The Government Accountability Office has provided Congress with a guide for screening and assessing proposals to disclose confidential tax information to specific parties for certain purposes.

The GAO report, which was drawn up for Sen. Max Baucus, D-Mont., the chairman of the Senate Finance Committee, and Sen. Charles Grassley, R-Iowa, the ranking Republican member of the Senate Judiciary Committee, noted that the Internal Revenue Service receives a great deal of personal information about individuals and businesses.

“While taxpayers are required to provide this information to IRS under penalty of fine or imprisonment, confidentiality of information reported to IRS is widely held to be a critical element of taxpayers’ willingness to provide information to IRS and comply with the tax laws,” said the report. “As a general rule, anything reported to IRS is held in strict confidence.”

Section 6103 of the Tax Code provides that federal tax information is confidential and to be used to administer federal tax laws, except as otherwise specifically authorized by law.

However, while tax information is confidential, nondisclosure of such information is not absolute, the report noted. Section 6103 contains some statutory exceptions, including instances where Congress determined that the value of using tax information for nontax purposes outweighs the general policy of confidentiality. Since making amendments to Section 6103 in 1976, Congress has expanded the statutory exceptions under which specified taxpayer information can be disclosed to specific parties for specific purposes. Today, Section 6103 exceptions enable law enforcement agencies to use relevant tax information to investigate and prosecute tax and nontax crimes and allow federal and state agencies to use it to verify eligibility for need-based programs and collect child support, among other uses.

“Periodically, new exceptions to the general confidentiality rule are proposed, and some in the tax community have expressed concern that allowing more disclosures would significantly erode privacy and could compromise taxpayer compliance,” said the report. “In evaluating such proposals, it is important that Congress consider both the benefits expected from a disclosure of federal tax information and the expected costs, including reduced taxpayer privacy, risk of inappropriate disclosure, and negative effects on tax compliance and tax-system administration.”

The GAO guide aims to facilitate consistent assessment of proposals to grant or modify Section 6103 exceptions, providing key questions that can help in screening a proposal for basic facts and identifying policy factors to consider.

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