the IRS track compliance with consent requirements by conducting “sample reviews” or “creating a data element to track if taxpayers are consenting.”

According to Warren, Wyden, Blumenthal, and Porter, the tax prep companies have “disclosed millions of taxpayers’ tax return data, meaning they could potentially face billions of dollars in criminal liability.” They cite Code Sec. 7216, which provides for a fine of up to $1,000 or one-year imprisonment for knowing or reckless disclosures of tax information by tax preparers.