Handbook 1.3 Disclosure of Official Information
Chapter 32 Disclosure to States for Tax Administration Purposes
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Contents
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- The liaison Disclosure Officer shall ensure that requests are
processed
in accordance with IRC 6103(d) requirements. Processing of these
requests
does not need to be done in the liaison office. Alternative
procedures
may be developed between the liaison district and Service
Center(s) or
non-liaison offices located within the same state.
- An officer or employee of a State tax agency may inspect or receive
Federal
returns or return information of specifically identified taxpayers
with
addresses within the State if:
- the type of tax data is disclosable to the agency under an Agreement on
Coordination of Tax Administration currently in effect between the agency
and the Service;
- the officer or employee has been designated in writing by the head of
the
State tax agency to receive the type of tax data requested;
- a proper written request is submitted by the officer or employee in
accordance
with the Agreement on Coordination of Tax Administration and the
implementing
agreement; and
- disclosure of the information sought would not identify a confidential
informant or seriously impair any civil or criminal tax investigation and
is not otherwise restricted (see section 32.17).
- A proper request is one directed to the appropriate Service official
designated
in the basic agreement or the implementing agreement which
includes:
- the name, signature, title, and office location of the authorized
individual
who is to inspect or receive the returns or return
information,
- the name and other identifying information of each person or entity
whose
return(s) or return information is to be disclosed and a description
of
the specific return(s) or information desired, including type of tax and
taxable years, and
- the purpose for which the information is being requested, including the
specific reason the information is needed and how the agency intends to
use
the information.
- The Service official to whom a State agency representative has made
a
request
to inspect returns or to obtain return information shall satisfy
himself/herself
as to the identity of the individual and, with the
assistance of the Disclosure
Officer, ensure that the above requirements
have been met.
- Requests for copies of returns or return information of taxpayers
with
out of State addresses must meet the above requirements and must be
made
by the head of the State tax agency or by up to two officers or
employees
designated, in writing, by the head of the agency.
- The means used to transmit return and return information may vary
according
to the sensitivity of the material involved.
- Form 8796,
Request for Returns/Information
can be used by either
IRS or employees of State tax agencies to request
returns and/or return
information in accordance with an approved Agreement
on Coordination of Tax
Administration (Basic Agreement). Use of this form
by IRS or employees of
State tax agencies is not mandatory; however, when
used, Sections C and D
must be signed by officials who are authorized to
make requests and/or
release information under the terms of the Basic and
Implementing
Agreements. (Supplies of Form 8796 can be requested from the
forms
distribution center servicing the local area.)
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- Disclosure of returns and return information on a continuing basis
must
be carefully and thoroughly screened to assure that the tolerances and
criteria established by the implementing or other written agreement are
observed.
- Disclosure Officers must have in place a written document (may be
Internal
Management Document) describing the procedures and tolerances and
criteria
to be used by Service personnel when releasing information to
State tax
agencies.
- Disclosure Officers should periodically perform quality reviews
regarding
release of these documents to assure that the provisions of the
implementing
agreements are being met and also that the restrictions
imposed by section
32.17 are properly being followed. Both pre and post
disclosure reviews
should be conducted.
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[1.3] 32.11 (08/19/98)
Release of Tax Data in Magnetic Media
Format
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- Programs for providing State tax agencies with tax return information
on
magnetic media are intended to minimize the need for State tax personnel
to inspect or obtain copies of Federal tax returns and related records
as
well as minimizing the impact on the Service's resources.
- Magnetic media extracts will be made available to State tax agencies
which
have entered into basic agreements with the Service.
- Data items will be included in magnetic media extracts only to the
extent
that the State agency can justify that the specific items are needed
for
a State tax administration purpose. Agencies will also be asked to
explain
how they intend to use the magnetic media data (see section 32.4
above).
