New tax law gives more agencies a key to your IRS file

Those tax files aren't so private anymore.

You may not know it, but other government agencies covet that sensitive information you share privately with the Internal Revenue Service (IRS) every April 15.

Tucked away in a pocket of the massive tax bill passed by Congress last month are new disclosure laws that make the information on those reams of IRS computerized tax returns much more accessible.

Tax experts say that the watered-down privacy safeguards may seriously hamper voluntary compliance with the tax laws, the keystone of the US tax code. Those experts include former Internal Revenue Service (IRS) commissioners Jerome Kurtz and Donald Alexander, who both testified before a House subcommittee against more sweeping disclosure rules.

Among the changes in the tax bill:

* It's now easier for most federal, state, and local government bureaucrats to get a court order that allows them to examine someone's tax file.

* It's easier to require disclosure in ''emergency circumstances'' - when information from a tax return could prevent death or physical injury to individuals from suspected criminals, or to prevent flight from federal prosecution.

* It's easier for government employees to acquire tax information from any third party, including banks and creditors.

''If people know that their tax information won't be kept confidential, they're not going to be as honest about what they do,'' says Michael Burch, executive director of the National Taxpayers' Legal Fund. ''If you know about a person's finances, you know almost everything about him.''

The loosening of privacy protections is a backlash against reforms brought about by the Watergate scandal, say observers.

''This is a substantial setback for privacy of tax records,'' says John Shattuck, national legislative director of the American Civil Liberties Union (ACLU). ''Congress can't seem to remember the abuses that took place before.'' Former President Nixon and his staff used IRS tax information to control political opponents.

''The new law makes it easier for a wider variety of people to get the information,'' says Mr. Burch. ''Historically, it was only a brief period (from 1976 to 1982) when taxpayers had any privacy. But the reason the 1976 laws were passed was not only because of Nixon - the Watergate abuses were only the most flagrant and well-documented instance of the abuse.''

''Only a few years ago, people realized this information was being abused,'' says Burch. ''There's absolutely nothing to suggest that abuse won't happen again.''

Before the Privacy Reform Act of 1976, all taxpayer information was treated as public record, says Burch. ''Virtually anybody could get to your tax records.''

While government agencies have been able to get to IRS tax data all along, the 1976 law made it harder to reach.

Fighting crime is the main reason why lawmakers such as Sen. Sam Nunn (D) of Georgia pushed for the stronger disclosure laws, says Eleanor Hill, chief minority counsel on the permanent subcommittee on investigations.

''The IRS has been under strict rules that have inhibited them from disclosing information when they run across evidence of non-tax crime,'' says Ms. Hill. ''The new law will encourage them to disclose the evidence to law enforcement agencies.''

Ms. Hill says the strict rules of the Privacy Reform Act of 1976, a reaction to the abuses of Watergate, were ''overkill.''

''The IRS has been an effective law-enforcement agency in the past,'' she says.

The government's aim is twofold: to catch criminals and drug smugglers; and to close the $95 billion ''tax gap,'' the government's tax loss due to noncompliance by criminals and others, says Rod Young of the IRS. The government will be more effective in nabbing criminals if agencies share their information with each other, he says.

While the new law still requires standards for allowing access to the tax files, more than just the Justice Department seeks the highly prized IRS information. Among the agencies lining up for access:

* The selective service hired the IRS to find addresses of young men who have failed to register for the draft and send letters warning them of the possibility of prosecution. Although Congress never passed a law to allow this use of IRS files, the tax agency claims it has administrative right to do so.

* The Office of Management and Budget wants to be able to search out addresses for private collection agencies to use in collecting debts owed the federal government.

* The Social Security Administration (SSA) wants to cross-check the non-wage income reports of social security recipients to see if they make more than the allowable income limit.

The National Senior Citizens Law Center is appealing the dismissal of a lawsuit it filed against the SSA on behalf of social security beneficiaries. Center attorney Barry Fried says the suit asks the SSA not to follow through with requests for access to the tax files.

Barry Lynn, president of the antidraft group Draft Action, says the IRS has the authority in certain instances to turn certain information over to certain federal agencies.

''But in terms of law enforcement, it does not have the authority to go on what amounts to a fishing expedition to find out who might have failed to register for the draft,'' says Mr. Lynn.