Pan And Irs: To Disclose Or Not?

The Internal Revenue Service (IRS) is committed to protecting taxpayers' confidentiality and civil rights. In general, the IRS may not disclose your tax information to third parties unless given permission. However, there are exceptions to this rule, such as when information is requested by state agencies responsible for tax administration or by court order for non-tax criminal investigations. Taxpayers have the right to expect that their information will not be disclosed without their consent or legal authorisation. The IRS also reminds its employees about these rights and expects them to uphold them in every interaction with taxpayers.

When is it necessary to disclose your PAN number?

The Permanent Account Number (PAN) is a crucial identification document for Indian taxpayers. It is a unique, 10-character alphanumeric identifier issued in the form of a laminated "PAN card" by the Indian Income Tax Department. The primary purpose of the PAN is to provide a universal identification for all financial transactions and prevent tax evasion by tracking monetary transactions.

• Filing Income Tax Returns (ITR): PAN is necessary when filing income tax returns. It serves as a unique identifier for individuals and entities under the Indian Income Tax Act, 1961.
• Tax Deduction at Source: When there is a tax deduction at the source, such as tax deducted from your salary or investments, you need to provide your PAN to the deductor.
• Communication with the Income Tax Department: If you need to communicate with the Income Tax Department, such as submitting queries or addressing concerns, you will need to provide your PAN for identification.
• Opening a Bank Account: Financial institutions often require PAN details for opening new bank accounts. It helps verify your identity and comply with regulatory requirements.
• Applying for Loans: Banks and financial institutions usually ask for PAN details when applying for loans. It helps them assess your creditworthiness and prevent fraud.
• High-Value Transactions: PAN is mandatory for conducting high-value financial transactions. This includes transactions such as purchasing immovable properties, vehicles, foreign currency, or making bank deposits above a certain threshold (e.g., Rs. 50,000 in India).
• Real Estate Transactions: In real estate, PAN card verification is mandatory for property transactions exceeding a specified value. Both buyers and sellers must validate their PAN details to comply with regulatory requirements and curb fraudulent deals.
• Know Your Customer (KYC) Compliance: Businesses and financial institutions conduct PAN verification as part of the KYC process to verify the identity of individuals. This ensures that transactions adhere to regulatory guidelines and helps prevent identity theft and fraud.
• Linking with Aadhaar: The Indian government has mandated linking PAN cards with Aadhaar, another form of identification in India, to enhance financial transparency and security.
• Other Services: PAN may be required when setting up new utility connections, such as a landline telephone or mobile phone connection. It may also be requested by consultancies for income tax purposes and verification.

What are the exceptions to the rule?

In the United States, the Internal Revenue Service (IRS) is committed to protecting taxpayers' confidentiality. The Taxpayer Bill of Rights (TBOR) is a cornerstone document that outlines the 10 fundamental rights taxpayers have when dealing with the IRS. One of these rights is the Right to Confidentiality, which states that any information provided to the IRS will not be disclosed unless authorized by the taxpayer or by law.

While the IRS generally cannot disclose your tax information to third parties without your permission, there are some exceptions to this rule. Here are the key exceptions:

• State Agencies: IRC Section 6103(d) allows the IRS to share return information with state agencies responsible for tax administration. However, the state agency must request this information in writing, and the request must be signed by an official designated to request tax information.
• Law Enforcement Agencies: According to IRC Section 6103(i)(1), the IRS can share return information with law enforcement agencies for the investigation and prosecution of non-tax criminal laws, but only if there is a court order in place.
• Official Tax Administration Investigations: Under IRC Section 6103(k)(6), the IRS can make limited disclosures of return information to third parties during official tax administration investigations if it is necessary to obtain information that is not otherwise reasonably available.
• Social Security Administration (SSA): As per IRC Section 6103(l)(1), the IRS may disclose return information related to taxes imposed under Chapters 2, 21, and 24 to the SSA to enable them to carry out their responsibilities under the Social Security Act. This includes information about self-employment income, Social Security and Medicare tax liability, and income tax withholding. However, the SSA employees who receive this information are bound by the same confidentiality rules as IRS employees.
• Powers of Attorney and Other Designees: In certain situations, such as during an audit, taxpayers may choose to be represented or assisted by someone other than the authorized officer of their entity. In such cases, oral consent can be given to speak with a third party to resolve a Federal tax matter. However, this does not replace the need for a power of attorney or legal designation, and the discussion is limited to the specific issue for which consent is given.

