United States General Accounting Office

GAO Report to Congressional Requesters

October 1997 IRS RECORDS

Inconsistencies

Between Statutes

Affect Records

Appraisal

GAO/GGD-98-4

GAO United States

General Accounting Office

Washington, D.C. 20548

General Government Division

B-271700 

October 2, 1997

The Honorable Bill Archer

Chairman, Committee on Ways and Means

House of Representatives

The Honorable Nancy L. Johnson

Chairman, Subcommittee on Oversight

Committee on Ways and Means

House of Representatives

At any given time, the Internal Revenue Service (IRS) maintains millions of

cubic feet of federal records. These records include documentation of

agency policies and decisions, agency operations, and individual and

corporate tax returns. IRS records containing tax returns and return

information are protected from disclosure to any unauthorized person by

26 U.S.C. 6103 of the Internal Revenue Code.

The Federal Records Act (FRA)1

 requires IRS to prepare disposition

schedules for its records and to submit the schedules to the National

Archives and Records Administration (NARA) for approval. NARA appraises

federal records for their historical value, provides assistance to agencies in

carrying out their records management and disposition responsibilities,

oversees agency records management programs, and promulgates and

administers regulations dealing with federal records. This report responds

to your request that we evaluate certain aspects of IRS’ records

management program. Specifically, you asked us to (1) determine how IRS

applies the restrictions of section 6103 in reviewing and inventorying its

records and (2) evaluate how IRS carries out its records management

responsibilities. Your request was precipitated by the long-standing issues

surrounding NARA’s access to IRS records for appraisal purposes, the

former IRS historian’s allegations concerning IRS’ records management

program, and a 1995 NARA evaluation of IRS’ records management program.2

Because the NARA evaluation of IRS’ overall records management program

was released just before the start of our work in early 1996, we focused on

the issues NARA found to be most troublesome. These issues also

corresponded with your concerns.

1

44 U.S.C. Chapters 21, 29, 31, and 33.

2

A NARA Evaluation: Records Management in the Internal Revenue Service, Department of the

Treasury, December 14, 1995.

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The following terms, as defined in a NARA glossary3 and the Internal

Revenue Code, are used throughout this report:

• Appraise refers to the determination of records’ value and their final

disposition.

• Disposition refers to the actions taken regarding records that are no longer

needed for current government business. These actions include the

transfer to agency storage facilities or Federal Records Centers (FRC),

transfer from one federal agency to another, transfer of permanent records

to NARA, and disposal of temporary records.

• Inventory refers to a survey of agency records and nonrecord materials

that is conducted primarily to develop records schedules and also to

identify various records management problems.

• Schedule refers to a document that provides mandatory instructions for

what to do with records and nonrecord materials no longer needed for

current government business.

• Tax return refers to any tax or information return, declaration of estimated

taxes, or claim for refund that is filed with IRS by, on behalf of, or with

respect to any person. This term also includes any amendment or

supplement to such document, including supporting schedules,

attachments, or lists that are supplemental to, or part of, the filed return.

• Return information means the taxpayer’s identity; the nature, source, or

amount of his or her income, payments, receipts, deductions, exemptions,

credits, assets, liabilities, net worth, tax liability, tax withheld,

deficiencies, overassessments, or tax payments; whether the taxpayer’s

return was, is being, or will be examined or subject to other investigation

or processing; or any other data received, recorded, prepared, and

collected by or furnished to the Secretary of the Treasury with respect to a

return or to the determination of the existence, or possible existence, of

liability (or the amount thereof) of any person for any tax, penalty,

interest, fine, forfeiture, or any other imposition or offense. This term does

not include data in a form that cannot be associated with, or otherwise

directly or indirectly identify, a particular taxpayer.

Results in Brief NARA’s 1995 review of IRS’ records management program found that IRS had

managed its overall records program according to NARA requirements,

except for certain issues. Specifically, NARA found that certain

management and policy documents, many of which IRS maintained were

subject to the disclosure restrictions of section 6103, were not inventoried

or scheduled for disposition as required, and that some documents were

3

A Federal Records Management Glossary, NARA, 1993, Second Edition.

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stored in unsatisfactory conditions. NARA’s review highlighted issues

associated with its inability to appraise certain IRS records for historical

value because of IRS’ interpretation of restrictions contained in section

6103. Our review confirmed that these records management problems

existed but also identified progress being made by IRS in resolving

deficiencies in its records management program. We also confirmed that

the controversy related to NARA’s access for appraisal purposes to records

containing tax returns or return information remains unresolved.

At the time of NARA’s review, certain IRS management records that

documented policymaking and high-profile programs and actions by

former commissioners and other top executives were not reviewed by

NARA because IRS maintained that the documents potentially contained

taxpayer-protected data and, historically, the two agencies could not work

out a mutually agreeable process for reviewing records given section 6103

restrictions on access to records containing tax returns or return

information.

