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Lawmakers Call for Investigation into Tax Prep Software Companies
Background
A group of lawmakers, led by Massachusetts Democratic Senator Elizabeth Warren, has called on the Biden administration to date allegations that tax preparation software companies illegally shared customer data with tech platforms Google and Meta. This comes after an initial report by The Markup and The Verge revealed that tax prep companies TaxSlayer, H&R Block, and TaxAct had shared sensitive financial information with Facebook, through a piece of code known as a pixel. Meta and Google have stated that they have policies against receiving sensitive or identifying information from customers or advertisers.
Lawmakers' Findings
Building on the initial reporting, the group of lawmakers conducted their own probe into the extent of the data sharing. They found that millions of taxpayers' information had been shared with Big Tech firms through the tax prep software. Both the tax prep companies and tech firms were labeled as "reckless" in how they handled sensitive information. The lawmakers also pointed out that although the companies claimed the information shared would be anonymous, experts believed it wouldn't be difficult to connect the data to individuals.
Privacy Implications
According to the lawmakers, the tax prep companies installed Meta and Google's tools without fully understanding the privacy implications. However, the two tech platforms also failed to provide enough information about how they would collect and use the information gathered through their tools. They claimed that the filters in place to catch sensitive data inadvertently collected were "ineffective."
Additional Information Collected
The probe further revealed that Meta tools used by TaxAct allegedly collected even more information than previously reported, including the approximate amount of federal taxes owed by individuals. Meta confirmed that it used data collected from the tax software providers to target ads to taxpayers, including for companies other than the tax prep companies, as well as to train its own AI algorithms.
Potential Violation of Privacy Laws
Based on their findings, the lawmakers believe that the tax prep companies may have violated taxpayer privacy laws, which could result in criminal penalties of up to $1,000 per instance and up to a year in prison. They have called for the investigation and prosecution of any violations.
Future Policies
In addition to the investigation, the lawmakers have emphasized the need for new policies to mitigate similar issues in the future. They mentioned the recent announcement by the IRS of a free, direct file pilot program for next year, which would allow taxpayers to file taxes without sharing their data with potentially untrustworthy and incompetent tax preparation firms.
Impact on New Businesses
This investigation into tax preparation software companies and their sharing of customer data with big tech platforms like Google and Meta has significant implications for new businesses entering the market.
Firstly, it highlights the importance of prioritizing customer privacy and data protection from the outset. New businesses must recognize that mishandling customer data can have severe consequences, including legal penalties, reputational damage, and loss of consumer trust. It is crucial for startups to implement robust privacy policies and security measures to safeguard customer information.
Secondly, this investigation emphasizes the need for businesses to conduct thorough due diligence when partnering with software providers or tech platforms. New companies must carefully review the privacy practices and data-sharing policies of their partners to ensure compliance with applicable laws and regulations. Failing to do so may expose them to legal liabilities and potential backlash from consumers.
Furthermore, this case highlights the importance of transparency in data handling. Customers are increasingly concerned about how their data is collected, used, and shared. New businesses should prioritize transparent communication with their customers, clearly outlining their data practices and seeking explicit consent for any data sharing.
In conclusion, the investigation into tax prep software companies serves as a reminder for new businesses to prioritize customer privacy, conduct proper due diligence, and maintain transparent data practices. By doing so, startups can build trust with their customers, differentiate themselves in the market, and avoid potential legal and reputational pitfalls.
Article First Published at: https://www.cnbc.com/2023/07/12/google-meta-got-data-from-tax-prep-firms-lawmakers-call-for-probe.html
