A seven-month congressional investigation found that three of the biggest tax preparation firms in the country may have shared Americans' private financial information with Google and Meta for years in a possible violation of federal law. The information, in some cases, was used for targeted advertising.

The investigation's findings reveal a "five-alarm fire" for taxpayer privacy that, according to legal experts, could result in public and private lawsuits, criminal penalties, or even a "mortal blow" for some major industry players like TaxSlayer, H&R Block, and TaxAct.

According to a congressional study, the three tax preparation organizations allegedly transmitted tens of millions of Americans' personal information to the tech industry without their knowledge or proper disclosures using visitor tracking equipment integrated on their websites.

The report states that besides standard personal information like names, phone numbers, and email addresses, the list of data shared also included taxpayer data. This included information about people's filing status, adjusted gross income, the size of their tax refunds, and even information about the buttons and text fields they clicked on while completing their tax forms, which could reveal what tax breaks they may have claimed or which government programs they use.

The research also discovered that every taxpayer who used TaxAct's IRS Free File service when the tracking was enabled would have had their information shared with the tech companies. The analysis was based on congressional interviews and written testimony from Meta, Google, and the tax-preparation firms. According to the research, several tax preparation businesses are still unsure of the status of the data they supplied with tech platforms.

“On a scale from one to 10, this is a 15,” said David Vladeck, a law professor at Georgetown University and a former consumer protection chief at the Federal Trade Commission, the country’s top privacy watchdog. “This is as great as any privacy breach that I’ve seen other than exploiting kids. This is a five-alarm fire, if what we know about this so far is true.” 

It also serves as an illustration, according to Vladeck, of the necessity for federal law, giving every American a fundamental right to data privacy. Although electronic data is becoming an increasingly significant component of the global economy, this subject has been stalled in Congress for years.

According to the article, the tax preparation firms at the focus of the probe informed lawmakers that the acquired data had been scrambled to assist preserve privacy. The study highlighted prior FTC studies that found that even "anonymized" data may be easily reverse-engineered to identify a person, but it also claimed that some tax-prep services themselves were not entirely aware of how much information was being given to the digital platforms.

H&R Block said in a statement that it takes customer privacy "very seriously" and that it has taken precautions to stop information exchange through pixels. According to [the new] report, H&R Block stated they had been used the tracking technology for "at least a couple of years."

A request for comment was not immediately answered by TaxAct or TaxSlayer. According to the research, TaxSlayer started using Meta's tools in 2018 and Google's in 2011, although TaxAct has been using both since around 2014. The research discovered that all three tax preparation businesses had stopped using Meta's pixel because of The Markup's initial investigative article from last November.

The study discovered that Intuit, the firm that produces TurboTax, did not use tracking pixels to the same level as other companies and was not the subject of the most recent report despite receiving an initial inquiry letter from the senators in December.

According to a former FTC official who asked to remain anonymous to talk more freely, the tax-preparation companies may be quickly forced into a legally enforceable settlement depending on the gravity of the claims.
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“If the facts are really strong, these companies would probably rather settle than go to court. This is very embarrassing,” the former official said. “It could be a mortal blow to the tax prep companies.”

The COVID-19 pandemic accelerated a trend that was already well underway: employers letting their workers perform their jobs remotely, from home, most or all of the time. But even if you and your employer both know exactly where you live and work, you may be surprised to learn that state departments of taxation can have some very different ideas about where "here" is. As a result, Texans, Utahns, and Arkansawyers who work for New York- or Massachusetts-based companies will have income taxes withheld from their paychecks, even if they've never set foot in the home office.

In the wake of the pandemic, dozens of major companies are embracing employees' desire to stay remote, increasing their support for working from home permanently. Some businesses have even closed offices or let leases lapse, counting on a physically distant, flexible workforce to reduce their real estate needs.

In many ways, this can be a win/win: employers can save overhead costs on expensive square footage in high-demand cities, and employees can save time and money by skipping the commute and dialing in from, basically, anywhere they want. New York, San Francisco, and Los Angeles are expensive; maybe you want to move to Montana and dial in from the woods or get a nice little ocean-view place in Florida. Unfortunately, as far as the state is concerned, your beachside cabana may as well be squarely in the middle of Manhattan, and you will be taxed as such.

Even before COVID, living in one state but working in another was common in many of the biggest US metropolitan areas. Many commuters into New York live in New Jersey or Connecticut, for example, and vast numbers of workers in Washington, DC live in Maryland, Virginia, or sometimes even farther out in Pennsylvania, West Virginia, or Delaware. Kansas City sprawls into both Kansas and Missouri, so traveling across city limits can mean crossing state lines. Any major city near a border likely has loads of workers that saunter over that line every day.