- Extracts of individual and business tax data usually are made
available
on an annual basis. The data items available from these extracts
may change
from year to year, according to State tax agency needs and
interest expressed
in additional items available on IRS magnetic media
files.
- Tape and data specifications as well as other pertinent information
regarding
selection of specific data items will be published in the spring
of each
year in Document 6501,
Federal/State Exchange Program: Individual Master File (IMF)
Tax Data Extract,
Business Master File (BMF) Tax Data Extract, Individual
Returns Transaction
File (IRTF) Extract, Business Returns Transaction File
(BRTF) Extract.
- The IRS also provides periodic magnetic media extracts from the
CP2000
(Underreporter) program. Information on this program is available
from
the Office of FedState Relations.
- The Office of Fed/State Relations will coordinate all magnetic media
extract
programs between IRS Computer functions and field disclosure
personnel.
- The district Disclosure Officers are to contact the State tax agency
liaison
officials regarding these extracts and assist interested agencies
in the
data item checklists.
- NOTE:
- The shipping address for the media extracts must be
that of an authorized
employee within the State tax agency and cannot be
that of a centralized
data processing facility of the State.
- Determinations and documentation of State tax agency need for and use
of
the data items selected will be made by the Disclosure Officers at this
time and will be retained in their files for use in reviews. In addition,
the Disclosure Officers will determine whether or not the data items
selected
are consistent with the types of tax available to the State
agencies under
section 3.2 of their basic agreement. The completed forms
will be forwarded
to the Office of FedState Relations.
- Magnetic media files must be kept in a secured area under the
immediate
protection and control of the State tax authority. Processing of
the magnetic
media must be performed in a manner which will protect the
confidentiality
of the information on the magnetic media.
- NOTE:
- Publication 1075 (as revised),
Tax Information Security Guidelines
, describes the
specific requirements for insuring the confidentiality
of the tax
data.
- Requests for special magnetic media extracts should be routed through
the
district Disclosure Officer to the Office of FedState Relations, for
consideration
and coordination with the appropriate functions. See
(12)-(14)
below for special rules regarding statistics of income
extracts. These
requests are to be signed by the agency head or an
authorized agency representative
and should explain in detail what data is
desired. Approval of such requests
will depend on the availability of the
data as well as the impact on Service
resources.
- All requests for tape extracts needing coordination through the
Statistics
of Income Division (e.g., state tax model) will be directed from
the State
tax agency through the liaison Disclosure Officer, and possibly
the Regional
Disclosure Officer, depending on regional procedures, to SOI.
- NOTE:
- Any request from the liaison district must state in
writing that a need
and use analysis has been conducted and give the basis
for determining
that IRC 6103(d) permits the exchange.
- SOI will determine whether the request can be honored and all
subsequent
communication with the requesting State tax agency regarding
acceptance
or denial of the request will be coordinated through the liaison
Disclosure
Officer. SOI will clearly communicate to the liaison Disclosure
Officer
any special conditions for the extract.
- It will be the responsibility of the liaison Disclosure Officer to
account
for disclosure under IRC 6103(p)(3). Any release of SOI data should
be
reviewed during the next appropriate on-site need and use review.
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[1.3] 32.12 (08/19/98)
Release of Tax Information Relating to State Tax Employees for
Conduct
Investigations or Employee Checks
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- State tax administration, as defined in Section 2.13 of the Agreement
on
Coordination of Tax Administration (see Exhibit 32-1), includes
ongoing or potential conduct-related investigations of State tax agency
employees. Such definition also includes compliance-type checks of
employees
and prospective employees of State tax agencies. The management
and supervision
of a State's internal revenue laws includes ensuring
that its tax employees
are free from conflicts of interest that could
undermine the integrity
of the State's tax system. The standards for
disclosures of this type are
different from those for revenue compliance
purposes.
- When a State tax agency wants tax information for a purpose described
in
(1) above, a specific written request must be submitted directly to the
liaison district Disclosure Officer, generally following the procedures
of
section 32.10.
