IRS to Taxpayers and Business: Privacy? What Privacy?

Individuals and organizations should expect a modicum of privacy when it comes to certain personal or financial information.  Unfortunately, that expectation has taken a hit recently as news of hacks have dominated headlines. The Office of Personnel Management (OPM) hack was embarrassing for the federal government as more than twenty million public employees had their personal information exposed. The Internal Revenue Service (IRS) has a had a less than stellar track record of late when it comes to keeping in line with protecting the interests of taxpayers and their record on privacy.

Everyone knows by now the IRS targeting scandal that revealed a political witch-hunt within the agency that focused on harassing and delaying the tax classification free-market and conservative non-profits. However, this is not the only way in which the IRS is going after groups and individuals. The IRS has been looking for ways beyond the treatment of non-profits to widen their authority over individual taxpayers and organizations. Businesses have come under fire with increasing regulatory action from federal agencies like the Environmental Protection Agency and the Federal Communications Commission but now even the IRS is starting to ratchet up the hostility towards the private sector. Andrew Quinlan of the Center for Freedom and Prosperity summed up the actions by the agency in an op-ed for The Hill:

It appears the IRS has unilaterally taken actions vastly expanding their tools and powers in order to force companies to provide large amounts of private information not required under tax law. Second, the IRS is also treating the audit process as a hostile and adversarial system, rather than a cooperative process as it has been traditionally treated under the law.

Earlier this summer, Senate Finance Chairman Orin Hatch (R-Utah) sent a letter to the agency criticizing its unprecedented hiring of a litigation law firm in connection with a tax audit. This calls into question yet another instance of the IRS willfully ignoring the law and exposing taxpayer information. In part, Chairman Hatch’s letter called attention to those troubling facts regarding the recent audit practices by the agency:

The IRS’s hiring of a private contractor to conduct an examination of a taxpayer raises concerns because the action: 1) appears to violate federal law and the express will of the Congress; 2) removes taxpayer protections by allowing the performance of inherently governmental functions by private contractors; and 3) calls into question the IRS’s use of its limited resources.

The letter stems from that fact that the IRS awarded a multi-million dollar contract to a litigation law firm to provide legal services for an audit of a private company. The audit involved offshore dealings and holdings, which the IRS has jurisdiction to look into. What they do not have any legal authority to do is hire outside counsel to handle such business. The IRS giving that contract to an outside firm puts privacy at risk regarding sensitive financial information of a private organization. Furthermore, the audit in question has been an ongoing process that has lasted years and taken up agency time and resources. Brian McNicoll of The Washington Times asked a very reasonable question:

How has this gone on for eight years with no end in sight? Yes, some of these laws are complicated, but there is reason Congress gives the IRS three years — not eight and certainly not carte blanche to go on indefinitely.

The Taxpayers Protection Alliance has been calling for comprehensive tax reform to fix our individual and corporate tax structure, and one of the reasons is the code is so complicated that compliance is a job in and of itself. Beyond compliance there should be an understanding that the IRS won’t willfully ignore the law.  Businesses that have fully complied and cooperated with the agency shouldn’t be treated with hostility, nor have their private financial information given to outside entities.

The IRS has been quick to complain to Congress that it lacks resources for essential services, yet it inappropriately entered into a $2.2 million dollar contract with a litigation law firm to engage in a taxpayer audit. TPA applauds the efforts of Sen. Hatch to shed light on this matter, and hopes the IRS will do the right thing and stop this behavior for the good of taxpayers and predictable tax administration..  If not, Congress should enact a legislative solution to protect taxpayers against future IRS abuses.