From a tax perspective, that's tricky because both the state where you perform a job and the state where you actually live are going to want to try to tax your income. Still, only one state at a time can, and most jurisdictions with a lot of overlap have agreements worked out with their neighboring states that make it easy for workers to take state withholdings and pay state tax where they live. (I, for example, only had to fill out one short form when I worked in downtown Washington, DC to make sure my taxes were properly withheld across the river in Virginia.) 

However, the increase in remote work means as offices downsize, some employees are now migrating to areas of the country where there are not tax agreements in place, leaving individuals to try to muddle through multiple states' tax codes on their own. Even more challenging: states are losing money hand-over-fist due to the pandemic and are likely to be more aggressive about chasing down every dollar they can claim.

Seven states – Arkansas, Connecticut, Delaware, Massachusetts, Nebraska, New York, and Pennsylvania – have so-called "convenience" rules on the books that require any work performed for an employer based in their state to be taxed as if the worker performing the job is in their state, no matter where the employee is located. Those states are still attempting to collect tax from telecommuting workers, and other states are fighting back.
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New Hampshire,  one of nine states that do not have an income tax, is suing neighboring Massachusetts over its convenience rule. Four other states – New Jersey, Connecticut, Hawaii, and Iowa – are supporting the suit.

This week, Senate Democratic Leader Chuck Schumer (D-NY), Sen. Todd Young (R-IN), Rep. Ro Khanna (D-CA), and Rep. Mike Gallagher (R-WI) unveiled the Endless Frontier Act (EFA).

This newsletter doesn’t usually cover new legislation, much less proposed bills. But EFA is an exception since it seeks to turbocharge American “discovery, creation, and commercialization of critical tech.” By that, the lawmakers mean every technology you read about in this newsletter. 

EFA’s core proposals. There are three principal parts to the proposed bill:

• Restructure the National Science Foundation into the National Science and Technology Foundation (NSTF)
• In the NSTF, stand up a Technology Directorate that receives $100 billion over five years and operates like DARPA
• Hand the Commerce Department $10 billion to invest across 10-15 regional tech hubs over five years

This is great news for U.S. universities and businesses because EFA would pad R&D budgets, establish new scholarships, and create cutting-edge labs and fabrication plants. 

What’s driving the frontier mindset? The private sector overtook Washington in R&D investment four decades ago. EFA’s sponsors want to expand the pool of capital so that all of Washington’s tech priorities are advanced in the U.S.

The other reason for EFA, which its sponsors explicitly call out: China. While Beijing’s bid for tech supremacy is better described as a “slow burn” rather than a “Sputnik moment,” the country’s tech industrial base is now a genuine contender with the U.S. There’s more to come: 

• China plans to invest $1.4 trillion in emerging tech over the next six years. 
• Chinese chipmaker SMIC recently announced a $2 billion investment from state-backed funds. 
• Tencent will spend $70 billion on tech infrastructure over the next five years. 
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“The U.S. needs to pursue with all-of-the-above strategy and intensify efforts,” a person familiar with the legislation said in a recent interview.

As Bill of Schoolhouse Rock’s “I’m Just a Bill” could tell you, EFA may never see the light of day. But adding $$$ to tech R&D and accelerating the U.S.-China tech decoupling are bipartisan priorities.

Cryptocurrency investors in the United States are receiving letters from the Internal Revenue Service (IRS) which are proposing backdated tax payments relating to the trade of virtual assets. 

As reported by Bloomberg, some traders are receiving notices asking for input on revised tax returns, based on estimates of profit generated by cryptocurrency-related activities.

The CP2000 notices have been sent in recent weeks, and while they do acknowledge mistakes in past tax returns might be due to cryptocurrency platforms and exchanges rather than individuals, they do signal a clampdown by the IRS on the burgeoning industry. 

In July, the IRS also sent warnings to investors to make them aware that tax may be owed on their trading activities. Some investors received demands for the disclosure of cryptocurrency trades between 2013 and 2017. 

An IRS spokesperson said that the latest batch of warning notices are sent to taxpayers when discrepancies between tax returns and information obtained from third parties are flagged. 

Aletter shared with CoinDesk estimates that an investor owes close to $4,000 in taxes and interest for potentially misreported cryptocurrency profits during the 2017 fiscal year. 

"We received information from third parties such as employers or financial institutions that doesn't match the information you reported on your tax return," the letter reads. 

Recipients can accept the changes and make any further payments required, or they can challenge the IRS' decision if they have supporting evidence. 

According to the IRS website, CP2000 receivers should respond within 30 days even if only to say they need more time. The notices are not straight bills or demands, but what the IRS calls "a proposal [that] informs you about the information we have received, and how it affects your tax."

The IRS won a landmark case against Coinbase in 2017 which forced the cryptocurrency exchange to hand over the records of 14,000 customers that purchased, sold, or obtained over $20,000 in cryptocurrency between 2013 and 2015.

 The only sure things in this life, according to Ben Franklin, are death and taxes. And a new startup called Visor has just raised $9 million in financing to make one of them as painless as possible.