- In order to meet the need and use standards of section 32.10:(3)c.,
the
request must include the following:
- Specific documentation regarding the particular conduct-related reason
why the disclosure of Federal tax information is necessary.
- Specific documentation why the requested return(s) and/or return
information
is, or may be, relevant to the inquiry.
- Where applicable, copies of, or reference to specific rules of conduct,
regulations, personnel directives, etc.
- State requests for conduct-related disclosures should be contained in
the
implementing agreements.
- In accordance with the principles of section 32.6.1:(2)c., the
Service
may initiate conduct-related disclosures when the State is eligible
to
receive the information and has shown a broad need for that category of
information even though it has not identified a particular employee. In
such cases, the Service will make disclosures only if the following wording
is contained in the implementing agreement.
- "When the IRS liaison official has a Federal return and/or
return information
which will not be transmitted to the Agency under other
provisions of this
agreement, but which may be evidence of any violation,
suspected violation,
or potential violation by an employee of the State tax
agency of Federal
or State tax law or statutes, regulations, or rules
governing the conduct
of State tax employees which violation or potential
violation could damage
the integrity of the tax administration system or,
if known to the general
public, could decrease public trust in the state
tax agency, that official
will contact the Agency liaison official and,
without disclosing identifying
information, describe the return and/or
return information in sufficient
detail to ascertain the Agency's
need and potential use of the return and/or
return information. If, in the
judgment of the IRS liaison official, the
Agency has a need and use of the
return and/or return information, he/she
shall then transmit the return
and/or return information to the Agency."
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[1.3] 32.13 (08/19/98)
Disclosure to Agencies Which Have Not Entered Into Agreements on
Coordination
of Tax Administration
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- The head of a State tax agency (other than the Governor) may request
access
to returns and return information on a case-by-case basis under IRC
6103(d)
without entering into an Agreement on Coordination of Tax
Administration.
- Such requests will be addressed to the Commissioner of Internal
Revenue,
Attention: National Director, Office of Governmental Liaison and
Disclosure,
and signed by the agency head and contain the following data:
- the name, title and office location of the State tax agency
representative
who is to inspect or receive returns, return information or
taxpayer identity
information on behalf of the agency;
- the specific State tax law which the agency is charged with
administering;
- the agency's specific tax administration need for the information
being
requested and an explanation of how such information will be used to
satisfy
that need (statements that information is needed for or will be
used in
administering State tax laws are not sufficient);
- the name and identifying information of each person or entity whose
return
or return information is to be disclosed, and a description of the
returns
or return information sought including the type of tax and the
taxable
periods for such return or return information; and
- in compliance with IRC 6103(p)(8) of the Code, if applicable, a copy of
the State's statutes which protect the confidentiality of a copy of
any
portion of a Federal return or information reflected on such returns
which
taxpayers are required to attach to or include in their State tax
returns
(see subsection 32.14.1 below for
specifics).
- The State tax agency must also state in its request that it agrees to
all
of the requirements imposed by IRC 6103(p)(4) and any additional
requirements
imposed by the Service. These requirements are described in
detail in section
32.14 below.
- The Office of Governmental Liaison and Disclosure will provide
specific
disclosure instructions in response to these requests after
coordination
with Disclosure Officers in affected offices to determine
whether there
is any objection to release of the information sought.
- Requests for return information in magnetic tape format are to be
made
in the same manner as described in (1), (2) and (3) above except that
item
(2)(d) would be inapplicable. Also see section 32.11 for specific
instructions.
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- The Service is authorized by IRC 6103(p) to generally require that
State
agencies receiving Federal returns and return information disclosed
pursuant
to IRC 6103(d) maintain adequate safeguard procedures.
- Such steps as are considered necessary may be taken in this regard,
including
the withholding of further Federal returns and return information
(subject
to an administrative appeal procedure), in the event a State
agency does
not maintain adequate safeguards or prevent unauthorized
disclosures.
