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IRS Tax Data Plans Drawing Fire

Criticism is mounting over the Internal Revenue Service's plans to allow tax preparers to sell personal data to third parties.

The U.S. Senate Finance Committee plans to hold a hearing on the IRS' proposed rule changes Tuesday, but before the first witness spoke, consumer advocates, congressional representatives and media are voicing opposition to the plan.

U.S. Sen. Charles Schumer, D-N.Y., added his voice to the chorus by holding a news conference in New York on Sunday, when Newsday published a column stating that the proposed changes threaten privacy and increase the chances of identity theft. Two weeks earlier, the Detroit Free Press had made similar arguments.

Schumer told reporters that the IRS plans would make it easier for criminals to steal personal information and characterized them as dumb and goofy.

The IRS has stated on its Web site that: "Contrary to some recent press reports, the proposed rules significantly tighten existing requirements regarding the customer consent a return preparer must obtain to disclose the customer's tax return information to third parties."

The agency states that current rules do not require tax preparers to issue strong warnings before disclosing customer information and do not limit the length of time customer consent is effective. However, current rules requiring consent only apply to tax preparers and their companies.

For example, customers can consent to releasing information to banks or other institutions offering financial services if they are affiliated with their preparers. What the IRS does not mention is this: preparers are prohibited from giving that information out to other businesses.

If the proposed changes take effect, accountants and preparers would be able to share information within their companies and affiliated companies without consent. And, if they were to obtain written consent, they would be able to share the information with any marketers, data brokers or businesses.

The hearing on the issue is taking place after the IRS has been repeatedly criticized for failing to keep its own personal data secure.

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