A Preliminary Analysis of the IRS Tax

Administration System

March 1977

NTIS order #PB-273143
TEchNOLOGiY ASSESSMENT BoARD Congress of the United States EMILIO 0. DADOARIO

EDWARD M. KENNEDY, MASS., CHAIRMAN

D IR EC T O R

MARJORIE S. HOLT. MD.. VICE CHAIRMAN OFFICE OF TECHNOLOGY A SSESSMENT DANIEL V. DE SIMONE

ERNEST F. HOUINGS, S.C. OLIN E. TEAGUE. TEX.

HubERT H. HUMPHREY. MN, MORRIS K. UDAll. ARIZ. WASHINGTON, D.C. 20510 — CLIFFORD P. CASE, N.J. GEORGE E. BROWN, JR., CALIF.

RICHARD S. SCHWEIKER, PA. CURENCE E. MILLER, OHIO

TED STEVENS, ALASKA LARRY WINN, JR., KANS. FEE 2 /3 1977

EMILIO Q. DADDARIO

Honorable Al Unman

Chairman

Committee on Ways and Means

U. S. House of Representatives

Washington, D. C. 20515

Dear Mr. Chairman:

On behalf of the Office of Technology Assessment, we are pleased

to forward the analysis of issues: A Preliminary Analysis of

the IRS Tax Administration Svstem.

This preliminary analysis identifies issues and poses questions

regarding the opportunities for oversight of the system as it

affects due process, privacy, confidentiality and security as you

requested .

p

Sincerely ,

Edward M. Kennedy

Chairman

D E PUTY DIRECTOR

Enclosure
T ECHNOLOGY A SSESSMENT B OAR D

Congres of the United State s

EMILIO Q. DADDAI?Io

OLIN E. TEAGUE, TEXAS, CHAIRMAN DIRECTOR

CLIFFORD P. CASE, N. J., VICE CHAIRMAN O FFICE OF T ECHNOLOGY A SSESSMEN T D A NIEL v. D E S IMON E

EDWARD M. KENNEDY, MASS. MORRIS K. UDALL, ARIZ.

ERNEST F. HOLLINGS. S.C. C$EORGE E. BROWN, JR., CALIF.

WASHINGTON, D.C. 20510 D E P UT Y D IRECTOR

HUBERT H. HUMPHREY, MINN. CHARLES A. MOSHER, OHIO

RICHARD S. SCHWEIKER, PA. MARVIN L. ESCH, MICH.

TED STEVENS, ALASKA MARJORIEs. HOLT, M D.

EMILIO Q. DADDARIO

Honorable Edward M. Kennedy

Chairman of the Board

Office of Technology Assessment

Congress of the United States

Washington, D. C. 20510

Dear Mr. Chairman:

The Off ice of Technology Assessment has been asked by the Chairman

of the House Ways and Means Committee and the Chairman of the Subcommittee

on Oversight to review the Internal Revenue Service proposal for a new

computerized Tax Administration System (TAS) to assure that the safeguards

are sufficient to prevent the TAS from becoming “a system of harassment,

surveillance , and political manipulation. ”

Under the TAS proposal, the present centralized IRS computer system whose

master tapes are updated and queried on a weekly basis would be replaced

by a network of ten regional systems, each with Master Files that could

be accessed instantaneously from terminals in local Internal Revenue

Offices throughout the regions. Computerization of some manual files and

new applications of the technology are anticipated.

To assist in making a determination as to how best to proceed with the

Committee request, OTA convened a panel of expert consultants from the

fields of computer science , sociology, public law, management science,

civil liberties and taxation . Discussions were also held with a number

of other knowledgeable people concerned with these issues. Documents,

reports, and other relevant materials were reviewed pertaining to the

proposed TAS technology, to the current issues bearing On the effective

administration of the tax laws, and to principal current concerns about

adequate protection for the privacy, due process, property and other

constitutional rights of taxpayers as citizens.

v
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The charge of the panel was to advise OTA on how to proceed with

developing a response to the Committee’s request in light of

questions which might be raised about possible need for additional

safeguards when the system is implemented.

The panel discussed issues which might be raised by the establishment

of TAS on the basis of the available information. They met with

Internal Revenue Service officials in charge of developing TAS.

Subsequently, a questionnaire was addressed to the IRS to acquire

additional information and clarification of factual points deemed

necessary for making judgments as to what, if any, major issues

might be presented by the system.

OTA reviewed the TAS proposal in light of (1) recent heightened public

concern for the privacy and confidentiality afforded personal financia l

activities, (2) perceived threats from past and present problems in the

operations and management of similar large computerized systems,

(3) perceived threats from past abuses in IRS information practices and

due process guarantees, and (4) the current debates over the prope r

statutory, administrative and technical means of revealing misuse and

abuses of information in the future and of lessening the chances of their

reoccurrence .

The panel has identified a number of important questions that may be

raised about the scope and application of the proposed Tax Administration

System, as described to Congress, and about the opportunities for oversight of the system as it affects due process, privacy, confidentiality

and security. The questions are of such a nature that answers to them,

when related to other facts and trends, would provide a basis for judgments

about principal advantages or disadvantages of the system and its proposed

safeguards. These questions are discussed in this report to the Board.

Our preliminary investigation of this request suggests that before OTA

proceeds further, hearings addressing these questions be held before the

Ways and Means Committee Subcommittee on Oversight at an early date to

consider the potential impact of the interrelationship of the technology,

law and public policy in this major governmental information system.

Continued OTA participation will be evaluated as the Committee proceeds

with its deliberations.

EMILIO Q. DADDARIO

Directo r

Enclosure

vi
OTA TAS ADVISORY PANEL

Professor Robert Boguslaw

Department of Sociology

Washington University

Dr. Alan F. Westin, LLB,

Chairman, TAS Advisory Panel

Professor of Public Law and Government

Graduate Faculty of Political Science

Columbia University

Dr. Ruth Davis, Director

Institute for Computer Sciences and

Technology

National Bureau of Standards

Department of Commerce

Mr. Mark Gitenstein

American Civil Liberties Union

Former Counsel, Senate Select

Committee on Intelligence Activities

Former Chief Counsel, Senate Constitutional

Rights Subconnnittee

Professor Jeffrey A. Meldman, LLB

Sloan School of Management

Massachusetts Institute of Technology

Member, Massachusetts Security and

Privacy Council

Mr. Don B. Parker, Senior Research

Analyst

Stanford Research Institute

Mr. William H. Smith, General Counsel

American Bankers Association

Former Assistant Commissioner

Internal Revenue Service

Dean David T. Link

The Law School, Notre Dame University

Member, Governor’s Commission on Privacy

Former Trial Attorney, Chief Counsel’s

Office, Internal Revenue Service

OTA TAS PROJECT STAFF

Project-Director: Marcia J. MacNaughton

Staff: Helen H. Savage, Ogechee L. Koffler

OTA Coordinator: Robert F. Daly

vii
TABLE OF CONTENTS

1.

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4.

SUMMARY . . . .

ISSUES LIST: Areas

INTRODUCTION .

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Which Further

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Information is Required

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Committee Request . . . . . .

Proposed IRS Tax Administration

IRS Arguments for the TAS . .

Background for Considering Issues in TAS

ISSUES

4.1

4.2

4.3

4.4

4.5

4,6

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System

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Information in the System . . .

a. Contents and Scope . . . .

b. Retention of Tax Information

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c. Consolidation and Linkage of Information

d. Derived Data . . . . . . . . . . .

Uses . . . . . . . . . . . . . . . .

a. TAS Users . . . . . . . . . . . . .

b. Boundaries and Interface . . . . . . .

c. Federalism . . . . . . . . . . . .

Operations . . . . . . . . . . . . . .

a. Surveillance Capacities . . . . . . . .

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b. Equity and Equal Treatment Under the Laws

c. TAS and the Courts . . . . . . . . . .

Processes and Structure . . . . . . . . . .

a. Decentralization. . . . . . . . . . . .

b. Administrative Centralization . . . . . .

c. Organizational Change . . . . . . ~. . .

d. Accelerated Processes . . . . . . . . .

Accountability. . . . . . . . . . . . . .

a. Oversight . . . . . . . . . . . . . .

b. Citizen Participation . . . . . . . . . .

c. TAS, Advancing and Emerging Technologies .

Security . . . . . . . . . . . . . . . .

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TABLE OF CONTENTS (cent’d.)

APPENDIXES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

1.

2.

3.

4.

5.

6.

7.

8.

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OTA Questionnaire on TAS and Internal Revenue Service Response . . . . . . . .

IRS Summary of Major TAS Features – Present and Proposed Security

and Privacy Safeguards . . . . . . . . . . . . . . . . . . . . . . . . .

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IRS Chronology of Events in TAS Approval Process . . . . . . . . . . . . . .

Comments by Panel Members Regarding System Data and IRS Responses . . . . . .

OTA Memorandum: Review of IRS Proposal for Computerized Tax

Administration System (5/18/76) . . . . . . . . . . . . . . . . . . . . .

Considerations Regarding OTA’s Response to Congressional Committee

Request to Review Proposed Computerized Tax Administration System

(TAS) (6/8/76) . . . . . . . . . . . .

Comments by TAS Panel Members

a. Dr. Alan Westin, Panel Chairman . .

b. Dr. Robert Boguslaw (working paper)

Mark Gitenstein . . . . . . . .

; : Dorm B. Parker . . . . . . . .

Hope Eastman . . . . . . . . .

; William Smith . . . . . . . . .

. Dr. Ruth Davis . . . . . . . .

Correspondence of Ways and Means Committee

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a. Rep. Al Unman, Chairman, House Committee on Ways and Means, to

Emilio Q. Daddario, Director, Office of Technology Assessment,

Feb. 11, 1976 . . . . . . . . . . . . . . . . . . . . . .

b. Rep. Charles A. Vanik, Chairman, Subcommittee on Oversight, to

Chairman Unman, Feb. 3,1976 . . . . . . . . . . . . . .

c. Rep. Vanik to Senator Edward M. Kennedy, Chairman, Technology

Assessment Board, Feb. 4, 1977 . . . . . . . . . . . . . . .

d. Chairman Unman to Director of OTA, Feb. 16,1977. . . . . . .

Statement by Dr. Jerome Weisner, President, Massachusetts Institute of

Technology; Chairman, Advisory Council, Office of Technology Assessment,

before the U.S. Senate Judiciary Subcommittee on Constitutional Rights and

the U.S. Senate Commerce Special Subcommittee on Science, Technology,

and Commerce, on “Surveillance Technology, ” 94th Cong., 1st Sess.,

Sept. 10, 1975. . . . . . . . . . . . . . . . . . . . . . . . . .

Comments by Dr. Christopher H. Pyle, Mount Holyoke College . . . . . . .

Reviewers’ Comments . . . . . . . . . . . . . . . . . . . . . . .

Comments by Dr. Kenneth Lauden, John Jay College of Criminal Justice, CUNY

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v

A
1. SUMMARY

The Internal Revenue Service request for funds for anew computerized Sy*m for tax processing is a major response to the challenges and duties given the agency by Congress and the public

in recent years. Specifically, it is a response to the problems of overworked and outdated equipment and to the possibilities of reaping for the agency the administrative benefits of new technological developments in automatic data processing and electronic communications.

As it is intended to be operated and used to administer and enforce the revenue laws, the

proposed “Tax Administration SyStern” (!I’AS), will determine or affect the collection, use, maintenance, and dissemination of large amounts of information about citizens. It will play a pivotal role

in governmental and private data banks and information Systims which contain the details of the

personal, organizational, and business lives of Americans at home and abroad. Since TAS is proposed at a time of intense public concern over the potential for abuses of the information resources

of government and the private Sector, the System could be perceived as posing a threat to civil

liberties, privacy and due process rights of taxpayers. These effects might include a potential for

surveillance, harassment, or political manipulation of files for which Specific controls and safeguards are of concern to Congress.

Although IRS officials testified before the Appropriations Committees, filed a report on TAS

pursuant to the Privacy Act, and briefed staff members on several Committees, they ‘have not

provided enough specific and substantive information on the public record to support judgments

on these essential aspects of the proposed system which are the proper concerns of Congress and

the public. In descriptions of thb propos~, the line is frequently blured between the ruIes and

operations of the present system and those planned for the new one. In some instances, the information supplied is vague and subject to several interpretations. In other instances, no information

hm been supplied which would indicate any significant treatment of important issues.

Among those features and attributes of TAS whose effects may need examination are: the

geographic decentralization of taxpayer files and their instant availability at computer terminals

to those who use and share Federal tax information; acceleration of processes; creation of a national

1
network for quickly transferring histories of taxpayers; an expandable data base with capacity

for acquiring and keeping longer and more detailed histories of taxpayer accounts; consolidation of

categories of files previously separated; automation of manual records and clerical processes; increased capacity to associate data; and opportunities for creating new kinds of information.

In an information system like TAS, such features and attributes may present issues involving

improper surveillance, equity and tax reform, equal treatment, privacy, due process, confidentiality,

accountability, oversight, organizational change, and public participation in developing the system

and monitoring its operations.

Evaluation of the seriousness of these and other issues in the light of the safeguards planned

for TAS will require additional information about the characteristics of the system, how it will

operate, who will use it, what will be done with it programmatically, and how it will relate to

other domestic and international data systems. Technical descriptions of important features of the

TAS proposal need to be explained in terms which will be meaningful for purposes of public understanding, Congressional oversight, and Executive Branch management. Only with this information

as a base for the definition of specific issues can an assessment be made of the possible impacts of

changes which would be brought about by the new system.

2
2. ISSUES LIST

Answers to the following major questions are needed in order to identify issues which should

properly be raised by the development. and operation of a nationwide system for accessing and

using personal information about taxpayers.

INFORMATION IN THE SYSTEM

1.

2.

3.

4.

Contents and Scope: Do descriptions of the TAS proposal identify the information to be

stored in the system as well as the scope of taxpayer files sufficiently to permit consideration

of the possible effects of the TAS on privacy and other rights?

Retention of Tax Information: Do the TAS documents describe retention time policies sufficiently to permit a determination of their consistency with souna social policy, fairness

to taxpayers, and with statutory requirements?

Consolidation and Linkage of Information: what consolidation and what linkage of tax data

is planned and what unintended effects from these should be guarded agtinst in the development and operation of TAS?

Derived Data: Could the TAS, within the processes it serves raise problems of derived data,

that is, of creation of new data out of several pieces of pre-existing information, which may

require special safeguards to prevent threats to privacy or other rights?

USES

1. TAS Users: Have the actual and potential users of TAS been identified?

2. Boundaries and Interface: Does the report On TAS sufficiently identify the proposed and

potential boundaries of the system, its interface capacity its relationship to other public

md private data systems, so that a judgment could be made concerning its possible impact on

civil liberties, on effective Congressional oversight, on the opportunity of the taxpayer to

exercise information rights and to determine status within data systems of IRS and other

agencies?
3. Federalism: What impact might the TAS have on information policies, practices and technologies of State and local governments which use or feed the TAS data base for revenue and

other governmental purposes?

OPERATIONS

1. Surveillance Capacities: Is there a need for defining the extent to which TAS may afford

government a more efficient instrument for surveillance of taxpayers and citizens at home and

abroad?

2. Equity and Equal Protection: To what extent, if any, does the TAS proposal rake considerations of equity and of equal treatment for all taxpayers?

3. TAS and the Courts: What problems may the TAS technology pose in the judicial process

for the protection of individual rights?

PROCESSES AND STRUCTURE

1.

2.

3.

4.

Decentralization: What processes and functions would be decentralized in the new system

and what effect, if any, could decentralization have on privacy and other rights, on confidentiality of information and security of the system?

Administrative Centralization: What processes and functions affecting information policy and

individual rights would be centralized under the new system? How might centralizing forces

affect the oversight of such previously separated activities?

Organizational Change: Could the new system bring about organizational changes to the IRS

which might affect its ability to carry out responsibilities for respecting the rights of taxpayers?

Accelerated Processes: Could the TAS produce an acceleration in information processing and

decisionmaking to a degree which might have adverse impacts on civil rights and liberties of

taxpayers in the administration and enforcement of internal revenue and other laws?

ACCOUNTABILITY

1. Oversight: How should effective oversight of TAS be conducted?

2. Citizen Participation: To what extent has the public been involved in planning TAS? Should

there be a new special process for inviting public input during the formulation stage?

4
3. TAS and Advancing and Emerging Technologies: Are controls needed to regulate TAS’S

interface with advancing and emerging technologies which might alter its vulnerability to

political manipulation or to use as an instrument for surveillance or harassment?

SECURITY

Security: What additional Safeguards might be needed to guarantee the physical and technical security of the system?
3. INTRODUCTION

COMMITTEE REQUEST

The Internal Revenue Service Seeking authorization from congress to procure a new automated data processing system to replace all of its existing data Processing equipment used in the

administration and collection of Internal Revenue taxes, with the exception of one system, which

would be replaced later.

The Chairman of the House Ways and Means Committee and the chairman of the Subcommittee on Oversight of that Committee have requested the office of Technology Assessment to

make a review of the new Tax Administration System and its proposed regulations regarding its use

and implications as it may relative to privacy of individuals and nondisclosure and possible improper

use of income tax returns. The Chairman of the oversight Subcommittee expressed concern that

“without safeguards, t0e new TAS System could become a system of harassment, surveillance and

political manipulation. ” He stated: I believe that the public’s concern about government agencies,

such as the IRS, requires that we take every step to ensue that in the future its files can never be

used for political or unconstitutional purposes . . . . . . Once installed in 1981 it will probably be the

world’s largest and most sophisticated computer System. Authorized IRS employees will be able

to scan the tax return of a taxpayer in a region within Seconds. In addition, other authorized

employees will be able to receive tax returns of citizens from throughout the country within seconds.” He indicated the possible need for legislation on the system.

A number of other committees and Subcommittees have info~ally indicated through staff

members an interest in also receiving information developed about issues which may be raised

by the new system. These include Staffs Of the House Government operations Committee Subcommittee on Government Information and Individual Rights (Whose cha.i~an also sent OTA

an official request), the Senate committee On Governmental Affairs the Senate Appropriations

Subcommittee, the Senate Judiciary Committee Subcommittee on Administrative Practice and

Procedure, the Senate Constitutional Rights Subcommittee, and several individual members of

Congress.
To determine how best to proceed with the Committee’s request, the Office of Technology

Assessment decided to convene a panel of experts in law, sociology, computer science, management, civil liberties, and other areas. They included people with experience in evaluating information systems for concerns expressed by the committee on Ways and Means. They also included

former officials of the Internal Revenue Service and former staff members of two Senate Committees who had responsibility for investigations and legislation of privacy, security, information

practices, and government computers.

The panel met in Washington to discuss possible issues which might be raised by the proposed

new Tax Administration System in light of the public documents, Congressional testimony and

available information on TAS. Panel members were invited to submit their further observations in

either written or oral form. Background information for reaching a decision for action on the

Committee’s request was also sought from the Internal Revenue Service, public interest groups,

and others knowledgeable or concerned with questions which TAS might raise.

Documents, reports, and other relevant materials were reviewed pertaining to the proposed

TAS technology, to the current issues bearing on the effective administration of the tax laws, and to

principal current concerns about adequati protection for the privacy, due process, property and

other constitutional rights of taxpayers as citizens.

OTA reviewed the TAS proposal in light of (1) recent heightened public concern for the

privacy and confidentiality afforded personal financial activities, (2) perceived threats from past

and present problems in the operations and management of similar large computerized systems,

(3) perceived threats from past abuses in IRS information practices and due process guarantees,

and (4) the current debates over the proper statutory, administrative and technical means of

revealing misuse and abuses of information in the future and of lessening the chances of their

reoccurrence.

It was concluded that some serious questions may be raised about the scope and application

of the proposed Tax Administration System, as described to Congress, and about the opportunities

for oversight of the system as it affects due process, privacy, confidentiality and security. The

questions are of such a nature that answers to them, when related to other facts and trends, would

provide a basis for judgments about principal advantages or disadvantages of the system and its

proposed safeguards. These questions are discussed in this report to the Board.

8
The information supplied to Congress in public documents and testimony about TAS is often

vague or technical, or is simply inadequate on matters which may be of vital importance to the taxpayer, the Congress, and to IRS management. The dearth of information prevents the full and

careful public identification of any policy issues which might be raised if the new Tax Adminktration System is installed.

OTA therefore recommends that hearings be conducted before the Subcommittee on Oversight

of the Ways and Means Committee in order to acquire the background information needed for

defining issues.

This report, which is an OTA report, and not the responsibility of the advisory panel members,

therefore identifies some pertinent questions in a range of issue areas which may be important in

considering the potential impact of the interrelationship of the technology, law and public policy in

this major governmental information system.

PROPOSED IRS TAX ADMINISTRATION SYSTEM

The proposed Tax Administration System (TAS) which OTA has been asked to review

represents a redesign of the basic data processing system of the Internal Revenue Service used to

administer the Internal Revenue Laws and to collect taxes. AS described by IRS, the main features

of the TAS are as follows:

The TAS involves the integration of collection, processing, storage, communications of data,

and terminal facilities. The new System will relocate centralized tape tax account master files for

the nation from their present centralized location in the National Computer Center in Martinsburg,

West Virginia. They will be decentralized to the ten existing IRS service centers across the country,

which will accord with the present decentralized administrative structure Of the agency. Taxpayer

information in each center’s tax account files for its geographical area will be accessible by terminals

in the IRS offices in that region. The present sequential system will be replaced by random access to

the files.

The National Computer Center till be converted to a centralized account directory and

control point for intercenter activity as the National Communications Center (NCC). It will control

exchange of taxpayer accounts. Information will be exchanged between centers and NCC by

transmission from magnetic tape to magnetic tape on a batch basis by encrypted channels in

scrambled form. Processing of tax returns, correspondence and related activities will continue to be

9
carried out at the ten service centers. Service Centers will communicate with field offices by means

of a Data Communication Subsystem with dedicated, leased data transmission lines; local offices

will communicate only with their servicing center and direct terminal to terminal or center to

center communications are not to be allowed. The subsystem will also feature data communications processors located in each service center and the NCC; programmable data concentrators in

the largest offices, testing and encrypting equipment; and modems to interface with terminals

remote from the service centers. The Plan projects that 8300 terminals will be in place by 1985;

5400 of these will be in the ten centers for case inquiry and input; about 2900 will be in other

major field offices for inquiry and update purposes; 750 line printers will be in field offices for

printing forms and for terminal screen images.

The Plan will permit five years of data for a taxpayer’s history to be retained as a general rule

instead of the present limit of three years. Data for additional years can be kept for problem tax

accounts as needed. The existing practice, by means of a separate system, allows for decentralized

computerized retention of such data for only ten percent of taxpayers.

For purposes of comparing the present system with the redesigned TAS, the following illustrations (see figures 1 and 2) were made available in public documents on TAS. They were published

in the House Appropriations Committee hearings on the IRS TAS budget request in 1976.

IRS ARGUMENTS FOR THE TAS

Officials of the Internal Revenue Service described the need for the redesigned system in

testimony before Subcommittees of the House and Senate Appropriations Committees in 1976.

According to this testimony, the expanded capabilities would allow for improved taxpayer

services by providing faster returns processing, increased responsiveness to inquiries, and consolidated/linked tax accounts and Master Files.

The system is expected to allow new applications of computer technology for a consolidated

collection program, for a scoring formula for collection case assignment, and for the automation of

revenue accounting.

Additional privacy and security safeguards will be afforded with the TAS, according to IRS

testimony. In addition, the system will allow expansion for future needs.

10
These major improvements me explained further in the following excerpts from the IRS

testimony: 1

“The basic ADP system now in place is conceptually the system which began

operations in January 1962. Although we have made a number of significant incremental

improvements to the system, we have reached the point where the opportunity for

further improvements has diminished. In addition, we are having problems meeting ever

growing, complex workloads with O Ur present equipment. Simply put, today’s system

with its basic design constraints has become inefficient and does not permit us to be as

responsive as we should be to taxpayers’ and IRS program needs. In view of these factors

and considering the potential benefits of current and new technology, it was concluded

that fundamental systems changes are necessary . . .

“Today in our processing system, with the cycle which we must go through posting

the master file once each week, the very best that can be accomplished is a turnaround

time from four to five weeks. That means, then, that our IDRS data base is loaded in

five weeks or six weeks, and by the time we produce microfilm records for the district

offices, where some 90 percent of the accounts are not in data base, another three to four

weeks has elapsed.

“We find a considerable number of differences between taxpayers’ figures and our

calculations in our first processing loop. The correction of these errors will be expedited

because we expect to put them in a real-time processing situation.

“We have a second category which we call unpostables. There are some seven million

returns that we bring to the master file annually today that fail to post for one reason or

another. For example, the Social Security number will not match the one already in the

account. So we must return that item to the service center for research purposes, and we

start the cycle all over again.

“So instead of four to five weeks, we are talking now in terms of six, seven, eight

weeks. With an on line data base and with terminals, working these kinds of errors simultaneously with our posting efforts, they should be cleaned Up relatively quickly, perhaps

within the same day, so they can be posted that night.

“Obviously then we have increased responsiveness to inquiry. We can consolidate

and link the taxpayer accounts in ou master files, cross-relating one to the other. This

can be accomplished in a data base system of this kind much easier and more efficiently

than it can in a serial ordered tape system.

“Some of the new applications which we are talking about are in a consolidated

collection program. By this I mean if we have a delinquent account or notices to issue for

more than one return for the same taxpayer, we will issue a consolidated profile to the

revenue officer one time, instead of several pieces of paper as we must today.

“We alsoo want to score the Collection cases in much the same way as we do the

Audit program today in the program called the Discriminant Function. This should

1. House Appropriations Hearings, 1976.

11
Figure 1

Present

System

SERVICE CENTER

INQUIRY/

RETURNS

PAYMENTS

CORRESPONDENCE

\

District & Loca l

Office s

1

A & Validity Chec k

All Othe r

Service Centers

(9)

National

\

NOTICES,

BILLS,

& ETC.

1

Computer

Center Disbursing

Master File ~ i

Office

Operations

12
Figure 2

Redesigned

System

/, / //

SERVICE CENTER

●

●

●

●

●

Tax Accounts On-Line

Transcript ion

Math Verification

Validity Checking

Return Posting and

Account Settlement

Refunds

Settlem’ts

Notices

BIIIs k

F

/

$

Inqulrles

Inputs

1

/ A

I IRS OFFICES 1)

NATIONAL COMMUNICATIONS CENTER

. Switching Function

. Taxpayer Directory

 National Reports

● security Master File

. InfOrrnatiOn Returns Matchin g

I ALL OTHER SERVICE CENTERS IJ

13
enhance the collection program considerably. We want to automate our revenue

accounting system and bring about considerable savings. We will have expanded case

control—this applies particularly in the compliance effort—over that which we have

today. We will have more data for the agent to use in connection with his audits. We can

keep prior history to a greater degree than we can today and thereby the same case will

not be audited year after year as we do sometimes today because we don’t know the

difference.

“We also expect to maintain five years of data in our accounts rather than three

years, which is the maximum we can handle in our tape system. This, too, will permit us

to give additional service to the taxpayer. It will also permit us to income average if

required. Some 2 million-plus taxpayers today are averaging their income. We don’t

know, unfortunately, how many are not but could; in a five-year data base we can determine this.

“And of course we will have expansion capability for future needs, which is something we simply do not have today. Our system is 20 years old at this point and it was

constructed using the technology which was in existence at the time. We have reached

the point where we have several different types of computers working with each other.

We are using a tape system and our expandability is just about gone.

“Also, we believe that the technology exists which will permit us to acquire the

equipment as needed and build and continue to expand as workloads and growth expand.

In fact, we expect that these systems will be in place through this century. ”

BACKGROUND FOR CONSIDERING ISSUES IN TAS

Certain assumptions underlay the OTA preliminary review of the committee request to

examine TAS.

In order to define issues which may be raised by TAS, it is important to establish why this

particular Executive Branch request for a new computer system may prompt more legislative

attention to the specificity of the laws, rules and policies which will govern it than have previous

requests.

TAS is being proposed by the IRS in response to an expanding population and growing

demands for new and better services. The plan embodies advances in automated data processing and

telecommunications technology to aid administrators facing political, economic, and social conditions far different from conditions surrounding earlier requests for automation and the government

programs they served. Thus, reasons supporting requests for this new system may differ from

reasons supporting earlier requests.

14
Transition between generations of technology is difficult for Congress, for the public, and for

Executive Branch managers. Officials frequently couch requests for ADP systems in the old terminology of management needs and programs of years past. This may seem to preclude the need for

full-dress consideration of the impact of the technology and its significance for change.

Alternatively, they may make extravagant claims, couched in scientific terminology for computer experts, for the attributes of the new or altered systems, in hopes of impressing reviewing

officers of the Executive Branch of Congress with the worth of their case for new procurements.

Decisions to apply or extend ADP technology to governmental functions are no longer

strictly in-house decisions to be made by agency computer scientists and management experts and

then channeled through the appropriations process subject only to cost-benefit tests. Out of the

new computerized information systems have grown nationwide information networks which

are provoking the sharing of personal data among governments at all levels and among private

organizations.

While computerized handling of data prima facie offers opportunity for superior security, the

growth in the scope and applications of information technology has meant that the consequences of

misuse of records are more serious, the potential for abuse is greater, and the impact of computer

error is more profound when they do occur. In recent years, therefore, as computer-assisted programs have been applied to many social, political and economic purposes of government and the

private sector, public concern for the adverse side effects has increased.

This public interest in the beneficial as well as adverse side-effects of computerization has been

reflected in activities of Congress, state legislatures, the courts, private organizations, interest groups

and the computer industry. AS a result, management issues which were previously confined to the

Executive Branch have, with the advent of new generations of equipment, surfaced as key public

policy issues of potential concern to Congress and numerous interest groups.

TAS provides an example of the intertwining of many Of the old assumptions and new

concerns.

Many heads of executive departments and agencies explaining their Plans to computerize files

stress that all they are doing is transferring the existing forms and rules of their manual operations

into machine-readable files and automated procedures. They are frequently supported by commentators and observers of computerization. While this assertion is true in one perspective, there is

another dimension to their planning which is of interest to Congress and the public. When plans for

15
large-scale automation and electronic communications are considered, or redesign of existing

systems is undertaken, managers and policy makers have an unprecedented opportunity to rethink

organizational forms and procedures. When their programs are considered from the viewpoint of

cost and rationality, this becomes a duty to the organization and to the public.

As a result of the automation and telecommunications advances in recent years, managers in

government and business have been reconsidering questions such as these:

●

●

●

●

●

●

One

Just what data do they really need to perform their various functions most effectively?

How should these data be recorded, processed, analyzed and displayed?

What arrangement of local, regional and central offices, and what location of files and

communication links fit best with the technological opportunities now presented through

computer and communication systems?

Who within the organization needs to use particular sets of data and in what form at a

given time?

Which data should be exchanged with other automated organizations to achieve common

goals?

What data needs to be protected, to what level and at what costs?

commentator on the need for effective Congressional oversight of these governmental

systems described the importance of this kind of review: “Large-scale computerization by the federal executive presents Congress, particularly the subject matter committees, with a vital occasion to

exert Congressional influence and place a Congressional imprimatur on the reshaping of agency

forms and procedures involved in new systems planning. Of course, any fundamental reconsideration of agency goals and procedures could become an occasion for refighting old battles and

forcing yet another proof of sound agency approaches. Yet reconsideration of such old questions in

the light of major new technological opportunities and choices is not too great a price to pay for the

benefit of such assessments. Government agencies can bask in the freshness of mandate and future

support that would come from a judgment by the Congressional committees that a new data system

embodies the correct assumptions, procedures and safeguards for that agency to carry on its mission

effectively.

2. Address by Alan F. Westin, Dickinson College, Carlisle, Pa., 1971.

16
“Thus both agency managers and Congressional committees should approach the review of

major data systems as an occasion for reconsidering organization fundamentals, not just looking at

specific manual-to-computer data relationships or comparing cost effectiveness of computer

equip merit.”

Among government information systems, the TAS is signficant for its scope, its large data

base of extensive personal information on people which it acquires partly through the sanctions of

the civil and criminal-laws, its importance to IRS decisions affecting the rights and property of

millions of taxpayers, and its complex management needs. IRS officials have indicated that the

system is designed to carry the IRS through this century. Therefore, a review of its implications and

safeguards should necessarily be addressed not just to immediate problems but to the future.

In its design concepts, TAS is on the leading edge of the state of computer fit. The proposed

procurement has been described in the 1976 Senate Appropriations Committee Report as the

“largest data processing project ever undertaken by the Federal Government. 3 The total cost of

the system was then estimated to be between $750 million and one billion dollars. Potential vendors

of the computer equipment told Congressional committees that to respond to the requests for

proposals would cost around 2 million dollars per proposal.4

The TAS proposal has a potential for vast cost and impact on the information technology and

on the rights and duties of many users of the system. ~ view of the long planning time required and

TAS intractability to change if safeguards prove faulty, there is a need to assure at the outset that

the policy and technical dimensions are joined.

TO achieve this union of policy and technology in an information system of the size and

significance of TAS, the following basic questions should be asked when considering the various

issues which may be raised by the TAS proposal.