NARA and IRS subsequently worked out a test method for appraising some

of these management records. For the records of former IRS

commissioners and the former executive secretariat, IRS grouped records

into section 6103-protected and section 6103-nonprotected records. IRS and

NARA engaged in a “blind” review of the 6103-protected records, whereby

an IRS official described the records’ contents to the NARA records

appraiser who decided on the basis of this description whether the records

had historical value.4

 The nonprotected records were made available to

NARA for appraisal. After the review, IRS prepared a records control

schedule for the records. We reviewed this schedule to ascertain the

volume of protected and nonprotected records on that schedule. We

observed that 59 percent of the records were designated as historical and

containing tax returns or return information, 36 percent were designated

as historical and containing no tax return information, and 5 percent were

designated as nonhistorical and could be destroyed after the applicable

period.

At the time of NARA’s and our reviews, a substantial backlog of

uninventoried records had accumulated at IRS. Also, in four of the six

headquarters storage locations we observed in early 1996, records were

stored in no particular order and under poor conditions. According to

4

According to NARA officials, this blind method of reviewing records only worked for these particular

records because the historical value of the records was apparent and easily determined.

Page 3 GAO/GGD-98-4 IRS Records
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NARA, some of the records stored at IRS headquarters could have been less

expensively stored at an FRC.

IRS acknowledged its records management problems. Early in 1996, IRS

escalated its efforts to improve its records management program with

NARA’s assistance. As of May 1997, IRS’ last official reporting date, NARA said

that IRS had completed action on 47 of NARA’s 58 recommendations to

improve records management and was making progress on the other

recommendations. The two agencies agreed that less progress had been

made on resolving NARA’s access for appraisal purposes to records

containing tax return information. NARA is still precluded from doing

independent reviews of IRS records that possibly contain tax returns or

return information. According to NARA, this lack of access did not hinder

its ability to make an overall evaluation of IRS’ records management

program, but did preclude it from independently appraising IRS records to

determine their historical value.

Background The law protecting taxpayers’ rights to privacy—codified in 26 U.S.C.

6103—is a critical underpinning of our voluntary tax system. Under this

law, access to tax returns or return information is limited to certain

federal employees working on tax issues and certain other authorized

persons. Such information is not to be released to the public or to other

unauthorized government officials. Congress considered these

protections, which are enforced by civil and criminal penalties, necessary

to encourage taxpayers to voluntarily file accurate information about their

taxes and to prevent inappropriate use of tax returns or return

information.

Government records management and retention laws have a different

purpose. FRA requires agencies to “make and preserve records containing

adequate and proper documentation of the organization, functions,

policies, decisions, procedures, and essential transactions of the

agency . . . .” The objectives of records management include the

maintenance of accurate and complete documentation of the policies and

transactions of the federal government, the establishment and

maintenance of control mechanisms to prevent the unnecessary creation

of records, and judicious preservation and disposal of records.

Statutory Inconsistencies Both NARA and IRS agree that there are inconsistencies between the access

restrictions of section 6103 and the provisions of FRA that require NARA to

Page 4 GAO/GGD-98-4 IRS Records
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appraise federal records. The legislative history of the National Archives

and Records Administration Act of 1984, while acknowledging the conflict,

does not resolve it. In 1984, the Department of the Treasury (Treasury)

determined that certain provisions of the draft legislation5

 to make NARA an

independent agency would allow NARA to review management records that

might contain tax returns or return information. Treasury expressed

opposition to any overriding of the access restrictions of section 6103,

stating that it would endanger taxpayer compliance if NARA were given

access to tax returns that were filed with the expectation of

confidentiality. Accordingly, the Senate bill was amended to provide that,

notwithstanding any provision of the act, no tax returns or return

information as defined in section 6103 may be disclosed, except as

authorized by that title. The conference report6

 stated that the concern for

the confidentiality of tax returns and return information was a legitimate

issue that deserved consideration as a separate matter. The report also

noted that the conferees were sensitive to the need to protect (1) the

confidentiality of tax returns and return information while also protecting

the permanent historical records of our government’s actions and (2) the

public’s right to know about those actions at some future time.

Consequently, the conferees urged NARA, IRS, and other affected agencies

to devise a cooperative means to address the issue.

The inconsistencies between the laws have resulted in a number of

controversies. For example, the Department of Justice’s Office of Legal

Counsel (OLC), which provides advice to resolve inconsistencies that arise

within the executive branch from differing interpretations of federal

statutes, has issued at least three memorandums addressing the section

6103 issue and the transfer of records containing tax returns or return

information to NARA.

