Tax Return Confidentiality and Disclosure Laws

Tax returns contain a great deal of detailed personal information. Looking at your federal income tax return would tell the reader information that goes far beyond what you earned during the year. They would have access to such things as your spouse's and dependents' Social Security numbers, information on businesses you own, and tax credits claimed. They could also steal your taxpayer identity by using their access to your mailing address and identification numbers.

Due to the revealing nature of tax returns, federal law requires the IRS to keep any information in them confidential. The agency is barred from using the information for reasons other than for the purposes of tax administration. The IRS has also put rules in place to prevent the unauthorized disclosure of information by tax return preparers.

However, there are some situations where the IRS or others with access to your returns must turn them over to other parties. In addition, if you reveal your tax information to others, many confidentiality rules no longer apply.

Tax Return Confidentiality and Federal Law

The Internal Revenue Code (IRC) states that "[federal tax] returns and return information shall be confidential." The IRC safeguard extends to all information related to the returns, such as your tax liability, tax payments, and efforts to collect unpaid taxes. In fact, the tax laws bar the Internal Revenue Service (IRS) from even telling anyone whether you filed a tax return.

This wasn't always the case. Before the passage of the Tax Reform Act of 1976, in the wake of the Watergate scandal, tax return information was not protected by law. Reports that President Nixon's administration used tax return information to compile his infamous "enemies list" prompted lawmakers to make federal tax records confidential.

Violations of IRS tax return confidentiality law may be charged as felonies. Violations may be punished by up to five years in prison and $250,000 in fines. Victims of the unlawful disclosure of tax matters may also sue for damages of $1,000 or more for each act. Federal employees convicted of this crime must be fired, in addition to criminal law charges and potential civil liability.

Voluntary Disclosure of Tax Returns

Since there are situations where other parties may need to see return information, there are situations where it may be disclosed. Taxpayers are also free to disclose anything about their own tax returns, but the IRS can't comment on anything voluntarily disclosed.

Taxpayers may request that the IRS disclose tax records to a third party. This is done by providing written authorization to the agency. Taxpayers may also authorize a third-party designee by checking a box on their return. That authorization expires after one year. In addition, a party with power of attorney may access that individual's tax return information.

Tax Return Disclosure Laws

In some limited situations return information can be disclosed without the taxpayer's consent. These include court subpoenas or valid requests from legislative oversight committees. These exceptions to tax return confidentiality law include:

• Committees of Congress: The heads of the House Committee on Ways and Means, the Senate Committee on Finance, the Joint Committee on Taxation, and any other committees as authorized by their respective body of Congress, may request disclosure of taxpayer information in a closed executive session.
• State Tax Agencies and Local Governments: State agencies and local governments must file a written request for federal tax information if not already authorized by the taxpayer.
• Court Orders: A court may order that tax information be shared with law enforcement agencies for the investigation and prosecution of non-tax crimes.
• Official Tax Investigations: The IRS may make limited disclosures to third parties as needed to obtain information that's not otherwise readily available.
• Social Security and Medicare: Certain tax return information may be disclosed to the Social Security Administration and other specified federal agencies as needed.

Have Concerns About Tax Return Confidentiality? A Lawyer Can Help

If you believe your taxpayer return information was disclosed without your consent, you may want to discuss your legal options with a local tax attorney. A tax lawyer will understand the criminal and civil remedies that may be available to you and will be able to represent you if you choose to take legal action against the individual or organization that revealed your tax return information.