● Should there be a different level Of management specificity for the technology of this

system than there has been in the past?

● Ought Congress spell out in greater detail what would be ProPer USeS of the system and

how they should be enforced?

3. U.S. Senate, Committee on Appropriations, S. Rept. 94-953, 94th Cong., 2d Sess. 1976, p. 13.

4. U.S. House of Representatives, Committee on Appropriations. H l?ept. No. 94-1229, 94th Cong. 2d Sess.

1976.

17
● Is there a need to consider whether some of the changes in information practices which

will be effected under TAS technology may be of such a nature and degree that they

represent a change in kind in the processes by which the tax laws are administered and

enforced and, therefore, perhaps, a change in kind in the IRS as an organization relating

to citizens and to Congress?

TAS and Identified or Perceived Threats

TAS might be reviewed in light of judicial standards which may govern its use and operations.

For instance, courts have developed a body of case law which establishes and defines due process

requirements in the field of taxation, including taxpayers’ rights to certain information. Rules for

TAS ought to reflect these concerns. Most important, however, may be the need to place the TAS

and its potential impact against the backdrop of recent trends in U.S. Supreme Court decisions

which tend to retreat from or halt the judicial implementation of a constitutional right to privacy.

This trend has in effect reinforced Congressional responsibility for assuring safeguards for

protecting the citizen’s privacy and assuring that government data programs do not result in harassment or improper surveillance. When this trend is reviewed in the context of public concern for

privacy protections and safeguards in the gathering, using and sharing of financial information, the

TAS proposal assumes increased significance.

Since they will affect public acceptance of TAS, any review of the TAS proposal should set

it against IRS experiences with its other computerized data systems and with its management of

information policies affecting rights of taxpayers and other citizens. Reference might be made to

findings from several Congressional and independent investigations into IRS investigations and

audit policies and to its data sharing policies. Recent findings by the Watergate Committee and the

Senate Select Committee on Intelligence resulted in recommendations for tight legal prohibitions

on access to certain kinds of tax data and on investigations of the returns of unpopular or controversial people or business, beyond the needs of the tax laws. The IRS experiences with some of its

computerized systems used for intelligence purposes are described at length in Book III of the Final

Report of the Select Committee to Study Governmental Operations with Respect to Intelligence

Activities. It points out the problems of the Information Gathering and Retrieval System (IGRS),

which was a new approach to intelligence gathering, and to the storage and retrieval of so-called

“general” intelligence as contrasted with intelligence developed in the course of an investigation

18
of a specific tax case. The report states: “A crucial element in the system was computerization of

the storage and retrieval of general intelligence. . . The computer, it was thought, would make it

possible to retrieve masses of data by category—e.g. by subject name, by illegal activity category—

and would thus make gathering vast quantities of general intelligence fruitful. Within a year of the

forma] establishment of IGRS, the system came under fire in the press as an alleged secret IRS “hit

list” and an index of dossiers on the personal lives of Americans containing data unrelated to tax

law enforcement.” Other allegations were described and investigated.

The staff report states that “IGRS fell short of its goals of enhanced case development and

improved intelligence retrievability. In general, more ‘intelligence,’ most of it of little or no value,

was input into IGRS than the computer could effectively retrieve. In a number of districts, IGRS

fostered unrestrained, unfocused intelligence gathering and permitted targeting of groups for intelligence collection on bases having little relationship to enforcement of the tax laws. ” It cites the lack

of adequate control on the system and concluded that “IRS traditional reliance on agent discretion

combined with this new, broad intelligence collection effort to produce a dangerous machine which,

had it continued unchecked for a long period, could in some districts have approached the monster

some newspaper accounts described. ”

In many phases of IRS programs, TAS implications for the right of taxpayers to due process

might be analyzed against the comprehensive 1976 study of IRS processes conducted by the

Administrative Conference of the United States. 5 That report examines numerous complaints and

practices affecting audit and settlement processes, collection of delinquent taxes, applications of

civil penalties, the use of the IRS summons power, taxpayer services and complaints and tax return

confidentiality. While it did not focus on computerization as such, the topic comes Up numerous

times in the report’s discussion of computer proramming, errors, and automated processes in

different areas of tax administration. This is particularly true with regard to the operation and

management of the Integrated Data Retrieval System which has been compared to the TAS on a

smaller scale.

5. Committee Print. U.S. House of Representatives, Committee on Ways and Means, Subcommittee on Oversight,

Jan. 20, 1976. Report to the Steering Committee for the Internal Revenue Project, Administrative Conference of the U.S.

19
The report also notes that the Conference study led to an awareness of other topics that could

be profitably examined, one being, “the impact of IRS’s computers upon the operations of the

Service and society at large.”

Apparently no analysis has been made of the extent if any, to which the new TAS will

alleviate some of the public concerns and due process problems described in the Conference report

and in several Congressional hearings; nor, at the same time, is it clear how many of these identified

problems might, without some new rules, be exacerbated by the new system.

A recently published report 6

and continuing hearings and investigations of the Privacy

Protection Study Commission have gone far to define certain kinds of threats to IRS information

from improper or unwise disclosure and dissemination of information from the files of the

Internal Revenue Service. A number of the Commission’s recommendations were enacted in the

Tax Reform Act of 1976.7 The TAS proposal might be analyzed for its capacities to enforce these

new confidentiality policies and to determine their adequacy within the context of the attributes of

TAS design and technology.

IRS officials and others concerned with increasing efficiency have maintained that this

legislation against improper disclosure is all that is needed by way of Congressional action on the

TAS. As an example, they point to the stricter penalty established for illegal disclosure of information, and tighter restrictions against dissemination of IRS data for non-tax uses as well as other

prohibitions.

No attempt was made during discussion of the TAS to judge the strength or validity of such

claims, and that is not the purpose of this report. However, the following argument on this point

was made during the panel’s work on TAS and is worth setting forth here. It is provided by panelist

William Smith who is a former Assistant Commissioner of the Internal Revenue Service knowledgeable about the design of the TAS and the operation of the agency.

“An important safeguard against abuse exists already. Indeed, the Tax Reform Act

of 1976 may very well supply all the safeguards necessary to assure the privacy and the

confidentiality of data extracted from tax returns today or under the proposed TAS

system. It is my opinion that the current files and those that would be created under

6. FederaZ Tax Return Confidentidity, Report by the Privacy Protection Study Commission, 1976.

7. Public Law 94-455. See also discussion in U.S. Senate Rept. 94-938, Report of the U.S. Senate Committee

on Finance on H. R. 10612, Tax Reform Act of 1976.

20
TAS are covered by the definition of “Tax Return Information” as this is used in the

Tax Reform Act of 1976. Thus disclosure of any information will be seriously dealt

with. Indeed, the Ways and Means Committee—the very committee that has asked for an

evaluation of the TAS system—has upgraded the crime of disclosure from misdemeanor

to felony and has upgraded the penalties from $1,000 to $5,000 and one year in jail to

five years in jail. I believe that the possibility of actionable disclosure has been effectively

eliminated by the Congress.

“However, I suppose one can speculate that in the absence of other safeguards there

could be unintended disclosure that OCCUrS simply because of the nature of TAS and the

way that system would work. I have thought about this and without reaching—indeed

perhaps overreaching-I simply have not been able to conceive of unintended breaches of

security or privacy or confidentiality that might occur.”

There is disagreement on this point, however, and a suggestion for further legislation was

made by the representative of the American Civil Liberties Union.8

While there was not total agreement on the sources of threats for TAS, most panelists and

many people concerned about privacy, due process and effective tax administration based on voluntary compliance, appear to have an assumption that there is a need to assure that a system this large

and sensitive is capable of being perceived as fair, equitable and protective of privacy, due process

and confidentiality. Where there is a perceived potential threat which, if actualized, would be

detrimental to certain rights and liberties, then it is worth considering as an issue. For this purpose,

no aspect of the system, no personnel managing or using it, and no policies affected by the technology, should be automatically excluded from a review.

8. See letter from Hope Eastman, Appendix 7(e).

21
4. ISSUES

23
4.1 INFORMATION IN THE SYSTEM

a. CONTENTS AND SCOPE

ISSUE: DO DESCRIPTIONS OF THE TAS PROPOSAL SUFFICIENTLY IDENTIFY THE

INFORMATION TO BE STORED IN THE SYSTEM AND THE SCOPE OF TAXPAYER

FILES TO PERMIT CONSIDERATION OF THE POSSIBLE EFFECTS OF THE TAS

ON PRIVACY AND OTHER RIGHTS?

SUMMARY

Until specific scope of files and contents of TAS are spelled out, operations cannot be effectively monitored or dealt with by the Executive Branch, Congress, judges, or parties in data-connected tax law disputes. Without the basic ground rules which include some meaningful specifics

about the data contents in advance of installation of the system, in the future it may be impossible

to determine the extent of the adherence of TAS and its users to public expectations of government performance, and to the demands of new laws such as the privacy Act of 1974, the Freedom

of Information laws, the tax return confidentiality provisions of the New Tax Reform law, and new

information requirements of tax programs. Similarly, it will be difficult to evaluate the adequacy

of administrative and technical barriers designed to protect the confidentiality and integrity of

different types of data.

Such information would help provide the basis for considering the possible relationship between TAS and the impact on the individual of future IRS and governmental information collection policies.

QUESTIONS

1. Does the TAS proposal contain any criteria for contents of TAS which may need elaboration?

2. Are available descriptions of TAS files sufficient to afford the full knowledge about IRS

records to which law and regulations entitle the individual?

25
3.

4.

i5.

6.

7.

8.

9.

10.

11.

12.

Is the type of description in the TAS proposal and the current reporting in the Federal Register of “categories” of personal information in IRS records systems sufficient to inform Congress and the public about contents of TAS so that decisions can be made about the system’s

potential impact on privacy and on information policies generally?

Are descriptions of TAS and reports filed under the Privacy Act on IRS personal information

systems sufficient to cover the rights of corporations, businesses, firms and organizations in

the new TAS?

Is the available information about TAS contents sufficient to permit judgments about the

need, if any, for new rules for partitioning files and for requiring administrative and technical

safeguards for categories of data?

Is there a need for legislation or regulations establishing the contents of TAS?

Is there a need for some kind of specific reporting mechanism on TAS contents to allow Congress to monitor the system? How can an effective audit be made if present rules and statutes

governing IRS information are unchanged?

What specific privacy considerations governed the resizing of the TAS from the original design?

Has a review been made recently of standards for the collection and maintenance of IRS

records? If so, by what standards? Was it made in connection with requirements of the TAS

design or was it in connection with the administration of the Privacy Act and the Freedom of

Information Act, or was it in connection with the concerns of the Federal Paperwork Commission for cutting back and simplifying Federal forms?

Do the 1976 and 1977 tax reform laws affect collection and maintenance of IRS information

in such a way as to alter any plans for the size of the data base of TAS?

Is all of the information proposed for the TAS data base required for purposes of administering the Internal Revenue laws and collecting taxes? What other criteria will govern characteristics of the data base?

Does the TAS proposal permit modification of the data base should the Freedom of Information Act or Privacy Act be amended, modified, or changed in interpretation by courts? By

what means? With what effect on rights of taxpayers?

26
13. IS there sufficient information to permit consideration of the extent, if any, to which TAS

may have an impact on future governmental programs for collecting information from and

about citizens?

BACKGROUND

According to a 1972 Academy of Sciences report, Data Banks in A Free Society, “ ‘Privacy’

is independent of technological safeguards; it involves the social policies of what information

should be assembled in one information system. ”

In the Privacy Act of 1974, Congress stated its finding that “the privacy of an individual is

directly affected by the collection, maintenance, use, and dissemination of personal information

by Federal agencies. ”9

Despite the importance of privacy in such a sensitive information system, there appears to be

an element of secrecy about important aspects of the TAS which affect privacy. Nowhere in the

testimony and materials given Congress did the IRS spell out the contents of the files to be consolidated in the new system; nor did it indicate how much of the specific information supplied by

taxpayers on tax returns will be in an account in the new sysem.

Unless the rules for such large computerized systems have spelled out sufficiently what will be

permitted in the system and how the taxpayer can exercise information rights with respect to

specific kinds of information, there may be a lack of public confidence in the entire system. Furthermore, without such specific information, it may also be difficult to assure the enforcement

of those statutes which are designed to promote the obsemance of information practices which

respect privacy and due process rights.

Knowledge, consent to gather, use and shine information, accountability, oversight, Confrontation of records by means of access and right to challenge records, and specific prohibitions

against collecting and maintaining certain information are the key elements in considering the

contents of TAS. Congress has used a number of principles and techniques in setting controls and

limits for sensitive information systems. Among these me the privacy Act of 1974 which states

that “an agency that maintains a system of records shall maintain in its records only such information about an individual as is relevant and necessary to accomplish a purpose of the agency

9. Pubic Law 93-579, 93rd Cong. (5 USC 552a).

27
required to be accomplished by statute or by executive order of the president. ” In addition, an

agency must publish an annual notice, less general in nature, of the existence and character of the

system of records, including the “categories” of individuals on whom records are maintained and

the “categories of records” maintained in the system.

Furthermore, the agency must “maintain all records which are used by an agency in making

any determination about any individual with such accuracy, relevance, timeliness, and completeness

as is reasonably necessary to assure fairness to the individual in the determination. ”

Other provisions of the Privacy Act allow certain information rights which have been partially

applied to IRS files. Additionally, the Freedom of Information Act creates rights to obtain identified information.

The public has also demonstrated specific concern for protections against abuses in the governmental collection and maintenance in records systems of information which bears on the exercise

of First Amendment rights, that is, on how people speak, write, think, organize and associate for

religious, political and civic purposes. As a result, the Congress enacted in the Privacy Act a provision that an agency shall “maintain no record describing how any individual exercises rights guaranteed by the First Amendment unless expressly authorized by statute or by the individual about

whom the record is maintained or unless pertinent to and within the scope of an authorized law

enforcement activity. ”

Given the broad IRS mandates for information-gathering under the tax laws, it would be

unrealistic to enforce literally this specific provision. Yet past IRS abuses have been identified

which involved use of IRS personnel and tax data for non-tax purposes because of First Amendment activities of taxpayers which offended administration politicians.1 0

In view of previous public concerns, the Congress and taxpayers ought to have a way of

assuring themselves that the ability of the IRS to observe the spirit of this provision of the Privacy

Act will not be adversely affected by the installation of the new system.

Most of the information supplied by IRS addressed the purposes of the new system and the

new ventures which IRS proposed to launch with it, its general characteristics and attributes, and

what the internal IRS user needs were.

10. An IRS Directive of Sept. 29, 1975, “Exercise of First Amendment Rights,” provides guidelines for agency

compliance.

28
In deference to the Privacy Act requirements, the TAS proposal states that the “Service

has reviewed and revised its practices and procedures relating to the collection and maintenance

of records to assure that only such information that is relevant and necessary is maintained. ”

Policymakers may want to know when and how this review was made, by whom, and under what

terms and standards. For instance, were the internal users of TAS allowed to define their own

informational needs, and if SO, by what standards? was this review made in response to the Privacy

Act, to the Freedom of Information Act, or to the concerns Of the Federal paperwork Commission

for cutting back on governmental information~ demands and simplifying forms? Was it made in

response to the specific needs and environment of the computerized, decentralized TAS?

The Service states that it has complied With the privacy Act notice requirements by publishing in the Federal Register the indices and notices of existing person~ information systems. These

are general and brief, indicating how people may discover whether a system contains information on

them, how they may learn what information rights, if any, they have within a system, and what files

are exempt, what routine disclosures are made, and the nature of sources.11

A question was raised by panelists whether or not the description in public documents and the

very general Federal Register reports for records and files on individuals can be substituted for the

more detailed inventory needed to evaluate the possible impact of any changes under TAS. Furthermore, these Federal Register reports me designed for the personal information systems of government, and may not be extensive enough in this case to account for the data which may be in the

system on corporations, businesses, organizations, and other tax entities.

The issue of contents of the TAS is also joined to the issue of the adequacy of whatever safeguards for technical and physical security me proposed to protect the data under various laws and

executive branch standards for records management and computerization, including those established by the National Bureau of standards. While this issue is more appropriately raised in a section on “security,” it bears citing here to show the importance of the issue of establishing precise

rules for management of TAS information.

The Privacy Act, for instance, requires agencies to “establish appropriate administrative,

technical and physical safeguards to insure the security and confidentiality of records and to protect against any anticipated threats or hazards to their security or integrity which could result in

11. U.S. Dept. of the Treasury, Internal Revenue Service. Privacy Act of 1974: Resource Material. Document

6372 (11-75).

29
substantial harm, embarrassment, inconvenience, or unfairness to any individual on whom information is maintained. ” Unless criteria for the permissible contents are known and established beforehand, it is hard to tell how the appropriateness or adequacy of these safeguards can be evaluated

for different kinds of information.

It is helpful to review the degree of specificity already accorded the TAS contents in the public

documents sent to Congress. The description in the report filed with several Committees pursuant

to the Privacy Act is vague and brief on this point. It does not draw a clear line between what is

now gathered and stored and what will be included in the new computerized system. The personal

information now received by IRS is characterized in the following ways. It notes the sources of

information received, stating that it receives most of its data from “tax returns and related documents required by the IR Code and regulations or forms authorized by them;” that relevant data

is also obtained from records “required to be kept,” and taxpayers or other sources, as necessary

to ascertain the correctness of returns received, or to secure or prepare delinquent returns. The

primary source of data is described as the individual income tax return, Forms 1040 and 104OA

submitted by the taxpayer and containing personal and financial information. Tax data is also

received from third parties via income information documents such as Forms W-2 and 1099 reporting wages, interest, dividends and other taxable income; and from related returns such as partners

and beneficiary’s income on Forms 1065 and 1041.

The report states that information is received from other government agencies, such as the

Agriculture Department reports on taxable farm subsidy payments; that it is also obtained from

public and other records; from the taxpayer’s own records, financial and other statements; from

correspondence and information furnished by the public.

It states that the information the Service receives is “prescribed by the IR Code or supporting regulations, ” and briefly cites 28 different provisions of Title 26 of the United States Code

referring to required returns and statements.

In a sub-section entitled “Types of Data Retained,” the report states ‘The Service retains

several broad types of data — identification, accounting, status, assignment, cross-reference to

related accounts, history, statistical, and data and system control and security. ” After all of the

various statutory retention policies are cited, the contents of TAS are summarized as follows:

“The redesigned system will retain five years’ data for all tax accounts in a readily accessible file,

and additional years for only unpaid and otherwise active accounts. ”

30
In another section entitled “Information Retained on TAS Files,” the report seeks to illustrate

“some of the reasons the Service retains certain data,” and indicates the broad types of data retained, and how long IRS deems it necessary to retain, or believes it is authorized to retain, various

types of data because of various statutory references to liabilities, rights and duties.

It states that: “In accordance with standard accounting practices, the service maintains records

and controls on all tax transactions which affect the revenues; that an account is maintained for

each taxpayer to which the related tax liabilities, paymentsj credits and other financial transactions

are posted, and from which the necessary bilk and refunds and other accounting activities are

generated. In addition, the summary (general ledger) data is maintained and used to produce accounting reports such as the reports on gross collections and refunds paid to taxpayers. ” It wants

“to verify the correctness of information received and to quickly retrieve the taxpayer’s figures and

the Service’s computation to satisfy and resolve taxpayer’s inquiries about bills, refunds and other

account settlement matters, and to promptly make corrections and tax adjustments to data in the

files. ”

Further, it states, “some of the transcribed and retained data is used to select returns having

the highest potential for tax change and which may require examination. Retention of data from

the tax return reduces the costs to locate, pull, control and refile original documents . . . . Also,

by retaining data concerning tax filers, it is possible to identify non-filers through comparisons of

present and past data as well as other leads or sources. In addition, the data is used to produce

operating and statistical reports for management purposes or as required by law such as the publication of statistics of income. ”

As a result of a number of concerns which were raised about lack of specificity in TAS documents on criteria for the contents of the new system, OTA sent a questionnaire to the Service

asking them to indicate as precisely as possible what items of information under the new expanded

TAS will be placed in the taxpayer’s file and thereby linked to the taxpayer’s name. The response

and some comments by individual panelists are included as Part Of the appendix to this report.

Change in Contents

From the documents supplied on the TAS proposal and discussions about it, it would appear

that expense is the major barrier to adding to the contents of the TAS and that even expense may

be little deterrent to expansion under certain conditions. TAS officials stated that the estimated

31
cost for each additional character of data transcribed from all the individual income tax returns and

entered into the system is $60,000, and that “for this reason, among others, they strive to capture

the minimum amount of data consistent with effective tax administration. ” Furthermore, they

stated “data requirements created by new legislation are added of necessity. ” This statement may

deserve elaboration in any review of TAS. For instance, one panelist considering TAS observed

that few, if any, agency officials or ADP personnel have proven courageous enough in the past to

come forward and protest to Congress in the face of a legislative push for new laws which might

overload their ADP or telecommunications systems or which might create a data base difficult to

manage from a due process or privacy standpoint. In such event, it is not clear what, if any initiatives IRS or Treasury officials could or would take to alert policy makers or Executive Branch

managers of potential problems of privacy, due process, confidentiality, or overload of the system.

Further inquiries may be appropriate on this issue. It may be, given the attractiveness of the

technical capacities of TAS for manipulating data, for programming and for retrieval, that some

special attention should be directed to the need for installing an “early-warning” system so that the

attention of IRS and of appropriate committees of Congress may be alerted when there is an

effort which would result in altering the size of the TAS data base and, the scope of individual

taxpayer files.

32
b. RETENTION OF TAX INFORMATION

ISSUE: DO THE TAS DOCUMENTS DESCRIBE RETENTION TIME POLICIES SUFFICIENTLY TO PERMIT A DETERMINATION OF THEIR CONSISTENCY WITH

SOUND SOCIAL POLICY, FAIRNESS TO TAXAYERS, AND WITH STATUTORY

REQUIREMENTS?

SUMMARY

Another major management benefit planned under TAS is availability of a longer tax history

through increased storage capacity. In light of what is known or perceived about the threats from

other large computerized person~ information systems containing financial data, and in light of

recent public concerns about the IRS and other government information practices, it is important

to consider to what extent the longer retention time afforded by TAS might contribute to a public

view of it as unfairly inhibiting people from starting anew in society. There is a need to assure that,

as programmed and operated, TAS will not stigmatize taxpayers long after thek difficulties with

IRS have been resolved in a satisfactory fashion.

In order to evaluate the potential policy impact of the system, it may be important to define

for the public record the retention time policies governing the data to be stored in the system

together with whatever administative and technical standards and devices might be planned for

enforcing those policies.

QUESTIONS

1. h light of what is known or feared about large computerized financial data systems, might

there be an undesirable impact on civil liberties and due Process ~terests as a result of the

change from the present 3-years storage capacity (and from none at all in some CaseS) to computerizing 5 years of tax history of a tax account, with potential for storing much more, and

making it available to users of IRS tax data?

33
2.

3.

4.

5.

6.

7.

8.

9.

10.

11.

12.

To what extent might the TAS lead to difficulties similar to those which have been widely

discussed in the administration of justice field over outdated computerized “rap sheets” or in

the commercial field over computerized consumer credit files?

In light of what is known or feared about large financial data systems, could TAS inadvertently

become an instrument for promoting an unsanctioned social policy of stigmatizing taxpayers

long after their difficulties with IRS have been resolved in a satisfactory fashion?

To what extent can taxpayers be informed under TAS about the full scope of the information

potentially available to them? How can they challenge the accuracy or completeness of such

information?

How might retention and storage policies affect the information rights of the individual taxpayer under IRS rules, under the Privacy Act, the Freedom of Information Act, and other

Internal Revenue statutes?

What provisions have been made administratively and technically for systematically identifying

and purging outdated information in the TAS? For updating it?

What provisions should be made by statute? By regulation?

What reporting or other accounting method should be installed to assure the taxpayer and

Congress that any purging and updating program for TAS is enforced?

Should there be further legislation or regulations specifically establishing retention policies for

different categories of information?

Without specific findings on current and proposed retention policies of user components in

IRS and in programs of other users and producers of TAS data, without analysis of the effects

on these users of changes in IRS retention policies, is it possible that the technological momentum of the new system may initiate or influence changes in public policy without the input of

assigned policy makers?

Could IRS retention policies for TAS data affect the vulnerability of taxpayers to unauthorized surveillance and to harassment by IRS or other governmental users of the system?

How will the new IRS retention policy affect the information retention policies of other

users of income tax return information? Of users of information derived from IRS data? Of

taxpayers, employers and corporations who must supply information on Taxpayers under

various programs to IRS and to other users of tax data?

34
13. How do the retention policies comport with the work of the Federal Paperwork Commission

to cut back on the amount of information collected and retained by federal agencies, and to

simplify income tax returns?

14. How does TAS retention policy comport with the policies of the Treasury Department for

retention of records of that Department?

15. Does the Privacy Act of 1974 authorize some retention of data as described by the IRS?

16. Has there been a review of the policies governing retention time for the data to be stored in

the system and is it available?

17. What provision has been, or will be made, to assure that data originally collected for one

purpose (and the taxpayer so informed) will not be retained for another purpose in another

location, longer than permitted by the policy for that kind of data?

BACKGROUND

There may be a need to consider to what extent the programmatic or operational aspects of

TAS may prevent taxpayers from ever redeeming themselves from the adverse effects of previous

infractions, misunderstandings of tax rules, investigations, audits, debts, petty transgressions and

records of old tax events.

Public apprehension about large computerized personal data systems, and this reflects current

attitudes toward government decision-making generally, is that they may facilitate the storage and

the use of personal information which is irrelevant or outdated for making decisions on the merits

of a case. For this reason, a special interest in privacy and due process in recent years has been

to prevent certain kinds of sensitive information from ever being collected or stored in a system in

the first place. Another important aspect of the privacy issue has been the setting of precise reasonable rules for the length of time information is kept and for assuring that it is eliminated from a

data system at the end of that time, unless new judgments are made as to further use.

The 1972 report by the National Academy of Science explained the civil liberties issues as

follows :

6

’Not only should the need for and relevance of specific items of personal data have

to be established in positive terms but serious consideration should be given to wlzether

some entire record-keeping programs deserve to be continued at all. . . . A further consideration where the need for collecting data is at issue is whether records should be

retained beyond their period of likely use for the purposes for which they were originally

collected. A related but more complicated question concerns the continued existence in

files of information which is no longer supposed to be used for making decisions about

35
individuals. Many cumulative records about individuals in various sectors of the organizational world are filled with facts and evaluations set down in earlier time, under a different sociopolitical ethos. In this setting, it is not enough to say ‘from now on we will

not . . . . .’ Steps need to be taken to remove from historical records in high schools,

colleges, commercial reporting agencies, law-enforcement files and other organizations

the personal information previously gathered about political, racial, cultural, and sexual

matters that would not be put in the files under present rules. ‘I’o the extent that evaluators today have such record to consult, especially for decisions that are not visible to the

individual, the presence of such information represents a dead (and improper) hand from

the past.”12

Thus, a major concern about computer systems in both private industry and government is

that the existence of the technological capacity to store data and to have large portions of it available in real time, will lead to searches for additional kinds of data. The costs of computer systems

can more easily be justified when they are used to maximum or new maximum capacity. This leads

to strong incentives for maintaining and storing data which may be unnecessary, outdated, or even

malicious.

There has been a concern that information kept too long, whether or not it used as a matter

of official policy, will, by its very existence and its potential for misuse, have an intimidating or

“chilling” effect on the taxpayer. On the other hand, in a society in which people are judged on

their merits, standards of administrative due process demand that all relevant information be considered in making a fair decision. There has been) therefore) a countering trend of concern to the

privacy one that terminal users and other decisionmakers in mp systems may not have enough

accessible information on individuals to make fair decisions. For instance, availability of a benign

tax record going back some years could obviously be helpful to a taxpayer who suddenly has

problems.

If extensive information in a case is denied the IRS employee, it may affect his ability to set

priorities with which duties are carried out with regard to that case and others as well.

It is difficult to separate the policy from the technical considerations on this subject. Issues

of retention time and storage capacity are intertwined with issues of contents of the system and the

relevancy of the information collected, stored, and used in it. Retention is related to questions of

when it becomes outdated, how it is purged, and how these decisions can be enforced administratively and technically.

12. DattJ Banks in a Free Society, h Alan F. WeStin and Michael A. Baker, Report of the project on Computer

Databanks of the Computer Science and Engineering Board, National Academy of Science, 1972.

36
In many agencies, policy on such issues has tended to evolve from a series of management

housekeeping decisions made incrementally over many years to meet the administrative and political needs of the moment, the changing capacity of the equipment, or cost/benefit concerns. Consequently, there has been little comprehensive review Of the PUbliC POliCY implications of retention time of file data.

With all of these developments, the chance to start anew is now seen not as a mere concept,

but as a right to be respected in the administrative process of government ~d organizations. In

recent years, as new or expanded government computerized systems have been proposed, interest

grO UpS and others feeling the pressures of certain policy aspects of Federal data programs have

urged the evaluation of retention time of data as a policy issue.

This public concern has been expressed in numerous acts of state and federal legislatures for

various kinds of records. Many states have adopted policies of sealing old records. Legislation

and regulations governing arrest records and other information used in the administration of justice

have sought to impose time limits for information kept in the system and to devise detailed administrative and technical methods for challenging and purging irrelevant and outiated information.

Courts have also sought to formulate judicial standards for purging information and assuring that

outdated information is not communicated to other systems.

In the Fair Credit Reporting Act, Congress recognized this right in a modified way by setting

time limits on the use of credit information and allowing the consumer to start anew with a clean

slate.

Again in the Privacy Act of 1974, Congress indicated its concern for obsolete, irrelevant

data in government files, including those of the Internal Revenue Service, by requiring all Federal

agencies to “maintain all records which are used by the agency in making any determination about

any individual with such accuracy, relevance, timeliness, and completeness as is reasonably necessary to assure fairness to the individual in the determination,” and it allows the individual to seek

correction or purging of the records.

Computer users and managers have examined the retention iSSUe as an economic or a technical

problem, but not as a social or political one. In some organizations and agencies acquiring new

electronic data processing means, one response to such concern has been not to purge, but to reduce

the data for storage still further, and to argue that the economics of the situation make it easier

to retain the data than to purge it of irrelevancies and outdated matter.

37
As a result of all of these trends, decisions on need and retention time of specific data elements

can be key public policy issues for new systems. Consequently, one technological attribute being

asked by the public, by buyers and users of these systems is the ability to purge outdated information and the requirement to purge it in those systems where there appears to be provable evidence

of potential detriment to the individual of outdated or irrelevant information.

The TAS Proposal

According to IRS sources, the present Master File tapes keep only three years of tax history.

After the 4th year, the oldest year is put on a retention register either on tape or microfilm. These

records may be kept forever. Additional research for previous years is done by requisitioning stored

tax returns or searching microfilm records. In addition, a separate system, the Integrated Data

Retrieval System (which will be replaced by TAS) puts on-line, accessible on terminals in the

regions, tax history for those taxpayer accounts with problems or where activity is expected.

(This generally amounts to about ten percent of taxpayers’ accounts.) According to one source,

this usually may cover as many years as necess~ to deal with the account. According to others,

it is usually for one year.

The TAS will provide means for retaining 5-years data for all tax accounts. When it is outdated, according to IRS, the information will then be taken off the system and microfilmed or

otherwise stored for at least 10 years or, in some cases, possible forever, since there is no destruction period for basic data.

The TAS storage approach has three different storage levels according to TAS documents;

it permits record migration or movement to less expensive and less responsive on-line storage devices

unless subsequent events, such as inquiry or analysis needs, demonstrate a need for extended retention and for frequent access. The first level offers immediate accessibility. Records in the second

level would be available immediately, most of the time, but usually overnight. Records in the third

level of storage would be on disc or tape and available probably within a week. For instance, if the

audit division is auditing all five years, then that would be in the immediately accessible storage

level.

Thus, several records comprising one taxpayer’s account may reside on several devices with

differing access characteristics and times.

38
This range of retention time and levels of storage, in the opinion of some people concerned

with civil liberties, may affect the ability of the taxpayer to understand the system and to exercise

information rights in the programs of the VariOUS usem of the TAS. Yet, it is exactly the ability to

understand the system which leads to a belief in its fairness.

In the proposal for any such computerized system, especially since the passage of the Privacy

Act, it ought to be very clear whether or not the subjects of the files will be informed about the full

scope of the information potentially available to them. If not, the~ ability to challenge the accuracy

or completeness of the information will be severely limited with such a range of storage. It ought to

be clear how important an item of information has to be before a search of relatively inaccessible

storage devices is instituted.

Although an essential element of the redesigned systim is reported to be “quicker access to

more current data’ by those IRS employees who need the data to resolve a specific inquiry or

process a case, the other major function of the system will be to afford them access to older information on the taxpayer.

There may be a need to acquire information to determine whether there are, or should be,

policy guidelines backed by administrative and technical controls on retention of specific data for

each IRS component office to assure that outdated information does not work unfairly to the

detriment of taxpayers and businesses or hamper the Service in the effectiveness of its work.