7

OLC concluded in 1986—its most recent memorandum—that the statutory

provisions generally empowering NARA to obtain and open 30-year-old

records that are subject to statutory restrictions in 44 U.S.C. 2107 and 2108

do not apply to tax returns and return information, which are strictly

protected by section 6103. Title 44 U.S.C. 2107(2) provides that when it

appears to the Archivist to be in the public interest, he may direct the

5

S. 905, 98th Cong., section 2105 (1983).

6

H.R. Conf. Rep. No. 98-1124, at 30 (1984).

7

See U.S. Department of Justice Legal Counsel Memos: (1) “Transfer of Watergate Special Prosecution

Force Records to the National Archives-Income Tax Information-26 U.S.C. 6103(a)” (Sept. 27, 1977);

(2) “Applicability of the Non-disclosure Provisions of the Tax Reform Act” (Nov. 7, 1980); and

(3) “Authority of the FBI to Transfer Restricted Records to the National Archives and Records

Administration” (Feb. 27, 1986).

Page 5 GAO/GGD-98-4 IRS Records
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transfer to the National Archives federal agency records that (1) have been

in existence for more than 30 years and (2) have been determined by the

Archivist to have sufficient historical value to warrant their continued

preservation. Title 44 U.S.C. 2108 in turn provides that the Archivist is

responsible for the custody, use, and withdrawal of records transferred to

him, and that such records are subject to the same statutory limitations

and restrictions with respect to their examination and use as were

applicable to the agency from which the records were transferred. Section

2108 provides further that statutory and other restrictions shall remain in

force until the records have been in existence for 30 years, unless the

Archivist, by order, having consulted with the head of the transferring

agency, determines that for reasons consistent with standards established

in relevant statutory laws, such restrictions shall remain in force for a

longer period.

Referring to its two previous memorandums, OLC advised that section 6103

and its legislative history indicated that such tax records are not to be

transferred to NARA. OLC reasoned that the legislative history of section

6103 made it clear that Congress intended no disclosure of tax returns or

return information, except in the carefully limited exceptions found in

section 6103.

Recent concerns raised about IRS’ records management program, as well

as allegations that IRS was using the access restrictions of section 6103 to

avoid making public records that could be embarrassing to the agency, led

Congress to reopen this access issue last year. The conference report

accompanying IRS’ 1997 budget directed the two agencies to submit a

report to the cognizant committees by March 1, 1997. The report was to

include an analysis of outstanding issues and recommendations as to how

the disposition of certain IRS records should proceed. NARA and IRS

submitted a report on March 17, 1997; however, because of a pending

lawsuit8

 the agencies did not provide specific recommendations in their

report. The two agencies remained unable to reach agreement on the

long-standing issue of access. In an attempt to end the long-standing

access to IRS records issue, identical bills were introduced in both the

Senate and the House of Representatives in July 1997 as part of the

congressional effort to restructure IRS. Both bills provide the Archivist of

8

Tax Analysts, et. al., v. IRS and NARA, United States District Court for the District of Columbia (Feb.

7, 1997). The four plaintiffs in the lawsuit alleged that IRS had violated the FRA and NARA regulations.

Among other things, they argued that IRS had not scheduled many of its records, had not maintained

an up-to-date records management program, and had denied NARA access to its records as provided

by law. The plaintiffs further alleged that NARA had failed to take action to compel IRS compliance

with the FRA and NARA regulations.

Page 6 GAO/GGD-98-4 IRS Records
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the United States access to “all records of the Internal Revenue Service for

purposes of scheduling such records for destruction or for retention in the

National Archives.”

Federal Records

Management Programs

Title 44 of the U.S. Code establishes standards and procedures for the

creation, management, preservation, and destruction of federal records.

These records management standards and procedures are intended to

ensure (1) accurate and complete documentation of the policies and

transactions of the federal government, (2) control of the quantity and

quality of records produced by the federal government, (3) the

establishment and maintenance of control mechanisms to prevent the

unnecessary creation of records, and (4) the judicious preservation and

disposal of records.9

Under title 44, each federal agency, including IRS, is to make and preserve

records containing adequate and proper documentation of the

organization, functions, policies, decisions, procedures, and essential

transactions of the agency. Such records are to be designed to furnish the

information necessary to protect the legal and financial rights of the

government and of persons directly affected by the agency’s activities.10

To do this, each agency is to establish and maintain an active, continuous

records management program that provides effective controls over the

creation, maintenance, and use of agency records that are sufficient to

(1) document the persons, places, things, or matters dealt with by the

agency; (2) facilitate action by agency officials and their successors in

office; (3) make possible a proper scrutiny by Congress or other

authorized agencies of the government; (4) protect the financial, legal, and

other rights of the government and other affected persons; (5) document

the formulation of agency policies and decisions; and (6) document

important board, committee, or staff meetings.11

Title 44 also authorizes NARA to provide advice and assistance to federal

agencies with respect to ensuring adequate and proper documentation of

the policies and transactions of the federal government, proper records

disposition, and economical and effective records management. To fulfill

this responsibility, NARA is authorized to inspect the records or records

management practices and programs of any federal agency for the purpose

9

44 U.S.C. section 2902.

1044 U.S.C. section 3101.

1144 U.S.C. section 3102 and 36 C.F.R. section 1222.38.

Page 7 GAO/GGD-98-4 IRS Records
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of making recommendations for the improvement of the agency’s records

