Exploratory talks have been held with five companies - four of them American and the fifth a British computer group owned by the Japanese.
An Inland Revenue spokesman stressed that no decision had been reached, and if the work was contracted out it would remain responsible for ensuring that confidentiality was preserved.
Clive Brooke, general secretary of the Inland Revenue Staff Federation, warned, however, that the move would put taxpayers' privacy at risk, and called for the plan to be dropped.
The existence of the plans was disclosed by Mr Brooke's union after staff had been informed of them in an internal letter.
The Inland Revenue subsequently issued a statement confirming it had held talks with IBM, Digital Equipment Corporation, the General Motors subsidiary Electronic Data Systems and Computer Sciences Corporation - all US companies - and ICL, which is owned by Fujitsu of Japan.
A spokesman said that the proposal to contract out part of its data processing business, worth pounds 250m a year, was part of government-wide attempts to improve the performance of all agencies. 'Any decision will only be taken if it can be clearly demonstrated that the highest quality of service and best value for money is provided,' he added.
But Mr Brooke said: 'Personal privacy is being put at risk by the Government's obsession with market testing.'Reuse content