July 6, 2006 4:00 AM PDT
Senate tax proposal under scrutiny
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What's also unclear are the additional powers the IRS would receive to regulate computer programmers who write tax-related software.
Because the actual bill hasn't been written yet, details remain fuzzy. At the very least, though, federal law would probably be amended to treat such programmers as "tax return preparers," who face criminal penalties for disclosing or making use of confidential information.
Intuit, which sells the popular TurboTax software, says it doesn't have "a complete understanding of their proposal because it hasn't been fully fleshed out."
Nevertheless, company spokeswoman Julie Miller said, "Intuit has always placed the privacy and security of our customers' data as a top priority, and we would certainly welcome and comply with anything that even made privacy protection for taxpayers stronger and more clear."
Tom Ochsenschlager, vice president of taxation for the American Institute of Certified Public Accountants, said that programmers and technologists should be regulated. "I think it is important that they expand the definition of tax preparer to cover particularly these electronic situations, otherwise there would be kind of a loophole here that would permit taxpayer information to go all over the place," he said.
Revising privacy protection
A third section of the tax bill would weaken the privacy protections that currently guard Americans' tax returns.
Current law 26 USC 6103(i)(3)(B) permits the IRS to open its records to federal police in an emergency--but says law enforcement must abide by certain privacy safeguards. Those include maintaining a "permanent system" of records showing who perused the data; creating a "secure area" to view the information; restricting access to people whose duties "require" it; and returning or destroying tax return data when done. Congress must receive annual reports (click for PDF) with summaries.
Those privacy protections would be eliminated. In addition, state and local law enforcement would be granted emergency access to tax returns as well (and would not be subject to the current oversight rules either).
James Maule, a professor at Villanova University who teaches tax law and writes a blog on the topic, says the elimination of the privacy and security safeguards is worrisome. "Why would (keeping the safeguards) be a challenge?" Maule said. "What is the difficulty of the recipient keeping logs?"
Mark Luscombe, principal tax analyst at CCH, an Illinois-based provider of tax and related services, said the sprawling Senate bill was something of a surprise because it started as a one-page proposal to repeal the Spanish-American War tax on telecommunications. (A congressional tax committee and the IRS have proposed extending that tax to the Internet.)
"Suddenly it's a huge tax bill," said Luscombe, adding that the House of Representatives may not see eye-to-eye with the Senate committee on all of the sections.
"You never know how these negotiations will sort out, but it doesn't look to me like this piece of legislation has a very bright future, at least in its present form," Luscombe said.
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