management practices and programs. Under 44 U.S.C. 2904, NARA is to

report to the appropriate oversight and appropriations committees of

Congress on the results of inspections, the responses by agencies to NARA

evaluation recommendations, and the estimates of the costs to the federal

government resulting from the failure of agencies to implement such

recommendations.

NARA views the appraisal of federal records as its most important

responsibility under title 44. Under 44 U.S.C. sections 3303-3303a and 3314,

agency records may only be destroyed pursuant to a records schedule that

has been approved by NARA. Accordingly, the head of each agency is to

submit to NARA schedules of agency records proposing the time for

disposal of those records that do not have sufficient administrative, legal,

research, or other value to warrant further preservation. Under section

2107, NARA may direct and effect the transfer to the National Archives of

the United States those records that have been in existence for more than

30 years and that the Archivist has determined to have sufficient historical

value to warrant their continued preservation. Pursuant to its regulations,12

NARA is to appraise the records listed on agency schedules to determine

which records have sufficient historical value to warrant preservation and

transfer to its National Archives and is to approve the disposal of records

having only temporary value.

Historical records are defined by NARA as those that, among other things,

(1) document agency policies, procedures, and decisionmaking;

(2) generate widespread attention from the news media; (3) provide

information about an agency’s mission, organization, and history; and/or

(4) document persons, places, things, or matters dealt with by an agency

that contain information with significant research or reference value.13 It is

important to note that NARA’s appraisal process does not equate to public

disclosure of federal records. The process of “appraising records” deals

with the act of determining the value of records, which is an act involving

NARA appraisers and the federal agencies, rather than the separate issue of

public disclosure of the records.

Organizationally, IRS maintains two records management groups. First,

located within the Real Estate Planning and Management Division are the

IRS Records Officer and Servicewide records management staff. They are

1236 C.F.R. section 1228.182.

13National Archives and Records Administration Records Management Handbook, Disposition of

Federal Records, pp. IV-5 and C-1 through C-4.

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B-271700 

responsible for planning, developing, and establishing standards and

guidelines for the agency’s records management program. They also

coordinate with NARA and IRS field offices and headquarters. The second

group is located within the Support Services Division and includes the

headquarters records staff, which are responsible for IRS headquarters’

records management program and serve as the liaison to NARA’s

Washington National Records Center staff. In addition, records

management staff are designated in IRS’ field offices to perform functions

similar to those of the headquarters records management staff.

Section 6103 Before 1976, tax returns were described as “public records” and were

generally open to inspection, although only with the approval of the

president or under presidential order. Section 6103 was amended in 1976

to prohibit the release of tax returns or return information to unauthorized

persons; the prohibition was retroactive and thus encompassed

information generated before 1976. Before the 1976 amendment, questions

had been raised and substantial controversy created as to whether the

extent of actual and potential disclosure of tax returns or return

information breached the taxpayer’s expectation of privacy. This issue in

turn raised the question of whether the public’s reaction to this possible

abuse of taxpayer privacy would seriously impair the country’s system of

voluntary tax compliance. Access is currently limited, on a case-by-case

basis, to government staff working specifically on taxpayer issues and to

certain other authorized persons. Access is specifically granted by statute

and may carry with it civil and criminal penalties for unauthorized release

of tax returns or return information.

Objectives, Scope,

and Methodology

Our objectives were to (1) determine how IRS applies the restrictions of

section 6103 in reviewing and inventorying its records and (2) evaluate

how IRS carries out its records management responsibilities.

To determine how section 6103 might affect the appraisal of records

containing tax return information, we reviewed laws governing the

appraisal of records and taxpayer privacy under section 6103 and

discussed these laws with IRS and NARA officials. Additionally, we reviewed

OLC memorandums on disclosure of records containing tax returns or

return information to NARA. We also reviewed Treasury, Justice,

congressional, and NARA memorandums, letters, and draft legislation on

the restrictions of section 6103 and NARA’s appraisal responsibilities.

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Our work focused on certain IRS management records, which were those

records addressing agency policies, decisions, and operations. We did not

review how tax returns and return information were managed at FRCs.

