The Right to Confidentiality: How IRC 6103 Protects Your Tax Information

Your tax return says what you earn, where it comes from, who depends on you, what you gave to charity and sometimes what you spent on medical care. Federal law treats that information as confidential by default. The right to confidentiality is how the Taxpayer Bill of Rights describes that protection.

It is the eighth right in IRC 7803(a)(3). Publication 1 describes it as the right to expect that any information you provide to the IRS will not be disclosed unless authorized by you or by law, and the right to expect appropriate action against employees, return preparers and others who wrongfully use or disclose taxpayer return information.

The core rule: IRC 6103

Section 6103 of the Internal Revenue Code opens with a sentence worth memorizing: "Returns and return information shall be confidential." Then it lists the exceptions, and the list is long. But the starting point is confidentiality, and every disclosure needs authority.

What is protected. The statute protects both "returns" and "return information." Return information is defined broadly in section 6103(b)(2)(A) to include a taxpayer's identity and the nature, source or amount of the taxpayer's income, payments, receipts, deductions and much more. It is not limited to the return itself. Information the IRS gathers during an audit or collection case is generally return information too.

Who can see it. Section 6103 permits disclosure only as the Code authorizes. Some of the authorized categories involve government use. Two matter most for taxpayers managing their own affairs:

• You. Section 6103(e) allows disclosure to persons with a material interest, which for an individual's return includes that individual. The IRS may withhold return information under section 6103(e)(7) only if disclosure would seriously impair federal tax administration.
• Anyone you designate. Section 6103(c) permits disclosure to such person or persons as the taxpayer may designate in a request for or consent to such disclosure, subject to the rules in the regulations.

That second category is the practical one. It is why Form 8821, Form 2848, the third party designee checkbox on your return and oral consent during a call all exist. Each one is a way of consenting under section 6103(c). See third party designees and oral disclosure consent.

What happens when someone breaks the rule

Congress backed confidentiality with real penalties.

Unauthorized disclosure, a felony. IRC 7213(a)(1) makes it unlawful for any federal officer or employee, and certain others, to willfully disclose returns or return information except as authorized. A violation is a felony punishable by a fine of up to $5,000, imprisonment of up to 5 years, or both, plus costs of prosecution. A convicted federal officer or employee must also be dismissed from office or discharged from employment.

Unauthorized inspection, a misdemeanor. Looking without a reason is also prohibited. IRC 7213A makes it unlawful for federal officers and employees, and certain others, to willfully inspect any return or return information except as authorized. The penalty is a fine of up to $1,000, imprisonment of up to 1 year, or both, plus costs, and dismissal for a convicted federal officer or employee.

Return preparers. IRC 7216 makes it a misdemeanor for anyone engaged in the business of preparing returns, or who prepares returns for compensation, to knowingly or recklessly disclose or use information furnished for return preparation other than as permitted. The fine is up to $1,000, or up to $100,000 in cases covered by section 6713(b), imprisonment of up to 1 year, or both, plus costs.

A civil remedy for you. IRC 7431 lets a taxpayer sue the United States in federal district court if a federal officer or employee knowingly, or by reason of negligence, inspects or discloses return information in violation of section 6103. Damages are the greater of $1,000 for each act of unauthorized inspection or disclosure, or actual damages plus punitive damages in the case of willful or grossly negligent violations, plus costs. The suit must be brought within 2 years after you discover the violation. There is no liability for disclosures resulting from a good faith but erroneous interpretation of section 6103, or for disclosures you requested.

Confidentiality of what you tell your advisers

There is a second confidentiality question: what you say to the person helping you. Communications with an attorney for the purpose of legal advice are generally privileged. IRC 7525 extends a similar protection to tax advice from other federally authorized tax practitioners, but with limits.

Under section 7525(a), the same common law protections of confidentiality that apply to communications with an attorney apply to communications with a federally authorized tax practitioner about tax advice, to the extent the communication would be privileged if it were with an attorney. The privilege may be asserted only in a noncriminal tax matter before the IRS and in a noncriminal tax proceeding in federal court brought by or against the United States. Section 7525(b) excludes certain written communications in connection with the promotion of participation in a tax shelter.

Notice the word "noncriminal." If there is any chance a matter could become criminal, that distinction can matter a great deal. That is a conversation to have with an attorney before you have it with anyone else.

Confidentiality inside a marriage

Joint returns create a shared file. Section 6103(e)(1) treats both individuals who filed a joint income tax return as persons with a material interest in that return. Congress also addressed what happens after spouses separate. Under section 6103(e)(8), if a deficiency on a joint return is assessed and the individuals who filed it are no longer married or no longer live in the same household, either one can make a written request, and the IRS must disclose in writing whether it has attempted to collect the deficiency from the other individual, the general nature of those collection activities, and the amount collected. The Treasury Inspector General must review and certify each year whether the IRS is complying with that requirement.

The practical rule shows up on IRS forms. The instructions to Form 911 say information can be shared between married taxpayers as long as both were included on the returns at issue and the joint filing status was used. For anything else, such as your separate return or your separate business, your spouse needs your authorization like anyone else.

How to control who sees your tax information

Confidentiality is not only a shield against the IRS. It is also a tool you use deliberately. Some practical rules:

1. Use the narrowest authorization that works. If someone only needs to see your file, a Form 8821 is narrower than a Form 2848. If they only need to help with one call, oral consent may be enough. See Form 2848 vs. Form 8821.
2. Limit the years and matters. Both forms require you to list specific tax matters and periods. Do not authorize more than the job requires.
3. Clean up old authorizations. People change accountants, divorce and move on. Old authorizations can linger. See revoking a power of attorney or tax information authorization.
4. Be careful with lenders and third-party services. Income verification often works through Form 4506-C and the IRS Income Verification Express Service. Read what you are signing and which years it covers. See the Form 4506 family.
5. Do not email your return to strangers. The IRS says it does not initiate contact with taxpayers by email, text messages or social media channels to request personal or financial information.

When you think your information was misused

Write down what you know: who disclosed what, to whom, and when. If an IRS employee is involved, report it to the Treasury Inspector General for Tax Administration and consult an attorney about a section 7431 claim, keeping the 2-year discovery deadline in mind. If a return preparer misused your information, the preparer rules apply, and an attorney can tell you what remedies exist under the facts.

Your tax information belongs in exactly two places: with the IRS and with the people you choose. The law is on your side about that. Use it.