Originally, the TAS proposal sent to Congress called for putting five tax years of history

on-line, but in the budget review process at the Office of Management and Budget, the system was

cut back to three years on-line, with two years history in slower storage for most files except

where specific problems existed. There is no guarantee, however, that this policy will not change

with a lessening of budget restraints and that the retention time till not be extended pursuant

to internal managemenent decisions and without any Congressional review of its possible impact.

A cost-benefit analysis made for IRS by a private contractor, an internal document, merely

specifies the various offices within the IRS who expect to make me of the data, but does not

specify which data they need for what length of time. The public documents on TAS describe in

very general terms the type of information now in the IRS manual and other files which might be

included in the computerized files. They do not specify how 1ong each type of information is

presently maintained.
The report sent to Congress under the privacy Act refers generally to statutory requirements

and discretion to examine records or to carry out IRS duties but does not describe what specific

policies will govern retention under the new System. Without such information, it may be difficult

to determine to what extent tax programs may be altered by expansion of the retention time for

those records and documents to be computerized or for those records already in the Master Files.

The report notes that the IRS Code provides the basic retention rules followed by the Service. The

period for assessing an additional tax liability is 3 years from due date or date the return is filed,

whichever is later. There is a general 3-year rule for taxpayers to file a claim for credit or refund.

There is a 6-year statutory period to collect assessed tax liabilities. Income averaging involves the

current year plus the past 4 years. Net operating loss carryback and forward claims may pertain to

more than 3 years. There is a 6-year statute of limitation where there has been a substantial understatement of gross income. There are exceptions to the general rules, which cause the Service to

receive claims and other transactions concerning accounts which have been inactive for more than 3

years; normally 200,000 to 250,000 such items are received each year.

According to the IRS, retention of the additional 2 addition~ tax years of data will, it is stated,

satisfy almost all research requirements and reduce the need to requisition tax returns or to maintain a microfilm system.

40
c. CONSOLIDATION AND LINKAGE OF INFORMATION

ISSUE: WHAT CONSOLIDATION AND WHAT LINKAGE OF TAX DATA IS PLANNED AND

WHAT UNINTENDED EFFECTS FROM THESE SHOULD BE GUARDED AGAINST

IN THE DEVELOPMENT AND OPERATION OF TAS?

SUMMARY

In order to determine if there may be opportunities for accidental or intentional misuse of

information and in order to evaluate such issues as privacy and organizational change, a more precise description is needed of the extent of consolidation, or association, of IRS files on data and

of the linkage of data.

QUESTIONS

1. Exactly what consolidation of records and files is planned under the TAS?

2. Exactly what linkage of data elements is planned?

3. What are the implications of the consolidation of records for threats of surveillance and

harassment of the taxpayer?

BACKGROUND

There may be a need in planning for TAS to identify technical or administrative linkage and

consolidation of information, whether intended and unintended to assess possible consequences for

decisionmaking when information is disclosed in a new consolidated form, and to determine whether

particular linkages or consolidations should be authorized or prohibited.

Where linkages and consolidation are approved, there iS a need tO determine whether proposed

technology and safeguards permit sufficient social, administrative, and statutory control.

If TAS is found to be a more efficient process of consolidation and linkage actually required

by statute, there is a need to determine whether changes in efficiency and effectiveness may have

41
negative impacts to be weighed by IRS and Congress. The public documents and testimony on TAS

are not sufficiently informative to permit judgments on these issues.

The present inability to associate related returns and increasing paper and storage burdens are

major reasons cited in advocacy for the new system. IRS officials testified, “We can consolidate and

link the taxpayer accounts in our Master Files, cross-relating one to the other. This can be accomplished in a data base system of this kind much easier and more efficiently that it can be in a serial

ordered tape system. ” (IRS testimony before the House Appropriations Committee in 1976.)

Linkage of tax accounts to other relevant data was a major requirement listed by all TAS

users. Association of individual returns with business-related returns is a major area of changed

capability under the new system which the Service believes would enable greater compliance with

statutory mandates to enforce the tax code and would encourage increased taxpayer compliance in

the face of this capacity. At present, according to the IRS, with the exception of sole-proprietorships, such direct association is not possible; partnership returns, individual controlling shareholdercorporate returns, and the link are available for reconciliation only if the business entity is chosen

for scrutiny, and related individual returns are then acquired on request for agent analysis.

Other examples of actual and potential linkage of associations could be cited, such as the taxpayer and the names of people and groups related to deductions for charities, subscriptions, or

business lunches.

Secondary Linkage

Beyond its instant on-line capacity, TAS will facilitate a secondary linkage to other files in

storage and in other administrative data systems. A code symbol will flag the account, removing it

from the routine processes and alerting the decisionmaker that there is other action pending or that

another office or agency may want information or be concerned with the case, and guide the person

to additional intelligence or other data within IRS and other agencies. This question is closely tied

to the proposed contents of the system and access questions raised elsewhere.

The actual and potential uses of the TAS for secondary linkages so that any possible negative

effects on privacy and due process rights have not been sufficiently identified and evaluated in the

IRS documents.

42
d. DERIVED DATA

ISSUE: COULD THE TAS, WITHIN THE PROCESSES IT SERVES, RAISE PROBLEMS OF

DERIVED DATA, THAT IS, OF CREATION OF NEW DATA OUT OF SEVERAL

PIECES OF PRE-EXISTING INFORMATION, WHICH MAY REQUIRE SPECIAL

SAFEGUARDS TO PREVENT THREATS TO PRIVACY OR OTHER RIGHTS?

SUMMARY

The problem of derived data is an implicit one for any large sanitized personal information system or one where personal data may be derived programmatically. It arises where information from

other sources is combined with information from the individual file in order to derive other information. The problem is related to the overall problem of linkage in that both assume a matching of

sources of information with the object file. Derived data obtained in this fashion are only inferred

to be correct because there is not a direct link, only implicit linking. There could be unknown factors

which, if known, could prove the derived data wrong, or prove the derivation. Public documents on

TAS do not indicate what safeguards are planned for dealing with this problem.

This line of inquiry may be particularly important since the use of the social security number

in TAS and other large personal data systems is cited as a means of preserving the anonymity of the

individual when the files are used for research, statistical or non-tax purposes.

BACKGROUND

The area of derived data is one which traditionally has concerned segments of the public in

census and other statistical information gathering programs. Lately, with more complex technology

and ingenuity in devising programs, particularly in the intelligence area, it has caused increased concern in computerized personal data systems.

One Commentator describes the problem as follows:

“The derived data problem is another technological issue not yet clearly understood nor treated in current legislation. The problem takes at least two forms: First, to

43
what extent may data not identified with individuals be analytically or statistically

associated with them? For example, there may be information in one file about an

unidentified individual with a specified salary and other personal details, including the

census tract in which he resides. Another file could have information about an identified

individual stating his salary and place of residence. By matching the known information

common to both of these files, the file of data about the unidentified individual can

easily be identified from the name supplied in the other file. This kind of problem often

occurs when data about individuals are unique or limited to small numbers of people.

“The second kind of derived data problem is that there are types of personal data

that may be represented programmatically rather than directly in the form of stored data.

A file can contain names of individuals and limited amounts of data which can be processed by computer programs that contain generic data to produce significant additional

information about the individual. Thus, this type of program must also be treated with the

same sensitivity as the data that the program produces. Current legislation does not appear

to take into account programmatically derived personal information. ”13

in view of the public concerns and perceptions about threats from surveillance and the technical possibilities for deriving data, the regulatory rules or regulations governing any large personal

information system and its data banks planned today should apply certain standards not only to

personal information in the files but include language covering all additional personal information

derived from it.

Consideration might be given to how extensive this problem could be in TAS to the detriment

of rights to privacy and due process of taxpayers not only in IRS programs but in those of other

governmental users of TAS data.

13. Dorm B. Parker, Crime By Computer, Charles Scribners Sons, New York, 1976, p. 250.

44
a. TAS USERS

ISSUE: HAVE THE ACTUAL AND POTENTIAL USERS OF TAS BEEN IDENTIFIED?

SUMMARY

In any large personal data system which is undergoing computerization or redesign in the

climate of current public concerns, it may be important to establish at the outset the actual and

potential users of the system in terms broader than the IRS has defined them for TAS. While offices

and divisions of IRS have stated their needs as users of such a system, Congress may want to assure

that IRS has addressed the uses which may be made of TAS by such users as taxpayers, the press,

public interest groups, managers in other Treasury Department agencies, individual employees in the

rest of the Federal Government; employees in State governments; managers in businesses corporations, and organizations; and individual employees of IRS. With such specific users established,

Congress will be better able to ascertain 1) the extent to which administrative rules for TAS meet

needs of the users and 2) the extent to which the technology will reflect and enforce those rules.

QUESTIONS

1. Have all of the actual and potential users of TAS been sufficiently identified to permit a review

of the adequacy of applicable rules and the extent to which the technology may reflect them?

BACKGROUND

In the early years of automation of files in the Federal Government, agencies could describe

the users of the system in terms of the general uses to be made Of the new equipment and the

management goals of economy and efficiency to be achieved with it” In recent years, there has been

greater public and Congressional concern for accountability in the use of governmental power as it

affects individual rights and liberties. This has brought demands that the administration of agencies

enable the pinpointing of the activities of those who exercise responsibilities in very narrow decision

45
areas. The reflection of these trends is most apparent in the field of information policy where the

collection, management, and use of information is at stake. The interpretation of a “user” of a

governmental information system has necessarily been expanded as 1 ) more public information

rights are granted in data systems, 2) Congress and the public require more devices to assure that information power can be reviewed and audited, and 3) more people are potentially affected by the

use of national data banks.

While the question of need of the TAS users has been addressed in hearings and reports of

Appropriations Committees and in cost benefit studies, the question of actual use as the system is

operated may be dealt with as a separate issue involving policy and TAS technology.

The IRS has briefly described in public documents and testimony some of its new program

goals, and how the TAS will increase the efficiency of the internal offices and divisions which will

use the TAS data base and its equipment. It is not at all clear from these descriptions who the

“users” of the system are and the sense in which their needs have been met. Nevertheless, an internal Systems Description Book prepared for the IRS and made available to OTA states that

“the approach taken to select the TAS design has produced a system that fully meets the expressed

user needs. ” That document provides the following background information:

The stated primary users of TAS are personnel in the following divisions and offices of the

IRS:

Auditing

Collection }

Data Processing

Taxpayer Service

Appelate

Chief Counsel

Intelligence

Internal Audit

Statistics and Technical

1

Need immediate, on-line access and response capability for large

volume work

Majority of workload requires immediate or same day response

times, except for information document processing and some

correspondence

Needs immediate access availability to answer Taxpayer Service needs and system availability

Need for on-line, immediate capability is minimal. Most of

workload items require a five day response time: but small percentage is needed immediately and some within 24 hours.

46
One panelist defined the difficulty in understanding the user-needs aspects of the proposal

as “the fact that the perspective used in connection with TAS is one limited to subsystem concerns. ”

It has been pointed out that in the broader sense, “users” of TAS may well include Members of

Congress and the general public, as well as IRS employees. Concerns for individual privacy, surveillance and harassment as well as responsibility for dealing with these extends to these “users”.

There is no indication, however of the details of the methods used to assess user needs not only

currently but as they will be expressed in the redesigned system or who has been defined as a “user”

under the new TAS.

Without such specific background information, it will be difficult to determine the adequacy

of present administrative rules and the extent to which the plans for the technology have allowed

for their enforcement. In particular, it will be difficult to determine answers to such questions as

(1) who has a “need to know” various classes of information, (2) how is an invasion of information

privacy to be defined? That is, who does not “need to know” various categories of information, and

who does; or (3) the reasons, or value premises, which state that a “need” is a “need” and an

authorized person is an authorized person. The need for such an analysis may extend in detail

within the organization and beyond it, and include such concerns as are raised in the following

chapter on “Boundaries and Interface. ”

47
b. BOUNDARIES AND INTERFACE

ISSUE: DOES THE REPORT ON TAS SUFFICIENTLY IDENTIFY THE PROPOSED AND

POTENTIAL BOUNDARIES OF THE SYSTEM, ITS INTERFACE CAPACITY AND

ITS RELATIONSHIP TO OTHER PUBLIC AND PRIVATE DATA SYSTEMS, SO THAT

A JUDGMENT COULD BE MADE CONCERNING ITS POSSIBLE IMPACT ON CIVIL

LIBERTIES, ON EFFECTIVE CONGRESSIONAL OVERSIGHT, ON THE OPPORTUNITY OF THE TAXPAYER TO EXERCISE INFORMATION RIGHTS AND TO DETERMINE STATUS WITHIN DATA SYSTEMS OF IRS AND OTHER AGENCIES?

SUMMARY

If Congress does not know the limits of the information programs served by the mechanics of

TAS, it cannot monitor programs, or trace their effects in other data systems to protect civil rights

and liberties of people and businesses. Nor can the individual taxpayer know of IRS relationships to

other governmental programs or exercise rights within information systems serving those programs.

Therefore a need exists for more information about the intended or potential boundaries of TAS

and their technical, administative and legal features.

QUESTIONS

1. Could the TAS, on its face, constitute the essential segment of a future de facto national or

international data bank, evolving without specific Congressional authorization and guidelines?

2. What statutory, administrative and technical safeguards are needed to define the boundaries

of the TAS and to assure they can be enforced and monitored?

3. What relationships, for instance, would or could the TAS have with other Treasury Department and IRS computer systems?

4. How does the TAS relate to other federal, state, and local governmental data banks and

computerized information systems legally, administratively, and technically?

48
50

6.

7.

8.

9.

10.

11.

12.

Could legislative and administrative changes in rules governing formal and informal relationships between the information systems of IRS and those of other departments and agencies

and “outsiders” require at least some measure of reevaluation of software and hardware needs

for the proposed decentralized computerized system, and possible new procurement standards

governing access, security, transmission, systems linkage, storage capacity, retrieval, and other

features?

With technological progress under the TAS, what would it take to interface with large private

systems or to interconnect for some purposes? For example, how might TAS relate to the

trends in promoting use of universal identifiers in encouragng employers to supply withholding information on tapes, and reports that IRS rents private computerized mailing lists in order

to check for non-filers?

How might the TAS relate to trends in use of electronic funds transfer systems in banks and

businesses?

What are the possible vulnerabilities of the TAS to illegal access to its files resulting from any

relationships with private systems?

How does the TAS relate to computerized data banks and information systems abroad which

may receive, store, use, or disseminate information on American citizens traveling or living

abroad? What is its actual or potential interface or linkage by telecommunications means with

information systems of foreign governments?

What kinds of consultations have been or will be conducted by IRS or Treasury officials with

data processing or management officials of any of those governments with regard to hardware

or software features of their respective data systems? TO what extent would or should these

include concerns for protecting the due process on privacy rights of American taxpayers and

the confidentiality of their financial information?

HOW does the TAS relate to international programs underway by IRS to standardize reporting

forms to make them machine readable and easily processed by ADP equipment in the U.S.

and abroad?

Will the linkage potential be enhanced by the IRS proposal to supply other countries an

identifier number (the Social Security number?) to promote ease in reporting on financial

transactions of Americans abroad?

49
BACKGROUND

The IRS states in the TAS proposal that “none of the proposed changes in the Tax Administration System will affect the existing interagency or intergovernmental information relationships. ”

Those boundaries and relationships however, have recently been under intensive study, challenge,

and legislative change. It is not clear from the TAS public documents whether or not the TAS software and hardware can or will reflect those concerns, or respond to those changes. There is not

enough information in those documents to determine the need, if any, for redefining the boundaries

and relationships in light of the TAS technology. To suggest that there is a paucity of information

about TAS boundaries and interface capacities in no way should be interpreted as a value judgment

that there would be any detrimental effect on constitutional rights from TAS technology either on

the basis of available facts or any acquired in the future. On the contrary, additional investigation

might reveal the absence of any threat in this respect.

In light of public experience with information systems, and public concerns over abuses in

those systems, the creation of a large computerized personal data system like TAS raises the issue of

whether the system has legally and technically definable limits, or “boundaries.”

Under the provisions of the Privacy Act, a taxpayer ought to be able to go to an agency or

agencies and find out his information rights in the information systems of each agency. The Tax

Reform Act of 1976 established stricter confidentiality rules for sharing or disseminating data in

IRS files. However, from the public documents it is not clear whether these laws will be sufficient to

inform Congress or the public of the boundaries of the new system. For instance, in the proposed

TAS, it is not clear how the individual will be able to determine or to exercise his rights when new

information is created from incoming sources or when data from an outside source is matched

will existing data, thereby generating new data or data which identifies him.1 4 The existence of

such new information can tend to blur the established boundaries.

Congress in recent years has had some difficulty investigating Executive Branch programs in

the face of trends to centralize Presidential management and control and to promote a systems

14. A possible scenario: Information about an individual may exist in two different places. One file might be by

geographical area where the individual made purchases, and the other file might be data from a checking account.

This information might be combined to derive information from already identified sources about what the individual

did in those places. This is a different problem from that where one file is unidentified and the other is not.

50
approach to decisions affecting several agencies. There has been public and Confessional concern

that the information flow prompted by automated data processing and telecommunications technology would tend to break down functional, administrative, and perhaps constitutional barriers

which help define responsibilities. Under some circumstances if this occurs it can be more difficult

for Congress to conduct oversight of the separate decision-making arenas, and for public interest

grOUpS to monitor an Agency’s use of data and its treatment of privacy and information rights. This

has been a fear expressed whenever Congress has consider~ Executive Branch proposals for centralization by electronic means or for pooling of automated information resources for dealing with

personal records.

Whatever the obvious benefits of these PIWM, the possible side effects which might accrue

from the ease of management, manipulation, access ad dissemination of personal files have always

tended to prompt some public complaints and some fears of invasion of pfivacy, violation of confidentiality and other possible abuses of records. Consequently, there has always been some

practical or philosophical concern in Congress that without sufficient congressional consideration,

a de facto national data bank, or the network potential for one, would be created, with all that

it implies for surveillance of minority and dissident gOUPS , or for governmental control of the

population for certain programmatic purposes.

Serious questions have been raised when the attention of committees or individual members

has been called to a new data system with potential for being part of an electronic or telecommunications network or for interfacing with other large data systems such as those for law enforcement

or intelligence purposes, or with private systems which might extend beyond the oversight capacities

of Congress. Examples are seen in the controversy over creation of an FBI-sponsored network for

sharing information on criminals, fugitives, and arrested persons, and the “Fed-Net.” In addition

to its experiences with these new plans, Congress has had recent expedience in attempting to investigate the interconnection of Executive Branch information Programs for investigating and monitoring the political activities and personal lives of members of certain groups.

Techniques of information technology and processing were highlighted in the resulting studies

reporting the computerization and microfilming Of information for easy storage and analysis, and

for the sharing of the tapes or printouts among many Federal and State agencies for use in their own

computerized programs. One of several examples of this “information-buddy” system was the recent

51
Army program for surveillance of civilians, with a large-scale collection plan assigning responsibility

among Federal agencies for gathering personal and political information and then centralizing and

aggregating it for dissemination and possible use.

The fact that large amounts of Government-acquired information in some of these programs

concerned financial resources, transactions, and activities of people makes it reasonable to expect

that public and Congressional questions might be raised about the possible interconnection or

or interfacing of the 10 sensitive TAS data banks with other governmental computers.

Congressional reports attest to the difficulty of oversight investigations into such securityoriented programs, of tracing the lines of responsibility in an ever-changing military or civil service

bureaucracy, and of tracking the flow of sensitive personal information into data banks throughout

the country, even after the specific Federal programs have been discontinued. There has been the

problem of delays and long negotiations with Executive Branch officials to obtain the release of

classified memoranda which would identify the interagency relationships and uses of the shared data.

With such activities in recent memory, many committees and members of Congress are more

aware than ever of the importance of guarding against the Executive Branch creation of a potential

for a central data bank through the discretionary case-by-case installation of separate data banks

which interface or which could be electronically linked. For this reason there is a consensus forming

for the need to define as a matter of public policy the administrative and technical boundaries of

new information systems.

Legislative proposals have also been considered to prevent the interconnection of any personal

data system without specific Congressional approval.

It was for these reasons that Congress sought in the Privacy Act of 1974 to strengthen its own

oversight capacities for monitoring the boundaries of federal information systems and their interfacing, and to enhance the power of the individual to know and exercise rights within these systems.

This statute installed in the management process a reporting system to alert the President, the

Congress, and the public to plans for interconnection Of data banks, pooling Of information resources and cooperative ADP efforts among agencies involving records on individuals.

It is this report requirement to which the IRS responded in the TAS proposal document given

to the House Ways and Means Committee’s Subcommittee on Oversight and to other interested

Committees.

52
Other Computerized Systems

It is not particularly fruitful in reviewing TAS to examine the role of the technology only

within the processes it is designed to serve. This view is bound to produce feed-back which merely

incorporates the store of knowledge and underlying assumptions on which the TAS was based.

In order to examine the potential of an information system like the TAS for use for improper

or illegal surveillance or for harassment or political manipulation, it is vital to know (1) what other

systems the new one is related to; (2) how firmly the technical and administrative boundaries have

been drawn, how easily they can be altered to establish a network or interface with another

system; and [3) who in the system, agency, Executive branch or Congress must know, and who must

approve technical, administrative or legal changes in those boundaries. For such purposes, the matter

of boundaries should not be treated solely as a technical issue where audit trails15 or other technical

devices are seen as the only means of control. Nor should it be treated solely as a public policy

issue where a statutory limit on the legal transfer of information is deemed sufficient to guard

against over-spill from the system. Rather, a perspective useful to apply in reviewing such a data

,

system as TAS is one which attempts to look at the total environment of the system.

Materials supplied on TAS and response to inquiries about boundaries suggest that a “closed

system” approach may be governing the adequacy of TAS information provided by the IRS; that is,

the answers may be valid as far as they apply, but they do not extend far enough to respond to

Congressional apprehension about the boundaries of computerized government systems and about

those of the Internal Revenue Service in particular.

Treasury Data Systems and TAS

Any TAS relationships with or impact on existing Treasury information systems ought to be

fully identified. A particularly hard look should be taken at the features of existing computerized

systems within IRS as they related to TAS or as its operations may affect theirs. To the extent that

any technical or administrative weaknesses or vulnerabilities me incorporated into the TAS system

or affect the TAS operating environment, the protections for tax information and the rights of

taxpayers may be threatened.

A factual review of the uses of these smaller systems and their role in IRS programs can shed

some light on what the possible effects might be on TAS operations when and if their attributes

are imported into TAS on a much larger scale. Some examples of these systems are included below.

15. A record of accesses and uses of a file.

53
DDES

As described in the IRS ADP Personnel Training Manual, the Direct Data Entry System (DDES)

will be incorproated into the new TAS during the first phase of its installation. The DDES is a new

system for taking information from tax returns and documents and preparing it for computer

processing. The system was installed in the Southwest Service Center in 1969. This process of

original transcription of tax returns afforded by the DDES is maintained under TAS, but the TAS

design accommodates the direct integration of this process at a later time.

According to the Training Manual, “This System enables an operator to transcribe information

directly from the documents onto magnetic tape without going through the intermediate step of

putting the data onto punch cards. The equipment also performs certain arithmetic and validity

checks as the data are transcribed. It can also signal the operator when an error is discovered. The

operator can see on a video tube the data transcribed so that if a mistake is made it can be corrected immediately. The system has now been installed in all service centers nationwide. ”

IDRS

A private cost-benefit analysis prepared for IRS for in-house use describes this system as

follows: “The Integrated Data Retrieval System (IDRS), beginning with pilot installation in 1969

and since implemented in all centers, now provides direct access to certain account data of taxpayers (approximately 10 percent) likely to require the greatest Service attention. It is in some ways

a preview of TAS, with terminal inquiry support that significantly advanced the Service’s ability to

provide quick response to taxpayer inquiry, as well as to monitor and follow up delinquent

accounts and related activities. IDRS is, however, fundamentally incompatible with the tape oriented

Master File Processing System, and thus requires considerable redundant operations by the MFPS

to support its data base needs. ”

A careful description ought to be obtained of the programmatic uses and operations of IDRS

since they will be continued or extended under TAS.

According to the IRS Training Manual “this system also offers definite advantages to law

enforcement efforts. Originally planned as a vehicle for providing immediate availability of information needed to respond to taxpayer requests concerning their accounts or returns status, the

system is also used to deter delinquency in several ways:

54
(1) having IDRS, rather than enforcement personnel, monitor and follow-up delinquent

accounts whose collection is in a suspended status for any number of reasons, such as

adjustments, court actions and military deferment;

(2) entering current information in the files at service centers and district offices, thereby

crediting a payment to the taxpayer’s account the day it is received. This will also conserve enforcement time now spent on following-up an account that has already been

satisfied;

(3) having immediate, direct accessibility of information on the status of a taxpayer’s

account, thereby reducing differences to be resolved;

(4) providing a whole spectrum of management information on the nature and characteristics

of delinquent taxpayers never available under manual operations. ”

IGRS

The Information Gathering and Retrieval System (IGRS) was discontinued after extensive

16 IGRS had computerized indexes of investigations by a number of Congressional committees.

files on 465,442 individuals

the IRS established separate

and other entities when it was suspended in 1975. Under this system

units of Special Agents in its District Offices who collected generalized

background information on people relating to organized crime and political corruption. IRS

employees then entered references to the material in computers located in 45 of the 58 District

Offices. These activities often involved “fishing” expeditions, and were not necessarily aimed at

specific cases nor at directly tax-related cases. Besides organized crime.

‘subversive and radical elements, ’ which, according to a 1969 IRS Task

nized crime to “break down the basic fibers of society. ”

In June, 1975 the IRS abolished the IGRS Information Gathering

IGRS

Force

Units

was a tool to

Report, used

fight

orgawhile retaining the

computers. However, information gathering activities have been resumed under new and stricter

guidelines. In light of these new rules, an effort might be made to define whatever administrative

and technical relationships might exist or should exist between the TAS data base and (1) any

remaining IGRS information, or (2) the information systems, manual or computerized, which

16. The management, information technology and invasion of privacy and due process rights involved in this

system are described at length in the Final Report of the Select Committee to Study Governmental Operations

with respect to Intelligence Activities, Book III, “The Internal Revenue Service: An Intelligence Resource and

Collector, ” Senate Report No. 94-755.

55
succeeded IGRS. For instance, will the existence of intelligence information be coded in the TAS

files? What should be the terms for authorizing access to the TAS database for intelligence purposes? What actual or potential opportunity exists for interconnection of the computers?

Information Index System

Although IGRS was discontinued, a need exists, according to IRS officials, to gather and index

tax-related information on taxpayers under criminal investigation. Procedures for such anew system

have therefore been stipulated in an IRS guideline of June 23,1975, which states that, “The Intelligence Information Gathering and Retrieval System is discontinued. All Districts will utilize the

Information Index System, which will be described in a separate Manual Transmittal, to file and

index directly tax-related information. Such tax-related information now in the discontinued Information Gathering and Retrieval System may be retained in district files and indexed only if it

relates to a taxpayer included in an authorized project or for whom the Chief, Intelligence Division,

has authorized information gathering. ”

The regulation stipulates that, “All districts must use the computer index for indexing the

original authorization for information gathering on individuals or projects. All documents must be

indexed, but each district may decide if they want to maintain a computer or manual index. ” This

may depend on whether it is practical to keep data on massive or complex projects in such a computer. If a district initially wants to maintain a manual document index, it may change to the

computer index at a later date.

Information might be acquired on what physical, technical or administrative relationships will

exist in the IRS districts between the data bases, computers, and personnel, of the IIS and those of

TAS.

TECS

The Treasury Enforcement Communications System (TECS) is another computerized system

which IRS uses. It links field terminals of various Treasury Department agencies with their national

offices. Although some TECS terminals have been located at District and Regional Offices in the

past, they were moved last year into the 19 Service terminals in the IRS National Office through

which IRS can send information to the FBI’s computerized criminal record system (NCIC) and to

the National Law Enforcement Telecommunication System which links federal, state and local law

enforcement agencies.

56
At present, IRS allows entries to TECS only at the National Office level, and these entries are

limited to information about fugitives. There is nothing to prevent future change in the policy,

and the regulations governing TECS are broadly worded as to content, purpose and data exchange.

Customs Bureau

It is not clear from the TAS documents to what extent the Customs Bureau might have a low

volume usage of TAS and under what administrative and technical conditions.

Other Governmental Data Systems and TAS

It is not clear what legal, administrative and technical relationship TAS might have to other

federal, state and local governmental data banks and computerized information systems.

Legislative changes may alter existing relationships for information exchange and for actual

and potential linkage between IRS systems and those of other Federal departments and agencies

and state and local governments. In addition, they may well affect many phases of the management

technology involved in information collection, storage, maintenance, retrieval, use and dissemination. They may require at least some measure of reevaluation of the software and hardware needs

for the proposed decentralized computerized system, and possible new procurement standards

governing features for controlling access, security, transmission, systems linkage, storage capacity,

retrieval, and other matters.

For example, an IRS official testified that a new wage reporting law contemplates cooperative

efforts between IRS and the Social Security Administration in processtig W-2 forms beginning in

FY 1979.17 IRS, he said, will be studying the alternative methods of joint document processing

with SSA “for whatever cost advantages may be found in that regard.”18

The social and political implications of this pooling of resources by the two departments with

the most extensive information on the average law-abiding citizen have neither been explored nor

have Congress and the public been involved in determining the conditions of the sharing in light of

the ADP and telecommunications technology which is involved.

17. P.L. 94-202, Sec. 8.

18. Hearings. U.S. House of Representatives Government Operations Committee Subcommittee on Commerce,

Consumer, and Monetary Affairs, Ap. 12, 1976, p. 66, Testimony of the Commissioner of the IRS.

57
Similar situations exist in other IRS data-sharing relationships which may need reexamining

on the basis of the confidentiality provisions of the Tax Reform Act of 1976. For instance, the law

authorizes release of tax information on a general basis to HEW, the Railroad Retirement Board,

the Department of Labor, the Pension Guaranty Corporation, and the Renegotiation Board when

the return information is directly related to agency programs.

Private Systems

It is important to consider what might be required, with technological progress under TAS,

to interface with large private systems or to interconnect for some purposes. Employers are already

supplying withholding information to IRS on tapes. There are reports that IRS rents private computerized mailing lists to match against computerized lists of taxpayers to check for non-filers.

National and international efforts are being made to encourage the use of “standard identifiers”

to promote interfacing and linkage of systems. It might be a matter for speculation, furthermore,

how the TAS might relate to trends in use of electronic funds transfer systems in banks and

businesses.

Overall, however, technological advances make it imperative to consider the possible vulnerabilities of the TAS to illegal access to its files resulting from any relationships with private systems.

International Data Systems

TAS is expected to provide IRS means to store, use and analyze documents and information

about the financial activities of Americans abroad. This could help meet Congressional and public

concerns about such people who do not file or who underfile, and about reports of underutilization

by the IRS of documents filed by foreign governments on the financial activities of these people.

There is an increasing exchange of data between governments and international organizations for

many purposes, with all that trend implies for extended use of a universal identifier and for development of standards of interfacing and compatibility of systems. It may therefore be important to

establish the actual and potential linkage or interfacing of TAS with international information

systems and data banks. This is particularly true in view of the new tax law provisions affecting

Americans abroad which may create the need for new rules under TAS governing the collection,

use, maintenance and dissemination of information from and about these people. It may call for

58
special rules governing such matters as (1) the way TAS relates to international computerized information systems, (2) how it uses information from those systems, (3) what controls it places on

information it supplies to those systems, and (4) what cooperative research and statistical programs

it might be involved in which may require unique ways of sanitizing the data to prevent derived

data problems leading to invasions of privacy.

There may, for instance, be a need to define how TAS operations may relate to international

programs in which IRS may be cooperating to standardize reporting forms to make them machinereadable and easily processed by ADP equipment in the U.S. and abroad. How, for instance, does

TAS policy on using standard identifiers and the social security number relate to an IRS proposal to

supply other countries a number to promote ease in reporting on financial transactions of Americans abroad?

It may be important to assure that no adverse side effects result from IRS efforts to promote

equity in administering the tax laws respecting Americans living, traveling, or working abroad.

Further, it is important that the possible impact of the TAS technology and the organizational

forces it may set in motion do not have an adverse side effect on the privacy and due process rights

of those Americans while they are abroad and after they return home.

59
c. FEDERALISM

ISSUE: WHAT IMPACT MIGHT THE TAS HAVE ON INFORMATION POLICIES, PRACTICES

AND TECHNOLOGIES OF STATE AND LOCAL GOVERNMENTS WHICH USE OR

FEED THE TAS DATA BASE FOR REVENUE OR OTHER PURPOSES?

SUMMARY

To determine in full the impact of TAS policies on taxpayers rights, it may be important to

consider the system’s possible effect on the information policies, practices and technology of State

and local governments who would use the TAS data base or contribute data to it for tax or other

purposes.

QUESTIONS

1.

2.

3.

4.

5.

6.

How might the TAS affect State and local data banks and computerized information systems

for tax or other purposes?