Federal tax returns and criminal case files are currently stored in FRCs and

at IRS for retrieval and use by IRS staff as needed. According to NARA

officials, tax returns are inventoried and stored according to IRS and NARA

regulations. We did not review IRS’ field office records management

operations because NARA reviewed field operations as part of its

comprehensive 1995 review of IRS’ records program and found that the

agency had generally handled and maintained tax returns and return

information correctly. As part of NARA’s review, it visited 11 IRS field

locations, including district offices, a regional office, a data center, a

computer center, and service centers. We reviewed NARA’s workpapers

from its site visits and all of its IRS headquarters work.

To gain an understanding of government records management programs,

we used NARA’s criteria from some of its publications, including a guide on

agency recordkeeping requirements, a recordkeeping self-evaluation

checklist, and a records management handbook. We supplemented this

work with interviews of NARA officials. We also reviewed IRS’ guidance for

records management, including its procedures for inventorying and

scheduling records.

At IRS, we interviewed (1) the IRS Records Officer and the Servicewide

records management staff located in the Real Estate Planning and

Management Division; (2) headquarters records staff located in the

Support Services Division; and (3) officials in the Office of Chief Counsel

and the Office of Disclosure. We also interviewed the former IRS historian

to obtain additional information about allegations she had made that were

critical of the agency’s records management program. We toured IRS’

headquarters storage facilities, which contained about 2,300 cubic feet of

records, to observe how these records were stored, the types of records

stored, and the physical characteristics of the storage facilities. We also

reviewed IRS documents, including appropriate sections of the Internal

Revenue Manual and the agency’s guidance and training materials on

records management, to determine whether it was in compliance with

internal guidance on records management at the locations NARA visited.

Additionally, we reviewed IRS’ record control schedule for records of the

former office of the executive secretariat and former commissioners.

These records had been scheduled by IRS and appraised by NARA.

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We did our work between March 1996 and August 1997 in accordance with

generally accepted government auditing standards. We requested

comments on a draft of this report from the Commissioner of Internal

Revenue and the Archivist of the United States or their designees. Their

written comments are addressed at the end of this report.

NARA Found

Recordkeeping

Problems in IRS’

Records Management

Program

NARA found in its review that, while IRS had many elements of an

acceptable records management program, it also had serious deficiencies

that needed correction. NARA noted that IRS had extensive recordkeeping

requirements in its Internal Revenue Manual and was developing a vital

records program, and that the agency’s tax-processing records were

well-managed and handled in accordance with approved disposition

schedules. NARA also noted that electronic records systems were

well-maintained and had been scheduled for disposition.

However, NARA noted that IRS had not conducted a comprehensive records

inventory or a complete review of its records control schedules in several

years. NARA found that there was no consistency in how records that

documented the development of IRS policy were scheduled, that a number

of important agency records were unscheduled, and that IRS records

control schedules had not been updated to reflect agency reorganizations.

According to NARA, these records included those that documented

important IRS programs and initiatives.

NARA made 58 recommendations to address the problems it found in IRS’

records management practices. According to a NARA official, as of

May 1997, IRS had successfully completed 47 of these recommendations. At

the time that we completed our audit work, IRS expected that the

remainder of the recommendations would be completed by September 30,

1997.

In addition, NARA noted that there were a number of backlogged

headquarters records stored on-site or at FRCs that could not be scheduled

for disposition because IRS, on the basis of the access restrictions of

section 6103, did not allow NARA to appraise the records’ contents. These

backlogged headquarters records included the historical office files of the

former IRS commissioners, criminal investigative case files, corporate tax

returns for 1909 through 1919, and records of the Special Services Staff

(created during the Watergate era to review certain tax returns). In early

1996, NARA and IRS formed an interagency working group to try to find a

mutually acceptable way to allow NARA to appraise IRS records.

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IRS and NARA devised a test method for appraising some of the backlogged

headquarters records, beginning in early 1996 with about 198 cubic feet of

records from the former office of the executive secretariat and from

former commissioners.14 The test method involved separating the records

into two groups—section 6103-protected and 6103-nonprotected records.

IRS and NARA engaged in a blind review of the 6103-protected records,

whereby an IRS disclosure officer described the records’ contents to the

NARA records appraiser who decided on the basis of this description

whether the records had historical value. The 6103-nonprotected records

were made available to NARA for appraisal.

After the appraisal of the protected and nonprotected records was

completed, IRS staff prepared a records control schedule for records

disposition. The schedule separated the records into three

categories—those that had historical value and did not contain tax returns

or return information; those that had historical value and contained tax

returns or return information, and those that were temporary,

nonhistorical records that could be destroyed. We observed that

36 percent of the records were in the first category, 59 percent were in the

second category, and 5 percent were in the third category.