- Disclosure of Federal returns and return information to local tax
authorities
or others either directly or indirectly is not permitted except
to State
auditors. See section 32.24 below.
- NOTE:
- This is not intended, however, to limit the
disclosure of State tax returns
and return information by State tax
officials to local tax authorities.
State return information which may be
disclosed includes information resulting
from tax audits and investigations
conducted by State authorities, even
where that information is based on or
is substantially similar to Federal
return information supplied to the
State agency. State tax officials may
not, however, merely transcribe
Federal return information, designate it
as State tax information, and
furnish it to local tax authorities as information
resulting from a State
audit or investigation.
- As a condition for their access to Federal returns or return
information,
State agencies must agree to the following requirements:
- establish and maintain, to the satisfaction of IRS, a permanent system
of standardized records with respect to any request made by the agency
for
inspection or disclosure, the reason for the request and the date of
the
request, and, in addition, any disclosure made by or to it;
- establish and maintain, to the satisfaction of IRS, a secure area or
place
in which the returns or return information shall be stored;
- restrict, to the satisfaction of IRS, access to the returns and return
information to persons whose duties or responsibilities require access
and
to whom disclosure may be made;
- provide such other safeguards as IRS may determine to be necessary or
appropriate
to protect the confidentiality of the returns and return
information;
- furnish to the Service the safeguard reports described in subsection
37.7.1
of this Handbook. The
Safeguard Procedures Report
will be submitted no
later than 45 days before scheduled receipt of Federal
tax information. The
Safeguard Activity Report will be submitted annually;
- upon completion of the use of the returns or return information, either
send back the returns or return information (along with any copies) to
IRS
or destroy the returns, return information, and copies, and furnish
a
written report to IRS describing how this was done;
- permit IRS and, to effectuate the provisions of section 6103(p)(6)(A),
the General Accounting Office to review the extent to which the agency
is
complying with these requirements;
- give written notification to all agency representatives and any other
person
authorized to access Federal returns or Federal return information
of the
criminal penalties and civil liability provided by IRC 7213 and 7431
for
unauthorized inspection or disclosures of Federal returns or return
information;
and
- provide the Service with the notification required in 32.19:(3)
below.
- Guidelines for the periodic review of safeguard procedures are
included
in Chapter 37 of this Handbook. In addition, Publication 1075,
Tax Information Security Guidelines for Federal, State and
local Agencies
, provides State agencies further information about
these requirements.
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- IRC 6103(p)(8) provides that no return or return information shall be
disclosed
after December 31, 1978, to any officer or employee of any State
which
requires a taxpayer to attach to, or include in, any State tax return
a
copy of any portion of his/her Federal return, or information reflected
on such Federal return, unless such State adopts provisions of law which
protect the confidentiality of the copy of the Federal return (or portion
thereof) attached to, or the Federal return information reflected on, such
State tax return.
- At the request of a State, the Service will render an advisory
opinion
as to whether any existing or proposed legislation fulfills the
requirements
of IRC 6103(p)(8). State officials should direct their
requests to the
Office of Governmental Liaison and Disclosure.
- It is not intended that States enact confidentiality statutes which
are
copies of the Federal statute. State returns and return information,
including
any copy of any portion of a Federal return or any information on
a Federal
return required to be attached or included with a State return,
may be
disclosed by State tax officers or employees to other officers or
employees
of the State or its political subdivisions whose official duties
or responsibilities
require access to such State return or return
information pursuant to the
laws of the State. The underlying policy is
that the attached copy of the
return and the included information is
treated by State and local governments
as confidential rather than as
public information.
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[1.3] 32.15 (08/19/98)
Disclosure of Tax Return Preparer
Information
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- Pursuant to IRC 6103(k)(5), identity information may be furnished to
designated
officers or employees of State or local agencies, bodies or
commissions
lawfully charged under State or local law with the licensing,
registration,
or regulation of income tax return preparers.