To what extent will the TAS technology and its safeguards interface or be compatible with

technology of State computerized systems which receive, maintain, use, or disseminate Federal

tax returns and information?

To what extent might the threats to TAS or its vulnerabilities be extended into State information systems? To what extent might theirs be extended into TAS operations?

To what extent may the TAS be interconnected electronically with those of the States?

Under what conditions?

What impact might the policies governing TAS on such matters as retention, use, consolidation, and taxpayer identification numbers, including the social security number, have on the

information policies of the States?

How can the new confidentiality law governing dissemination of IRS data to State and local

governments be enforced under TAS?

60
BACKGROUND

More information is needed in order to evaluate whatever formal assessment, if any, IRS has

made, of the possible impact of TAS on information technologies of the states.

Historically, the Federal Government has shared Federal tax return and tax information by

tape or other means with the States and sometimes with Iocal government, in customary, informal

or authorized relationships, subject to few, if any, controls by Congress. Numerous Congressional

hearings, a comprehensive study with recommendations by the privacy production Study Commission and studies in the IRS and the Domestic Council Committee on privacy all examined these

relationships.

Growing public concern for privacy and informational due process and the increasing use of

ADP and telecommunications technology for records systems is causing reexamination of social

policies and rules governing many customary Federal-State relationships for sharing and using

personal information in citizens.

One indication of Congressional concern for this was the provision in the privacy Act of 1974

requiring agencies to give advance notice to Congress and the Office of Management and Budget of

a proposal to establish or alter records systems “in order to permit an evaluation of the probable

or potential effect on privacy and other personal or property rights of individuals,” or the disclosure

of information relating to them, and its effect on the preservation of principles of federalism. In

response to this provision, the IRS has stated in the report filed under the Privacy Act: “None of

the proposed changes in the Tax Administration System will affect the existing. . . .intergovemmental informational relationships, nor are they expected to impact on the observance of the

principles of. . . federalism, including the powers and authority of State and local governments.”

Some elaboration or documentation of this conclusion and how it was reached, and who

participated in it would help to determine the relevance of the intergovernmental issue in TAS.

The Senate Finance Committee Report on the Tax Reform Act of 1975 further describes

these data sharing programs as follows:

“By far the largest IRS/State information exchange program, in terms of amounts of

information transferred, is the f~nishing of Federal tax information on magnetic tape.

In 1975, 48 States (plus the District of Columbia, American Samoa, Guam, and Puerto

Rico) participated in this program. Under the 1975 Individual Master File (W!!?) pro~am,

information on nearly 66 million taxpayers was provided to the States. (This covers

approximately 80 percent of individual taxpayer records.) IMF tax data available to the

61
States include: name, address, social security number, filing status, tax period, exemptions claimed, wages and salaries, adjusted gross income, interest income, taxable dividends, total tax, and audit adjustment amount. A Business Master File (BMF) program

is also available to the States to aid them in establishing their own business master files.

Information from the Exempt Organization Master File is also available to the States, as

is gift tax data. Under the cooperative audit program, copies of examination reports are

furnished the States. In 1974, nearly 700,000 abstracts of these reports were furnished

the States. Also, the IRS furnishes the States information on returns that appear to have

good audit potential but will not be audited by IRS because of manpower restrictions. In

1974, information was furnished on more than 70,000 returns under this program.”

Public concern resulted in a provision in the Tax Reform Act of 1976 stating strict conditions

by which Federal tax returns and return information may be disclosed to State tax officials for use

in administering the State’s tax laws. The tax information would not be available to the State

governor or any other non-tax personnel, or to local governments.

Shared computers and other data processing techniques used in the States are described in the

Conference Report on the 1976 Act:

“In order to protect the confidentiality of returns which the states receive from

the IRS under the present exchange programs, the returns are, in most States, processed

on computers used solely by the State tax authorities. In certain States, however, the

requirements of the tax authorties are not sufficient to justify a separate computer, and,

accordingly, the tax authorities have the Federal tax returns processed on central computers shared by several State agencies which are operated by State employees who are

not in the tax department. In such situations, the IRS requires that tax department

personnel be present at all times when the Federal tax returns are being processed.”

The 1976 tax law would permit those States currently timesharing with other State agencies to

continue to do so to the extent authorized and under the conditions specified in Treasury regulations. In reviewing the possible impact of TAS, it would be helpful to compare the standards of

these Treasury regulations with the policies and safeguards planned for TAS.

Inquiry might be made as to what extent, if any, TAS may be viewed as a model for State

tax information systems. Will TAS encourage a tendency toward interfacing of the federal and State

systems? Will the expandable data base, integration of data, longer retention policies, capacity for

complex tasks, surveillance capacities, and other features of TAS bring related changes in State

information management policies, the programming of data, and in the amount of tax-related

information which is kept and used by the States? Could they affect the information demands

placed on citizens by State governments through income tax return forms and other investigations?

There is another dimension to the Federal-State information relationship which may affect the

TAS and the kinds of safeguards which may surround it. By statute, the IRS is authorized, upon
certain conditions and the State’s request, to collect State taxes. This could, according to one

IRS official, mean the assumption of compliance investigations, audits, and law enforcement activities. TAS documents state that TAS was not designed to meet demands of this program. Although

there is still reluctance to utilize this Federal service for a number of reasons, conditions for State

participation in this program were recently eased by Congress. Under existing statutes, the potential

could be easily realized for the placing of new information and technical burdens upon the TAS,

and for extending its technical and administrative boundaries when technology and economic

opportunity permit.

Social Security Number

The promotion of the use of the Social Security number as a universal identifier could receive

more impetus by the policies governing use of the number in TAS. Use of the number in personal

data systems brings to information technology an ease of managing, accessing, retrieving, correlating, and sharing data which can have long-range impact on social policy for gathering and using

personal information. Congress expressed concern over the privacy implications of the growing use

of the number and limited its use in the Privacy Act of 1974, pending a study of the matter by the

Privacy Commission.

However, the 1976 Tax Act now allows use of the Social Security number by the States for

identifying persons affected by administration of any tax, general public assistance, drivers license,

or motor vehicle registration laws. Interest groups have pointed to this new law and to the FederalState relationship for sharing tax data and the ease of retrieval and linkage of data promoted by the

use of the number as raising possible civil liberties issues which may need examination under TAS.

63
4.3 OPERATIONS

a. SURVEILLANCE CAPACITIES

ISSUE: IS THERE A NEED FOR DEFINING THE EXTENT TO WHICH TAS MAY AFFORD

GOVERNMENT A MORE EFFICIENT INSTRUMENT FOR SURVEILLANCE OF

TAXPAYERS AT HOME AND ABROAD?

SUMMARY

A sensitive personal data system with the operational potential and program goals of the TAS

proposal may raise surveillance issues which would concern Congress and the public. To determine

the relevance of this issue for TAS, a more exact description is needed of the extent to which the

system may provide government or private organizations an instrument for monitoring, identifying,

or locating people or groups. Information is needed about any safeguards which are planned to prevent unintended uses of TAS resources to monitor personal activities or conduct surveillance over

citizens.

QUESTIONS

1. How may TAS be operated or programmed to locate, identify or monitor individuals, organizations, and other taxpaying entities? What new files are planned for this purpose?

2. To what extent could the characteristics of individuals or groups within the taxpaying population be retrieved and matched with other data from outside TAS, or outside the agency, and

result in creation of data identifying or locating taxpayers or new and different data about

people which (a) is not necessary for the administration and enforcement of the tax laws,

(b) is not intended by the Internal Revenue Service, or (c) is not intended by the taxpayer?

3. What other uses will or could be made of this capacity?

4. How can Congress satisfy itself that the capacity is being used properly and wisely? What

kinds of reports should it receive from IRS?

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5. What are the present statutory and administrative safeguards against improper, illegal or

unconstitutional use of IRS information for surveillance of individuals? How will they apply

within the context of TAS technology?

6. What further statutory and administrative devices might be devised by Congress to guard

against overuse or misuse of the surveillance and monitoring capacities of the TAS in compliance and enforcement aspects of tax-related programs within IRS and other agencies of

government?

7. In order to control TAS use for non-tin related purposes of the legislative or executive branches, what safeguards should surround the capacity of TAS to locate groups

or individuals by zip codes and other geographical areas and to identify certain groups by

characteristics.

8. What are the civil liberties and social implications of the We of the social security number as

a unique identifier in the application of the TAS technology within government?

BACKGROUND

The installation of a large integrated personal information system like TAS may raise the social

issue of how drastically it may enhance the information and technical resources of government

and private organizations for conducting surveillance over citizens, taxpayers as well as non-taxpayers. That is, it may facilitate the location, identification and monitoring of individuals.

This problem may take several forms. The concern is usually directed to official surveillance

which is unreasonable or unauthorized and which therefore threatens privacy and other due process

rights. Such surveillance or monitoring usually implies covert operations, such as wiretapping or

maintaining dossiers on people and activities without the knowledge or consent of the subject.

Instances of this kind of illegal governmental or private surveillance infringing on privacy and constitutional rights have been and continue to be the subject of investigations by Congressional and

other groups. This phase of the problem now carries several general legal and procedural remedies

upon which some kind of consensus is developing. one) for instance, is the ability of Congress, the

press and the public to find out what data banks Or files are maintained by an agency; another is the

ability of the individual to know what is in his file; another is the right to know who received information about him and why. This is enforced by the requirement in the Privacy Act of 1974 of

“audit trails, ” that is, creation in the file or elsewhere of a record stating details of access to the

65
information. Another kind of remedy is requiring the actual or implied consent of the person who

is subject to the surveillance. Another kind of legislative remedy is the flat prohibition on conducting surveillance by specific techniques or for certain purposes.

IRS has cited 1976 statutory controls on dissemination or sharing of IRS data as barriers

against future misuse of data in the system. It is not clear, however, to what extent these provisions

were drafted with the proposed TAS in mind, or whether TAS with its complex management needs

might, as planned, offer potentials for misuse of data for surveillance purposes which are not yet

covered in law or regulation.

Two major problems may still be raised in this connection: the illegal internal use of the information, and the legal use. For instance, internal misuse for a purpose not intended under the

agency mandate need not involve disclosure.

Viewed against the threat to personal and group privacy, and threats to security of data which

have plagued other large computerized systems, the TAS may raise considerations of its use for

unwarranted surveillance which is arbitrary or unreasonable. Some apparent gaps in the available

public information about the TAS raise questions that the primary features of the system and the

changes its use may bring to governmental information power the expanded data base, the iricreased linkage capacity, the derived data possibilities, increased retention of personal, financial,

domicile, and associational information, the accelerated speed of transmission and decentralized

availability of it — may combine to create an effective instrument for surveillance for the benefit

of present and potential users of the system. It may offer rewards for unauthorized users inside or

outside the IRS which outweigh the risks of violation of legal prohibitions or the public opprobrium

of discovery.

Surveillance through TAS data resources may also however, be for quite legal, authorized

purposes now and in the future. TAS may offer resources for surveillance, through identification

and location of people, that could prove irresistible, or at least highly tempting, to future Congresses, Presidents and Federal agencies hard-pressed for the promotion of social, law enforcement

or national security programs.

Although laws may make it illegal to disseminate IRS information for illegal or unconstitutional surveillance purposes, these laws may not be enough. Security in an information system as

sensitive as the TAS must be considered in a larger sense, that is, with its political element. In this

sense, security against use of the TAS for surveillance which offends civil liberties principles or

66
which raises serious social policy issues, may rest finally on the changing perceptions of this system

held by members of Congress, state legislatures, the Executive Branch, by the public and by judges

evaluating the merits of claims for the inviolability of TAS against other needs of government.

For example, Congress has already seen the advantages of using income ~ return information

to locate runaway fathers and has authorized such a program. Some thought was given to attempting to locate Vietnam War draft offenders through the Internal Revenue Service files in order to

inform them of the clemency program. Other uses have been identified in numerous Congressional

hearings and reports and in the comprehensive review conducted by the privacy protection Study

Commission. If the TAS capacities for intended and unintended surveilance present advantages to

future users, with a potential for significant adverse social impact, Congress might want to do more

than merely appropriate funds for it; it might want to consider the need for additional safeguards

before it is installed.

At a minimum, the intended and potential surveillance uses of the TAS resources and capacities by IRS, Treasury or other government agencies, including Congress, might be identified. Then,

any social or political threat from such use may be weighed against existing legislative, administrative, and technical safeguards. With this, whenever executive or legislative policy-makers seek to

incorporate TAS programs or use TAS surveillance resources in the compliance aspects of other

programs, a legislative “trip-wire” could be made to operate. This might, for instance, be the need

for specifically amending a law, or allowing for a Congressional veto power or such intended uses.

While the confidentiality provisions of the 1976 Tax Reform Law have made substantial changes,

they may not meet the complexity of TAS processes and technology.

The first step in guarding against unexpected or unintended use of the resources of TAS as an

instrument for surveillance is the awareness of policy-makers and the public of its potential uses.

This requires description of its intended and possible uses for that purpose to allow for judgments

on privacy and other policy questions. The public documents on TAS do not spell out these uses

sufficiently. As background for further study of TAS, the following uses have been noted from

those documents. TAS is intended to afford the IRS the benefit of increased technological and

administrative capacities for surveillance and monitoring of taxpayers and other citizens in support

of the Service’s missions; that is, it will be better able to keep more efficient track for a longer time

of geographical residences, financial transactions and activities through information which is

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provided on tax return forms, gathered by IRS investigators or reported from outside sources, or

which is developed within IRS as new data from a combination of information sources.

The Service expects to be better able to identify individuals for certain administrative and

research purposes and a few of these have been described in scattered testimony, public documents,

and in some confidential in-house reports prepared for IRS. For instance, testimony and reports on

the TAS indicate that with this system IRS hopes to be better able to identify those people with

little or no income, and thus return refunds and negative income tax benefits. This capacity may

also suggest, however, the means of identification and possibly retrievability of data about the impoverished, the drop-outs, and people living on the margins of society. While this has distinct

equitable implications for those concerned with social justice, people stressing civil liberties issues

may want to inquire further about a technical and programmatic capacity to locate taxpayers

for non-tax purposes.

Furthermore, published hearings before several House subcommittees indicate that with

better data processing equipment, IRS hopes to be better able to process and match documents sent

by foreign governments reporting the finances of Americans working and conducting business or

financial transactions abroad, thus bringing into the Treasury a substantial amount of revenue due

the government.

This capacity may also suggest implications for the capacity to monitor the activities of Americans abroad for economic purposes or to serve the interests of foreign relations, military affairs, law

enforcement, intelligence, or the research purposes of IRS, Treasury, or other agencies.

In each instance which could be identified of a significant increase in surveillance capacities

if TAS is installed, it might be necessary to obtain more information about the administrative

standards and the technical safeguards which would govern programming or operation of TAS for

the purpose of assuring that use of the surveillance resources is confined, at a minimum, to some

judicially ascertainable standard of reasonableness in light of the statutory mission of the IRS and

other governmental users of the system.

TAS will enable IRS to identify residents of small scale geographical areas as problem taxpayers for collection purposes. It is expected to increase workload control by collection personnel

by assigning geographical areas, identified by zip codes, to Revenue officers and producing an inventory of geographical workloads.

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TAS is expected to provide surveillance capacity for a more intensive audit effort over smaller

geographic areas and over certain economic groups. One of its reported merits is that it will enable

audit personnel to identify gaps in regional and district audit programs that are not recognized in

the national Discriminant Function system for selecting returns for audit. Its data base of

tax account information will, according to reports, permit more detailed analysis and improved

criteria for selecting returns in need of audit. For example, it ~ be able to identify compliance

problems of questionable deductions or unreported income by geographic area or business activity.

In addition to acquiring more information from the IRS, it was suggested that a scenario

approach be used to identify further potential for surveillance and uses of TAS for which safeguards

are needed. 19

19. See also, Surveillance Technology, 1976: Policy and Implications:An Analysis and Compendium of Materials.

Staff Report, Subcommittee on Constitutional Rights of the U.S. Senate Committee on the Judiciary, 94th Cong.,

2nd Sess. (Committee Print)

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b. EQUITY AND EQUALITY OF TREATMENT UNDER THE LAWS

ISSUE: TO WHAT EXTENT, IF ANY, DOES THETAS PROPOSAL RAISECONSIDERATIONS OF EQUITY AND OF EQUALITY OF TREATMENT FOR ALL TAXPAYERS?

SUMMARY

A concern expressed during the panel discussions was that TAS, like other large personal information systems used tax decisions affecting people’s rights, may raise public fears that the technology in operation may not be neutral but may affect different groups differently. If, in fact, effective

administration and enforcement of revenue laws depend on the taxpayer’s voluntary compliance,

then it is important that the IRS design and use an information system that not only is benign but

which can be perceived to be benign for all taxpayers and to encourage equitable treatment and

equal protection of the laws for all.

QUESTIONS

1.

2.

3.

4.

5.

Could the TAS, over time, reinforce any existing inequities in the tax system by accelerating

and intensifying the exercise of investigative, auditing, collection and law enforcement powers

of both federal and state governments over certain categories of taxpayers? To what extent

could TAS be viewed as a knob for tuning social policy?

To what extent was TAS designed with the assumption of the immutability of the present

tax laws? Could its capacities influence reforms in the tax laws?

How might the new TAS, as programmed or operated, affect the right to equitable treatment

under the laws of (1) taxpayers with a history of collection problems? (2) Taxpayers with

serious tax problems? (3) Taxpayers who are audited?

What other groups are intended to be affected by the application of the technology? Why?

Will the TAS provide more responsive service to all taxpayers or simply better, more responsive service to selected groups in the taxpayer population?

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6. Under the TAS, can there be a significant difference among regions or even among districts

of a single region, in the quality of administrative protection afforded the privacy of the individual residents by the way information is collected and entered into the TAS, in the use of it,

and in the observance of the confidentiality of it within the IRS and outside the agency?

7. TO what extent, for instance, would the TAS, as designed and programmed, permit collection

of non-programmed data essential to explain delinquency from the perspective of the taxpayer

who may have fallen on hard times, suffered a serious illness, or other problem which might

affect consideration of his case?

8. What research would be eliminated under TAS for different grOUPS of taxpayers? With what

effect or result?

9. What criteria will be used for developing computer programs for the new system which will

affect specific groups of taxpayers?

10. To what extent might the new system be manipulable intentionally or unintentionally to

discriminate against specified groups in the taxpayer population?

BACKGROUND

The possibility of equity issues in TAS were described by one panelist, Sociology Professor

Dr. Robert Boguslaw, in the following terms:

“It seems legitimate to raise the question as to whether TAS (unwittingly) is a system

oriented toward increased surveillance of middle class and working class taxpayers, while

having relatively few consequences for corporate and upper-class taxpayers. Does

increased computerization of IRS procedures work to the advantage of corporate and

other taxpayers who can afford the legal and accounting advice which will enable them

to conform, superficially, to acceptable standards (i.e., to remain below the limits of

deviation posed by Discriminant Function scores, etc.)? In short, from a social and

political perspective, the threat posed by TAS is not simply the possibility of increased

scrutiny of all taxpayers, but rather the prospects of more effective scrutiny of some and

less de facto scrutiny of others.” 20

Responding during the panel’s discussions to questions Of possible TAS impact on class bias,

IRS officials observed that there would be no change, that TAS was essentially a better management

tool; they felt that to the extent TAS will assist in such matters as income averaging, it will if anything, promote equity, but it is not going to affect such things as the complexity of the tax code OT

20. Additional comments, Appendix of Report.

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tax write-offs. This argument was further developed by a panelist, a former IRS official, who

stated that fairness has historically been the concern of tax administrators, tax lawyers and economists. All want to see tax administration bear evenly on taxpayers and have sought to imbed a form

of equity in tax laws.

The possible relationship of the TAS requirements and cost to future tax reforms may be

related to equity issues. Concern was expressed during the panel discussion that the TAS design

might reflect a perspective which accepts existing tax legislation as fixed and projects future requirements as reasonable extrapolations from past experience. Congress, however, might wish to review

existing tax legislation from the perspective of the additional costs contemplated for TAS. As the

question was expressed by a panelist, “would more generous ‘standard’ exemptions lead to

increased benefits in the form of reduced costs of administration and equipment — to say nothing

of eliminating much of the need for privacy among individual taxpayers in the working middle

class?” If large numbers of people are not reporting details of personal financial activities, there is

less of a burden on the organization to provide sophisticated privacy and confidentiality guarantees.

According to the IRS, the current ADP posture, with piecemeal improvements made without

integrated planning, “creates difficulties in complete administration of the tax code and regulations.

This is so especially as to the need for flexible, quick response to changes in statutory authority,

and increased productivity of revenue agents to ensure compliance by all taxpayers. Reliance on

voluntary compliance is tenable only to the extent that revenue activity is perceived by taxpayers

as fair, thorough, and responsive to reasonable requests and inquiries. ”

To the extent that there have been complaints of inequitable handling of audit selection policies, such criticism may be associated by the public to whatever software is proposed for applying

TAS technology to auditing. There have been public criticisms of the apparent lack of balance in

making audit decisions, and of some IRS judgments about where and how to deploy personnel and

other resources for conducting audits.

The courts have upheld the reasonableness of basic audit criteria, and to the extent that the

Internal Revenue Service is attempting to audit people fairly, the computer software would simply

embody more rational practices for selecting people for audit. If the application of the TAS in these

areas follows reasonable criteria, these then might be reviewed to see that the proper use of computer-sorting capacity simply embodies judicially-acceptable auditing categories and criteria. If so,

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then, in the interest of the appearance of equity, and the assurance of fair treatment, perhaps these

should be spelled out in the budget justifications for the TAS.

If, on the other hand, there will be categories of taxpayer groups selected which would be substantially different from what have been the acceptable target groups, then this issue perhaps should

be surfaced and examined.

Through its ADP resources, the IRS has developed a uniform standard for selecting returns

for audit. This standard is afforded by use of a sophisticated computer selection technique, the

“discriminant function” (DIF) which involves assigning numeric weights to certain characteristics

of tax returns according to relative significance of that characteristic as an indicator of error in a

return. TAS will enable similar computer programs for other purposes.

Equality of Treatment Under Laws and Rules

With TAS, there is a new administrative system evolving within the IRS which is intended to

affect special groups of taxpayers. Under the existing system, presumably, there were safeguards

for these people. An issue for possible inquiry is what new safeguards me needed to assure that

these taxpayers will be treated fairly and enjoy rights of due process, privacy and confidentiality

equal to those of all other taxpayers?

Residents of Different IRS Regions

TAS may raise a serious issue of equality of treatment which may have possible constitutional

dimensions as an “equal protection of the laws problem. ” This is whether or not residents of different geographic regions will enjoy equality in the administration of the Internal Revenue laws, and

in enjoyment of their privacy and other rights which may be affected by IRS and related information programs.

Under the new system, there will be 10 different regional information management policies

and 10 different sets and myriad subsets Of information relationships among personnel of the IRS

components and among those of federal and state users of IRS data.

In addition, there will be 10 different security systems, instead of one, for those interested

in oversight to watch.

A number of Congressional reports have identified lack of central management and oversight

in decentralization as causes of certain civil liberties abuses in the collection, storage, use and

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sharing of certain kinds of IRS investigative information. Questions might be raised in connection

with TAS as to (1) What are the oversight implications of these arrangements?, and (2) Who will be

responsible for assuring equal protection of the laws to residents of different geographic regions?

Following are examples of groups intended to be affected, according to IRS documents, by the

improvements TAS will bring to the Service. They are noted here for background information in

considering TAS.

Taxpayers with a Hiktory of Collection Problems

The TAS Description Book; an internal document prepared for IRS, states that the TAS will

aid the collection process by making available information of taxpayers with a history of collection

problems. The availability of this data on those taxpayers accounts having a balance or return

delinquency problem will, according to this document, eliminate a great deal of research presently

carried out by Revenue Officers. To assure that rules for TAS permit fairness for this group, it

might be asked to what extent the TAS, as designed and programmed, may permit the collection

of nonprogrammed data essential to explain delinquency from the perspective of the taxpayer who

may have fallen on hard times, suffered a serious illness, or other problems which might affect consideration of his case. Another area of inquiry for this group, as for other groups intended to be

affected by TAS capabilities, would be what research would be eliminated under TAS which is

now carried out for the various special categories of taxpayers with which IRS must deal.

Taxpayers with “Serious” Tax Problems

The Description Book for TAS states that through TAS improvements, taxpayers with the

most serious tax problems will be dealt with before collection manpower is expended on those with

less serious problems. Under the present system, employees have considerable administrative discretion to make such determinations and their decisions must necessarily involve value judgments in

each case. TAS, according to the IRS internal document, will be used to produce an inventory

report of the workload volume available within each specific geographical area. Through a special

scoring system, based on the entity concept with weights assigned by pre-established criteria similar

to Discriminant Function criteria, the Group Manager will be able to make maximum use of field

collection manpower. ”

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To assure that the intended use of TAS capabilities for this group of taxpayers does not raise

issues of fair and equitable treatment of equal protection of the laws, information might be sought

to determine what a “serious problem“ is for the purposes of the new system, and who will decide

this; what criteria will be used for developing computer programs for the new sys~m which will

affect these and other groups of taxpayers; how secure are the details; to what ex~nt might this

aspect of the new system be intentionally or unintentionly manipulable to discriminate against

specified groups in the taxpayer population.

Taxpayers Who are Audited by Geographic Area or Business Activity

TAS, with its data base of tax account information, is expected by IRS to permit more

detailed analysis and improved criteria for selecting returns in need of audit by geographic area or

business activity. IRS stated that “this refinement will be especially beneficial in treating localized

compliance gaps in regional and district audit programs that are not recognized in the National

Discriminant Function system for selecting returns. Through data base analysis, it will be possible

to identify compliance problems (questionable deductions or unreported income) by geographic

area of business activity. ”

Also available in the expandable data base, according to an internal TAS document, would be

prior year audit results by issue fort= years open under the statute of limitations, along with references to financial and other tax related transactions that impact future years reporting requirements. The audit history data is expected to permit better selection of returns and fewer successive

“no-change” audits of computer selected returns. Better selection will in turn increase examiner

efficiency since less “no-change work will allow more thorough examination of returns with high

probability of error. References to financial or other activity affecting subsequent year filings will

provide examiners with leads, further increasing the quality and efficiency of work effort.”

An area for possible inquiry for this grOUP would be to determine the criteria to be

programmed for defining computerized selection of returns ad for measuring examiner efficiency.

similar questions might be asked concerning guarantees in TAS for fair treatment of American

taxpayers living, working, or traveling abroad.

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c. TAS AND THE COURTS

ISSUE: WHAT PROBLEMS MAY THE TAS TECHNOLOGY POSE IN THE JUDICIAL

PROCESS FOR THE PROTECTION OF INDIVIDUAL RIGHTS?

SUMMARY

Judicial review of the intended or unintended consequences of TAS technology is not only

likely but certain, given past and present judicial experiences with IRS earlier ADP system. An

analogy might be drawn between TAS and judicial treatment of FBI computerized systems in the

1971 case of Menard v. Mitchell. 21 Questions might be raised as to whether or not policies governing the collection, use, maintenance, and dissemination of IRS information are sufficient to stand

up in court when the interest of the taxpayer or the government may be at stake.

QUESTIONS

1. What new problems may the Tax Administration System present to the courts?

2. Is there a need to define additional rules and standards by statute or regulation to provide

guidelines for judges and parties to civil and criminal actions whose cases may be related to

the operations of TAS computers, its hardware, software, or personnel?

BACKGROUND

Serious consideration may have to be given to the adequacy of rules governing TAS unless the

whole TAS system is to be jeopardized in the future by court decisions saying that the taxpayer is

put at a disadvantage by the complex system. More and more as courts are being called on to

resolve due process issues in governmental programs, it has become cleax that they are not going to

sacrifice their constitutional role and traditional functions to bad systems design. As courts begin

21. 430 F 2d 486 (D.C. Cir. 1970) decision upon remand, 328 F. Supp. 718 (D.D.C. 1971).

76
to look at the effects of automated data systems, they have given notice that they are not going to

rely on good intentions. There is needed only the example Judge Gesell provides in his Federal

District Court decision in the Menard case concerning the FBI’s dissemination of arrest records and

the right of expungement. The Judge found that the use of the system raised constitutional issues

and that Congress has never authorized sharing of arrest records with state or local agencies for

employment of licensing checks. He thus threw back to Congress the whole problem of establishing

adequate rules for the system, something the Congress has struggled for years to resolve.

AS the Internal Revenue Service has developed more sophisticated computer systems, billings,

notices of all kinds, audits, collections and other processes have been automated for speedier, more

economical service and compliance. Consequently, many Americans have become aware of

unfortunate side effects as well as the beneficial effects of new information systems. As a result,

the courts have begun to receive and to attempt to deal with complaints involving taxpayers’ rights

to due process and privacy m they are affected by the IRS computers. Some recent decisions have

implications for the new TAS.

There is, for example, the reported case of Hattie Neal a taxpayer in New Jersey. Research

reveals that as the case progressed, it became apparent that the IRS side of the story may not have

been completely available. However, the fact situation as described, presents a possible scenario for

testing rules which would govern TAS operations.

The reported facts are these: During 1973, income tax Was withheld and paid to IRS on Ms.

Neal’s wages. The final 1973 return, filed in 1974, showed a tax which was $910 less than the

amount withheld, and she asked for a refund. Instead, she received an IRS form stating that the

refund was applied to adjust her account for the year 1971. Wportedly, no information given to

explain how and why this entry was made indicated that she inked three times for a hearing or

explanation. In each case, the response was a computer print-out saying that the refund had been

applied to the 1971 balance, without saying how the balance arose. Ms. Ned sued for the refund.

The IRS, reportedly having withheld the facts from her, inked the court tO dismiss her suit for lack

of jurisdiction, on the grounds that-she lacked a sufficient showing On the basis of her claim.

The judge found that a strange request since, he said, “the government cannot ask the

taxpayer to provide details which only the government possesses and which its computers will not

disclose.” He took note of the fact that enough taxpayers had this happen to them to suggest that

what was at work was the GIGO Rule of Computers (Garbage In, Garbage Out). Since the

77
explanation for the phenomenon was never learned, maybe discovery in this case would provide it.

He also noted that if the United States had been a creditor dealing with consumer credit, such as a

retail merchant or a credit card company, it would be obliged to provide the details of a claimed

bilIing error and to correct the error, within strict time limits. He ordered the IRS to provide the

information.

The judge’s comments on the facts as presented to him for decision are relevant to

the proposed TAS: “The computer is a marvelous device that can perform countless tasks

at high speed and low cost, but it must be used with care. This is because it can also make errors at

high speed. Those who use computers for record and accounting purposes, including the government, are accordingly obliged to operate them with suitable controls to safeguard the reliability and

accuracy of the information.” After the decision the taxpayer did not fully respond to IRS requests

for information about her deduction claims and the Court dismissed the case, noting: “Since both

parties failed (at different stages) to provide information to which the other was entitled they are

both tarred with the same brush.”22

Impeaching Computer Print-Outs

Computerized programs have been involved in several recent cases of criminal prosecutions for

failure to file tax returns. Judges have struggled with issues of privacy, due process and the new

computer technology in these cases. Defendants have tried to discover IRS computer lists of taxpayers who failed to file so they could contact them and find people who had actually filed and

were erroneously listed as non-filers.

In one 1974 Pennsylvania case, the IRS fought such an effort as unreasonable and a violation

of privacy. The Judge rejected their arguments and ordered IRS to delete Social Security numbers

and furnish the defendant taxpayer a list of random selection of names of non-filing taxpayers.

In doing so, he commented on the priuacy issue:

“The right of a citizen to privacy is, of course, an interest that is and should be zealously

protected. But so is a citizen’s right to his good name. It is the latter interest that the

defendant here seeks to preserve. When it is considered that the information the defendant seeks is public anyway, the asserted invasion of privacy seems, at best, elusive.

Defendant’s interest, on the other hand, is very real.”

22. IVeal u. U.S. 402 F. Supp. 678 (1975)

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The Government contended that the lists do not purport to be conclusive lists of persons who

have failed to file returns, but serve merely as a starting point in the process of identifying nonfilers; that only after further extensive investigation is the list complete, so the lists were immaterial

to the defense. The judge said their conclusion “was short-sighted,” and that:

“The defendant seeks to reveal not merely the inacuracy of the computer lists, but

rather the unreliability of the entire Internal Revenue Service system of weeding out

non-filers. The government suggests that there are many reasons why names will appear

on the non-filer list that should not be there-returns in the process of audit, marriage

and change of name, death. This is no doubt true. But it may be equally true that some

names are on the list simply because the computer makes mistakes. The latter reason

could well have a significant bearing on a crucial issue in this case-the reliability of the

entire IRS procedure of identifying non-filers. Nothing short of the discovery sought

will reveal the truth. ”

The judge noted that the testimony of the government witnesses established that the overall

IRS system of processing returns has remained unchanged and that any changes in computer equipment were improvements over the prior art. “It comes to this,” he stated:

“Defendant is reduced to seeking to expose inaccuracies in a present overall system

unchanged since his alleged delinquencies, but operating with better equipment. His

a fortiori argument is that if those shortcomings exist now, with better equipment, they

had to exist in 1969 without the improved equipment. Circumstances, and not mere

chronology, are the touchstone of relevance. ”

In an elaborate order, the Court gave the taxpayer access to IRS computer processing locations

and documentation relating to the electronic dab processing system. This included: systems documentation, programming documentation, operating documentation and instructions, training aids,

job descriptions of systems personnel, organization charts, systems and programming changes,

figuration detail, forms, systems personnel selection criteria, audit trail reports, exception reports,

all logs relating to data processing (including volume log, error log, reject log, unposted log, changes

log), attendance statistics for systems personnel, machine use @s, budget and budget requests,

reports of systems operations, any studies relating to all aspects of the processing of income tax

returns, all reports and evaluation of the income tax processing system or any portion thereof.