NARA officials told us that although this process worked for some records,

it could be problematic for others because of the potential to either

inadvertently destroy records that should be kept or to unnecessarily

retain records that should be destroyed. As an alternative, IRS officials said

that they offered to regroup the individual 6103-protected files into

restricted and nonrestricted stacks and to redact (block out restricted

material), where necessary, to expedite NARA’s review. According to IRS

officials, NARA officials declined, preferring to keep the files in the order

they were filed so that the context of each record could be understood by

a records appraiser.

In a March 1997 report to the Congress, NARA officials indicated that the

blind review process worked well for this group of records because their

historical value was readily apparent. However, they said that for some

groups of records, such as criminal investigative case files, this method

will not work because the historical value may not be apparent.

14Our review of these records found that they contained a wide variety of material, including regional

office reports, official executive calendars, records of former IRS commissioners, and taxpayer letters

with agency responses. The records varied in size from a few inches to many feet of paper material.

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We Found Several

Problems in IRS’

Records Management

Program

Our review of IRS’ records management program indicated several

problems. The most significant problem was IRS’ records backlog that had

been allowed to accumulate over many years. IRS’ records management

staff had not followed their own or NARA’s requirements for managing

these records; thus, the backlog grew. IRS allowed records to accumulate

in basement storage areas and in program offices because there was no

pressing need to dispose of them and there was an apparent abundance of

storage space. We observed about 2,300 cubic feet of documents in the six

locations we toured in April 1996 and August 1997, as shown in table 1.

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Table 1: IRS Records Storage

Locations Reviewed by GAO as of

April 1996 and the Status as of

August 1997 Locations visiteda Description

Approximate

volume in

cubic feet

Status as of

August 1997

Location 1: IRS

basement storage

(room G560)

Former office of the

executive

secretariat’s records

and former

commissioners’

records (1970-1993)

235 All 235 cubic feet

were (1)

inventoried and

scheduled by IRS

and (2) appraised

by NARA.

Location 2: Former

historian’s records

(room 4547)

Location 3: Former

historian’s records

(room B-141, 1201

Constitution Ave.)

Various records,

including Tax

Systems

Modernization

Various records,

including Service

Center

reorganization

board minutes

318 The former

historian’s records

were consolidated

and are located in

room G717. All

318 cubic feet

were inventoried

and scheduled by

IRS and were

awaiting NARA’s

appraisal for final

disposition.

Location 4: IRS vault

and adjoining

conference room

(room 5120)

Special Services

Staff’s records

140 All 140 cubic feet

were inventoried

and scheduled by

IRS and were

awaiting NARA’s

appraisal for final

disposition.

Location 5: Office of

the Chief Counsel

storage (room G511)

Chief Counsel

records

1,639 807 cubic feet

were (1)

inventoried and

scheduled by IRS

and (2) appraised

by NARA for final

disposition.

According to IRS,

the remaining 832

cubic feet will be

completed by

September 30,

1997.

Location 6: IRS safe

(room 3014)

Presidential,

vice-presidential tax

returns

5 All 5 cubic feet

were (1)

inventoried and

scheduled by IRS

and (2) appraised

by NARA.

aAll locations were in IRS’ main headquarters building, except where noted.

Page 14 GAO/GGD-98-4 IRS Records
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During our April 1996 tour, we found at location 3, a basement storage

room across the street from IRS headquarters, documents in file cabinets

and other documents piled around the room. In addition, we found

banners, maps, pictures, reports, furniture, and supplies. There were no

inventories to assist staff in finding documents, and records were strewn

throughout the room. Records in this location appeared to be undamaged.

Many of IRS’ Chief Counsel documents were kept in the Chief Counsel file

room in an IRS building basement storage facility. The room itself was

large—about 25 by 130 feet—and contained about 1,639 cubic feet of

documents. Records in this room were generally categorized by calendar

year, and some records had already been scheduled for disposition.

However, we observed in April 1996 that many boxes of records were

piled in corners and on the tops of file cabinets. We also observed some

records lying in unprotected boxes exposed to environmental conditions

not recommended by NARA for paper files (i.e., no temperature or humidity

control). The NARA evaluation mentioned that the room had poor air

quality—staff working in this area for extended periods were given masks

to wear—and there was danger from loose and hanging ceiling tiles. We

found evidence of insect infestation and observed records that had been

damaged by water during a basement flood. There were Christmas

decorations, boxes containing ketchup packages, and boxes containing

office equipment—such as lamp shades—in the room. These items were

located throughout the room, intermingled with the records themselves,

thus making it difficult to locate particular files.

According to NARA, if the records in the Chief Counsel file room had been

managed appropriately, they could have been stored at FRCs at less cost.