- Such information may be furnished only upon receipt of a written
request
signed by the head of such agency, body or commission designating
the officers
or employees to whom such information is to be
furnished.
- This information may be furnished and used only for the purpose of
licensing,
registering, or regulation of the preparers:
- name;
- mailing address;
- taxpayer identification number; and
- information as to whether any penalty has been assessed against such
preparer
under IRC 6694, 6695, or 7216.
- The agency need not specifically list the names of return preparers
for
whom the information is requested. They could request information with
respect to any preparer who was assessed a penalty under any of the code
sections listed above.
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[1.3] 32.16 (08/19/98)
Disclosure of Records Regarding Taxes on Gasoline and Lubricating
Oil
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- Pursuant to IRC 4102, records required to be kept regarding taxes on
gasoline
and lubricating oil may be inspected by officers of a State or
political
subdivision charged with the enforcement or collection of any tax
on such
products. Inspection may be made only for purposes of such
collection or
enforcement. See 26 USC 4102 and 26 CFR
48.4102-1.
- Requests for inspection must be in writing, addressed to the District
Director
having custody of the records requested and signed by an officer
of the
State or political subdivision who is charged with the enforcement
or collection
of such taxes.
- Requests must state the:
- kind of records requested;
- period covered;
- name of the officer making the inspection;
- name of any representative who has been designated to make the
inspection;
- law imposing the State or local tax to be enforced or collected;
- law under which the officer is so charged; and
- purpose for which inspection is to be made.
- The District Director will notify the person making the request upon
approval
or disapproval of the request.
- Inspection shall be made:
- in the office of the District Director having custody of the records
requested;
- in the presence of a Service employee; and
- during regular business hours.
- CAUTION:
- Since excise taxes on gasoline and lubricating oil
are reported on Form
720 and other excise taxes are also reported on that
form, care must be
taken to see that information concerning other taxes is
deleted from documents
to be inspected.
- Although the safeguarding and recordkeeping requirements of IRC
6103(p)
do not apply specifically to disclosures made under IRC 4102, State
and
local officials should be encouraged to make reasonable efforts to
safeguard
this information.
- Arrangements to exchange gasoline and lubricating oil information
between
the Service and a particular State or local agency may be made upon
written
agreement by the District Director and the head of the agency. In
the case
of a State tax agency which has already entered into a basic
agreement
under IRC 6103(d), this exchange should be specified in the
implementing
agreement.
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[1.3] 32.17 (08/19/98)
Restrictions on Disclosure of Returns and Return
Information
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- The disclosure of certain returns and return information is
prohibited
by law notwithstanding the provisions of IRC 6103 or 4102. Such
data must
be identified and removed from the file prior to disclosure of
the record
or documents to any authorized State or local agency
representative. They
are as follows:
- information obtained pursuant to tax treaty;
- wagering tax information as defined in IRC 6103(o)(2) and 4424;
- currency transaction reports filed under Title 31 (these may be
available
to state tax agencies under the Bank Secrecy Act Dissemination
Guidelines);
- grand jury information obtained in accordance with an order issued
pursuant
to section 6(e) of the Federal Rules of Criminal Procedure, unless
the
terms of such order permit such disclosure; and
- full credit report information, obtained without a court order, summons
or written permission from the taxpayer. (Fair Credit Reporting
Act).
- Information obtained under immunity procedures must be referred to
the
Headquarters, Office of Governmental Liaison and Disclosure.
- No information shall be disclosed to any authorized agency
representative
without a determination that the disclosure would not
identify a confidential
informant or seriously impair a civil or criminal
tax investigation. If
it is determined subsequent to disclosure that
further use of the return
or return information would identify a
confidential informant or seriously
impair a civil or criminal tax
investigation, the State tax agency will
be requested to discontinue use of
the information.
