Congressional Democrats have accused three major tax preparation firms of sharing sensitive taxpayer information with Meta, the parent company of Facebook. According to the Democrats’ report, H&R Block, TaxAct, and TaxSlayer sent highly personal and financial data of tens of millions of taxpayers to Meta over a period of at least two years. This information was allegedly used by Meta to create targeted advertisements for its own users, as well as other companies, and to train its algorithms.
The report calls on federal agencies such as the IRS, the Department of Justice, the Federal Trade Commission, and the IRS watchdog to investigate the matter and potentially take legal action against the tax preparation firms and Meta. The lawmakers behind the report claim that this incident represents a significant taxpayer privacy breach by tax preparation companies and big tech firms.
The sensitive data, which included details about taxpayers’ sources of income, tax deductions, and exemptions, was obtained by Meta through its Pixel code. This code was installed on the tax firms’ websites to collect information for improving their own marketing campaigns. In return, Meta was able to access this data and use it to develop targeted algorithms for its own users.
The program used by Meta collected various types of information, such as taxpayers’ filing status, income, refund amounts, names of dependents, approximate federal tax owed, button clicks on the tax preparers’ websites, and the names of text entry forms navigated by the taxpayer.
The report’s findings highlight the need for further scrutiny regarding the handling of sensitive user data by both tax preparation firms and big tech companies, emphasizing the importance of protecting taxpayer privacy.
Data-Sharing Controversy and Concerns over User Privacy
Taxpayer data was shared with Google through its tracking tools, but Google claims it did not use the information for user tracking on the Internet. Senators Elizabeth Warren, Ron Wyden, Richard Blumenthal, Tammy Duckworth, Bernie Sanders, Sheldon Whitehouse, and Representative Katie Porter signed a letter to federal agencies urging them to investigate the incident. The lawmakers called for potential legal action against companies or individuals who violated the law, which could result in significant financial penalties.
The Markup, a nonprofit journalism outlet, initially reported on the data-sharing between tax firms and Meta. TaxAct and TaxSlayer representatives have responded to the report, with TaxAct stating it has engaged with Warren’s office to clarify its usage of analytical tools, emphasizing customer protection. TaxSlayer expressed disagreement with the report, labeling it as containing false or misleading statements. H&R Block emphasized its commitment to protecting client privacy and implementing measures to prevent data sharing through Pixel coding. Meta reiterated that its policies explicitly state that advertisers should not send sensitive information about individuals using their Business Tools.
The company in an email confirmed, “Doing so is against our policies and we educate advertisers on properly setting up Business tools to prevent this from occurring. Our system is designed to filter out potentially sensitive data it is able to detect.”
Meta, formerly known as Facebook, has a troubling track record for safeguarding user privacy. One of its major scandals unfolded in 2018 when investigations revealed that Cambridge Analytica, a firm linked to Steve Bannon, Donald Trump’s former political strategist, had paid a Facebook app developer for access to the personal data of approximately 87 million users. This data was exploited to target American voters during the 2016 presidential campaign, ultimately leading to Trump’s election as the 45th president.
Taxpayer Interest in Government-Run Electronic Free-File System
In response to the incident, Facebook agreed to a $725 million user settlement and later received a $5 billion fine from the U.S. Federal Trade Commission (FTC). More recently, in May, the FTC proposed significant changes to its existing privacy order for Meta. These changes would prohibit the company from utilizing any data collected from individuals under the age of 18, including through its virtual reality technologies. Furthermore, the new rules would require Meta to pause the launch of new products and services until an independent assessor confirms their compliance with the FTC order. Concerns regarding individuals under 18 primarily arise from Facebook’s Messenger for Kids app, which has long faced criticism for inadequate privacy protections for its young users.
Additionally, in 2018, Facebook revealed that nearly 50 million accounts had been vulnerable to the theft of “user tokens,” which attackers could exploit to gain unauthorized access to personal accounts. The Democrats have presented a report advocating establishing a government-run electronic free-file system for tax return submission.
In May, the IRS published a feasibility report that outlined the level of interest among taxpayers regarding direct filing, as well as how the system could function, its potential cost, and operational challenges, among other aspects.
According to the report, most surveyed taxpayers expressed interest in using an IRS-provided tool to prepare and file their taxes electronically. Almost 50% of respondents who preferred the IRS free-file option over commercial tax preparation firms indicated a preference for providing their financial information directly to the IRS rather than a third-party entity.