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IRS Proposal Could Impact Millions of Internet Users May-05-07
The U.S. Treasury Department -- in an effort to
track down unreported small business income -- is seeking legislation
requiring brokers of personal property, such as auction houses and consignment stores, to collect personal data on their customers and share it
with the Internal Revenue Service. It appears that the real targets of the
proposal are Internet-based businesses, including eBay
The IRS proposal is disturbing on many levels -- not least in that it calls for the collection, storage and transmission of large amounts of sensitive personal information at a time when Internet users are increasingly concerned about identity theft; and when public- and private-sector data breaches have become routine. It would also potentially burden many smaller businesses that lack the technology or security infrastructure to safely collect sensitive personal information.
The IRS proposal calls for "brokers" of transactions involving tangible personal property to file income statements about all sellers who conduct 100 or more separate transactions. The IRS form required under the proposal would include the name, address and Social Security number (SSN) or Taxpayer ID Number (TIN) of each seller. In order to comply, brokers would likely need to keep track of ID numbers and other information on all sellers, even those that do not meet the sales threshold (since they won't know until the end of the year who meets the threshold). For small sellers this will almost always be an SSN.
The proposal is in the President's budget and, while no lawmaker has yet come out in support of it, the measure could easily find its way into a larger legislative package.
The request is just the latest manifestation of a broader effort by the government to force businesses to retain large amounts of customer data. These "data retention" proposals would force the creation of massive, privately maintained databases of personally identifiable data that government investigators could tap at their leisure. What's particularly troubling about this trend is that it occurs against the backdrop of a concerted effort by the Administration to weaken the legal standards that protect ordinary Americans against undue government snooping.
The government is effectively seeking to increase the amount of information collected and stored about ordinary Americans even as it relaxes the standards by which it can obtain that information. Also, forcing businesses to collect SSNs could have a chilling effect on legitimate e-commerce if consumers balk at providing their SSNs for simple transactions -- something most people are not accustomed to doing.
The Treasury Department has done little to justify why Congress should impose this substantial new burden on brokers and their customers. Although reports of a multi-billion dollar gap between the taxes Americans owe and the taxes they pay have made headlines of late, there has been no evidence that online sellers are prime offenders or that the imposition of draconian record keeping requirements on auction operators and other online brokers represent the best, least intrusive means to address the problem.
While the IRS needs SSNs for tax purposes, and private sector tax reporting is partly what the number was created for, this proposal essentially requires Internet commerce companies to collect and store the SSNs of millions of people, most of whom will never even meet the requirements for reporting their auction income to the IRS.
To the best of our knowledge, the IRS is not seeking to compel flea market or mall operators to collect the Social Security numbers of their sellers for tax purposes, so it's hard to understand the rationale for targeting Internet businesses. Too often, it seems the basis for seeking ever-larger amounts of information from Internet operators has to do with the fact that such collection is believed to be easy, not because it is a good idea.
A broader concern is that the Treasury Department is seeking to dramatically increase the amount of sensitive personal data collected from individuals, even as other agencies are being urged to limit such collection as a means of combating ID theft. The Federal Trade Commission (FTC) and Justice Department recently unveiled a strategic plan to combat identity theft, which, among other things, called for agencies to minimize their use of Social Security numbers. The IRS proposal is goes against the spirit of the DOJ-FTC recommendations.
Source: Center for Democracy & Technology Policy Post 13.07, May 04, 2007
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