It's Not Okay For Your Tax Data to Be Up for Grabs

Hello World is a weekly newsletter—delivered every Saturday morning—that goes deep into our original reporting and the questions we put to big thinkers in the field. Browse the archive here.

Editor’s note: Colin Lecher, whose latest investigation has the attention of Congress, is the first in a line of reporters you’ll be hearing from in this newsletter over the next few weeks. I’m really excited for you, our Hello World readers, to get to know them. —Sisi

Hi, folks,

My name is Colin Lecher, and I’m a reporter here at The Markup. I’m here to give you a grim reminder: It’s tax season.

If the recent barrage of commercials weren’t enough to remind me, I spent some time last week in San Diego for a conference on tax law hosted by the American Bar Association.

I was invited to speak as part of a panel on a story we published in November about tax preparation services, like H&R Block and TaxSlayer.

The article—which I co-wrote with Simon Fondrie-Teitler and Angie Waller—revealed how major tax filing services sent data to Facebook through code called the Meta Pixel. The data often included sensitive financial information, including on users’ income and refund amounts.

One expert we spoke with called the practice “appalling.” It might even have broken IRS regulations by disclosing information without user consent, according to experts we spoke to for the investigation.

From a bayside Hilton, I talked through the article alongside lawyers on the panel. I explained how websites take this code from Facebook, place it on their websites, and send the data they capture back to Facebook.

Businesses and organizations can then target their ads to people on Facebook using that data, and Facebook can use it to power its advertising algorithms.

On the panel, I used this analogy: Imagine you sell shoes. You put this code on your checkout page, track the visitors, and then advertise your next pair of shoes directly to those people when they log in to Facebook.

This is, in essence, the kind of tracking the tax preparation companies were doing.

Nina Olson, a former longtime national taxpayer advocate at the Internal Revenue Service who’s as close to a rock star as there is in the world of tax law, interjected here. I’ll paraphrase it for you:

That’s the problem, she said. Taxes aren’t shoes. We’ve commodified the process so much we just treat them like that.

She’s right. We let a multibillion-dollar private industry handle our precious financial information, and it treats that information the way any other business might—the same as the data on the sneakers you just bought.

Worse, there’s no reason it has to be that way. There’s a process that would not only make filing vastly easier for many, many Americans but would also help eliminate the incentive for this kind of tracking. The United States government has simply chosen not to use it.

For most Americans, the IRS already has the data to know what you should be paying in taxes. As Vox noted in an excellent explanatory piece on the issue from 2016, when you get forms like W-2s and 1099s, the IRS also gets copies.

The IRS could simply make this calculation itself, then send a prefilled form to Americans. Taxpayers could then sign the form—or fill out the form themselves, if they choose—and return it to the IRS. (See this relevant tweet.)

Simple. Which is why so many countries around the world are using exactly that type of system.

The benefits of changing the way Americans do taxes are potentially huge—a much simpler, completely free system for most people in the country, and one that might improve a biased audit system to boot.

And here’s a bonus: Third-party companies with incentive to abuse your financial data would never see it.

So why hasn’t the U.S. adopted the system? The short answer is that the tax preparation industry has successfully waged a decades-long lobbying battle to ensure the IRS doesn’t offer this service, which would marginalize their business.

Instead, a free preparation and filing system is limited to taxpayers making $73,000 and less. The IRS even directs those taxpayers to private tax preparation companies, who offer (oft-criticized) free versions of their software to those taxpayers.

Changing the system to one more closely tied to the IRS wouldn’t ensure total privacy.

Government institutions can, of course, still mishandle user data. As part of our series on the Meta Pixel, we found that the Department of Education was using the Meta Pixel on the federal student aid application form.

But with the government handling the system instead of corporations, the temptation to capitalize on Americans’ financial data would be much smaller.

While that change hasn’t happened, here are at least two pieces of good news. After our article, the companies we wrote about changed their practices, either removing their pixels or reducing the amount of data they gathered.

Meanwhile, there is some political momentum toward changing the U.S.’s system. Sen. Elizabeth Warren—who sent letters to the tax preparation companies and Meta demanding more information after our article was published—has long proposed developing a free filing system operated by the IRS.

This year, 22 senators co-sponsored the Tax Filing Simplification Act, which would direct the IRS to develop a free online tax preparation tool, a system “that would allow all taxpayers to prepare and file their taxes directly with the federal government instead of being forced to share private information with third parties,” according to Warren’s office.

Imagine living in a country with that system. Something to chew on for a few minutes while you spend many more minutes filing your taxes this year.

Thanks for reading.

Colin Lecher

Reporter

The Markup

By Colin Lecher

Also published here

Photo by Olga DeLawrence on Unsplash