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- All persons having access to Federal returns or return information
under
the terms of this Chapter shall be informed, in accordance with the
instructions
in section 1.6 of this Handbook, of the criminal penalties and
civil liability
for unauthorized disclosures.
- Any instances of intentional or unintentional misuse of tax returns
or
return information (including magnetic tape) by State personnel should
be reported to the appropriate IRS Regional Inspector or to the Chief
Inspector.
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[1.3] 32.19 (08/19/98)
Use of Returns and Return Information in State Judicial or
Administrative
Proceedings
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- The disclosure of Federal returns or return information by State tax
agencies,
or bodies or commissions to their legal representatives for use
in preparation
for proceedings involving tax administration (or
investigation which may
result in such proceedings) is governed by the same
standards that apply
to tax administration disclosures by the Service to
attorneys at the Department
of Justice. Thus, Federal returns or return
information may be disclosed
to State attorneys personally and directly
engaged in, and solely for their
use in, preparing for such proceedings
only if:
- the taxpayer is or may be a party to such proceeding or the proceeding
arose out of or in connection with determining the taxpayers civil or
criminal
liability, or the collection of such civil liability in respect of
any
tax imposed;
- the treatment of an item reflected on such return is or may be related
to the resolution of an issue in the proceeding or investigation; or
- such return or return information relates or may relate to a
transactional
relationship between a person who is or may be a party to the
proceeding
and the taxpayer which affects or may affect, the resolution of
an issue
in such proceeding or investigation.
- The disclosure of Federal returns or return information in State
judicial
or administrative proceedings pertaining to tax administration is
further
limited by IRC 6103(h)(4) which permits disclosure only if:
- the taxpayer is a party to such proceeding or the proceeding arose out
of or in connection with determining the taxpayer's civil or criminal
liability,
or the collection of such civil liability in respect of any tax
imposed;
return information relates to the resolution of a tax issue in the
proceeding;
or
- the treatment of an item reflected on such return is directly related
to
the resolution of a tax issue in the proceeding; or
- such return or return information directly relates to a transactional
relationship
between a person who is a party to the proceeding and the
taxpayer which
directly affects the resolution of a tax issue in the
proceeding.
- disclosure does not identify a confidential informant or seriously
impair
a civil or criminal tax investigation, as determined by the
Service.
- At the time of disclosure to the agency, or at the time an Agreement
on
Coordination of Tax Administration is signed, each agency receiving
returns
or return information is advised of its obligation to notify the
Service
in writing of its intention to disclose any such returns or return
information
in a State judicial proceeding or to any party other than the
taxpayer
or his/her designee in a State administrative proceeding.
- The notice is to be signed by the head or legal representative of the
agency
and directed to the liaison District Director, Attention: Disclosure
Officer,
at least 30 days prior to the date the disclosure is to be made.
The following
information should be included:
- the name and other identifying information;
- the tax periods involved and type of tax;
- a description of the information to be disclosed;
- the purpose for which the proceeding is being conducted; and
- the manner in which the provisions of section 6103(h)(4) will
apply.
- The district Disclosure Officer receiving the notification referred
to
above will coordinate the proposed disclosure in the manner described in
section 32.17:(3) above. Further, in any case in which it is known that
the
actions described in section 32.17:(1) and (2) above have not been
taken,
the actions required there should also be taken.
- Except in unusual circumstances, the coordinating Disclosure Officer
will
prepare an appropriate response to the State official proposing the
disclosure
within 30 days of receipt of the notification. In every case,
the Disclosure
Officer must see that a response is made prior to the date
the disclosure
is to be made.
- State tax agencies will be advised to edit any documents which they
intend
to disclose in a judicial or administrative tax proceeding in order
to
delete Federal returns and return information where their disclosure is
prohibited by IRC 6103(h)(4).
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Internal Revenue Manual
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Hndbk. 1.3 Chap. 32 Disclosure to States for Tax Administration Purposes |
(08/19/98) |
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