The Court allowed him to inspect and operate the equipment under certtain conditions, and

required the Government to bear the costs of the examination, including the salaries of personnel

required to assist the defendant’s experts, the salaries of personnel prevented from carrying out

their normal tasks, and the cost of use of computers or peripheral equipment.

The lower court dismissed the charges against the taxpayer when the Government failed to

supply the lists. The Court of Appeals reinstated the criminal charge on the grounds that the IRS

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had alternative means of getting the information the taxpayer wanted. The Appeals Court weighed

the 6th Amendment right of the defendant to confront a major “witness” in the form of IRS

computer print-outs against the right of privacy of individuals on the list and the need to avoid

confidentiality problems in managing presentation of the evidence in court. “Although the great

majority of persons on the lists in fact have filed a return or have legitimate reasons for not doing

so, being a suspect under investigation by a government agency is a circumstance which every

person except the bizarre would prefer to hold in confidence,” the Court stated.

Alternatives by which access to IRS documents and experts, and permission to have his own

experts run tests on IRS computers would allow the taxpayer “to cross-examine the computer

testimony confronting him by analyzing the reliability of the computer system in theory and

checking the accuracy of the system in fact. Moreover, the alternatives should provide information

focusing directly on the credibility of the computer testimony and more likely should develop the

facts than the digression sought” stated the opinion.

The U.S. Supreme Court denied certiorari in this case.23

Judges have had to deal with the breakdown of administrative barriers by the flow of

information in computerized networks of the IRS.

In a case this year, defendant taxpayers who were charged by IRS with criminal tax evasion

claimed the right to have evidence suppressed which was gathered in violation of their rights under

the 5th Amendment against self-incrimination and under the 6th Amendment right to counsel.

The Judge in this case ruled that when incriminating evidence had been filed in a generally

accessible computerized information bank, and the file was transferred to an audit group whose

sole function was limited to investigation of taxpayers believed to have income from illegal sources,

the Government was required to give the defendants a Miranda-style warning of their rights.

A special agent of the IRS Intelligence Division spotted the taxpayer driving a customized

Cadillac automobile in the downtown Milwaukee area, ran a check on the car and found it was

registered to one of the defendant taxpayers. Using routine request procedures, the IRS obtained

the defendant’s joint income tax returns from the IRS Service Center in Kansas City, and filed a

report, (or “information item”) with a recommendation that the Intelligence Division, which deals

with criminal matters, conduct an investigation of taxpayers. This was rejected. Later, the audit

23. U.S. u. Liebert, 383 F. Supp. 1060 (1974) U. S.C.A. 3rd Ct. No. 74-2294 (June 30, 1975) U.S. (1975)

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division began investigating for civil liability, and the Intelligence Division began investigating for

narcotics trafficking. All the time, however, incriminating evidence was being fed into the Information Gathering Retrieval Unit (IGRU), where it became available to every division of the Internal

Revenue Service. The IRS claimed that since the taxpayers’ file was not formally transferred to the

Intelligence Division until a certain date, the IRS had no responsibility.

In his opinion, the judge spelled out the intricate details of the case, referring to it as a

“computer” case. The IRS, he said, could not erect artificial barriers between different Internal

Revenue Divisions in order to defeat the taxpayers’ defense.

“The proper substantive inquiry is “When [does] the investigative machinery of the government [become] directed toward the ultimate conviction of a particular individual?” “

“Under all the facts and circumstances of the present case, when defendants’ file was

transferred to Audit Group 1208, whose sole function is limited to investigation of taxpayers believed to have income from illegal sources I find that in substance the “adversary

process” had begun and the Government’s investigative machinery began to be directed

toward accomplishing the indictment and conviction of these defendants. Incriminating

evidence had been filed in a generally accessible computerized information bank. Further

proceedings without an admonition of rights allowed the defendants to misapprehend the

nature of the continuing inquiry, their obligation to cooperate with the investigation, and

the possible consequences of such cooperation.”24

These are only a few of the judicial decisions involving due process and harassment issues

arising in the operation and management of IRS computers. The procedures governing collection,

use, and exchange of the sensitive information which the IRS acquires in the course of carrying out

its statutory mandates affect the lives and well-being of all taxpayers and taxpaying entities, individuals, citizens, businesses, corporations, organizations> wherever they may be, at home or abroad.

1n considering the sufficiency of the policies and practices governing TAS operations, it is well

to recall Judge Gesell’s warning:

“While conduct against the state may properly subject an individual to limitations

upon his future freedom within tolerant limits, accusations not proven, charges made

without adequate supporting evidence when tested by the judicial process, ancient or

juvenile transgressions long since expiated by responsible conduct, should not be indiscriminately broadcast under governmental auspices. me increasing complexity of our

society and technological advances which facilitate massive accumulation and ready

regurgitation of far-flung data have presented more problems in this area, certainly

24. U.S. V. Mapp 406 F. SUpp. 817 (1976)

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25 These developments problems not contemplated by the framers of the Constitution.

emphasize a pressing need to preserve and to redefine aspects of the right of privacy to

insure the basic freedoms guaranteed by this democracy.

A heavy burden is placed on all branches of Government to maintain a proper

equilibrium between the acquisition of information and the necessity to safeguard

privacy. Systematic recordation and dissemination of information about individual

citizens is a form of surveillance and control which may easily inhibit freedom to speak,

to work, and to move about in this land. If information available to Government is misused to publicize past incidents in the lives of its citizens the pressures for conformity

will be irresistible. Initiative and individuality can be suffocated and a resulting dullness

of mind and conduct will become the norm. We are far from having reached this

condition today, but surely history teaches that inroads are most likely to occur during

unsettled times like these where fear or the passions of the moment can lead to excesses.

The present controversy, limited as it is, must be viewed in this broadest context. In

short, the overwhelming power of the Federal Government to expose must be held in

proper check. 26

25. See President’s Commission on Law Enforcement and the Administration of Justice, Task Force Report:

Science and Technology, at 74-77 (1967). Dealing specifically with arrest records, the Commission noted three

serious problems in their use:

The record may contain incomplete or incorrect information.

The information may fall into the wrong hands and be used to intimidate or embarrass.

The information may be retained long after it has lost its usefulness and serves only to harass ex-offenders, or

its mere existence may diminish an offender’s belief in the possibility of redemption.

26. 328 Fed. Supp. 279 (1971).
4.4 PROCESSES AND STRUCTURE

a. DECENTRALIZATION

ISSUE: WHAT PROCESSES AND FUNCTIONS Would BE DECENTRALralized THE NEW

SYSTEM AND WHAT EFFECT, if ANY, COUD DECENTRALIZATION HAVE ON

PRIVACY AND OTHER RIGHTS, ON CONFENTIALITY OF INFORMATION AND

SECURITY OF THE SYSTEM?

SUMMARY

By creating ten regional service centers, each with its own data base of records about taxpayers

residing within its boundaries, the TAS will be setting UP what are essentially ten data banks — each

with its own data base, central processing unit, remote terminals, and communications lines. While

such decentralization is seen by IRS as offering important administrative and service-to-taxpayer

advantages, the ten-bank arrangement raises possible problems with regard to civil liberties that may

differ from those involved in one national data center with nationwide terminal access.

QUESTIONS

1. How will IRS control set rules of variations among the ten centers in the use they can make

of individual data for purposes of audit, collection and levy?

2. In the interest of competition among centers there may be some desire to encourage local

innovation, and yet not violate concepts of equity from one center to another. Will it be possible to define the predictable use of partic~m sets of data and to install boundaries so that

violations of national rules can be detected and inquiries made as to the justification or lack of

justification for such departures?

BACKGROUND

Despite the issuance of national guides and rules, there have been in the past significant deviations among local IRS offices in the way they use taxpayer return and investigative data. A leading

example is the IGRS system, in which local variations involving intelligence operations were sharply

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criticized by the Senate Select Committee on Intelligence and other groups for violating individual

rights, as well as for failing to accomplish the proper goals that were envisioned by the IGRS system

when originally initiated. Therefore, the question as to how the TAS will set national parameters

and limits for the operation of its ten regional centers and how it will monitor, test, and supervise

local variations becomes an important matter.

There may be a need to gather information for assessing whether adequate provisions are being

made by IRS for the development of audit software, system-time for this function, supervisory personnel, and test costs to assure that there is proper uniformity among centers and fidelity to national

operating rules. Recent disclosure of improper use of the FBI National Crime Information Files by

local law enforcement offices to furnish data about insurance claimants improperly to insurance

companies seeking data indicates how vital it is to have within data banks a system which will

monitor level of use and types of inquiries.

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b. ADMINISTRATIVE CENTRALIZATION

ISSUE: WHAT PROCESSES AND FUNCTIONS AFFECTING INFORMATION POLICY AND

INDIVIDUAL RIGHTS WOULD BE CENTRALIZED UNDER THE NEW SYSTEM?

HOW MIGHT CENTRALIZING FORCES AFFECT THE OVERSIGHT OF SUCH PREVIOUSLY SEPARATED ACTIVITIES?

SUMMARY

The installation of the TAS will bring certain centralizing forces and administrative changes to

the IRS organization and might provide such a potential for other changes that, in the interest of

public understanding of the system and in the interest of accountability on privacy and due process

matters, there may be a need to identify these changes further.

While some of these questions have been raised in another context in the section of this report

on “Consolidation,” and “Organizational Change” they deserve emphasis in the context of a discussion of the internal functions and administrative separation of powers within IRS.

QUESTIONS

1. What is being centralized under TAS? What activities are being or may be consolidated?

2. What intended or unintended impack may TAS have on the administrative division of powers?

3. Could TAS have the side-effect of contributing to a breakdown in separation of functions

within IRS in a way that adversely affects accountability for protection of privacy, due process, equity and other principles destiable in the administrative process?

4. What safeguards will surround the national directory of files in Matinsburg, West Va.?

5. What are the implications for monitoring TAS programs by IRS, the Treasury Department,

the Executive Office of the President, including OMB, by Congressional committees?

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BACKGROUND

The desirable capacities of the TAS, such as integration of a fragmented data base, and other

centralizing forces set in motion by technological changes, may in such a large governmental system,

affect the present functional, administrative, and political separation of some activities within the

IRS in such a way that, without some new rules or reporting mechanisms, there might be an adverse

affect on the exercise of effective accountability and Congressional oversight.

While a major feature sought under the new system is the decentralization of the files to meet

the needs of regional and local managers, there will also be a centralization process at work involving integration of previously separated programs. A potential naturally exists for expanding such

activities beyond those planned uses already identified.

In order to assure public and Congressional understanding of the ADP changes when they are

installed, and in order to promote and preserve accountability in the system for matters affecting

the privacy, due process, equity and other rights of taxpayers, it may be important to elaborate

further for the record those changes in technical integration of the files and administrative consolidation which will be departures from previous ways of doing business. This may help to forestall

any adverse side-effects on the quality of IRS relationships with taxpayers, with Congress, and with

Executive branch personnel charged with monitoring the system.

For example, a major need cited by prospective users of TAS and one of the advantages claimed

for the system is the ability to consolidate all activity for an individual taxpayer under one account.

Taxpayer accounts in the Master File Processing System are now grouped by taxpayer characteristics

such as business individuals, exempt organizations and others. They are stored and maintained as

large master tape files, essentially separate from each other in handling and processing, with software

designed for each file. Under the new concept, according to internal IRS documents, ADP will tie

together transactions affecting taxable entities over an extended period, rather than treating each

tax return as an individual transaction. This means business tax returns of sole proprietors, presently

filed under employer identification numbers, would be consolidated with the taxpayer’s individual

tax return filed by social security number.

Another advantage sought under TAS is the ability to consolidate the Delinquent Account,

Delinquent Investigation and Returns Compliance Programs. After appropriate notices are issued,

the system will provide a profile of the taxpayer, a Taxpayer Compliance Profile (TCP) for field

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investigations which will furnish to the Revenue Officer all pertinent information such as previous

actions, balance due, return delinquency tax periods for which the taxpayer has a filing or payment

responsibility. An updated profile will be issued each time a new delinquent tax period is established

on the Master File. Presently, separate investigation notices may be issued for each return delinquency tax period. Among other results of this separation of action is the fact that more than one

collection representative will contact the taxpayer and work on different phases of the case instead

of having a consolidated record handled by one person.
c. ORGANIZATIONAL CHANGE

ISSUE: COULD THE NEW SYSTEM BRING ABOUT ORGANIZATIONAL CHANGES TO THE

IRS WHICH MIGHT AFFECT ITS ABILITY TO CARRY OUT RESPONSIBILITIES

FOR RESPECTING THE RIGHTS OF TAXPAYERS?

SUMMARY

The installation and operation of a large sensitive information system like TAS requires a

sophisticated management structure and may require drastic changes in personnel in positions of

trust. If there are significant organizational changes in the functions to be performed, and in responsibilities, rights, and duties which may be exercised, there may be a need for assuring that IRS has

developed plans in advance and considered the need for new rules to deal with those changes.

QUESTIONS

1. What preparations has IRS made to deal with any significant change to be wrought by TAS

which might bear on privacy, due process, confidentiality, and security? What regulations are

proposed?

2. How might TAS affect information relationships between IRS component offices?

3. How can Congress assure itself that the IRS has identified major organizational changes and

is prepared to deal with them?

4. What kinds of decisions are being given to the computer under TAS which in the past have

not been made by the computer at all or at least not on such a scale?

5. Is the taxpayer going to be denied a valuable paper trail which, under a slower, less efficient

process, at least enabled the tracking of errors and the correction of records and which, with

the help of investigative pressures, discovery processes, or Freedom of Information Act provisions helped to establish administrative responsibility for the courts and Congress? If so, how

does the IRS propose to deal with this change?

6. What are the specific details of the new staff structure under TAS?

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BACKGROUND

Management problems under TAS will be quite different from those under the old system.

Installation of a system of the size and sensitive nature as TAS involves actual and potential new

relationships among internal IRS components who will use it. New stafing patterns are created.

New competitive forces among offices and regions can be set in motion. The number of employees

in a position of trust may be drastically altered.

In authorizing such a system Congress ought tO be able to assure itself that the agency has

anticipated problems of organizational change and that policy statements and rules have been

drafted to meet them. As one panelist expressed it, the stakes are so important that taxpayers and

Congress cannot afford to let the government rest its case on generosities that good things will happen. The agency ought to be able to say “here is the way our staff will be organized. Here, for

instance, are job positions for security accountability; here are job positions at each administrative

level for those controlling what goes into the system, how it is USed, and who gets the information,

and what programs are instituted. ”

Concern was expressed that not enough such information WaS supplied about TAS to assure

that the steps proposed by IRS for dealing with important changes which could affect privacy, due

process, confidentiality, and security are not merely cosmetic but are substantive and are actually

implemented. Congress ought to have more information as to how TAS will be staffed as an information system.

Questions of organizational change are basic to the issue of the total security of such an information system as TAS. In the opinion of computer experts~ no system today is invulnerable to compromise. Too often discussions of security in new computer systems focus on technical problems

and ignore the fact that the real security problems rest in the Prepations of adequate management

and personnel policies to deal with perceived threats. For example) where IRS indicates that its

employees will be advised of security needs and warned about Penalties for violations, it may be

advisable to obtain and evaluate copies of such education~ documents for their adequacy.

Other questions relating to organizational changes and Policy implications of the technology

for the administrative structure could be identified which did not appear from available TAS documents to have been sufficiently addressed.

A number of aspects of management and staffing policies related to security were addressed in

a recent report on TAS by the General Accounting Office. It would seem reasonable for Congress to

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expect to see plans for significant treatment by IRS of the management considerations identified

there before TAS is installed.

The TAS documents make a number of references to the automating of clerical duties and to

eliminating research and memoranda, but it is difficult to obtain from them a clear picture of how

IRS proposes to assess the potential for any adverse side effects for the taxpayer who may be affected

by the role of the TAS technology in changing the functions and programs it supports or the processes it may replace. For instance, when the Integrated Data Retrieval System was introduced to

put on-line tax histories for only 10 percent of taxpayers, thousands of letters and memoranda are

said to have been eliminated. The significance of this kind of organizational change, when all of the

files for 132 million taxpayers, businesses, and organizations are put in real time and decentralized

for random access storage, may need evaluation to determine a need for (1) statements of major

policy changes, (2) new rules defining rights of taxpayers in the operation of the new system, and

(3) rules assigning specific personnel responsibilities.

A number of operational and management problems affecting taxpayers have been identified

in the IDRS in various hearings and reports and difficulties cited in communications between IDRS

personnel and taxpayers. If such problems develop when only ten percent of the files are on-line,

there may be a real need to consider what similar problems could arise on a grander scale when TAS

is installed, and result in harassment of taxpayers through computer-assisted human errors, lack of

effective communications, and lack of operational complaint mechanisms.

Opinions of public administration specialists might help further define this issue.
d. ACCELERATED PROCESSES

ISSUE: COULD THE TAS PRODUCE AN ACCELERATION IN INFORMATION PROCESSING

AND DECISIONMAKING TO A DEGREE WHICH MIGHT HAVE ADVERSE IMPACTS

ON CIVIL RIGHTS AND LIBERTIES OF TAXPAYERS IN THE ADMINISTRATION

AND ENFORCEMENT OF INTERNAL REVENUE AND OTHER LAWS?

SUMMARY

One of the chief claims for the merit of the TAS is the greater efficiency to be achieved from

increased speed in access to and transmittal of information and in the automatic linkage of information. Processes which previously took five to six weeks can be reduced for a day, and for som

days are reduced to microseconds. TAS will speed Up the process of billing, audit, investigation,

collection, delinquencies, levies, seizure and prosecution. Major benefits will be greater response

capacity for dealing with taxpayer inquiries, faster refunds, earlier notices, and possibly less time

between each process and the official determinations affecting the taxpayer’s property and other

rights and obligations. These are all desirable reforms which have been sought by Congress and interest groups, and promoted in various studies of the operations of the IRS. However, without proper

planning and possibly more elaborate guidelines, there might be some adverse side effects for the

taxpayer not only in IRS and Treasury Department programs but in compliance and enforcement

programs of other government users of IRS data. public documents on TAS do not indicate the

extent to which such planning has been undertaken and guidelines developed.

QUESTIONS

1. Could acceleration of processes create a Potential for computer-assisted errors in billing and

isuing notices of all kinds, or for errors in programming and retrieval which might result

unintentional harassment of the taxpayer population?

2. Could acceleration of processes have any detrimental effects on the taxpayer’s enjoyment of

previously developed due process guarantees in the administration and enforcement of the tax

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laws? Could it create new due process problems for the taxpayer in such matters as investigations, audits, jeopardy assessments, levies, collections, or prosecutions?

3. What could be the unintended side-effects of the stepped-up processes which might affect

the quality of service rendered as well as the present relationships between taxpayers and

employees of IRS and other governmental units?

BACKGROUND

Since acceleration in processes and transactions is the obvious purpose of a new system, it is

seldom examined, as an independent factor, for possible side effects which may be subtle and complex, or difficult and time-consuming to prove. Although Congress has examined claims of efficiency

and feasibility in considering budget requests for new or expanded ADP systems, it has given little,

if any attention, to the possible long term impact on organizations and people of the tremendous

changes in time involved in performing the functions to be served by the systems.

Acceleration of the gathering, storing, processing, using and disseminating data on taxpayers

theoretically might work substantial changes in the quality of the services, on information management methods and on the decision processes of users of tax data within the IRS, the Treasury

Department and the rest of government. The rate and the effects of acceleration desired might, of

course, be tempered by organizational, economic, political, or other factors. An area for further

study may be whether the increased efficiency and speedier services will result in a loss of other

values and intangible elements affecting civil liberties and relationships between government and

citizen for which compensation needs to be made in the new system.

The speed of administrative processes in the IRS has been governed by the manual speed and

slower computing time with which these jobs were done. The long lead time required to perform

functions and carry out programs and the delays inherent in the system of administration and

enforcement, have tended to protect the taxpayer from the immediate intense enforcement of tax

laws. There can be no reasonable objection to increase in speed which results in the effective administration of justice unless the increase in speed leads to miscarriage of justice. For instance, will the

taxpayer have time to find a lawyer and develop a case? Will tax lawyers accept a case if the process

is accelerated?

While delays and slippages in administration have been the focus of sharp public criticism of

IRS management techniques, they might, in certain programs, also provide a desirable temporal

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buffer zone between government and taxpayer which encourages voluntary compliance and the good

faith of the taxpayer. Given the right conditions, such as setting of quota or local political pressures,

acceleration might have just the opposite effect from that which is intended.

If all processes of administration and enforcement are accelerated, attention should be given to

whether or not this might cause the system to become more rigid, causing taxpayer attitudes to

harden in response. To provide a basis for speculation about this possibility, major documentation

on the time changes in functions and missions to be served by the TAS might be reviewed to consider their possible impact on individual taxpayers and business.

Given quota problems27 and other organizational pressures to show performance, is it possible

that an accelerated rate of production in tax decisions might result in a change in the nature of the

IRS as an organization?

There may be a need to establish to what extent customary delays heretofore tolerated or

expected by the taxpayer would be eliminated by the speed-up afforded by the TAS. The main

point, in the opinion of some panelists, is whether or not there could be adverse side effects from

reducing the customary response time presently afforded the taxpayer in responding to IRS actions.

The taxpayer needs time to put his papers together and acquire information, usually without the aid

of a computer. A point for consideration might be if the IRS personnel can work in 12 seconds, will

taxpayers be expected to work on a similar scale? If substantial delays are eliminated by the technology, it may be that in the interest of fairness and individual rights, artificial delays may have to

be imposed for certain decisions.

Privacy Invasions

TAS will make large quantities of personal information about people available in the time it

takes to snap two fingers. There may be a vastly increased potential afforded by TAS for speedier,

more efficient invasion of privacy and breach of confidentiality of information, whether intentional

or not, and whether authorized or not. This is true for inquiries and action in individual cases as well

as for the initiation and pursuit of entire programs. Speed in obtaining access, retrieving and manipulating data may, without stringent rules, be a lure to repetition of past abuses affecting the privacy

2 7 . See, for example, S. Rept. 93-1028, 93d Cong., 2d Sess., Committee on Appropriations, July 1974, p. 7.

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and due process of individuals and to pursuit of even more novel, wide-ranging programs for

questionable or non-tax related purposes. It is relevant to this issue that one Congressional committee finding showed that the discredited Special Service Staff, which was organized to conduct

selective investigations of taxpayers for political reasons, would have been more effective had it been

able to collect and integrate all the tax returns and related pieces of information that were scattered

in file cabinets around the IRS and State governments.

Given the considerable benefits to be achieved under TAS, the potential for more rapid retrieval

for questionable use of data may bean acceptable risk. However, if there is any important trade-off

between efficiency and freedom, then compensating features and rules may perhaps need to be built

into the system. Legal limits on transfer of data and mechanical techniques for perfunctory audit

trails when a file is accessed may not be enough to prevent misuse, particularly when access is authorized. Those intending to misuse information may not hesitate, as investigations have shown with

former information programs, to avoid the established structure and controls installed in the system.

When information rewards are even more quickly available under the TAS, it perhaps should be

considered whether temptations to avoid controls will outweigh the possible consequences of discovery much later during IRS or Congressional oversight or monitoring of TAS processes.

Law Enforcement

Faster accessibility of tax return information may have an impact on the techniques and

vigor with which tax law enforcement is pursued and thus raise some issues similar to those presented by the impact of the FBI National Crime Information Center computerized system upon

law enforcement.

For example, the telecommunications network and the automation of “rap sheets,” or arrest

records, in the NCIC system allowed immediate access to data through police car radios and made

possible the use of the rap sheets for instantaneous decisionmaking, such as in stop-and-frisk situations, where the opportunity for abuse was greater. Prior to automation, manual arrest record systems could only be used in more benign situations, such as setting bail, because of the slow process

of access which could involve at least two weeks for FBI rap sheets.

The Panel did not have enough facts about details of tax enforcement and about formal and

informal access to computerized information which might be available under TAS as now planned

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or as it might develop in the future, to speculate about what similar opportunities for changing

investigative techniques or for abuses in information usage might be presented by faster accessibility to computerized tax history information.

Audits and Investigations

There may be a need to consider possible negative effects on public attitudes toward TAS from

the faster access to data which would facilitate audits and investigations focused on special groups

for certain purposes in programs of so-called “unbalanced” tax enforcement, and which would allow

audits of new groups for which there previously were not sufficient time or resources. Without a

very effective flagging procedure or an audit of records regularly reviewed, it might be speculated

whether or not the accelerated processes might encourage IRS to run compliance checks on ideological, political, or other gTOUpS where the time lag, cumbersome manual, and mail delivery system

now discourage such requests. The potential for abuses in this area and the possible need for new

rules and for careful audit and monitoring processes in the new system on a scale more sophisticated

and detailed than in the present one, might be considered in light of the findings of several congressional committees. These findings point out the civil liberties problems in special enforcement of

IRS programs directed against ideological organizations and other groups and individuals. Furthermore, the use of the IRS computerized Information Gathering Retrieval System to further IRS

investigative and intelligence policies may provide useful examples of information abuses which

might develop from the speedy access afforded by the TAS.

Errors and Due Process

Unless the IRS has initiated satisfactory programs to offset such consequences, the human

errors which are bound to occur wherever computers assist employee decisions might be increased

and their effect magnified on the taxpayer population. The potential for computer errors in billing

and issuing notices of all kinds, and for errors in programming and retrieval may result in unintentional harassment of the taxpayer.

Speed of change in the TAS may affect the quality of management and employee performance

to a degree which results in an adverse impact on taxpayers in compliance and enforcement programs.

If the whole process is potentially accelerated, the organizational force will naturally fuel a drive for

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increased production in every phase of employee work. Many more cases per employee will have to

be handled. Because they can be handled more speedily, audits can be expected to be enlarged and

the number of audits increased considerably throughout every community. Errors made automatically and instantaneously will have to be corrected manually and resolved in communications

between taxpayers and IRS employees.

These and similar questions might be raised to alert the taxpaying public and users of TAS

data in the IRS and other government agencies to the possible need for addressing these problems

both administratively and legislatively over time as TAS is developed and used.

Issues associated with acceleration in IRS data processes are not simple ones to be dealt with

on a one-time basis and dismissed for all time. They will be continuing ones which may need careful

scrutiny and routine monitoring. Before any conclusion can be drawn, more information may need

to be acquired on this issue and study given to ways of institutionalizing concern for these possible

side effects in the TAS.

The panel addressed a number of questions to the Acting Assistant Commissioner of the

Accounts Collection and Taxpayer Service seeking clarification concerning time changes involved

in the acceleration in decisionmaking and in the various stages of information processing. It may be

that additional questions in this important area must be raised before a judgment can be made about

possible effects on taxpayers of the speed-up sought in the TAS.

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4.5 ACCOUNTABILITY

a. OVERSIGHT

ISSUE: HOW SHOULD EFFECTIVE OVERSIGHT OF TAS BE CONDUCTED?

SUMMARY

For any large computerized personal information system like TAS, given the opportunities

which complicated technological processes offer for misuse of data and programs, there should be

some mechanism by which an executive agency must report on what processes it went through to

assure against misuse of data by those having access to it. The TAS proposal does not contain such

a provision.

QUESTIONS

1. What new oversight needs might be created by the changes to be effected under the TAS for

IRS, for the Treasury Department, for the President, and for Congress?

2. What kind of report should Congress receive about the TAS?

3. What new statutory or regulatory requirements might be established concerning any reports

to be provided to Congress?

4. How might any weaknesses in the operation of TAS be identified so that any lack of fidelity

to rules governing policy can be corrected and prevented in the future?

5. What actual and potential oversight is there now of operation of the system in order to monitor its effects on due process, privacy, and other rights of taxpayers? What new oversight

techniques and processes might need to be instituted?

BACKGROUND

There are a number of decision points within the Executive Branch and Congress for conducting oversight of the TAS to determine the efficiency and economy with which its procurement,

installation, and operation are conducted. There are also a number of agencies and Congressional
committees concerned with oversight and monitoring of the IRS administration of requirements

and prohibitions relating to dissemination of IRS information.

It is not clear from available documents and reports on TAS where and how oversight will be

conducted or implemented on those aspects of the new TAS which may bear on its fidelity to any

rules established to govern information policy and to prevent misuse of data by those having authorized access to the system.

A major area of concern in such a system as TAS is that of possible intentional changes in processes in the system which would escape the notice of those in charge. According to computer

experts, this is one of the principal ways to misuse a system and does not depend on such techniques

as employee identification and devices for physical security. It may be very easy in TAS for instance,

to keep the system doing exactly what it is supposed to do and yet make a change in process so it

did link together information in a way that was not intended and to feed that out to people who had

obtained authorized access in a way that was purposely not intended. In this connection, consideration might be given to whether or not IRS political managers and Congressional committees ought

to be able to receive reports stating that the agency had undertaken action to assure that there was

no way the processes in the system could be changed without notice or without a way of detecting

the change, such as documenting in real time the programs involved.

Thought might be given as to whether or not the requirements of reports on TAS should be set

up as a specific program, with a legislative mandate, funding, and assigned responsibilities for its

monitoring. Should the Internal Revenue Service be asked, for instance, to state in such a report

what techniques it used to test the integrity and effectiveness in application of safeguards? Should

they be able to state, for example, that they established certain parameters or limits for inquiries and

built into the software a way of showing when and how they were breached? Should such reports

contain a showing of deliberate periodic efforts by an internal group to breach the system unsuccessfully? In addition, should IRS managers describe the particular fears and threats for which they were

monitoring, auditing, and testing the system, and how they went about achieving any balance in

weighing threats against risks? Attention addressed to efforts to define any such report requirements

would help Congress and the IRS find ways to determine flaws in TAS, in planning, in ability to

manage it or in ability to state constitutional rights in the operation of the system.

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b. CITIZEN PARTICIPATION

ISSUE: TO WHAT EXTENT HAS THE PUBLIC BEEN INVOLVED IN PLANNING TAS?

SHOULD THERE BE A NEW’ SPECIAL PROCESS FOR INVITING PUBLIC INPUT

DURING ITS FORMULATION STAGE?

SUMMARY

There is a need to clarify the extent, if any, of public Participation in TAS plans, and on the

need for any future citizen involvement. Present machinery may not be sufficient for meaningful

participation. In view of the possible wide-ranging interrelationships among government information

systems which may need addressing if their potential impact and oversight problems are to be identified, it may be desirable to install a special process for involving all of the affected ‘groups’ who

may have some interest in the new Tax Administration System.

QUESTIONS

1. Has there been any citizen participation so far in the formulation of TAS? Under what circumstances? What citizen participation is planned for the future?

2. Are existing forums and statutory mechanisms sufficient to encourage or elicit informed public comment about the possible implications of TAS?

3. IS there a need for a new special process for inviting public input during the formulation stage

of TAS? If so, what should this process include? Special notices of hearings? News releases

of specified number and frequency? Mailed notices? HOW much time would be required to

carry out adequately such an effort?

BACKGROUND

It is not clear from testimony and public documents on TAS to what extent, if any, the public

has been involved in planning TAS. Since planning has occurred incrementally over a number of

years, it is hard to tell at what stage such participation might have been appropriate, or might be in

99
the future. Existing machinery may not be sufficient to encourage or elicit informed public comment.

Congress recognized in the Privacy Act of 1974 the need for mechanisms for alerting Congress

and the public to creation of a new personal information system and to plans for new uses of old

systems. That Act requires agencies to publish in the Federal Register notice of any new use or

intended use of personal information in the System and provide an opportunity for interested persons to submit written data, views, or arguments to the agency. In addition, each agency is required

to provide adequate notice to Congress and the Office of Management and Budget of any proposal

to establish or alter any system of records “in order to permit evaluation of the probable or potential effect of such proposal on privacy and other personal or property rights of individuals or the

disclosure of information relating to such individuals, and its effect on the preservation of the constitutional principles of federalism and separation of powers. ”

There is, however, no formal mechanism for requiring or for soliciting informed public comments on the implications of proposals for significant new systems.

The IRS published in the Federal Register of August 26 and September 9, 1975, the indices

and notices of its systems of records. Final regulations and exemptions were published in the Register on October 2, 1975. The Service reported in 1975 that “since the redesigned TAS will not be

implemented prior to 1977 and will be installed in thee phases spread over several years thereafter,

the IRS will revise existing published notices and regulations and procedures at the appropriate time

(emphasis supplied) prior to implementation of the changes for each phase of the redesigned Tax

Administration System. ”

Although this plan may seem to meet the letter of the law, the question arises whether or

not this is indeed the “appropriate” stage to inform the public after the formulation of TAS has

taken place.

