FTC Issues Warning To Five Tax Preparation Companies About Sharing Taxpayer Data

The Federal Trade Commission (FTC) has warned five tax preparation companies that they could face civil penalties if they use or disclose confidential taxpayer data for other unrelated purposes, such as advertising, without first obtaining consumers’ consent.

According to information posted on the FTC website, the five tax preparation companies are H&R Block
SQ
, Inc., Intuit
INTU
Inc., TaxAct, Inc., TaxSlayer LLC, and The Lampo Group, LLC d/b/a Ramsey Solutions. The FTC specifically notes, “The fact that a company is on this list is NOT an indication that it has done anything wrong.”

You can read the notice here.

Notice Language

The agency warned the companies they could incur civil penalties of up to $50,120 per violation if they misuse personal data. The penalty offense authority (Section 5(m)(1)(B) of the FTC Act) allows the agency to seek civil penalties against a company that engages in conduct that it knows is unlawful, and has been found unlawful in a previous FTC administrative order.

“Consumers trust tax preparers with sensitive information about their finances, marital status, children, and health,” said Samuel Levine, Director of the FTC’s Bureau of Consumer Protection. “Companies that violate American’s privacy by seeking to monetize personal data without consent can face significant financial consequences.”

In the notice, the FTC specifically warned of practices that may be deceptive or unfair under the FTC Act. Those acts include using information collected in a context where an individual reasonably expects confidentiality for a purpose not explicitly requested by the individual, using the information to obtain a financial benefit separate from the product or service requested by the individual, and using the information to advertise, sell, or promote products or services.

The key is consent. The practices may be deceptive or unfair under the FTC Act if the company does not, at a minimum, first obtain “affirmative express consent from consumers.”

The notices further warn that making false, misleading, or deceptive representations concerning the use or confidentiality of such information is unlawful. The Commission warned the companies that it considers it an unfair or deceptive practice to use tracking technologies such as pixels, cookies, APIs, or SDKs to amass, analyze, infer, or transfer personal information in the ways outlined above without first obtaining consumers’ express consent. They add, “It is also an unfair or deceptive practice to misrepresent or omit material facts regarding the use or confidentiality of information collected in a Confidential Context through tracking technologies such as pixels, cookies, or SDKs.”

Lawsuits

That language may sound familiar. Users of tax prep websites in seven states have filed a class action lawsuit against Google
GOOG
, LLC, claiming the company engaged in wiretapping. According to the complaint, tax preparation companies like H&R Block, TaxAct, and TaxSlayer sent private tax return information to Google using Google Analytics technology. The plaintiffs allege that data may include email addresses, data on users’ income, filing status, refund amounts, buttons clicked, and year of return, and was used by Google to improve its ad business and enhance its other business tools.

The complaint against Google follows a similar action filed against Meta Platforms
FB

META
, Inc. In that suit, Facebook users allege that tax preparation software companies like H&R Block, TaxAct, and TaxSlayer, used Meta’s Pixel software to gather private information from their tax returns to send to Meta.

Both lawsuits are ongoing.

Congressional Intervention

Expect more of these kinds of discussions as tax preparation companies seek to expand their services. Earlier this year, members of Congress were involved in a months-long investigation into allegations of “outrageous, extensive, and potentially illegal sharing of taxpayers’ sensitive personal and financial information with Meta by online tax preparation companies.” The result was a report, Attacks on Tax Privacy: How the Tax Prep Industry Enabled Meta to Harvest Millions of Taxpayers’ Sensitive Data, which you can read here.

Those same lawmakers have suggested that the free, direct-file pilot that the IRS has been tasked with designing under the Inflation Reduction Act could offer a potential solution by allowing taxpayers to file taxes “without sharing their data with untrustworthy and incompetent tax preparation firms.”