Is your tax information secure? The answer to such an important question is not as clear-cut as one would hope.
Last year, the Treasury Inspector General for Tax Administration warned that the Internal Revenue Service does not have adequate safeguards in place to protect taxpayer’s records from unauthorized access by either its own employees or cybercriminals. Recently, ProPublica published a report based on confidential taxpayer records. It is unclear how the data was obtained, but the leak raises fresh concerns about long-standing taxpayer privacy problems at the IRS, especially amid plans to supersize the agency with 87,000 new agents and to mandate additional reporting of financial data.
The leak is concerning but not surprising. The TIGTA found that the IRS could not provide an accurate inventory of its applications where taxpayer data is stored. These are databases or services that the IRS needs to monitor for unauthorized access. These applications are supposed to include audit trails: detailed records that show who has accessed or modified data entries. The TIGTA’s audit determined that there are 67 applications that should be monitored for unauthorized access, but only six of these were providing accurate and complete audit trails, a success rate of less than 10%. The revelation that the IRS cannot produce an accurate list of its applications and is lacking in basic protections across most of its portfolio is disturbing.
Whoever leaked the data to ProPublica violated the fundamental Taxpayer Right to Confidentiality, one of the 10 Taxpayer Bill of Rights adopted by the IRS in 2014. On its website, the IRS states, “Taxpayers have the right to expect that any information they provide to the IRS will not be disclosed unless authorized by the taxpayer or by law. Taxpayers have the right to expect appropriate action will be taken against employees, return preparers, and others who wrongfully use or disclose taxpayer return information.”
Leaking taxpayer information is also a federal crime. This has been a problem at the IRS. Back in 2012, the TIGTA warned that the IRS needs to improve efforts to investigate illegal disclosure of taxpayer information and noted that “the willful unauthorized access or inspection of taxpayer records is a crime punishable upon conviction by fines, prison terms, and termination of employment.”
The TIGTA takes these breach investigations seriously. For example, last year, a man was convicted to nearly six years in prison for accessing an IRS database and obtaining taxpayer information. In 2016, an IRS employee was sentenced to nine years in jail and to pay $82,802 in restitution for a similar offense related to an identity theft scheme. If the newest leaker of taxpayer data information is identified, that person could also end up behind bars.
For all the legal risk the leaker faces, the ProPublica report did not even reveal anything that we didn’t already know, apart from the nonsensical “true tax rate” metric it invented to twist data to its false narrative that wealthy people don’t pay much in taxes. The truth is that the income tax system is very progressive, with the top income earners paying an outsize share of all income taxes. The tax code has become increasingly progressive since the Reagan-era tax cuts, and the biggest untold story of the Tax Cuts and Jobs Act of 2017 was the progressive changes implemented to the code, shifting a greater share of the tax burden to the top income earners.
The continued disclosure of confidentiality and the IRS’s troubled past should give pause to lawmakers. Instead, the White House and many congressional Democrats seek to nearly double the IRS budget with a focus on increasing heavy-handed enforcement of tax laws and demanding more taxpayer financial data in an attempt to close the so-called “tax gap.” Not only is this effort unlikely to raise as much revenue as hoped, it also completely ignores the IRS’s poor safeguarding of sensitive taxpayer information. Instead, Congress should work to simplify the tax code, bolster taxpayer rights, and make sure the IRS properly secures confidential taxpayer records.
Demian Brady is the vice president of Research with the National Taxpayers Union Foundation, a nonprofit group dedicated to tax policy research and education at all levels of government.