In view of the complex technological issues involved in new data systems and the possible wideranging impact on public policy of some new systems, public interest groups and constituencies of

agencies may find it difficult to grasp the issues in a timely and relevant way in order to exert an

effective privacy or due process claim and to protect themselves from potentials for abuse. Similarly,

the fragmented committee jurisdictions in Congress may make it difficult to review the issues relevant to a proposed new data system.

Therefore, when a data system as large, as filled with sensitive data, and as likely to stir public

concerns about privacy, confidentiality and due process as TAS, is being devebped, this may well

100
call for the institution of a general public-notice proceeding beyond the customary reviews of

Congressional committees and Executive Branch. This might, for instance, take the form of a notice

by some forum that public hearings on the TAS proposal will be held over a certain period of time

(30 days, 60 days, etc.); a full and accurate description of the TAS system could be issued; written

submissions could be invited from bar associations, public-interest groups, Civil liberties groups, and

others. Hearings might be organized at which the issues raised by such advance submissions are fully

explored. The idea could be to have a hearing freed from some of the institutional constraints that

apply to intra-Executive Branch review or subject-matter-jurisdiction Congressional committees.

There is an illustration of this idea at work in the actions of the Federal power Commission. In

1972, the FPC issued a public notice that it proposed to develop a “Fully Automated Computer

Regulatory Information System. ” The system plan was described in detail, and interested parties

were informed of procedures for written and oral submissions. Detailed submissions were received

from various groups subject to FPC jurisdiction, such as power companies, oil firms, etc., as well as

State public-service commissions.28

28. See FPC Docket No. R-438, “Development of a Fully Automated Computer Regulatory System — Revisions

in Title 18, Code of Federal Regulations, Notice of a Proposed Rulemaking and Request for Comments, ” April 13,

1972; Docket Entries for No. R-428 through April 16, 1973.

101
c. TAS, ADVANCING AND EMERGING TECHNOLOGIES

ISSUE: ARE CONTROLS NEEDED TO REGULATE TAS’S INTERFACE WITH ADVANCING

AND EMERGING TECHNOLOGIES WHICH MIGHT ALTER ITS VULNERABILITY

TO POLITICAL MANIPULATION OR TO USE AS AN INSTRUMENT FOR SURVEILLANCE OR HARASSMENT?

SUMMARY

For a system of the size and significance of TAS, consideration might be given to how it will be

affected by advancing and emerging technologies. Questions could be raised to highlight some considerations which might govern the applications of new technologies to TAS in the future other than

traditional concerns of competition, economics, technical feasibility, priorities of vendors, or geographic limitations of services. These might, for instance, include privacy of the individual, effects

on social and governmental policies and implications for legislative oversight.

QUESTIONS

1. Is there a need for more detailed information on how TAS might be affected by advances in

various new and emerging technologies in ways that might alter patterns of information use

and exchange or alter the potential for using the system for improper surveillance of harassment or for political misuse of the files?

2. Who is monitoring the research and technological advances for possible incorporation in

TAS at a future date?

BACKGROUND

The in-house cost-benefit analysis for TAS and its technical attachment refer to “demands of

the future, both known and uncertain”. They make some general references to the growth potential

of TAS and new systems, but there is no specific material describing the administrative or legislative

102
standards which would or ought to govern such growth and expansion as TAS interfaces with new

technologies. Yet these may range from development in microminiaturization, mass storage SyStems, electronic fund transmission, voice prints, fiber optics, satellite transmission and others not

yet identified.

One TAS document states: “Growth of the existing system is limited to specific boundaries

determined by the capabilities of the hardware now in Place. Large-scale growth, particularly the

ability to support significant expansion, will require computer systems that can offer the advantages

of recent developments in this field with respect to hardware~ logic, peripheral versatility, and sheet

processor power. ” It states: “History suggests that although specific areas of future rapid advance

are uncertain, the advance itself is inevitable. If active competition is the best indicator of where

change will occur earliest and most dramatically, the most likely areas are peripheral capacity and

performance, particularly for large direct access devices; small scale specialize processors; communications technology generally, both as to transmission facilities and computer handling; and software

development, particularly in the areas of communications and transactions processing, language

offerings, and data management systems. ”

The report notes wide variations in hardware architecture between different manufacturers and

within some manufacturers’ standard product lines, and the widely differing architectural solutions

to processing needs. Implementation techniques in multiprogramming and multiprocessing can differ

significantly in their effects on overall performance for specific problem mixes. According to IRS,

the result of such constraints in the agency procurement environment leads to use, wherever reasonable, of functional specifications and to RFp materials well suited to change and variation, but

“requires careful attention during analysis and design phases to ensure that timely performan

complex system is indeed feasible. ”

Technological advances were made even during the TAS desgin period in that direct access

storage technology precluded find consideration Of a single completely centralized design and later

storage subsystems then made this design feasible. When the IRS reconsidered it, however, it was

found “not advantageous. ”

Future advances in TAS are said to be accommodated in the specifications “by permitting vendors to propose upgrade replacement by presently unannounced systems on the conditions that

equivalent performance at proposed prices (or less) is assured by contractor liability provisions and

annual benchmark performance revalidation. ”

103
The internal TAS report states that “the private line communications network required for

TAS is readily available under the existing tariffs of the Bell system. It is quite likely that Western

Union could also meet these requirements. The offerings of several of the new, specialized common

carriers are attractive, but it must be recognized that each is geographically limited to its service

area. ” Although the TAS has been planned as a total terrestrial system, changes in the system are

geared to the advantages and practicalities of satellite transmission which are being monitored for

appropriate applications in the future, according to this document.

Looking ahead to an efficient Tax Administration System and an era of electronic funds transfer systems with many financial transactions done by computer, it may be logical in the future to

undertake to link the systems according to some experts. Salaries and many other items might be

transmitted electronically to one’s bank. Its computer may pay one’s rent, utilities, insurance, and

other bills. The terminal in the grocery store, restaurant, airline, or other establishment may also

ring up expenses. It might be considered whether the bank each evening could work out what is

owed the IRS, with deductions, and forward it along on a link to the district office, the local office

in town, or to the service center.

Questions might be raised as to the possible implications for privacy, due process, equity, confidentiality, technical and physical security. Others might relate to the ability of Congressional committees to conduct effective oversight of such transactions.

There is no reason to think that IRS has such a supersystem in mind or that any State legislature or State Internal Revenue Office is now considering such a program, but 20 years, the life of

TAS, is a long time. The needs of governments and society change. Electronic data processing is a

dynamic technology. Such a scenario is technologically possible, and economic arguments for it

could be advanced.

104
4.6 SECURITY

ISSUE: WHAT ADDITIONAL SAFEGUARDS MIGHT BE NEEDED TO GUARANTEE THE

PHYSICAL AND TECHNICAL SECURITY OF THE SYSTEM?

SUMMARY

Any computerized information system must be made secure against theft of the information,

against accidents, sabotage and the like. The Internal Revenue Service has described a number of

administrative steps and computer and systems restrictions addressed to such problems. While they

go far toward meeting the system’s needs, additional measures might be suggested for consideration

as a means to a more effective job.

Furthermore, the description provided of TAS raises questions whether or not, once policy has

been made for collecting, use, and managing the information, the system contains reasonable guarantees that it does not do what it is not supposed to do.

BACKGROUND

Public documents and Congressional testimony on TAS on the matter of security arrangements

for TAS are vague, technical, and brief. They frequently blur the difference between existing safeguards and what is planned for TAS.

The TAS proposal filed under the privacy Act identifies existing programs in pre-employment

screening, employee compliance, on-the-job education of employees to make them aware of their

responsibilities, and management controls and reviews. It states that the Service intends to continue

and strengthen these requirements as a part of the implementation of the proposed redesigned system. It has limitations on terminaI access through terminal profiles which define the functions and

restricts the use of a terminal; an, employee profile, and internal file which contains the function

each authorized employee can perform, the identification of the specific files, accounts, sections,

and access codes which each employee needs to perform official duties; the identification badge, the

physical identification of a system user; the employee password; and access codes.

105
It has audit trails recording how the system is used and by whom; at a minimum, according to

the report, the employee identification, time, date, terminal of input, and access code are retained

and spot-checked.

It has restricted accounts and files which means certain data is considered especially sensitive

and is given extra protection. This restricts access to a specific account, to a specific section of an

account, or to an entire file. In addition to security measures to be met for file access, an audit trail

of successful and unsuccessful accesses will be maintained and followed up.

It has computer data checks, validity checks which verify the accuracy of the data, or systematic checks which test for postability to the data base. There is a computerized inventory of tax

return charge-outs. There are data and accounting controls.

Inter-Service Center activity is controlled by channeling all activity requiring data from other

than the originating center through the National Communications Center. An audit trail will be

maintained of all inter-service center activity. When accounts are moved between centers, additional

accounting records will be maintained at the National Communications Center. The National Center

will maintain a central directory of all accounts for all service centers. All data movement between

the NCC and a service center will be from tape-to-tape over dedicated lines.

There is a centralized system design in the National Office under the direction of one high level

manager. Computer programming, procedures, writing, and equipment procurements is under this

central direction. System analysts and computer programmers are not permitted to perform any

production operations. This approach, it is stated, “provides additional protection against unauthorized systems changes and assurance of uniform programs and security checks and controls!”

The TAS proposal describes briefly plans for data communications safeguards:

“To minimize the risk of unauthorized access to tax information through the data communications subsystem, the Service will have management and operational control of all

devices which: process or are capable of processing tax information; account for the

transmission of tax information; or control the transmission of tax information. All data

will be communicated over dedicated transmission channels. Field terminals can only

communicate with their host service center. Terminal to terminal communication cannot

take place. Service center-to-service center communications must take place through the

National Communications Center transmitting data from tape-to-tape in concentrated

batches over encrypted lines. ”

A number of physical safeguards are spelled out briefly.

The General Accounting Office has identified a number of problem areas in these security

arrangements as they apply to the present Integrated Data Retrieval System. The Office also has

106
found no evidence of a present threat that would warrant cost of procuring encryption devices. It

found that through proper design and implementation, TAS will be capable of providing high-level

protection for taxpayer information. It reported, however, that some technical, administrative and

physical safeguards now used in ADP processing had some weaknesses and needed correction within

existing security procedures, methods, and controls.29

The IRS has indicated that they are addressing some of these problems.

Opinion on the panel was that the GAO had raised enough problems and revealed enough violations in the present system to suggest that some clear evidence from IRS of dealing with those

problems in the new system would help those in Congress concerned about computer safeguards of

the system.

while it was, of course, not the function of the panel to assess those security features planned

for the new system, a number of problem areas in need of possible clarification because of the brief

and general descriptions prodded, were pointed out by individtual members during discussions and

these will be provided separately for the assistance of the Committee.

TO provide a factual basis for the Committee, these and other problem areas might be identified more fully with the assistance of the National Bureau of Standards Institute for Computer

Sciences, the General Accounting Office, and other knowledgeable people in the computer industxy.

In addition to these security concerns which are standard for such a computerized information

system, there is another aspect of the security Problem which iS too frequently overlooked and TAS

might be reviewed for this element of security. That is once policy decisions have been made for

the collection, use and management of the information, once it has been determined by policymakers in Congress and the Executive Branch what it is that they do and do not want done with the

technology, how can it be determined that the system dOeS not do what it is not supposed to do.

While this question is an implicit one throughout the report, it bears further consideration in this

phase of the consideration of TAS.

2 9. Report to the Congress by the Comptroller General of the United States. “Safeguarding Taxpayer Information

— An Evaluation of the Proposed Computerized Tax Administration System. ” (January 1977).

107
APPENDIXES
APPENDIX 1

OTA QUESTIONNAIRE ON TAS AND IRS RESPONSE

T ECHNO LOGY ASSESSSMENT BOARD Congress Of the United State s

EMILI0 Q. DADDAR1O

OLIN E. TEAGUE, TEXAS, CHAIRMAN

~Rt.CTOR

CLIFFORD P. CAsE. N.J.. vlcE cHAIRMANN OFFICE OF TECHNOLOGY AssEsSMENT DANIEL V. DE S! MONE

EDWARD M. KENNEDY, MASS. MORRls K. UDALL, ARIZ. WASHINGTO N, D.C. 2QSI0

D13WIY D: RE CT O R

ERNES r F. HOLLINGS, S.c. GEORGE E. BROWN, JR., CALIF.

HUBERT H. HUMPHREY. MINN. CHARLES A. MOSHER~ oHIQ

RICHARD S. SCHWEIKE% PA. MARVIN L. ESCH, MICH.

TED STEVfN=i ALASKA MARJORIE S. HOLT, MD.

EMILIO Q. DADDARlo

July 13, 1976

Mr. Patrick Ruttle

Acting Assistant Commissioner

Accounts Collection and Taxpayer Service

internal Revenue Service

1111 Constitution Avenue, N. W.

Washington, D. C. 20224

Dear Mr. Ruttle:

In your discussion on June 28 with members of the OTA panel to consider

a request by the House Ways and Means Committee to evaluate certain

aspects of the proposed Tax Administration system YOU indicated you

Would send a copy of a tax account Which Would illustrate what items of

information would be entered on the computer for an individual taxpayer.

1t would be helpful to receive this.

In addition, several members of the panel find that they need to resolve

certain questions of fact, either with additional facts or by clarification,

before they decide what, if any, major value issues are presented by the

TAS technology which merit study. We should therefore appreciate your

assistance in providing information Which Would respond as far as possible

to their concerns about the following matters of fact.

1.

2.

3.

4.

As precisely as possible, under the new expanded TAS, what

items of information will be placed in the taxpayer’s file

and thereby linked to the taxpayer’s narne~ beyond the standard

identifying items of address and social security number?

What data items might

the expanded system?

What data elements in

automated?

Will information

be automated and

possibly be entered in a TAS file under

matching or interlocking files will be

on exempt organizations, ir.cludin~ contributors,

available for audit? -

111
5.

6.

7.

8.

9.

10.

11.

12.

Will private rulings go on the TAS computers?

what will be the turn-around time on the Master File

under the new system (a) in the National Communications

Center? (b) in the Service Centers ?

what will be the estimated difference between the present

system and the new one in the time for transfer of, and

accessibility to a taxpayer file from one Service Cente r

to another ? For example, from San Francisco, Californi a

to Washington, D. C. and from Atlanta, Georgia to Detroit,

Michigan.

What will be the anticipated difference in the speed in

making refunds? In rendering first billings ? In determining

delinquencies ? In getting an account to the collection stage ?

What are the categories of users who are expected to have

access (read and/or w-rite) to TAS files under the new system?

How many employees is it estimated there will be in each

category?

What will be the user profile for each user category, specifically in terms of the data items accessible ?

What will be the purpose of each access granted by each user

profile ?

13. For which groups or classes of taxpayers is access granted

in the user profiles? (e.g. , “only those taxpayers assigned

to this user or linked directly to such a taxpayer.” )

14. Which access under which routines will be logged, and how

will the logs be reviewed?

15. What are the other data files that will be kept by IRS or

that will be accessible by IRS in which personal data will

exist? What kinds of data will they contain? How will thes e

files be used in conjunction with TAS?

16. What consideration has been given to administrative and technica l

security features to guard against improper use of data by

authorized users of the system for purposes other than thos e

necessary for their assigned functions ?

17. Precisely which IRS functions will achieve net benefits from

real-time access and why? Which function may not?

112
18. What is the current pattern of access via batch requests ?

19. How many personnel have access to what kinds of data in

how many files? Kindly provide what statistics ar e

already collected which break down personnel and data.

20. What is the volume of inquiries per employee per day?

21. What are realistic estimates for these same quantitie s

in a real time environment?

Your assistance and cooperation in our effort is appreciated.

Sincerely yours,

Marcia MacNaughton

113
Washing-ton, D.C. 20510

TAS. relate d concerns

In addition~ you requested a copy of an illustrative tax

accounting transcript and a set of the reports prepared by the P1.itie

Corporation. The sample transcript is also enclosed. The Plitr e

material was sent to you earlier under separate cover.

We are glad to have the

Adininistration System. to the

can be proticled, we would be

Opportunity to explain the

OTA panel. If any further

pleased to help.

Tax

assistanc ?

Sincerely ,

Patrick. $! Ruttl e

Acting Deputy Commissioner (ACTS)

Enclosur e

114
QUESTION 1: As precisely as possible, under the new expanded TAS, what items of information will be placed in the taxpayer’s file and thereby linked to the taxpayer’s

name, beyond the standard identifying items of address and social security

number?

ANSWER 1 : The Tax Administration System will enable the Service to computerize in one

system data which presently exists in microfilm records and various other manual files, the Master File System, and the Integrated Data Retrieval System. The

vast majority of taxpayers’ accounts will contain a very small portion of the data

elements possible in the TAS file (See sample transcript). For example, only

those individual accounts audited (about 2%) would contain audit history data,

and those with collection histories would approximate 3% of which almost half

would involve business accounts.

The following is a listing and brief description of the possible types and elements

of data:

● Identification Data – Account number, spouse’s social security number and

marital status, current name and home address, including county; business

address, and prior names and addresses, if any; the type of tax, tax period

or accounting year; data account established; date of death (establishes

filing date for estate tax returns); business activity code and cross-references to tax related taxpayers (includes spouses, principal officers in a

corporation, and partners in a partnership). For exempt organizations, data

concerning: date exemption ruling WaS issued, issting office, and applicable

IR code section; group exemption number and number of locals; activity

code and latest year return filed.

● Accounting Data — Account balances, transaction codes and document

locator numbers; posting dates and amount of assessment, credit, payment,

refund or balance due. If balance due: amount of tax, penalty and interest, date bills were issued, issuing office, date next bill should be issued or

referred to field collection office if account is not satisfied.

● Delinquent Collection Data – If installment agreement made: amount and

frequency of payments due and paid; phone number of delinquent taxpayer; the name and number of attorney and accountant; occupation of

primary taxpayer and spouse, assets from financial statement submitted

with agreement; date of Certificate of Non-attachment of Lien; delinquency prevention information (e.g., Federal Tax Deposit Alerts and

Mr. Businessman’s Kit).

If service of levy becomes necessary to enforce collection of unpaid tax: institution or person served (bank, employer, etc.), and date served; how served (in

person or by mail); and proceeds of levy.

If service of lien becomes necessary: date send date recorded, released, modified, refiled or subordinated; county or office of recordation; lien serial number.

If sale of property becomes necessary: date of saJe; type property sold; amount

of redemption, proceeds of sale and amount released; minimum bid; and costs

of sale.

115
● Return and Audit Data – Line items from tax returns needed to math

verify and match entries, and those used in the identification of tax returns

having a high probability of omissions or errors; prior year issues examined

for tax years open under the statute of limitations; amount of change;

type of examination (i.e., field, office, correspondence); level of closing

(i.e., agreed, unagreed); transactions or adjustments affecting subsequent

year returns (e.g., net operating loss carryover or adjustments to basis of

depreciable assets); special situations encountered in audit (e.g., taxpayer

records in machine sensible form or inadequate records notice issued);

name of examiner, examining district, and taxpayer representative, if any.

● Investigation Data – Indicators to other IRS functions that an investigation has been initiated; aliases or other names used; business names and

addresses; home addresses; financial institution; occupation; industry; tax

years of investigation; taxes per original returns; agent assigned, location,

and grade; disposition of case; years and statute sections recommended;

deficiencies and penalties; reason closed; method of evasions; disposition

by Regional Counsel, Justice Department, and U.S. Attorney; trial results;

sentence; and judicial district.

● Statistical Data — The “Taxpayer Compliance Measurement Program”

requires indepth evaluations of a random sample of specific types of

returns filed. This section contains line item totals from the sample returns

that are not recorded elsewhere. After examination, items adjusted and

other compliance characteristics are tabulated and analyzed to determine

voluntary compliance levels. The analysis is based on summary data

obtained from examinations and it cannot be related to specific taxpayers

whose returns were in the sample. Statistics of Income data consists of

selected line items from randomly selected tax returns which is required

for compilation of Statistics of Income Reports.

● Assignment and Control Data — Type of assignment; employee making

assignment; employee to whom case assigned; date assigned; code to

identify action being taken; date correspondence received from taxpayer;

status code (i.e., open, closed, in suspense). When data is removed: type

of tax, tax period, date data removed from computer processing system,

and location of hard copy.

● Miscellaneous Data – County and state of residence and amount for

revenue sharing purposes; and indication that election was made for presidential election campaign fund.

QUESTION 2: What data items might possibly be entered in a TAS file under the expanded

system?

ANSWER 2: The Tax Administration System has been designed to accommodate only the

data described above. In order to add data beyond that prescribed, an evaluation

of the users’ need for data must be made; the capacity of the equipment to

handle any proposed items of data must be determined; an analysis of overall

costs must be considered; and, if the proposal is feasible, the necessary equipment, software and procedural changes instituted. It is estimated that the cost

for each additional character of data transcribed from all the individual income

116
QUESTION 3:

ANSWER 3:

QUESTION 4:

ANSWER 4:

QUESTION 5:

ANSWER 5:

QUESTION 6:

ANSWER 6:

QUESTION 7:

tax returns and entered into the system is $60,000; thus, for this reason among

others, we strive to capture the minimum amount of data consistent with

effective tax administration. Of course, data requirements created by new

legislation are added of necessity.

What data elements in matching or interlocking files will be automated?

Under the Tax Administration System, we do not anticipate automating matching or interlocking files beyond those existing in the present system. Data elements planned for all the TAS files are described in Answer 1 above.

Will information on exempt organizations, including contributors, be automated

and available for audit?

Exempt Organizations data will be part of the TAS files as described in the

answer to Question 1. Information on specific contributors will not be input nor

will it be automated in any other way.

Will private rulings go on the TAS computers?

Although the text of the ruling will not be in the Tax Administration System,

the Service may input identifying and control data to monitor the status of

cases for management purposes.

What will be the turn-around time on the Master File under the new system

(a) in the National Communications Center? (b) in the service Centers?

Under TAS, posting will be daily to the master file and tax account data will

be available to most field offices within 2.5 weeks from receipt of return.

All activity requiring data from other than the originating center will be channeled through the National Communications Center (NCC). These inter-center

inquiries will be placed on magnetic tape with other data messages for dairy

transmission to NCC over dedicated, encrypted lines. The NCC must then transmit the inquiry to the proper center Which will process it and send the response

back to NCC for forwarding to the requesting center. Inter-center data transmissions will be a tape-to-tape process requiring five days from inquiry t o

availability of the data in the inquiring center.

What will be the estimated difference between the present system and the new

one in the time for transfer of, and accessibility to a taxpayer file from one

service center to another? for example, from San Francisco, California tO

Washington, D.C. and from Atlanta, Georgia to Detroit, Michigan.

117
ANSWER 7:

QUESTION 8:

ANSWER 8:

QUESTION 9:

ANSWER 9:

QUESTION 10:

ANSWER 10:

TAS Present System

San Francisco, California to 5 days 10-15 days*

Washington, D.C.

Atlanta, Georgia to 5 days 10-15 days*

Detroit, Michigan

What will be the anticipated difference in the speed of making refunds? In

rendering first billings? In determining delinquencies? In getting an account

to the collection stage?

The returns processing cycle is five to six weeks under the present system and

would be two to three weeks under TAS; thus, first billings take place five to

six weeks after receipt of return under the former and would be two to three

weeks under the latter. The time difference in determining delinquencies would

be similar. The collection process begins with the first billing for a balance due.

What are the categories of users who are expected to have access (read and/or

write) to TAS files under the new system?

Employees with access to TAS tax account data include personnel from the

following functions or organizations: Collection, Taxpayer Service, Audit

(including Employee Plans and Exempt Organizations), Intelligence, Inspection, and Service Centers. The only users permitted to change, add or delete

data are specified service center and district office clerical terminal operators.

How many employees is it estimated there will be in each category?

Most IRS employees in our service centers and district offices are either involved

in processing tax returns or need access to returns or other taxpayer data in

order to perform their duties. It is estimated that under full TAS implementation approximately 5,400 terminals will be required in the ten service centers

and 2,900 terminals in the major field offices.** Estimates of the approximate

numbers of employees to be trained to use the TAS are:***

Data Processing 10,000

Audit 20,000

Collection 10,000

Taxpayer Service 4,000

Intelligence 3,500

Inspection 800

*under the ~rewnt sy5tem, t=payer account information is maintained at the National computer center in a

centralized master file. The transfer of data using the Integrated Data Retrieval System (IDRS) requires two to

three weeks from date of request to its availability through the IDRS terminal. If a transcript of the account

is requested, four to six weeks is required.

* *Number of termina]s based on volume of transactions.

*** Inc]ude5 most of the employees in these functions.

118
QUESTION 11:

ANSWER 11:

QUESTION 12:

ANSWER 12:

QUESTION 13:

ANSWER 13:

QUESTION 14:

ANSWER 14:

Approximately the same number of employees in the above functions have

been trained in the use of the present system’s Integrated Data Retrieval System (IDRS) or have access to needed data via the other available sources in the

present system such as microfilm research and hard copy transcripts.

What will be the user profile for each user category, specifically in terms of the

data items accessible?

Details of the user profiles under the TAS have not yet been formulated. However, we anticipate that the profiles will be similar to those used in the Integrated Data Retrieval System of today. Under IDRS, user employees are authorized only those command codes required to perform their specific duties (e.g.,

only personnel with the responsibility for the refund review function in the

service center will have that command code in their profile). Authority to use a

command code other than those designated, requires supervisory approval, and

such requests are controlled by the Systems Security Administrator. A listing

of the command codes and the guidelines for assigning these in the profiles

are provided in IRS security manuals which have limited distribution within

the Service and are not available outside of the Service for security reasons.

What will be the purpose of each access granted by each user profile?

The command codes assigned to individual user employees are based solely

on the tasks which must be performed in their jobs.

For which groups or classes of taxpayers is access granted in the user profiles?

(e.g., “Only those taxpayers assigned to this user or linked directly to such a

taxpayer.”)

Taxpayer accounts will not be restricted to one user. However, we are studying the feasibility of various controls on user access to taxpayer accounts in

geographical areas outside of their own.

Which access under which routines will be logged, and how will the logs be

reviewed?

All accesses will be logged; however, details of the methods of review have not

been formulated. At a minimum, employee identification, time, date, terminal

of input, and access code will be retained. Each service center area will have a

designated Security Administrator who will have the ability to monitor terminal

activity and who will be alerted if terminal entry requirements are violated.

Under today’s IDRS, audit trails are also maintained and daily security reports

printed for the Service Center Security Administrator. On the report, circumstances warranting further investigation are indicated.

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QUESTION 15: What are the other data files that will be kept by IRS or that will be accessible

by IRS in which personal data will exist? What kinds of data will they contain?

How will these files be used in conjunction with TAS?

ANSWER 15: A comprehensive listing of all IRS files containing personal data is shown in the

Federal Register (Vol. 40, No. 166, pp. 37681-37768) as required by the

Privacy Act of 1974. The only computerized files contemplated for use under

TAS are those which will contain the data described in the answer to Question 1.

QUESTION 16: What consideration has been given to administrative and technical security

features to guard against improper use of data by authorized users of the system

for purposes other than those necessary for their assigned functions?

ANSWER 16: A summary of major security and privacy features in the present system and

the proposed Tax Administration System (TAS) is attached.

QUESTION 17: Precisely which IRS functions will achieve net benefits from real-time access

and why? Which function may not?

ANSWER 17: By and large, the real-time use of TAS will be an extension of the capabilities

provided today by the Integrated Data Retrieval System. The following is a

brief description of these benefits:

Audit

Real-time access through TAS will provide the Revenue Agents with rapid

retrieval of information concerning accounts or tax base data related to the

cases assigned. Rather than requisitioning returns as under the present system,

the Agent can quickly verify data or resolve questions by using the TAS terminal. Examples of questions requiring inquiry are: Have both spouses filing

separate returns claimed the same dependents or estimated tax credits? What

alimony or partnership losses have been claimed?

In addition, the Audit function gains the capability to more readily input information (audit adjustments, history data, and program management data). Such

timely inputs are helpful to other functions as well as future audits. For

example, information concerning an undisclosed bank account discovered by the

Revenue Agent during the course of an audit may provide a levy source for the

collection function if, at a later date, the taxpayer fails to pay the deficiency

assessment. On the other hand, recordation of the resolution of an unusual

item in favor of the taxpayer may avoid future audits concerning the same issue.

During an audit, the capability to make complex and repetitive calculations

which could take several hours or days (and are subject to high error rates) will

produce significant savings in staff time, along with greater accuracy.

Collection

The Revenue Officer will also have the capability to rapidly retrieve pertinent

data on assigned cases. Under the present system, return information concerning income and assets must often be requisitioned (taking five to six weeks)

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and much information which could be useful (e.g., data gained by a Revenue

Agent during Audit) is not available to Collection personnel. Under TAS, the

Revenue Officer’s query over the terminal will provide most of the needed

data in a timely manner, thereby eliminating a great deal of the paper preparation by technical personnel delays, and clerical research which must presently

be performed.

Intelligence

The rapid retrieval of current information will assist Special Agents in their

investigations. For example, data from the Audit and Collection histories may

provide valuable leads. The capability for complex calculations will also be

useful.

Taxpayer Service

Real-time access through TAS will provide for the rapid retrieval of more information to answer taxpayer inquiries. Currently, account data for less than ten

percent of the accounts is available through IDRS (those with bills or recent

notices). Inquiries about other accounts require microfilm research at the service

centers or transcripts obtained from the NCC.

In contrast to today’s partially automated processes, more data will be on-line

about all accounts under TAS. Thus, the taxpayer will receive information to

answer his or her questions in a more timely manner (in most instances during

the initial visit to an IRS office). TAS inquiries to accounts maintained in

another service center will require directory assistance and control through the

NCC (as described in the response to Question 6).

Inspection

The Internal Audit and Internal Security functions will benefit from the capability to monitor the activities of other terminals in the system. Thus, investigations for security purposes will be facilitated.

Data Processing

The primary benefits of real-time access to this user will be faster unpostable

resolution and error correction. Under the present system, unpostables are only

apparent after the tax return or related transaction fails to post to the account

maintained on magnetic tape at the National Computer Center. Since the master

files are not visible at service centers, determination of the reason for the failure

of an account to post requires reference to such sources as the original documents, microfilm, IDRS, and punched card transcripts from the master file.

Eight to nine weeks are required to reinput and settle unpostable conditions

today. Under TAS, the master file is decentralized to the service centers and the

reason for failure to post is more readily available and correctable.

The error correction process will also be faster under TAS. After returns are

transcribed, math verification will the place stiultaneomly with the process

of posting. This permits most errors to be detected and corrected during the

initial inputting processes via terminals thereby assuring that most tax accounts

are settled within a few hours after mathematical verification. Currently, error

registers are printed daily; correcting entries are noted on them; and re-entry

of taxpayer identification data and corrections are required.

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Other IRS Functions

The other IRS functions have minimal or no requirement for real-time access as

their applications are not time-sensitive.

QUESTION 18: What is the current pattern of access via batch requests?

ANSWER 18: Access to tax account information via batch requires manual preparation of a

request for the transcript; supervisory review and approval of the request; transmittal of the request by mail to the service center; batch transcription on a cyclical basis (weekly) at the service center through the Direct Data Entry System

(DDES); shipment of the resulting magnetic tape to the master file maintained

at the National Computer Center; batch processing on a cyclical basis (weekly)

at the National Computer Center (NCC); shipment of the resulting NCC tape to

the service center; service center printing of the transcript; transmittal of the

transcript from the service center to the requestor. At best, the request for

tax account information via batch requires five to six weeks.

QUESTION 19: How many personnel have access to what kinds of data in how many files?

Kindly provide what statistics are already collected which breakdown personnel

and data.

ANSWER 19: The Federal Register lists the numerous files and kinds of data maintained by

the Internal Revenue Service (See Question 15 above). A compilation of the

number of personnel using these files has never been made.

QUESTION 20: What is the volume of inquiries per employee per day?

ANSWER 20: This information is unknown as indicated in the response to the previous

question.

QUESTION 21: What are realistic estimates for these same quantities in a real-time environment?

ANSWER 21: Based on the IRS workload (number of audits, delinquent accounts, current

IDRS usage, etc.) and considering normal growth, the Service forecasts on a peak

day in one service center under full TAS implementation (1985) that up to 272

thousand requests for information will be made. This estimate approximates

the number of inquiries directed to the IDRS and other sources in today’s system such as microfilm research and Master File transcripts, plus the normal

growth increases which can be expected by 1985.

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APPENDIX 2

IRS SUMMARY OF MAJOR TAS FEATURES – PRESENT AND PROPOSED

SECURITY AND PRIVACY SAFEGUARDS

Present System

Physical Plant and Equipment Security

All computer facilities have complete electronic intrusion detection, silent trouble

alarms, and related protection systems monitored at a protection console. Guard services,

security lighting, and security fences are other

physical safeguards.

Color coded photo badges, guards and receptionists are used to control entry to the centers and to restrict the movement of personnel

and visitors within an installation.