According to a NARA computation, which we did not examine, storing these

records cost IRS about $12,600 annually, whereas the cost of storing the

records at an FRC would cost only about $900 annually.

IRS’ permanent records stored in the National Archives total about 3,000

cubic feet. Compared to other federal agencies, this amount is small. For

example, as of October 1, 1994, the Department of Transportation had over

16,000 cubic feet of records in the National Archives; Justice had 43,000

cubic feet; the Department of Agriculture had 57,000 cubic feet; and the

U.S. Bureau of Mines had about 5,000 cubic feet.

Not all IRS records were stored in poor conditions. IRS had, in a locked safe,

presidential and some vice-presidential tax returns dating back to the first

federal income tax in 1913. These tax returns were stored in alphabetical

Page 15 GAO/GGD-98-4 IRS Records
B-271700 

order, and most were kept in special file folders designed to protect the

paper over time. There were about 5 cubic feet of records containing the

tax returns and return information.

In August 1997, we toured IRS’ headquarters storage facilities again and

found that progress in inventorying and scheduling these documents had

been made. IRS had consolidated the records of the former historian

(locations 2 and 3) into one location in the main IRS building. All of these

documents had been inventoried and scheduled by IRS and were awaiting

NARA appraisal. Additionally, all of the Special Services Staff’s records

(location 4) had been inventoried and scheduled and were awaiting NARA

appraisal.

The Office of the Chief Counsel had made progress in inventorying and

scheduling its 1,639 cubic feet of records. IRS records managers said that

they had a commitment from the Office of the Chief Counsel to complete

this task by September 30, 1997. IRS officials also said that the storage

room had been cleaned and that improvements were made to ensure that

environmental, health, and safety requirements were met. Additionally,

exterminations to control insect infestations had been done twice. We

observed that the room appeared cleaner, new air vent systems were in

place, and repairs had been made to the damaged ceiling tiles.

Decisionmaking

Documentation Was

Not Readily

Identifiable

NARA found that decisionmaking documentation was not readily

identifiable in IRS. NARA was concerned that decisionmaking

documentation was not maintained for the former IRS commissioners and

with intervening reorganizations, such records may have become

unidentifiable. Also, IRS commissioners have received various intra-agency

committees’ and units’ input, recommendations, and alternatives that the

agency has used to make policy decisions. NARA found that these types of

records with the potential to influence decisionmaking are returned to the

program areas, rather than being centrally filed and archived for

preservation. NARA and IRS were unable to determine the extent of these

records that were kept by individual staff members in personal or program

area records. NARA recommended that IRS determine the most efficient way

to maintain these types of records. IRS stated in its November 1996

response to the NARA recommendation that it had located and identified

policy records in the program areas and that inventorying was under way.

Page 16 GAO/GGD-98-4 IRS Records
B-271700 

IRS Has Made

Improvements to Its

Records Management

Program

IRS acknowledged having some records management program problems. In

addressing concerns raised in the NARA evaluation, IRS launched a records

management cleanup effort. IRS plans to complete the relocation of many

of its headquarters staff to new facilities in New Carrollton, MD, by 1998.

This move, according to IRS officials, presented a good opportunity for

staff to review existing records and improve overall recordkeeping

practices. Among other efforts, IRS’ records management staff has

distributed memorandums, guidelines, and brochures to agency staff on

working with them and on the importance of maintaining adequate

records. Additionally, each program area at IRS headquarters designated an

information resource coordinator who is responsible for the group’s

records. The information resource coordinator also acts as a focal point

for records management in that group.

IRS records managers, trained by NARA staff, held training classes for IRS

headquarters staff. IRS records managers developed guidance for the

training session and made this available to all staff. The guidance

describes the legal requirements for federal recordkeeping, defines the

respective roles and responsibilities of IRS and NARA staff, defines the

various types of records maintained in IRS, and provides guidelines on how

staff should dispose of and save documents.

Observations The continuing debate over how NARA should carry out its responsibilities

at IRS highlights a fundamental inconsistency between two important laws.

NARA’s authorizing legislation requires it, among other things, to

(1) appraise agency records to determine their historical value so that the

appropriate retention, storage, and accessibility of those historical records

will be systematically ensured and (2) establish regulations and ensure

agency accountability for the proper handling of public records. Congress

determined that a national interest exists in supporting the voluntary tax

system through strong assurances of taxpayer privacy. To this end, section

6103 provides that tax returns and return information be safeguarded and

not disclosed to unauthorized persons. Citing the section 6103 provisions,

IRS prevented NARA from appraising records that IRS believed contained

protected tax returns or return information.

