Several Democratic lawmakers have announced that Meta, the company that owns Facebook, received “susceptible” information about countless taxpayers from significant tax preparation firms. This data sharing, which reportedly lasted for at least two years, involved H&R Block, TaxAct, and TaxSlayer.
The lawmakers’ report strongly advises federal bodies to investigate and consider legal action due to the vast data these companies share with the social media conglomerate.
In their letter to the IRS, Department of Justice, Federal Trade Commission, and IRS watchdog, the seven lawmakers expressed their astonishment over the evident privacy violation by tax prep companies and significant technology corporations.
They asserted that highly confidential financial information related to taxpayers’ income sources, tax deductions, and exemptions was exposed to Meta as people utilized the tax software to do their taxes.
Meta reportedly received this data through its Pixel code, which the tax firms had implemented on their websites to collect data for enhancing their marketing strategies. This arrangement also allowed Meta to use this data for developing targeted algorithms for its users.
The report detailed the collected information, including taxpayers’ filing status, income, refund amounts, dependents’ names, estimated federal tax due, interaction with the tax preparers’ websites, and navigating the text entry forms.
Senators Elizabeth Warren, Ron Wyden, Richard Blumenthal, Tammy Duckworth, Bernie Sanders, Sheldon Whitehouse, and Representative Katie Porter endorsed the federal agency letter. The lawmakers urged these agencies to initiate an investigation into this occurrence promptly.
They also pressed the agencies to probe into and charge any company or individuals that may have broken the law, a violation that could bring billions of dollars in legal liability.
The initial news about the data-sharing between tax firms and Meta was revealed by The Markup, a tech-focused nonprofit news outlet, last November. TaxAct and TaxSlayer had then affirmed their commitment to customer privacy and compliance with IRS regulations, with TaxSlayer mentioning that they had suspended the Pixel for assessment.
On Wednesday, H&R Block announced that it is committed to client privacy and has taken measures to stop the Pixel code from sharing information. Meanwhile, Meta defended its stance, stating that their policies strictly discourage advertisers from transmitting sensitive information via their Business Tools.
Federal agencies, including the IRS, DOJ, FTC, and the IRS watchdog, did not immediately respond to this issue.
The Democrats assert that their report advocates for a government-operated electronic free-file system for submitting tax returns, which the IRS is currently testing.
The IRS has plans to roll out a pilot program for the 2024 filing season to examine a “direct file” system and guide the federal government on the possibility of its future implementation.
In May, the IRS shared a feasibility report exploring the potential interest of taxpayers in the direct file system, its functioning, cost, operational challenges, and more. It indicated that most taxpayers surveyed showed interest in using an IRS tool for electronic tax preparation and filing. Nearly half of those preferring the IRS free-file option over commercial tax prep firms said they would provide their financial data directly to the IRS rather than a third party.
This incident underscores the importance of maintaining sensitive taxpayer information’s privacy and confidentiality. As lawmakers push for investigations and legal action, the controversy may prompt a much-needed reevaluation of data-sharing practices among big tech and tax preparation firms. In addition, the reported interest in a government-operated tax filing system could significantly change how Americans prepare and file their taxes in the future.