Specific employees designated at each IRS

office where terminals are located are responsible for security matters. Systems Security

Administrator located in each center directs

and coordinates security matters for the area.

“Pairing” Plan provides back-up location for

each center in the event of loss of center’s

computer or entire installation. NCC is backed

up by a “sister” government agency.

Copies of master files are maintained in special

disaster-proof facilities.

Personnel Integrity and Quality Asstiance

Pre-employment screening of applicants,

personnel investigations and clearances, investigations of complaints of misconduct or

irregularities, and development of emp]oyees’

awareness of standards of conduct and security

measures are features of the IRS integrity

program.

Proposed Tax Administration System

Will continue.

Will be replaced by magnetic stripe, photo

badges which will be used in all offices with

terminals or computer equipment. The new

badge will be used to activate terminals, record

the identifications of terminal users, and

restrict access to data. Their use to control

entry to the facility as well as to limit access

to authorized areas within the facility via

electronically controlled gates and automatic

recordation of entries and departures is under

study.

Will continue. Dual purpose badges described

above will strengthen security measures in all

offices.

Revised Plan has been outlined for decentralized TAS proposal. “Sister” agency back-up

will be eliminated. NC will be paired with a SC.

Will continue.

Will continue.

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Present System Proposed Tax Administration System

Personnel Integrity and Quality Assurance (continued)

Supervisory reviews and approvals are required. Computers will be used to the maximum

Manual quality and output reviews are made extent practicable for early detection and corwith limited computer support. rection of errors. Case terminal input operations will be monitored and checked for

accuracy and acceptability during processing

and prior to output printing. The scope of

review will generally be based on a computer

subsidiary file containing a profile of the

employees’ experience, training, and

proficiency.

Independent review and appraisal of operations are made by the Internal Audit Division.

Security Administrator is alerted when terminal entry requirements are violated.

System design, computer programming, software modifications, procedures writing, and

equipment procurements are under central

direction in the National Office. This approach

provides additional protection against unauthorized systems changes, and assurances of

uniform programs, security checks, and controls. For example, systems or computer

program changes cannot be made through

terminal input.

Identification data, passwords (periodically

changed) command codes, terminal, account

and other restrictions limit employees’ access

to “potentially active account” data available

through IDRS terminals (approximately 10%

of the accounts).

Title 26 U.S. Code 7213 provides fine or/and

imprisonment and also dismissal from employment of Federal employees who unlawfully

divulge tax information. (Fine and imprisonment also apply to state employees who

receive tax information.)

Limited disclosure to public, congressional

committees, states and other government

agencies required by statutes, regulations and

executive orders.

Improved computer assisted auditing techniques will provide greater coverage. Also online monitoring of terminal activity by Internal

Audit Division (and Security Administrator)

will assure better security.

In addition, Security Administrator will have

new capability to monitor terminal activity.

Will continue.

Additional employee and terminal security

computer files will be provided to insure access

to only the specific files and data needed to

perform official duties. The new magnetic

stripe photo badges, previously described, will

also restrict entry to terminals and access to

data.

Will continue.

The Service has drafted legislative changes to

provide additional restrictions. TAS will

accommodate such changes.

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Present System Proposed Tax Administration System

Personnel Integrity and Quality Assurance (continued)

Detailed procedures issued on disclosures for Additional procedures will be issued as

Freedom of Information and other requests. necessary.

The Disclosure Staff in the Office of Assistant

Commissioner (Compliance) and Chief Counsel’s Disclosure Division review requests and

give advice on disclosure matters. Additional

procedures are being drafted for the Privacy

Act of 1974.

Data Controls

Centralized Master File from which manually

prepared approved requests produce computer

print-out transcripts. Computerized recordation of requests are not made. Manual controls

exist mainly for follow-up purposes.

Microfilm data of a service center’s accounts

are available through manually prepared and

approved requests and manual research.

Accesses are not permanently recorded.

Approximately 10% of the tax account data is

accessible to authorized personnel via IDRS

terminals which have computerized restrictions, controls and temporarily retained audit

trails.

Requests for tax return paper documents are

manually prepared, approved and transmitted

to the Federal Records Center or the service

center. A copy of the request serves as a

charge-out and replaces the return in the block

bolder. The new Audit Information Management System (AIMS) and its predecessor

(SCRIP) are semi-computerized methods of

locating tax returns in the Audit Division.

Most of the revenue accounting system controls are automated. However, some journals,

reports and the general ledger are manual

operations. (The accounting system has been

approved by the Comptroller General. )

Numerous validity, error, and postability

checks are made of every element of data

which enters the system. Computerized data

controls insure against loss of data between

runs, programs, etc.

Decentralized Master Files will be accessible

by terminal operators who will input approved

requests. There will be computerized restrictions, controls and audit trails. Transfers of

data between SCS will be controlled by NCC.

Microfilm operations will be eliminated

(except for pre-TAS and old inactive accounts).

Access to data by authorized personnel will

be via terminal operation with computerized

restrictions, control and audit trails.

Practically all accesses to master file data (five

years) will be via terminals which have additional computerized restrictions controls and

indefinitely retained audit trails.

All approved tax return requests will be input

through terminals, thereby enabling the system to maintain a current computerized inventory and control of all requests, a permanent

record of charge-outs, and periodic reports

of outstanding returns. The AIMS will be

integrated into TAS when it becomes

operational.

The accounting system will be completely

automated under computer control, including

computer generation of journals, reports and

ledgers.

Will continue.

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Present System Proposed Tax Administration System

Data Controls (continued)

Extensive library controls, trained production Will continue.

schedulers and proper job and personal identification of employees prevent unauthorized

access to work files and programs.

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Date

8/10/74

9/23/74

11/10/74

5/14/76

6/16/75

9/25/76

10/15/75

10/16/75

10/21/75

12/22/75

11/15/75

2/2/76

2/17/76

3/3/76

6/18/76

8/4/76

8/10/76

APPENDIX 3

IRS CHRONOLOGY OF EVENTS IN TAS APPROVAL PROCESS

(Significant meetings, briefings, letters etc.)

contact

Memo from Commissioner to Secretary

of Treasury

Presentation to OMB

Briefing of GAO

Letter to OMB

Letter to OMB

Memo of Agreement Treasury/OMB

Transmittal to Privacy Protection Study

Comm., OMB, House of Representatives,

Senate

Briefing of Staff Members from

Several Congressional Committees

Letter to GSA

Letter from GSA

Letter to IRS Unions and Selected

Members of Congress (Districts in prototype and alternate center areas)

House Budget Hearings

Letter to Honorable Charles Vanik

Senate Budget Hearings

Letter from OMB

Meeting with Messrs. Gunnels & Rhodes,

Appropriations Subcommittees

Meeting with William Vaughn, Oversight

Committee

Purpose

Information regarding TAS plans

Regarding TAS plans

Regarding TAS Overview

Regarding TAS issues; program approval

requested

Regarding Summary Comparison of

major security privacy features of TAS

present system

Submission of Report of Systems

Change as required by privacy Act of

1974

Regarding TAS plans

Regarding procurement approval

Granted Procurement approval

Regarding TAS plans

Discussed TAS plans

Regarding meeting with OTA

Discussed TAS plans

Reaffirmation of TAS approval

Regarding TAS Working Document

Regarding TAS Working Document

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APPENDIX 4

COMMENTS BY PANEL MEMBERS REGARDING SYSTEM DATA

AND IRS COMMENTS

PANEL DISCUSSION

Contents

Panel members agreed that in order to allay VariOUS fears, there was a need for an inventory

of just what would go into the TAS files. It was noted that in the original ambitious plans for the

TAS as developed in the 1960’s, it was proposed to gamer in as part of the recording process everything available in the IRS, whether it was audit, intelligence, alcohol and tobacco tax, or any other

program. This was found not practical, however, according to IRS officials, and there was a decision

to have a file with simple accounting information in it, with the basic data from tax returns. Questions were raised by individual panelists about the reasons underlying this decision — whether, for

instance, they related to costs, software, legal, or administrative problems.

Under this later plan, it was thought that if a person paid taxes and WaS not audited, nothing

else would be entered in that file until the next payment. The argument was that it would be only

the person who continued to have a tax problem whose record would continue to be flashed on the

screen someplace for further attention, and that if it could somehow be recognized that this will be

a pure accounting operation, and that there are not agents who are feeding information into or getting information out of the file on a daily basis, there would be no alarm about the TAS. There was

an argument that the TAS has been overly dramatized as something with a potential for mischief,

but that this was not the case at all. part of the problem, according to this IRS-backed argument, is

that people don’t know what is in the file.

TAS is, according to one IRS official, a matter of tax accounting, of “dusty old account

records,” and “not the intelligence information which the Watergate people were talking about. ”

Yet questions arose from the panel as to precisely where intelligence files will be under the

TAS. The answer was that this type of information would be in individual district offices primarily

in manual form, and that the intelligence files that me presently computerized will not reside in

the same computers. However, people doing investigative work would use the TAS.

AS a result of these and other concerns raised by individual panelists, a questionnaire was

addressed to the IRS. The IRS was asked to indicate as precisely as possible what items of information under the new TAS will be placed in the taxpayer’s file and thereby linked to the taxpayer’s name, beyond the standard identifying items of address and social security number.

The response stated that the “Tax Administration Service will enable the Service to computerize in one system data which presently exists in microfilm records and various other manual

files, the Master File System, and the Integrated Data Retrieval System. ”

It then provided the following “listing and brief description of the possible types and elements

of data”:

Identification Data – Account number, spouse’s social security number and marital

status, current name and home address, including county; business address, and prior

names and addresses, if any; the type of tax, tax period or accounting year; date account

established; date of death (establishes filing date for estate tax returns); business activity

code and cross-references to tax related taxpayers (includes spouses, principal officers in a

corporation, and partners in a partnership). For exempt organizations, data concerning:

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date exemption ruling was issued, issuing office, and applicable IR code section; group

exemption number and number of locals; activity code and latest year return filed.

● Accounting Data — Account balances, transaction codes and document locator numbers;

posting dates and amount of assessment, credit, payment, refund or balance due. If balance due: amount of tax, penalty and interest, date bills were issued, issuing office, date

next bill should be issued or referred to field collection office if account is not satisfied.

● Delinquent Collection Data — If installment agreement made: amount and frequency of

payments due and paid; phone number of delinquent taxpayer; the name and number of

attorney and accountant; occupation of primary taxpayer and spouse, assets from financial statement submitted with agreement; date of Certificate of Non-attachment of

Lien; delinquency prevention information (eg., Federal Tax Deposit Alerts and Mr.

Businessman’s Kit).

If service of levy becomes necessary to enforce collection of unpaid tax: institution or

person served (bank, employer, etc.), and date served; how served (in person or by

mail); and proceeds of levy.

If service of lien becomes necessary: date served; date recorded, released, modified,

refiled or subordinated; county or office of recordation; lien serial number.

If sale of property becomes necessary: date of sale; type property sold; amount of

redemption, proceeds of sale and amount released; minimum bid; and costs of sale.

● Return and Audit Data – Line items from tax returns needed to math verify and match

entries, and those used in the identification of tax returns having a high probability of

omissions or errors; prior year issues examined for tax years open under the statute of

limitations; amount of change; type of examination (i.e., field, office, correspondence);

level of closing (i.e., group, conference, Appellate, etc.); type of closing (i.e., agreed,

unagreed); transactions or adjustments affecting subsequent year returns (e.g., net operating loss carryover or adjustments to basis of depreciable assets); special situations

encountered in audit (e.g., taxpayer records in machine sensible form or inadequate

records notice issued); name of examiner, examining district, and taxpayer representative, if any.

● Investigation Data — Indicators to other IRS functions that an investigation has been

initiated; aliases or other names used; business names and addresses; home addresses;

financial institution; occupation; industry; tax years of investigation; taxes per original

returns; agent assigned, location, and grade; disposition of case; reason closed; method

of evasions; disposition by Regional Counsel, Justice Department, and U.S. Attorney;

trial results; sentence; and judicial district.

● Statistical Data — The “Taxpayer Compliance Measurexnent Program” requires in-depth

evaluations of a random sample of specific types of returns filed. This section contains

line item totaIs from the sample returns that are not recorded elsewhere. After examination, items adjusted and other compliance characteristics are tabulated and analyzed to

determine voluntary compliance levels. The analysis is based on summary data obtained

from examinations and it cannot be related to specific taxpayers whose returns were in

the sample.

Statistics of Income data consisted of selected line items from randomly selected tax

returns which is required for compilation of Statistics of Income Reports.

● Assignment and Control Data — Type of assignment; employee making assignment;

employ= to whom case assigned; date assigned; code to identify action being taken;

130
date correspondence received from taxpayer; status code (i.e., open, closed, in suspense).

When data is removed: type of tax, tax period, date data removed from computer processing system, and location of hard copy.

● Miscellaneous Data — County and state of residence and amount for revenue sharing

purposes; and indication that election was made for presidential election campaign

fund.

Following are other OTA questions and IRS responses about the contents of TAS, together

with comments on the responses.

Matching and Interlocking Files:

“What data elements in matching or interlocking files will be automated?”

“Under the Tax Administration System, we do not anticipate automating matching or interlocking files beyond those existing in the present system. Data elements planned for all the TAS

files are described in Answer 1 above.”

Comment: It was not clear to some panelists whether this meant there can be interlocked

files which are not part of another system, inasmuch as the data entry system is defined as a separate system.

Exempt Organizations:

“Will information on exempt Organizations, including Contributors, be automated and available for audit?”

“Exempt organizations data will be part of the TAS files as described in the answer to Question 1. Information on specific contributors will not be input nor will it be automated in any other

way. ”

Comment: This response might be clarified. Read one way, it does not seem to allow for

entry of such information as a “line item” from a taxpayer return, or its retrieval for use in an

audit. Does it mean this will not be taken from the tax return? Othenvise, it would be a simple

matter to go through the files and compile a list of contributors. Does it mean there is actually

no list of contributors in the computerized file, or that it is kept elsewhere?

Private Rulings:

“Will private rulings go on the TAS computers?”

“Although the text of the ruling will not be in the Tax Administration System, the Service

may input identifying and control data to monitor the status of cases for management purposes. ”

Comment: It is not clear how the new tax privacy legislation may affect the IRS plans on

private rulings.

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APPENDIX 5

OTA MEMORANDUM: REVIEW OF INTERNAL REVENUE PROPOSAL

FOR COMPUTERIZED TAX ADMINISTRATION SYSTEM (TAS)

May 18, 1976

The Office of Technology Assessment was asked by the House Ways and Means Committee

Chairman to review the IRS Report on its proposed tax administration system (TAS) for its security

and confidentiality safeguards, without which, it was feared, the system “could become a system

of harassment, surveillance, and political manipulation. ” In particular, the Chairman of the Oversight Subcommittee indicated interest in legislation which would legislate principles about the use

of such equipment, including such matters as access, audit trails, and transfer of tax returns between

regions.

OTA Approach

TO respond to this request, OTA proposes to convene an appropriate panel whose charge will

be to advise OTA on how to proceed with this assessment. It is planned that such a panel will meet

during the week of June 7. This early date is necessary to meet the needs of the hearings planned

later in June by the Oversight Subcommittee.

Summary of System

The Internal Revenue Service has redesigned their basic data processing system to decentralize

the taxpayer account files to the ten existing service centers. The former site of the centralized tax

account files, the National Computer Center, will be converted to a centralized account directory

and control point for intercenter activity. The information in each center’s tax account files for

taxpayers in its geographical area will be accessible for use by specifically authorized personnel in

major IRS offices. The new system (TAS) is a totally integated system involving processing, storage, data communications, and terminal facilities. The Center will control data exchange between

centers and maintain a directory of each center’s records so that an account is not kept on file at

more than one center. Data communications between field locations and host service centers will

be provided by a Data Communication Subsystem consisting of dedicated, leased data transmission

lines, data communication processors located in each Service center and the NCC; programmable

data concentrators; testing and encrypting equipment; and modems to interface with terminals

remote from the service centers.

This TAS report raises a number of important issues when its possible impact is considered

in connection with the following trends and developments:

(1) The documented problems of privacy invasions and improper disclosure which have

arisen in the administration of the tax laws, and which have been investigated by the

Watergate Committee, the Select Intelligence Committee of the Senate, and other

Committees.

(2) The recent and continuing effort to create national data centers either by aggregating

data and providing central storage facilities or by linking compatible systems once they

are individually established on a decentralized basis. Examples of recent Congressional

concern over such efforts is found in the 1974 controversy over FEDNET, the interagency computer project planned by the General Services Administration without adequate Congressional input on the policy of systems linkage or computer security and

software guarantees.

(3) The inherent problems of human error in the administration of vast information systems when magnified by computer-assisted programs when they are planned hastily or

administered sloppily, with the consequent aggravation to taxpayers and expense to

government.

133
(4)

(5)

The current unsatisfied search in government and the private sector for development

by the computer industry of standards which will provide maximum guarantees of security and confidentiality for sensitive personal information. Recent GAO reports on computer-relakl crimes need to be evaluated for their relevance to Internal Revenue data

systems.

The major question, always in delicate balance in negotiations between the computer

industry, Congress, the executive branch agencies, and interest groups, as to whether or

not the management benefits to government from such an extension of computer technology for information control will outweight its possible negative impact on the individual, on society, and on the state of civil liberties.

A subissue of this question involves the current debate in public administration circles over

whether, in certain programs, centralized or decentralized administration is desirable. In the case

of the Internal Revenue Service, which has the most sensitive data on every taxpayer in the country,

there is a question of the internal decentralization of the Agency as well as the debate over the

separation of the computerized systems of all of the Departments and agencies.

The decision whether or not to computerize, and under what conditions, was a major philosophical and public administration issue in the sixties as government agencies experimented with

new computer systems. The Special Subcommittee on Privacy of the House Government Operations

Committee, the Senate Judiciary Subcommittee on Administrative Practice and Procedure, and the

Constitutional Rights Subcommittee compiled extensive hearing records of social and scientific

commentary on the social impact of computer technology. Although the general warnings issued in

those years are as significant for those planning and programming new systems today as they were

in the early years of computer technology, the issue is frequently lost as government managers

and Congress consider later generations of computers and extensions of existing systems. It seems

to be assumed that the issue of the beneficial versus adverse impact on society was decided for all

time; yet for some purposes, it is a continuing policy issue which is even more important today

as the space narrows between the individual and the information technology which government

develops to administer the laws affecting people’s personal lives. There needs to be consideration

of the extent, if any, to which computer technology is expanding the power of government or

promoting a de facto change in the constitutional framework for making decisions about people.

Before they are funded, the question, Why go further?, needs to be asked for each major

data system, and the technical and administrative conditions surrounding a decision to proceed

should be carefully examined. This is particularly applicable to the Internal Revenue Service.

This gap in Congressional oversight was recently the subject of a comment by the Administrative Conference of the United States in a major report issued in November of 1975 on certain

issues of privacy, confidentiality and due process involved in the administration of the tax laws.

The report stated, “Our study has led to an awareness of other topics that could profitably be

examined by the Administrative Conference or by others. One might examine the impact of IRS’s

computers upon both the operations of the Service and society at large. ” The report noted that

twelve committees and subcommittees of Congress have devoted investigative and hearing time to

the Internal Revenue Service affairs.

Despite the oversight by individual members and by committees, I have not yet found a concerted Congressional effort to confront the unique policy problems raised by the combined issues

of efficient administration of the tax laws of the country, of civil liberties concerns, of government’s records management programs, and computer technology. There is a dearth of technological

expertise and resources for such oversight on a continuing basis.

The request to OTA by the House Ways and Means Committee appears to represent the first

such opportunity in many years for such an evaluation.

134
Computer Legislation

The Chairman of the Oversight Subcommittee of the House ways and Means Committee

expressed the hope that the OTA report on TAS could assist in legislating certain principles relating

to computer software and hardware, such as security and audit trails and other matters. As they

may be aware, in addition to certain general laws on data management and on procurement of computer equipment, Congress has already legislated a useful framework for developing specific guarantees for computerized management of tax information.

Privacy Act of 1974

The Privacy Act of 1974 requires each agency to take certain actions with respect to its

records systems, and these mandates bear on their plans for new computer technology as well as

the politics of their information programs. Included is the requirement to “maintain all records

used in making determination about any individual With such accuracy, relevance, timeliness, and

completeness as is reasonable necessary to assure fairness to the individual.”

Secondly, each agency must “establish appropriate administrative, technical, and physical

safeguards to insure the security and confidentiality of records and to protect against any anticipated threats or hazards to their security or integrity which could result in substantial harm, embarrassment, inconvenience, or unfairness to any individual on whom information is maintained. ”

Third, there are certain access and disclosure guarantees, and the Senate Government Operations Report on the bill discusses the relationship of these for computer technology. They are

rather general, for the press of Committee time prevented detailed focus on the procurement

needs of specific programs such as that of the Internal Revenue Service. (Law enforcement needs

were addressed there as well as in comprehensive legislation and reports in the Senate and House

Judiciary Committees.)

Fourth, each agency must provide “adequate advance notice to Congress and the Office of

Management and Budget of any proposal to establish or alter any system of records in order to

permit an evaluation of the probable or potential effect of such proposal on the privacy and other

personal or property rights of individuals or the d.isclos~e of information relating to such individuals, and its effect on the preservation of the constitution~ participles of federalism and separation of powers.”

The question is left open as to what safeguards are “appropriate” for each system or data

bank. Similarly, the “evaluation” of probable or potential effects is undefined by the statute, and

is therefore dependent on the concerns of whatever executive or legislative policy-maker is looking

at the proposal. It also provides a broad fraework for comments by concerned interest groups on

possible effects of automatic data processing proposals.

However, while the agencies, including the IRS, are required to make such reports to Congress, there is no effective place which is equipped to question the authority to proceed with the

new system on privacy, security, or confidentiality grounds, except at some point in the Appropriations hearing processes, if the issue is raised in a timely manner by a concerned member. In the

case of the TAS proposal, the OMB has been said to have given “programmatic approval” but

apparently has not approved the kinds of technological guarantees envisioned. Nor is it indicated

in the report what individuals or grOUPS were consulted in developing the softwme and hardware

standards to protect the data. Was there an internal task force? If SO, are the reports available on

it? Was the Computer Center of the National Bureau of Standdards involved in the development

of the standards to be required?

The Privacy Act also requires the Privacy Protection Commission to conduct a study to determine “whether the Internal Revenue Selvice should be prohibited from transferring individually

identifiable data to other agencies and to agencies of state governments.” A determination of this

question may make a difference in the capacities of the new ADP system of IRS.

135
Major Unanswered Questions in the TAS Proposal

There are a number of questions left unanswered by the IRS TAS report which legislative

policy-makers would wish to answer in light of current public and congressional concerns, before

such a system is funded.

For example:

Decentralization, Accountability and Oversight for Privacy and Confidentiality;

There is the issue of the effect of the technology on IRS internal administration and agency

accountability to the Commissioner of Internal Revenue Service, to the President and to Congress.

Congressional hearing records indicate serious problems in accounting and controlling the investigative and data-gathering activities of personnel in field offices under the present system. Yet the

new TAS would require a massive decentralization of tax account masterfiles, with 8300 terminals

in 10 centers and major field offices, with 750 line printers. This means that more tax return histories will be available all over the country potentially to thousands of employees or others with

routine, customary, or unique access to the system. It will require more civil servants keeping

more information on more taxpayers for a longer time than ever before in our history.

The problem of guaranteeing proper use and security to such sensitive personal information

is administratively and technologically difficult in the present system. Securing it on the basis of

such a far-flung decentralized administration of the information system, with the aid of an extensive ADP system, raises even more serious questions of administrative control and accountability

in the use of the personal information. On the other hand, it can be argued that, under certain

administrative and technical conditions, pursuant to specific laws governing disclosure, collection,

retention and use of the information, the computerization might well afford even greater guarantees

of privacy, confidentiality, and security than would the manual systems.

The report states that many of the features of the new system for safeguarding confidentiality and security are already in effect the present system, which, in view of recent reports of

abuses, raises the question whether more stringent controls are not called for.

Compatibility and Systems Linkage with Other Federal ADP Systems

In U.S. and Abroad

Surveys have shown that many, many federal departments and agencies utilize tax returns or

tax return information in administering the benefits and rights of many Federal programs. Investigations have shown broad indiscriminate sharing of the data in some cases, without proper authority,

and individual and group acquisition of tax information for political purposes. Other agencies use

it for random cross-checking. Numerous reviews of such sharing and disclosure are now underway.

The report on the TAS proposal does not address the subject of specifically what other government agencies will feed the IRS system for enforcement or other purposes, or will access it on a

regular basis for cross-checking for compliance purposes. Nor does it discuss in detail the potential

for compatibility or linkage envisioned for federal, state, local, or indeed, international data systems

to assure total coverage of the financial transactions of Americans at home and abroad. Yet these

are issues which have gained new importance recently, and which are very much related to the kind

of programming needs and technological capacities of the new ADP systems. The lack of citizen

education about guarantees possible under new computer technology and the apprehension about

having all tax return information potentially instantly available to people in the taxpayer’s own

community or region therefore need to be considered in connection with the new proposal.

Despite the fact that there are many current proposals for limiting this type of data sharing, or,

on the other hand, for expanding it in some cases, the report on TAS merely notes that “None of

the proposed changes in the Tax Administration System will effect the existing interagency or

intergovernmental informational relationships, nor are they expected to impact on the observance

136
of the principles of separation of powers and of federalism, including the powers and authority of

state and local governments. ” Yet these are the very relationships which are under investigation

by many in Congress and elsewhere. Despite this statement, the TAS report refers elsewhere to

pending reforms and states that the Treasury Department has “proposed a comprehensive statutory

revision of present law which would substantially restrict access to this information, and would

spell out who would have access to this information, for what purposes, and under what

circumstance s.”

Will the new TAS system be designed then, under the old rules, or the new ones? The inconsistency should be resolved here.

Problems of disclosure of entire tax returns, or of information from them, have been the

subject of extensive hearings by congressional committees and the Privacy Protection Commission

and study by the Administrative Conference. Recent findings by the Watergate Committee and the

Senate Intelligence Committee this week led to recommendations for tight legal prohibitions on

access to certain kinds of tax data and on investigations of the returns of unpopular or controversial

people or businesses beyond the needs of the tax laws.

To meet the concerns of Congress for protecting this kind of information, it may be necessary

to consider the need for machines with extraordinary devices and software used so far only in law

enforcement work for data sharing and limited access.

Two examples of the potential for linkages and compatibility on the domestic and on an international basis were described by the Commissioner of Internal Revenue service in testimony before

the House Government Operations Committee Subcommittee on Commerce, consumer, and Monetary Affairs on April 12, 1976. He described the IRS efforts to process on a nation-wide scale the

information documents filed by employers, payers of dividends and interest and to match them

with the returns of taxpayers or of non-filers of returns.

In the sixties, and even now, the IRS was unable to undertake the large scale processing

needed to match returns and documents in the face of budget restrictions and lack of resources

and personnel. It gradually extended its automatic data processing capacities until 1967, when it

finally had a computerized master file of individual income returns operational for the entire

country. It has now perfected the recording of the social security numbers in the individual master

file. It expects, when it finally acquires appropriations, to get total matching and to cover 4.8

million taxpayer cases of erroneous reporting and non-filing, thereby collecting additional revenue

of over $260 million.

Data Sharing With Social Security Administration

The Commissioner cited a new wage reporting law as looking to cooperative effort between

IRS and the Social Security Administration in processing W-2 forms beginning in FY 1979. IRS will

be studying the alternative methods of joint document processing with SSA “for whatever cost

advantages may be found in that regard. ”

The social and political implications of this pooling of resources by the two departments

with the most extensive information on the average law abiding citizen have not been explored;

nor have Congress and the public been involved in determining the conditions of the sharing.

International Programs

Other international programs are underway by IRS to standardbe reporting forms to make

them machine readable and easily processed by ADp equipment in the U.S. and abroad. There

is an IRS proposal to supply other countries a number (the social security number?) to promote

ease in reporting on financial transactions of Americans abroad.

137
Connection With Other Federal Law Enforcement Computers

It is not clear from the IRS report on TAS what, if any, connection there is between the

data in TAS computers and other Treasury and Federal computerized data systems maintained

for intelligence purposes. The IRS Intelligence Division is linked to the Treasury Enforcement

Communications System (TECH) which accesses and is accessed by the FBI’s National Crime

Information Center, which is linked to state and local law enforcement offices and some state

motor vehicle agencies. In 1974, the Intelligence Division began operating over 30 TECH terminals

nationwide, which gives them instant access to NCIC files on individuals and businesses of current investigative interest to all Treasury Enforcement agencies.

For years, the Justice Department, through the Law Enforcement Assistance Administration,

has funded research to find administrative methods and technology to promote efficient management of law enforcement records and data swapping among certain federal departments and agencies and between federal, state and local law enforcement. Model codes and state laws on these

matters have been adopted by a number of states and state computer centers have been established

with tight physical and administrative controls as a condition for obtaining federal grants and for

sharing in the information exchange. Comprehensive legislation on the specifics of data control

and exchange and on the details of the computer technology has been the subject of long negotiations between the Justice Department and Congressional Committees.

The outcome of this debate may or may not affect certain data elements and retrieval and

storage capacities of the TAS plan. The plan should be studied for its relationship to the current

efforts to exert controls over the computerization and sharing of intelligence information on

people.

Summary

A number of Congressional committees, members of Congress, Federal agencies, and other

groups have demonstrated interest in this subject. I have talked with staff members of most of

them, and have examined their hearings, reports and other documentation of their concern about

possible links between IRS computers and information systems and such issues as privacy, confidentiality, and civil liberties.

To varying degrees, all of them have proposals for reforms in the administration of the tax

laws to tighten up the system and protect the privacy of citizens and the confidentiality of tax

returns.

Depending on which reforms are finally enacted, the changes may alter existing relationships

for information exchange and for actual and potential linkage between IRS systems and those of

other Federal departments and agencies and state and local governments.

In addition, they may well affect many phases of the management technology involved in

information collection, storage, maintenance, retrieval, use and dissemination. These changes will

require at least some measure of reevaluation of the software and hardware needs for the proposed

decentralized computerized system, and possible new procurement standards governing access,

confidentiality, security, transmission, systems linkage, storage capacity, retrieval capability, and

other features.

This analysis of some major concerns suggested by the new plan does not ignore the obvious

economic and management benefits of such changes, but rather is meant to focus on some large

issues which, on first glance, appear either to have been ignored or not specifically addressed in the

official explanation of the TAS. It may be that some of these are matters which can be explained

away or resolved easily.

The plan should be studied from a philosophical and social theory view, as well as from a privacy and civil liberties perspective. It needs the comments of experts who understand the political

and administrative changes being considered in the context of the technology sought to effect them.

138
In addition, it requires the perspective of public administration, with a concern for organizational

theory and the physical and human elements which would be required for a successful operation.

Such a perspective would bring also a concern for the problems of span of control and the relative

benefits of administration by means of field structure versus centralized structure. The plan then

requires some economic analysis to consider anew the cost-benefits ratio when these other factors

caused by the possible social and individual impact of the plan have been added to the equation.

The following are among sources examined in connection with the proposed Tax Administration System:

U.S. Congress, House Committee on Ways and Means. Hearings, “Confidentiality of Tax

Return Information. ” 94th Congress, 2d Session, January 28,1976.

U.S. Congress, House Committee on Government Operations, Subcommittee on Commerce,

Consumer and Monetary Affairs. Hearings, Internal Revenue Service Operations, Income Information Document Matching Program. April 12, 1976.

U.S. Congress, House Subcommittee on Government Information Individual privacy. Hearings,

1974,75, 76.

U.S. Congress, Senate Committee on Finance, Subcommittee on Administration of

the Internal Revenue Code. Hearings, “Federal Tax Return Privacy,” April 21, 1975 and

January 23, 1976, Parts I and H, 94th Congress.

U.S. Congress, Senate Appropriations Committee, Subcommittee on Internal Revenue Service, etc. Hearings, 1974, 75.

U.S. Congress, Joint Committee on Internal Revenue Taxation, Committee Print, “Investigation of the Special Service Staff of the Internal Revenue Service,” Prepared for the Joint

Committee by its Staff. 94th Congress, 1st Session, June 5, 1976.

U.S. Congress, Joint Committee on Internal Revenue Taxation, Staff, “Confidentiality of

Tax Returns” Committee Print, September 25, 1975, Prepared for the use of the Committee

on Ways and Means.

U.S. Congress, Select Committee to Study Governmental Operations with Respect to Intelligence Activities, Final Report. 94th Congress 2d Session, April 26, 1976. Recommendations,

Internal Revenue Service. p. 313.

U.S. Congress, Senate Judiciary Committee Subcommittee on Constitutional Rights. Political Intelligence in the Internal Revenue Service, Special Services Staff.

Administrative Conference of the United States. Report on Internal Revenue Service Project.

(Draft, November 1975) Especially, Ch 6, “Tax Return Confidentiality.”

U.S. Privacy Commission. Hearings, March 1976 – Tax Return Privacy; Testimony and proposed disclosure code developed by the Commission.

