We have witnessed that the Internet is now a prime vehicle for business, community, and personal interactions. The notion of identity is the important component of this vehicle. Identity management has been recently considered to be a viable solution for simplifying user management across enterprise applications. The network identity of each user is the global set of personal credentials and preferences constituting the various accounts. The prevalence of business alliances or coalitions necessitates the further evolution of identity management, named federated identity management (FIM). The main motivation of FIM is to facilitate the federation of identities among business partners emphasizing on ease of user management. In this paper, we investigate privacy issues in FIM, especially focusing on Liberty Alliance approach. We attempt to identify practical business scenarios that help us understand privacy issues in FIM. Also, we propose systematic mechanisms to specify privacy preferences in FIM.