It's important to note that these exceptions are specific and limited, and the IRS takes confidentiality very seriously. The IRS employees are expected to understand and apply taxpayer rights, including the right to confidentiality, in every encounter with taxpayers.

What is the process for disclosing information to a third party?

The process for disclosing information to a third party depends on the nature of the information and the laws of the relevant jurisdiction. In the United States, for example, the Privacy Act of 1974 establishes a general rule that agencies cannot disclose records without the written consent of the individual to whom the record pertains. However, there are twelve exceptions to this rule, including disclosures for law enforcement purposes, disclosures to Congress, and disclosures pursuant to a court order.

In the United Kingdom, the Data Protection Act 2018 (DPA 2018) governs the disclosure of personal data. Under the DPA 2018, organisations are not required to comply with a subject access request (SAR) if doing so would involve disclosing information that identifies another individual, except where the other individual has consented to the disclosure or it is reasonable to comply with the request without consent.

To determine whether it is reasonable to disclose information about a third party without their consent, organisations should consider factors such as the type of information being disclosed, any duty of confidentiality owed to the third party, and the steps taken to obtain their consent. Ultimately, the decision to disclose information about a third party involves balancing the data subject's right of access against the third party's rights relating to their personal data.

In the context of third-party data sharing, the California Consumer Privacy Act (CCPA) imposes restrictions on organisations that sell personal information. The CCPA defines "selling" broadly to include not only selling personal information for monetary or other valuable consideration but also disclosing, releasing, or otherwise communicating personal information to a third party. Organisations that sell personal information must provide consumers with an easy way to opt out of having their data sold.

What are the penalties for wrongful disclosure?

The IRS is bound by the Privacy Act, which states that federal officials handling personal information are "bound by the Privacy Act not to disclose any personal information and to take certain precautions to keep personal information confidential."

The Privacy Act's disclosure provision states that agencies are generally prohibited from disclosing records by any means of communication without the written consent of the individual.

The Taxpayer Bill of Rights states that taxpayers have the right to expect that any information they provide to the IRS will not be disclosed unless authorized by the taxpayer or by law. Taxpayers also have the right to expect appropriate action to be taken against employees, return preparers, and others who wrongfully use or disclose taxpayer return information.

If tax preparers knowingly or recklessly disclose or use your tax information for any reason other than for tax return preparation, they may face criminal fines and prison.

The IRS may disclose your tax information to third parties if you give them permission. For example, you may request that they disclose information for a mortgage or student loan application.

In the case of wrongful disclosure, the individual whose information was disclosed may file a civil suit against the agency for actual damages sustained as a result of the disclosure, but not less than $1,000.

What are the confidentiality protections?

The confidentiality protections afforded to taxpayers are outlined in the Taxpayer Bill of Rights, which is a cornerstone document that highlights the fundamental rights of taxpayers when dealing with the Internal Revenue Service (IRS). The right to confidentiality is one of ten rights included in this document.

This right to confidentiality means that any information provided to the IRS will not be disclosed to third parties unless authorised by the taxpayer or by law. The IRS is also prohibited from contacting third parties, such as employers or banks, without first giving reasonable notice to the taxpayer.

Confidentiality protections also extend to communications with certain tax professionals, such as certified public accountants or enrolled agents, who are authorised to practice before the IRS. These communications are treated with the same level of confidentiality as those between an attorney and their client.

Additionally, taxpayers have the right to expect that IRS employees, return preparers, and others will not wrongfully use or disclose their return information. If they do so, appropriate action will be taken.

It is important to note that there are some exceptions to these confidentiality protections, as outlined in IRC Section 6103. For example, return information may be shared with state tax administration agencies, law enforcement agencies for non-tax criminal investigations, and the Social Security Administration under specific circumstances.

Frequently asked questions