I haven't been in the workforce long enough to file taxes, and expect this is the problem.
This is not related to filing tax returns.
Many data collection companies such as Equifax, Experian, TransUnion, and lesser known others, offer "identity verification" products where the business purchasing the product can run a customer's details through private databases and see if it matches any record contained within. Betterment and many other businesses purchase these services and use them supposedly to verify the identity of prospective or actual customers. Generally speaking, the Terms of Service for many online services will include a clause specifying that the service provider has the right to run these checks on you. Betterment's agreements contain such a clause.
However, any filings you make with the IRS will almost certainly not be in these private companies' databases because tax records are confidential except for enumerated situations. The list of situations where tax data can be disclosed is quite lengthy but it does not include selling the data to private companies. See 26 USC § 6103.
If you crave for your personal information to be included in commercially-operated data clearinghouses which are (i) very loosely regulated, (ii) poorly-secured, and (iii) susceptible to abuse, the easiest way to join these databases is to obtain one or more credit cards, which pretty much guarantees that your information will make its way into a large number of databases, as the credit card application and agreement will contain terms authorising broad disclosure of your information.
TransUnion has informed me in private correspondence that their identity verification product will not consider a person's records to be a match to the data supplied for verification unless the person has existed in the databases for at least six months. My general experience is that this is the case for other such products as well. The exact time period may not be six months for all of them, but you can expect it to be a while after obtaining your first credit card before these products will start considering your identity verified.
As for your question, there is no need to send the data in plaintext. Betterment allows you to specify a security question and security answer when you sign up. The correct way to handle security questions on services is to view them as a form of password, and to specify a unique randomly-generated token, just like you do for all other passwords (if you take security seriously). By "unique", I mean that every time you are asked for a password, it should be unique from every other password that you have ever used. However, unlike passwords, which are typically stored in hashed form, and would not generally be available to view by customer service representatives ("CSRs"), security answers are typically stored in plaintext and can be viewed by CSRs. Indeed, Betterment will ask your for your question's answer if you call them on the phone.
Based on this, what I do for businesses that ask me to send them documents over email is that I put the document into a PDF and then encrypt the PDF using a key which is derived from my security answer on file. I then inform the business to open the PDF using the security answer which they should be able to view on their files. I used this exact procedure with Betterment, and they had no objection to it, and it worked fine. To date, only one business has declined to comply with my procedure here, and I simply did not do business with them.
