IRS Proposal Could Impact Millions of Internet Users

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IRS Proposal Could Impact Millions of Internet Users

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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 and Amazon. It seems the IRS believes Internet companies should be enlisted in tax collection due to the apparent ease of collecting and transmitting information over the Internet.

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.

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