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If the IRS is Government’s “Big Brother,” Who does Corporate America have?

Who knows as much [or more] about your most confidential financial affairs as the IRS?  If you’ve been a user of Turbo Tax and Quicken software products, the answer could be “Intuit."

Having just finished my 2008 income tax return using Intuit’s Turbo Tax, I was exploring the program’s various sections when I noticed a “My Forms” menu.  Within that menu I found a long list of tax forms and workpapers the software had generated in relation to my tax return. 

As I scanned the list, I spotted something called a “tax history report.”  I didn’t recall ever seeing this report before - and I’ve used Turbo Tax for quite a few years, so I decided to print-it-out. 

The report turned-out to be a five-year tax history for my wife and I, and it was quite comprehensive.  For each year from 2004 through 2008, the history reflected such things as my filing status, total income, adjustments to income, tax expense, interest expense, charitable contributions, miscellaneous deductions, exemption amounts, taxable income, tax, credits, payments, refunds, effective tax rate and tax bracket.

Suddenly, a question came to mind.  How was it that Turbo Tax had five years’ worth of my tax return information? 

Although I loaded the software on the same computer every year, I immediately uninstalled the program once I finished preparing my tax return.  I also deleted all the data files on my computer that were associated with the program.  In addition, I always printed-out and mailed my tax returns after I finished preparing them, and I never filed electronically (e-filed) using Turbo Tax. 

Since I’m a big proponent of personal privacy, this really bothered me.  So, I  decided to do some checking.  First I went to Turbo Tax’s licensing agreement.  After wading through the usual legalese about not copying the software, not using it on a commercial basis, etc., etc., etc., I finally found a link to Intuit’s privacy statement.

As you might expect, Intuit begins its privacy statement with a sentence which is no doubt meant to be re-assuring: “At Intuit, we place the highest importance on respecting and protecting the privacy of our customers.  Our relationship with you is our most important asset.  We want you to feel comfortable and confident when using our products and services and with entrusting your personal and tax return information to us.”  That sounds nice, but I wanted to know why they have all my personal tax information (including my Social Security Number) in the first place - since all I do is use Turbo Tax to prepare and print-out my tax returns.

The privacy statement further noted: “In order to prepare your return, to file your return, to provide advice about tax matters, and/or to provide an audit defense service, we collect information about your income, deductions, credits, dependents, etc.  Collectively, this information is known as tax return information.”  Okay, okay, but that doesn’t answer my question.

Finally, something caught my eye.  It said: “We retain copies of your completed and filed tax returns as required by IRS and state regulations and in accordance with Intuit’s Records and Information Management Policy.” 

Is that the reason?  Does the IRS require Intuit to keep my tax return information even though Intuit does nothing to prepare my tax return except provide the software?

Having begun my government career with the IRS, I figured the only reason the IRS would require Intuit to keep my tax information was if Intuit was considered a tax return preparer.  (The IRS has long-required tax return preparers to retain copies of the tax returns they prepare.)  But Intuit didn’t really prepare my tax return; I did it using their software.  Anyway, I went to the IRS’ web site to see what I could find.

Surfing through the IRS’ web site, I found the “frequently asked questions” (FAQ) section concerning the regulations for Internal Revenue Code Section 7216 - Disclosure or Use of Tax Information by Preparers of Returns. 

In the FAQ, it stated: “Tax return preparers are persons that participate in the preparation of tax returns for taxpayers, including but not limited to: Return preparers that are in business or hold themselves out as preparers; Casual preparers that are compensated; Electronic return originators; Electronic return transmitters; Intermediate Service Providers; Software Developers; and Reporting Agents.”

In addition, according to the FAQ: “E-file providers are considered tax return preparers and tax return information is all the information tax return preparers obtain from taxpayers or other sources in any form or manner that is used to prepare tax returns or is obtained in connection with the preparation of returns.”

Well, I have to admit that based on the above information alone, the IRS regulations seem to be so all-encompassing that Intuit can easily justify their retention of my personal tax information.  But that doesn’t do much to relieve my personal privacy concerns.

Sure, IRS Code Section 7216 has a criminal provision that prohibits tax return preparers from knowingly or recklessly disclosing or using tax return information.  But, it’s only a misdemeanor offense.  I also checked the IRS’ and the Bureau of Justice Statistics’ web sites and couldn’t find any mention of anyone being prosecuted for a 7216 violation.  (Even if there have been prosecutions of 7216 cases, I bet I could count them on both hands.)  There’s also a civil penalty of $250 for unlawful disclosure of tax information; but let’s be realistic, these puny sanctions hardly serve as a meaningful deterrent to anyone.

I can’t help but wonder if Intuit’s employees really place “the highest importance on respecting and protecting the privacy” of their customers’ personal and tax return information.  What type of privacy safeguards and monitoring programs does Intuit have in place?  How serious and effective are those safeguards against the ever-lurking curiosity of the typical corporate employee.  There must be a mind-numbing amount of personal information available to every Intuit employee with the right access.

To really appreciate how much personal tax information is involved, one need only ponder a press release from April 17, 2008.  In that press release, Intuit announced that the company had sold 16,854,000 Turbo Tax units for the 2008 tax season.  That’s a lot of people using Turbo Tax to do their tax returns - but that’s only part of the story.

What about all the individuals and businesses who use Intuit’s Quicken and QuickBooks software?  We’re talking about Intuit software that’s being used  for the most financially sensitive data around - payroll accounting, banking transactions, sales records, expense records, and credit and debit card processing.

According to Intuit, over 57,000 businesses have chosen QuickBooks Enterprise Solutions alone.  The number of individuals using Quicken must be in the multi-millions.  I can’t even begin to estimate the massive volume of all the sensitive financial data stored on Intuit’s computer systems. 

I do know, however, that if I were a private detective who specialized in gathering financial information for my clients (and I wasn’t overly-concerned with ethics), I would do my best to develop sources (i.e., employees) inside Intuit’s information technology (IT) department.  The magnitude of financial data available to a private detective who had a “paid informant” working inside the corporation would be invaluable. 

Letting my imagination run even wilder, I can envision what an organized crime group might do with access to Intuit’s financial data - but I really don’t want to be an alarmist.  Nevertheless, given the current sophistication of certain organized crime groups, it wouldn’t surprise me to someday learn that a group’s members had “infiltrated” Intuit as employees for the purpose of furthering their “white collar” criminal activities. 

And, at the risk of beating this whole privacy subject to death, what about all those annoying hackers who are constantly breaking-into corporate computer systems all over the world? 

According to Intuit’s web site, the company has approximately 8,000 employees with major offices in the United States, Canada, the United Kingdom and other locations.  I just hope that in addition to their “respecting and protecting the privacy” of their customers, they also have one of the most effective data and internal security systems in the world. 

But just in case they don’t, I think next year I’ll go back to the old way of preparing my income tax return - using just the IRS Form 1040, instruction booklet, and my pencil and calculator. 

It’s a lot slower, but at least I can try to maintain what little personal financial privacy I have left.

Copyright 2009 by R. M. Burton