In the draft of this report, which was sent to IRS and NARA for comment, we

identified several options for consideration as potential solutions to the

inconsistency between the two agencies’ responsibilities. However, upon

further reflection, including our consideration of IRS and NARA comments

on the options discussed in our draft report, we have come to believe that

Page 17 GAO/GGD-98-4 IRS Records
B-271700 

consideration of such options may be premature in light of the lawsuit

(Tax Analysts, et. al., v. IRS and NARA) that was pending at the time of our

review. The lawsuit explicitly sought the court’s resolution of the

inconsistency between IRS’ and NARA’s responsibilities. Accordingly, we

have deleted the discussion of the options from this report.15

Agency Comments

and Our Evaluation

We provided drafts of this report to the heads of NARA and IRS for their

comments. Both agencies provided written comments, which are

discussed in the following sections, and technical corrections, which we

incorporated in this report where appropriate.

NARA’s Comments NARA’s comments centered on two major points. First, while the Archivist

has the statutory responsibility to approve the disposition of records and

to select records for permanent retention, NARA believes that it is currently

unable to fulfill this responsibility for all IRS records because it lacks

access to the records. NARA notes, as we do in this report, that the process

by which it appraises and approves the disposition of agency records is, by

law, the official procedure. In line with NARA’s comments on this point, we

sought to emphasize in this report the statutory basis for NARA’s oversight

of federal records management. At the same time, we continued to

highlight the conflict between NARA’s statutory responsibilities and the

disclosure provisions of section 6103.

Second, NARA discussed the legal interpretation of section 6103 and the

policy questions it raises for both agencies. NARA stressed that although

NARA employees in the FRCs are involved in the retrieval, refiling, and

eventual destruction of individual tax returns on an ongoing basis, they do

not have similar access to records containing tax returns or return

information for appraisal and disposition purposes. IRS’ comments, which

we discuss in more detail below, noted that tax returns may be stored at

FRCs for retrieval and use by the agency pursuant to section 6103.

However, IRS does not believe that section 6103 would allow NARA access

to tax returns or return information for appraisal purposes. IRS has

interpreted section 6103 as allowing the disclosure of tax returns and

return information for purposes of tax administration to the extent

necessary in connection with the processing, storage, transmission, and

15As this report was in final preparation for printing, a U.S. district court judge granted IRS’ motion to

dismiss this case and noted that (1) the Internal Revenue Code and case law prevented IRS from

providing NARA access to documents protected under section 6103 and (2) the remaining issues were

not ripe for judicial review because the collaborative process between IRS and NARA had not been

completed. Subsequently, the plaintiffs filed a motion requesting the court to alter or amend the

decision to dismiss the case.

Page 18 GAO/GGD-98-4 IRS Records
B-271700 

reproduction of such information; the programming, maintenance, repair,

testing, and procurement of equipment; and the providing of other

services. The one court that has specifically examined this issue agreed

with IRS’ interpretation.16

IRS’ Comments IRS explained that Congress has put very tight restrictions on access to tax

returns and return information and that its interpretation of section 6103

precludes any access that has not been expressly granted by legislation. As

previously mentioned, H.R. 2292 and S. 1096, introduced July 30 and 31,

1997, respectively, each include a section that would provide a statutory

mechanism for NARA access to IRS records.

IRS also commented that its relationship with NARA, except for the section

6103 issue, has been satisfactory over the years. IRS described, as examples

of the agencies’ satisfactory working relationship, the routine management

and disposition of its huge volume of individual tax returns and its efforts

in addressing the 58 recommendations made by NARA in its evaluation of

IRS’ records management program. We mentioned in this report that IRS

and NARA had worked together on several occasions and accomplished

various tasks.

We are sending copies of this report to the Ranking Minority Member of

the House Committee on Ways and Means, the Chairman and Ranking

Minority Member of the Senate Committee on Finance, other interested

congressional committees, the Secretary of the Treasury, and other

interested parties. We will also make copies available to others upon

request.

Major contributors to this report are listed in the appendix. If you or your

staff have any questions concerning this report, please call me on

(202) 512-9110.

Lynda D. Willis

Director, Tax Policy and

 Administration Issues

16American Friends Service Committee v. Webster, 720 F. 2d 29 (D.C. Cir. 1983).

Page 19 GAO/GGD-98-4 IRS Records
Appendix I 

Major Contributors to This Report

General Government

Division, Washington,

D.C.

Harriet C. Ganson, Assistant Director

Kelsey M. Bright, Evaluator-in-Charge

Rodney F. Hobbs, Senior Evaluator

James M. Fields, Social Science Analyst

Office of the General

Counsel, Washington,

D.C.

M. Rachel DeMarcus, Assistant General Counsel

Shirley A. Jones, Senior Attorney

(268726) Page 20 GAO/GGD-98-4 IRS Records
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