IRS Needs to Protect Taxpayer Info Better During Lender Requests

The Internal Revenue Service should do a better job of safeguarding sensitive taxpayer information from improper disclosure when responding to requests from lenders, according to a new government report.

The report, from the Treasury Inspector General for Tax Administration, found that taxpayers commonly request tax return transcripts to submit to their lenders so that they can obtain loans. The IRS uses the Income Verification Express Services Program to process requests for information by lenders. The IVES Program processes more than 10 million requests for tax return information annually.

TIGTA evaluated whether taxpayers’ personally identifiable information is adequately protected against misuse. TIGTA determined that the IRS does not screen IVES Program participants to ensure they meet minimum standards and protect tax return information.

TIGTA recommended that the IRS develop and enforce minimum requirements for the IVES Program; update the IVES application to include a statement that taxpayer information can only be used for a limited purpose; obtain completed applications from IVES Program participants within one year of revising the Program; and revise transcript request forms to allow limited disclosure of taxpayer information.

“Lending institutions generally require borrowers to authorize the IRS to release their tax information for income verification,” said J. Russell George, Treasury Inspector General for Tax Administration. “The IRS should be able to assure taxpayers that it is taking every precaution possible to ensure their tax information is only used for authorized purposes,” he added.

The IRS agreed with all four of TIGTA’s recommendations and plans to revise current IVES Program practices.