Unlike Dr. Jack Kevorkian (remember “Doctor Death”), Visor won’t kill anyone, but it may ring the death knell for the high-end tax advisors that most Americans can’t even access to get help filing and paying their taxes.  It’s like having a personalized accountant for the cost of a high-end do-it-yourself tax-prep service.

The $9 million Visor raised came from the venture capital firm, Defy, with participation from Unusual Ventures, SVB Capital and existing investors like Obvious Ventures, Fika Ventures, and Boxgroup, who had put a previous $6.5 million into the company. 

The idea for the company had been percolating for co-founder and chief executive Gernot Zacke since he settled in the U.S. 

Growing up in Sweden, Zacke was exposed to a much different process for paying taxes. “The experience of filing taxes in Sweden is that you receive a message from the government that stated how much you made and how much you were withholding. That’s it,” said Zacke. “Taxes should be as easy as ordering a cab.”

That’s the service that Visor aims to provide.

“If you think about the market there are two ways to get your taxes done. There’s the DIY space, and then there are other online services, but it requires the taxpayer to fill out the forms, and it leaves the taxpayer with a little bit of anxiety,” said Zacke. “We’re delivering the CPA experience through the convenience of a web app and a mobile app.”

On average, Americans spend about 13 hours each year dealing with taxes, and the average American doesn’t have the benefits of a professional advisor who can help optimize the process. That’s what Visor wants to provide.

“You provide the same amount of information you provide to a CPA or TurboTax… we make sure that that information is filed securely on AWS and shared between the docs and the backend,” said Zacke. 

The target customers for Zacke’s services are folks who have had a change to their tax situation – whether moving, buying a home, or any other life event; or people who have had a CPA and don’t want to pay the higher fees, he said.
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Visor currently has an operations team of around 34 people split between San Francisco and Atlanta.
“Taxpayers spend $20 billion a year to get their taxes prepared and are stuck between spending hours filling out DIY tax software and hiring an expensive CPA,” said Zacke, in a statement. “

Ricky Lavina was an auditor at Pricewaterhouse-Coopers, one of the largest accounting firms in the world. He had worked there for over four years and was expecting to eventually be a partner.
But during the Uber ride to his office, Lavina began to wonder why there wasn't a way to easily pair real accountants like himself with people who needed help filing their taxes. He became envious of the Uber driver's professional flexibility.

When you set out to file your taxes, you have two options. You can submit all of your documents to a CPA, and have them do the dirty work for you, or you can file yourself with online services like TurboTax or H&R Block.

Then there's Tickmark, Lavina's seven-month-old startup that lets you file your taxes through a mobile app called Taxfyle. It's pitching itself as the "Uber for accountants," and it was recently named one of the best new apps in the App Store by Apple.

'We're turning the traditional CPA firm upside down," Lavina said in an interview.

Taxfyle, a chat-based messaging app for quickly filing your taxes, is designed to be dead simple. Once you give the app some basic info and submit tax documents by taking photos with your phone, it connects you with a CPA that does your paperwork and asks you follow-up questions.

300 CPAs are on call 24/7 in the app, and Lavina said it takes 60 seconds to submit tax information, 90 seconds for a CPA to take the request, and generally 24 hours for all of the necessary paperwork to be completed. Taxfyle lets you take photos of your tax documents, like a W2 or 1099 form, with your phone and upload them directly in the app.

Taxfyle's CPAs have on average 14 years of experience in their field and they look through all documents submitted through the app.

"No one else is doing this," said Lavina. "No one else has an army of CPAs like we do. No one else is pairing them with customers at very competitive rates."

Filing taxes with Taxfyle starts at $49, and adding itemized deductions brings the cost to $100. Taxfyle also charges $3 for three years of audit protection. TurboxTax's mid-tier package starts at $55 and charges $40 for audit defense.

While TurboTax is the obvious elephant in the room, Lavina isn’t worried. "We don't see [TurboTax] as our main competitor. You can always paint your house for cheaper," he said. "But there's going to be a huge market of people out there who don't have the time to do it or don't have the skill set to paint their house."
"We see our main competitors as the brick and mortar, the Liberty Tax and the H&R Block, that have billions and billions of dollars in market space already."

Intuit, which owns TurboTax, recently debuted its own chat-based tax filing app called Tada that works in a similar way to Taxfyle. The app, which is currently in beta, costs $40 to file state and federal returns.
Lavina doesn't seem scared about Intuit encroaching on Taxfyle's territory.

"We're the future of a CPA firm. We're not the future of filing your taxes. He said many users are asking for the app to handle more everyday book keeping, and he plans to expand the kind of services Taxfyle provides.
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"There's no reason why the vehicle we created should just be for transporting tax jobs," he said. "It could also be transporting bookkeeping jobs, payroll jobs, even audits."
For now, Lavina isn't shy about his small team's potential. "This is the next Uber," he said.