U.S. Advisory Commission on Intergovernmental Relations. Report.

American Bar Association Tax Section. (Comments)

American Civil Liberties Union. (Comments)

Tax Reform Research Group. (Comments)

139
APPENDIX 6

CONSIDERATIONS REGARDING OTA’S RESPONSE

TO CONGRESSIONAL COMMITTEE REQUEST TO REVIEW PROPOSED

COMPUTERIZED TAX ADMINISTRATION SYSTEM (TAS)*

I. SOCIAL AND POLITICAL IMPLICATIONS June 8, 1976

A.

B.

c.

D.

E.

F.

G.

Is TAS consistent with a free society?

What is new or unique about the capacity or potential of the system as a management

support tool, as an operating mechanism, as a law enforcement tool, and as an instrument

of surveillance?

In those segments of the public and private sectors which are now affected by the IRS

information policies, what trends and processes could be accelerated, aggregated,

improved, or set in motion by instilling the new compterized Sytem?

What new groups will be brought more effectively into the administration of the tax

laws who are currently under-audited, overlooked, ignored, under-represented or underserviced? Who benefits and who stands to lose?

What relationships among institutions might be established and what current ones

affected?

What are the political implications, beneficial aS well adverse, of the new system for

governmental control over the individual and over the general population?

What issues are raised involving use of a unique identifier, or one social security number

for every taxpayer which would be required to administer TAS?

II. CONTROL AND ACCOUNTABILITY

A. How can the Congress satisfy itself that the procedures initially proposed under the TAS

are adequate with regard to security and confidentiality?

B. How can the Congress monitor the operations of the system in order to satisfy itself that

new opportunities to breach security and confidentiality have not developed or been

created within the system? What review of the system should be planned, at what stage,

and how frequently?

c. HOW could the new system affect committee oversight and chances of satisfactory

accountability to Congress by the Internal Revenue Service for the equitable administration of the tax laws and proper gathering, use, and management Of taxpayer information?

(1) by the rest of the Executive Branch?

(2) by governmental contractors and other users?

*some of the5e suggested issues, which are by no means inclusive, are standard ones which could be raised for any

properly-constructed automated data processing system containing personal information; others might be standard

for any governmental or federal system; others reflect possible special concerns of Congress as an institutional

guardian of civil rights and liberties; others indicate possible concerns of individual legislative policy-makers with

special constituency interests in privacy or fair administration of the tax laws.

141
III. FEDERALISM

A. Howwill TAS affect the present Federal-State relationships indealing with taxpayer

information? Can or will TAS be used directly or indirectly to assist state income tax

collection and their administration of other programs? Will development of TAS promote initiatives to combine or share state and local systems?

IV. PRIVATE SECTOR

A. How could TAS, or future generations of TAS computers, affect the relationships

between the IRS computerized system and those of private organizations, institutions,

and businesses who want to reduce paperwork, provide data to IRS on tapes, or possibly

access the system and retrieve from it by electronic funds transfer?

v. IMPLICATIONS FOR THE INDIVIDUAL TAXPAYER

A. What could the new system mean for the potential of the IRS and the rest of government

to investigate the individual?

B. What could TAS, and future generations of TAS, mean in terms of the individual’s ability

to start anew in society?

c. How may the new system affect the taxpayer’s control over what personal and financial

information is supplied to government and the person’s participation in how it is shared,

transferred, manipulated and managed?

D. How may the new system affect, for better or worse, the quality of service to the taxpayer? Will increased speed in transactions and transfer of information necessarily mean

improvement in protection of privacy, relevance of data maintained, confidentiality, and

accuracy and timeliness of records?

VI. LEGAL IMPLICATIONS

A. If the new system is installed, are existing statutory standards, guarantees, and sanctions

governing federal information policy adequate to safeguard:

(1) the privacy of the individual?

(2) the confidentiality of taxpayer information?

(3) the security of the system?

B. How could changing concepts of privacy and constitutional rights in the courts and Congress affect the system?

VII. ECONOMIC IMPLICATIONS

A. Does TAS raise unexamined economic issues?

142
B. Could intensified regulation mean increased control over the individual taxpayer, resulting in more coercion being applied to the system through comprehensive auditing, followUp techniques, and stepped-up prosecutions, with the possible consequence of reduction

in the level of voluntary compliance?

c. Is there a need for the application of a cost-benefit analysis involving factors other than

those of cost, and efficiency involving the social and political trade-offs?

VIII. ADMINISTRATIVE AND MANAGERIAL ISSUES

A.

B.

c.

D.

E.

F.

G.

H.

Does the proposed TAS raise issues of need for administrative and management changes

in overall processing methods?

Does the proposed TAS raise issues concerning the tolerance of the administrative structure and manpower capacity of the Internal Revenue Servicew to carry the load of technology involved? Can the system get too large, the data bank too unwieldy, for administrative purposes?

What kinds of detailed management information does Congress need tO know to evaluate

the impact of the extended ADP System on the individual and grOUPS it should serve?

Is there a need, for instance, to address such questions as:

(1) How many employees are in each Service Center now?

(2) How many more will be added at the:

(a) Service level?

(b) Supervisory level?

(c) Clerical level?

(d) ADP level?

(3) How many more in national office for each functional area?

(4) Where is responsibility for each stage of the system?

(5) What is the span of control?

Does TAS raise issues of the accountability of the administration of the tax programs as

they may bear on the privacy and other rights of taxpayers to:

(1) the Commissioner of the Internal Revenue Service?

(2) the Secretary of the Treasury?

(3) the President?

Will they be able to keep track of what IRS and other government agencies are doing with

the data, how they are aggregating, manipulating, and sharing it?

What issues are raised by the network feature of the system?

How will the proposed system relate administratively to other IRS and Treasury data

systems and to other governmental data banks and systems? Who could access it, feed it,

retrieve from it?

Does TAS present issues of controlling abuses of authority by political administrators

and management officials?

Should these and other issues of administration and management be addressed in legislation as opposed to regulations?

143
IX. TECHNICAL ISSUES

A. Do the size of the proposed system and its network features raise issues of the wisdom

of it and its technical feasibility?

B. Does the proposed system raise problems of guaranteeing sufficient technical safeguards

for maintaining the integrity of taxpayer information and protecting it against unauthorized use?

(1) Has sufficient attention been accorded those various components of information

management which are necessary for the type of personal and business information

contained in the new system including such matters as:

(a) partitioning and segmenting of files,

(b) data input, storage, handling,

(c) record identification,

(d) media control,

(e) programming techniques for security,

(f) software documentation,

(g) data elements,

(2) Has sufficient attention been accorded the establishment of technical guidelines

and administrative regulations to govern computer system and network controls

including such matters as:

(a) user identification,

(b) terminal identification,

(c) data access controls,

(d) data encryption,

(e) security auditing,

(3) Has sufficient attention been accorded needed aspects of physical security?

x. OTHER ISSUES

144
APPENDIX 7

COMMENTS BY TAS PANEL MEMBERS

145
APPENDIX 7a

Columbia University in the City of New York New York N.Y. 10027

DEPARl_h4ENT OF POLITICAL SCIENC E

420 West 11 i3th Stree t

November 7 , 1976

Ms. Marcia MacNaughton

Office of Technology Assessment

Congress of the United States

Washington, D.C. 2051 0

Dear Mar i a:

I received earlier this week the Draft of the OTA

Review of the Proposed Tax Administration System of the Internal

Revenue Service,” and have read it closely.

My detailed comments and queries have been written on the

pages of the draft, which I am returning with this letter to

facilitate your review of them.

Overall, in my capacity as Chairman of the Panel asked

to advise OTA on possible review of the TAS system, I am

very pleased with the draft you have prepared.

1. First, it is exactly the kind of technology–assessment

directed to issues of civil liberties , social effect, politica l

impact, and inter–governmental relationships that I have lon g

believed Congress should conduct when very large-scale computerized

information systems such as TAS are proposed by Executive

agencies.

2. Second, if OTA follows through on one of the options

presented on page 2 of the Draft Summary, that is by having

OTA actively assist the Subcommittee on Oversight of the

Ways and Means Committee, that would meet one of the most

serious deficiencies that I have noticed occurring whe n

congressional subject-matter committees review the information -

system proposals of executive branch agencies: the usual lack o f

varied expert advisors , covering all the requisite disciplines an d

perspectives , to help the Congressional staffs’ and Committe e

h!embers hold sufficiently authoritative inquiries. An OT A

assessment effort geared, in whatever form, to support directl y

the Congressional inquiry i.s what as complex and potentiall y

influential a system as TAS merits -- by its dollar costs ,

its potential effects on IRS organization and procedures ,

and i-ts potential effects on taxpayers and our national ta x

system.

147
3. Third, were I a top official in the Internal Revenu e

Service, I would view such an OTA review as the best possible

preparation for the predictable response of the media,

public interest groups, civil liberties groups, business groups

IRS-law specialists at the bar, and many members of Congress

beyond the Ways and Means Committees. The questions proqounded

in this Draft Review are tough ones. They assume things can go

wrong in even the best-intentioned information systems of the

size, complexity, and novelty of TAS, a judgement that the f’irst

two decades of computer use in large organizations amply

supports. The Draft assumes that a penetrating review now may

flag some issues that only Congress can properly deal with

in our political system; some that may require explicit rules

and procedures set down by IRS; and some that will inevitably

be dealt with by the courts. The Review also assumes that

projecting forward into the late 1970s and 1980s some of the

serious violations of confidentiality and breaches of security

that have been disclosed in the handling of IRS data during

the past decade is a necessary way to challenge proposed

safeguards. In short--without having exhausted the kinds of

tough-minded questions that have been assembled in this Draft--

this is just the kind of advance probe that should help IRS

to anticipate problems. formulate meaningful answers, and

reconsider its own assumptions.

4. Fourth, I am pleased that this Draft makes the vital

distinctions between matters of privacy and due process on the

one hand and security on the other hand. While I have not

seen the GAO report on TAS, my conversations with several

GAO officials confirms that theirs was and is a report addressing

primarily physical security. It cannot be considered a full

technological assessment of the entire spectrum of privacy,

due process, and system-secmity aspects of TAS. Therefore,

I share the Report’s judgment that the comprehensive examination

it proposes has not yet been done, and needs doing.

5. Fifth, I regret that it was not possible for OTA to

convene our full panel for a second meeting, following our

receipt of this Draft. Had this been possible, we could have

had a useful exchange of views by all panel members about

the strategy of this kind of assessment, its component issues,

the types of responses of fact and judgment that are required,

and many tantalizing matters mentioned in the Draft but postponed

for now. This is not in any way a criticism of the excellent, sustained

consultation that has been done with me as the Chairman and

with the individual panel members. I can recognize many fine

contributions of our group in what is presented here. However,

in the spirit of Jacqueline Susan’s novel, once is not enough

for a panel of varied experts, who have not worked together

previously, to give OTA the measured estimate that I believe

148
it needs even in a preliminary review. A second meeting not

having been possible, however, I regard this Draft as a fine

and useful contribution.

6. Finally, I would like my letter to express to OTA my

great support for its entrance into the assessment of information

systems such as TAS. It is hard to think of any technology more

significant, and more likely to become even more significant

in the next 25 years, than computer and communications technologies.

W e have seen criminal justice information systems unfold without~

in my judgment, Congress having had an early enough and strong

enough role in assessment. Ahead lie the likely Systems fo r

a national health insurance system, a welfare-reform program ,

and for government reorganizations of the kind that President-elect

Carter has firmly promised. I suggest that a sound and searching

review of TAS by an appropriate OTA-assisted effort, in conjunction

with Congress, would be an excellent first step by OTA into an

area that needs its attention. To be sure) there are other important

actors in the process, from the General Accounting Office and

the National Bureau of Standards to important private and semiofficial bodies, such as the National Academy of Sciences. In

my view, though, OTA has the best and broadest mandate to

consider every aspect of a technological innovation or application,

and I strongly urge it to do so in the case of TAS.

I would be happy to help in any further way in the preparation

or presentation of this Report. Please don’t hesitate to call

on me.

Alan F. Westin

Professor of Public Law and Government

Panel Chairman

149
8T. LOU1S. MISSOURI 68130

DEPARTMENT O F SOCIOLOGY

Box 1113

(314] 863-0100

STA. 4430

July 28, 1976

Congress of the U. S.

Office of Technology Assessment

Washington DC 20510

Attn: Ms. Marcia MacNaughton

Dear Ms. MacNaughton:

Enclosed is a draft of some of my comments on TAS.

Hope they are helpful.

Sincerely,

/=3

151
Working Paper

July 23, 1976

Robert Boguslaw

Comments on the Proposed Computerized

Tax Administration System

I . The System Description Book

A. The Selection Method (p. 1-12 ff)

In explaining the technical basis for selection of the TAS, it is

stated, “In any problem-solving endeavor, the fundamental method remains

constant: first determine, define, and describe the problem; second, consider

and evaluate potential solutions in accordance with criteria established by

the nature of the problem and of the problem-solver; third, select the most

favored solution in accordance with the evaluation; last, acquire and apply

the solution.”

Comment

The very next sentence in this text begins by saying, “When this

method is employed to reach a large automated solution? that is a computer

system... .“ There is nothing at this point to suggest that the problemsolving endeavor must or should lead to a “large automated solution.”

Sound “problem-solving practice, “on the contrary would presumably insist

upon a detailed consideration of the steps stated in the opening paragraph.

The mode of reasoning and expression actually used presupposes the solution,

i.e . the development of a new computer system. It raises the question as

to whether we are being confronted with what is essentially a prefabricated

solution in search of a problem and a constituency rather than sound problemsolving behavior.

I am not suggesting that there has been any deliberate or conscious

effort to circumvent appropriate system analysis? design and evaluation

techniques. The fact of the matter seems to be that the ground rules under

which this analysis was carried out implicitly required the analysts to adopt

what is essentially a subsystem or “bureaucratic” perspective. They assumed

as immutable givens --like the rising and setting of the sun or the rotation

of the earth-- such matters as the corpus of regulation and law whose penultimate

creator is the Congress of the United States. But what this creator has wrought,

presumably,it can undo or.modify after the fashion of creative creators= With

the establishment of the Office of Technology Assessment~ it is possible to

regard much of what previously was regarded as unalterable as now being subject

to change. A meaningful cost benefit analysis under these conditions would

seem to require that Congress be presented with the costs in both money~ time

and “justice” of its tax structure. For example, one might well wish to

examine the question about the benefits to be derived from a thoroughgoing

simplification of the tax code. At what point would simplification obviate

the necessity for TAS? What other benefits could be derived from this?

Nothing approaching such an assessment seems to

standable reasons) in connection with the work

alternatives considered are various computer or

“selection” method specifically did not include

tax administration systems.

152

have been done (for underleading to TAS. The only

“hardware” systems. The

consideration of alternative
Working Paper

JUly 23, 1976

Robert Boguslaw

B. Satisfaction of Service Requirements

“The approach taken to select the TAS design has produced a system

that fully meets the expressed user needs. ...” (p. 1-13)

It-is not at all clear who the “users” of the system are and the

sense in which their needs have been met. Here again the difficulty seems

to arise from the fact that the perspective used in connection with TAS is

one limited to subsystem concerns. The “users” of the system may well

include members of Congress, the general public, as well as employees of IRS.

Certainly the concerns for individual privacy as well as responsibility for

insuring it extends to these “users.” There is no indication, however, of

the details of the methods used to assess user needs or who has been defined

as a “user.” Without such a specification ncne of the following considerations are at all clear: 1) What problem TAS is designed to solve.

2) For whom does the problem constitute a problem. 3) Who has a “need”

to know various classes of information. 4) How is invasion of privacy” to

be defined, i.e. who does not “need” to know various categories of information.

5) The reasons, i.e. the value premises, which state that a “need” is a “need”

and an authorized person is an authorized person. For example, does the need

of an incumbent president to win an election constitute a legitimate need?

Does the need of an administrator to maximize his budget allocation constitute

a legitimate need? If not, there seems to be nothing in the TAS proposal to

this point which makes clear the basis for these or contrary value judgments.

User Requ irements

“All users desire quick access to taxpayer account data” (p. 2-14)

It is clear from the discussion under this heading that immediate

on-line access is not required for many aspects of IRS administration.

What causes the need for immediate access? Is there legislation

which could modify or eliminate this need? In cost benefit terms “how much is

such immediate access worth?” i.e. what costs would be incurred by a system

providing something less than immediate access?

Here again it is apparent that the designers of TAS necessarily used

the assumption that the existing structure of tax legislation would remain

essentially unchanged or that it would increase in complexity as time went on.

No consideration was given to the possibility that previous experience could

be reversed--that tax law and associated procedures might be simplified. NO

cost benefit analysis was prepared to demonstrate the relative costs and

benefits of legislative or administrative items contributing to increased

complexity and the need for expensive hardware and software.

c. System Analysis and Design

Here

well-supported

requirements.”

one must dispute the concluding statement that

on technical and cost-benefit foundations, and

(p. 3-17). As I have previously suggested, the

153

“The design is

meets all user

analysis was
Working Paper

July 23, 1976

Robert Boguslaw

conducted from a perspective that did not contemplate possible serious modifications of recent trends in the direction of an ever-increasing complexity

of tax law and administrative regulations. A system analysis of the Federal

tax system has not been done. A cost-benefit analysis of significant elements

in the existing system versus possible alternatives has not been undertaken.

This is not to suggest incompetence or worse on the part of those who have

undertaken the analysis and design. It is simply to suggest that the ground

rules under which they operated have been changed with the establishment of

the Office of Technology Assessment. Hopefully, this instrument of Congress

will not feel constrained to the same extent by existing statutes or procedures

and will encourage IRS and other agencies to undertake system analyses which

are not limit~ to narrow bureaucratic horizons.

I I . Privacy Protection

The Privacy Protection Study Commission has analyzed various

‘disclosures ” occurring under the present system and recommended “those which

should be expressly approved by statute...and which should be terminated”

(Report of privacy protection Study commission, p 35).

Comment:

The entire discussion of “disclosure” in this document and elsewhere

seems to be predicated upon the existence of a technology providing “absolute”

safeguarding of information. Within the framework of such a technology only

duly authorized bit-s of information can be released “legally.”

A manual file system seems to be the implicit model of technology upon

which the superstructure of law relating to disclosure is based. Under a

manual system the matter of disclosure versus nondisclosure seems to be fairly

clear cut. File clerks and secretaries having access to information can be

given more or less specific instructions about disclosure and violations can

be punished.

But it may well be the case that the concept of disclosure must be

modified in important ways under conditions of large scale computer technology.

Any computer system will tend to increase the number of persons who must have

technical access to all or significant portions of available information.

Replacing the access of typists and file clerks are such technicians as

computer programmers and their supervisors, hardware maintenance personnel

and their supervisors, console operators, etc. Programming errors or inexactitudes, hardware malfunctioning, etc. can result in more extensive system-wide

problems requiring additional access by technicians. When requirements for

avoiding “disclosure” are imposed, checkout procedures can be made much more

difficult and scrutiny or monitoring by “lay” persons difficult to exercise.

Thus a new range of definitional problems is posed: What is meant by

the word “allowed?” Is it “allowed” for a computer programmer to discuss a

file with his superiors? Is it “allowed” for a computer engineer or maintenance

mechanic to discuss a problem about difficulties in accessing information with

his peers or supervisors? How about personnel of a subcontractor who produced

some related equipment? It is often difficult to determine whether a specific

difficulty is due to a “software” or a “hardware” difficulty. Does it require

154
Working Paper

July 23, 1976

Robert Boguslaw

an act of Congress to bring in an outsider on these problems? May the programmer or engineer prepare reports about the difficulties they have encountered in the course of their work? May these reports be “checked” by higher

officials or others What is allowed?

In connection with all this, experience with safeguarding military

information may not be especially relevant. Industrial firms in competition

with each other are in some ways analagous to warring military organizations.

Industrial espionage, under some variants of TAS, may well make military

espionage throughout history look like very small potatoes. One can readily

contemplate the prospect of computer firms paying for the privilege of

providing technical support to TAS.

III . Other Social and Political Implications

User requirements for TAS are related to the year 1985, “chosen

because it is the latest year for which the Service has reliable projections

from the Statistics Division on tax administration workload.”

The “reliability” of these projections is of course~ dependent uPon the

reliability of Congress in refraining from engaging in any significant overhaul

of the existing tax structure. Beyond this, however, the year 1985 has its own

significance in arriving one year after the era immortalized by George Orwell.

One of the most interesting features of this era was the virtual non-existence

of privacy as defined by Alan Westin, i.e.~ “The claim of individuals, groups

or institutions to determine for themselves when, how and to what extent

information about them is communicated to others.”

About a decade ago, Mr. Westin (in his book Privacy and Freedom) was

optimistic about the potentialities of computer technology as the ultimate

champion of individual privacy and freedom. For all its problems of

control, he said, there is far more possibility of installing and maintaining

protection of individual privacy in computer information and intelligence

than there is with wiretapping and eavesdropping. “To that extent,” he said,

“the advanced technology which produced the physical-surveillance devices may

make them expendable by a still greater advance in technology, the computer

information system. And I wonder what Orwell would have said about that.”

In commenting upon this query in a review for the American Sociological

Review, I suggested that George might have shook his head sadly, turned and

slowly walked away.

The point was that all of the controls in which Mr. Westin apparently

placed so much faith would have been perfectly acceptable to Big Brother and

his henchmen. What were these controls? They were 1) input controls, e.g.,

limiting those who are allowed to put information into the systems or classi -

fying all information as it arrives according to a sensitivity code from

public-record to sensitive , 2) storage controls, e.g., physical safeguards

against outsiders tapping in or tampering with stored data. This would include

background investigations and normal security controls over computer pe=onnell

etc., 3) output controls, e.g., locks preventing access to information without

155
Working Paper

July 23, 1976

Roberg Boguslaw

an appropriate password for the type or class of information sought; automatic recording of all inquiries for information and immediate verification

that they come from the proper source, etc.

Control corrupts; absolute control corrupts absolutely. The offices of

the Joint Chiefs of Staff, I observed, are scarcely sanctuaries for individual

freedom because visitors are screened. The CIA is scarcely a beacon of

individual freedom because its files are labeled with varying degrees of

security classification. The State Department does not become a stronghold

of individual freedom and democracy because its key personnel have had background investigations. And police stations are not fortresses for the defense

of individual freedom because only “proper sources” are given access to

police records.

I neglected to mention the White House as a specific example, but as.

recent events have demonstrated, even that place did not prove to be a

sanctuary from the insidious effects of control..

How does one stop the drift toward 1984 in this area? For Mr. Westin,

as a lawyer and a civil libertarian, the solution was perhaps inescapably

posed in terms of legal and ethical remedies. The right of decision over

one’s own private personality should be defined as a property right “with all

the restraints on interference by public and private authorities and dueprocess guarantees that our law of property has been so skillful in devising.”

Ethical developments would range from “educating a socially conscious professional group of information keepers to official licensing with high qualifications, as well as the development of a code of ethics for the computer

profession.”

In a nicer society and a nicer world, I suggested, Mr. Westin’s concerns

could be safely ignored. In the world with which we are familiar, they seem

to begin at the wrong level. It is not simply that we have become disillusioned with White House lawyers and Attorney Generals whose observance of

ethical standards for public service and law seem to have been more or less

predictably corrupt. Or that the due process guarantees of property law did

not help reluctant contributors to campaign funds retain their money. Or that,

to judge from recent evidence, the public’s property has not been brilliantly

protected by lawyers in the highest places.

Beyond this lie some much more fundamental issues. One of these has to

do with the norm of privacy itself. Some serious observers have suggested

it may be more important, from a moral perspective, to surrender privacy than

to protect it.

It is i.nteresti.ng to observe that current preoccupations with the need

to protect privacy goes along with public behavior that seems to move i.n the

opposite direction. The burgeoning of group psychotherapy and encounter

groups, attacks on conventional inhibitions in language, dress and sex behavior

can all probably be scored as evidence that what contemporary men and women

think they need for “mental health” and even for “freedom” is less rather than

more privacy. In the political sphere, powerful public cases have been made

156
Working Paper

July 23, 1976

Robert Boguslaw

for the thesis that one of the prime sources of aberrant international

policy is excessive privacy and secrecy within the federal bureaucracy and

within the councils of various economic and political elites.

A sociologist will inevitably be led to ponder over the characteristics

of a society which privacy safeguards become necessary.

What is it about American society that makes privacy invasion such a

profitable vocation and fascinating avocation? To what extent can privacy

itself be used as a mechanism for political and economic power in contemporary society? To what extent, on the other hand, is its invasion a necessary

prerequisite for healthy social change? The technological controls listed

above in connection with computers would seem to insure privacy primarily for

guardians of the status quo--or for technical, economic or political elites

and their sponsors. Is more privacy the solution to our problems--especially

as we contemplate the aftermath of Watergate? Or would we rather be more

concerned with eliminating the need and payoff for both excessive secrecy and

privacy invasion on every level of political, social and personal life?

Specifically, with respect to TAS, it seems legitimate to raise the

question as to whether TAS (unwittingly) is a system oriented toward increased

surveillance of middle class and working class taxpayers~ while having

relatively few consequences for corporate and upper class taxpayers. Thus,

would more generous “standard” exemptions lead to increased benefits in the

form of reduced costs of administration and equipment--to say nothing of

eliminating much of the need for privacy among individual taxpayers in the

working and middle class?

Does increased computerization of IRS procedures work to the advantage

of corporate and other taxpayers who can afford the legal and accounting

advice which will enable them to conform~superficially~ to acceptable standards

(i.e., to remain below the limits of deviation posed by Discriminant Function

scores, etc.)?

In short, from a social and political perspective, the threat posed by

TAS is not simply the possibility of increased scrutiny of all taxpayers, but

rather the prospects for more effective scrutiny of some and less de facto

scrutiny of others.

157
APPENDIX 7C

410 F I R S T S T R E E T, S . E ,, W A S H I N G T ON, D. C. 20003 (202) 544-1681

CHARLES MORGAN, JR

Director

JAY A MILLER

Assoctate Director

HOPE EASTMAN

Associate DI rector

July 8, 1976

Marcia MacNaughto n

Office of Technology Assessmen t

united States Congres s

Washington, D.C . 2051 0

Dear Marcia:

As per our telephone conversation of last week,

I am summarizing my major concerns about the TAS system.

First, I must say that I still believe we do not understand precisely what TAS is intended to do. Therefor e

as a minimum , IRS or OTA must prepare a layman’s description of TAS and its intended improvement over existing

systems.

We learned in the panel that (1) TAS is intende d

to expedite (from weeks to micro-seconds) the accessibilit y

of Taxpayer Account Information ; and (2) TAS will facilitat e

the linking of disparate data files maintained on tax -

payers in IRS (the related standard forms on the same tax -

payers) . While both of these objectives are laudabl e

and obviously worthwhile from a management perspective ,

what impact will these major improvements have upon tax -

payers rights ?

At least with respect to the first improvement, faster

accessibility, TAS is quite similar to NCIC. Therefore it

may have a quite subtle impact upon tax law enforcement,

as did the NCIC system upon police law enforcement. For

example, NCIC and automating rap sheets made possible the

use of rap sheets in instantaneous decision making (e.g.

in stop and frisk situations) , where the opportunity fo r

abuse (as a basis for subsequent arrest or detention) wa s

159
greater. Prior to automation, manual arrest record systems

could only be used in more benign situations (e.g. setting

bail), because of the slow process of access (at least

two weeks for FBI rap sheets) .

We don’t know enough about tax enforcement to know what

similar opportunities for abuse might be presented by faster

accessibility to Tax Account Information. For example, the

Church Committee pointed up the problem with Special Enforcement Programs (against ideological organizations and individuals

as well as against organized crime figures) . TAS may facilitate

those programs of so-called “unbalanced” tax enforcement. Perhaps this system might encourage IRS auditors to run so-called

compliance checks, either on enemies (ideological, political,

organized crime or whoever) where the cumbersome manual system

discourages such requests.

OTA must talk to experts in tax enforcement (former assistant

commissioners for Audit and Compliance and IRS investigators

knowledgahle about IRS organized crime programs) to understand

the implications of faster accessibility. We should also have a

complete understanding of precisely what data elements will be

automated, in particular which elements in matching or interlocking files will be automated. For example, will information

(even in public files) on exempt organizations, including contributors, be audited? I certainly am not deterred by arguments

that tax exempt organization files are public records. After

all, so are arrest records.

There is a real vacuum in the literature and research on IRS

pertaining to all of these questions. For example, the report by

the Administrative Conference focuses on the problem of termination

and jeopardy assessments and other forms of action taken by IRS

against taxpayers after they have been selected out for audit.

Other materials that we have looked at have focused on the problems

of collection of information in automated data banks like IGRS of

information that does not come from tax forms but other sources,

e.g. informants.

Neither of these problems is the focus of my concern with TAS .

My primary concern with TAS is that it will facilitate the selectio n

out of individuals for compliance checks and audits which may i n

the long run result in jeopardy assessments or other forms o f

action against taxpayers where tax violations are uncovered . T h e

problem with TAS then , is that it may be used to facilitat e

so-calle d “unbalanced ” tax enforcement and greater scrutin y

of certain classes of taxpayers . This problem was only touche d

on by the Church Committee and obviously needs a great deal o f

further study . The problem of collecting and automating informatio n

which does not come from tax forms can easily be dealt with vi a

prohibitions on the collection of constitutionally protected infor -

mation such as information related to political activities, speec h

160
or petition for redress of grievances. Obviously this is a fertile

ground which must be researched by OTA or some organization before

the technological and civil liberties impact of TAS can be assessed.

These are only a few of my concerns recorded off the top

of my head. They are my personal concerns and do not represent the position of the ACLU. Furthermore, I could not

even recommend a position to Hope or the ACLU until these

questions have been explored at greater depth. I would

think that the panel must meet at least one more time to

consider issues such as these on its own, perhaps without

IRS people. At that time we could consider further a

proposal to OTA for technological assessment.

Sincerely ,

Mark Gitenstein

MG:cb

161
APPENDIX 7d

PROPOSED PRIVACY AND SECURITY REVIEW METHODOLOGY

FOR EXAMINING THE IRS PROPOSED TAX ADMINISTRATION SYSTEM

DONN B. PARKER

STANFORD RESEARCH INSTITUTE

JUNE 1976

A scenario analysis approach is suggestid as a means for a small grOUP of experts with limited

resources and time to evaluate a large, proposed computer system regarding privacy and security.

The purpose is to determine the adequacy

and using it to assure acceptably low levels

and safeguards. Anticipated threats include

losses.

METHOD

of a proposed system and the organization developing

of risks through establishment of cost effective controls

disasters, errors and omissions and intentionally caused

1.

2.

3.

4.

5.

6.

Identify assets and victims subject to loss. (See enclosed Figure 1)

Identify threats using a taxonomy suggested in Figure 2.

Develop threat and loss scenarios in the form of a collection of narratives, each encompassing

a broad range of related incidents. (See enclosed Figures 3 and 4)

● System life cycles phases covered:

– Design

– Development

— Test/acceptance

— Implementation

– Operation/maintenance/update

● Use aids such as published checklists, NBS publications and results of computer abuse

studies (see Figure 5) including disinters, errors and omissions, information and property

fraud and theft, financial fraud and theft and unauthorized use of services.

Present the threat scenarios to IRS and request analyses and responses including descriptions

of controls and safeguards and resulting risk reductions.

Evaluate IRS responses for adequacy and cost and risk effectiveness. A list of principles such

as in Figure 6 can be applied to evaluate controls and safeguards.

Rank and classify risks and protection in the following categories:

a. High risk Inadequate protection

b. Low risk Inadequate protection

c. High risk Adequate protection

d. Low risk Adequate protection

Publish recommendations.

163
JUSTIFICATION AND BENEFITS

This method of evaluation minimizes the work effort of a panel of experts and puts the burden

on IRS to demonstrate adequacy of the proposed system relative to the panel’s challenges. (The

usual process is the reverse, requiring the panel to study massive amounts of documentation. )

The scenario method creates easily understood descriptions of potential problems in an interesting and dramatic fashion.

Although a comprehensive analysis of all weaknesses and probIems is not guaranteed by this

method, no other method using limited resources can achieve this goal either. In addition, this

method provides a means of establishing a confidence level of the IRS staff capability, awareness

and sensitivity in dealing with the total problem of privacy and security.

164
APPENDIX 7e

WASHINGTON OFFICE

AMERICAN CIVIL LIBERTIES UNION

410 F I R S T S T R E E T, S . E ., W A S H I N G T O N , D. C. 20003 (202) 544-1681

CHARLES MORGAN, JR

Director

JAY A MILLER

Associate Director

HOPE EASTMAN

Associate DI rector

November 9, 1976

Ms. Marsha MacNaughton

Off ice of Technology Assessment

Congress of the United States

Washington, D. C. 20510

Dear Ms. MacNaughton:

I have reviewed the draft of your report for the

Office of Technology Assessment on the proposed Tax

Administration System (TAS) of the Internal Revenue

Service. While the report raises many important technological and social questions about the system, I do

not believe that it recommends strongly enough that no

Congressional approval or financing be given to this

system without extensive public hearings and debate.

The TAS is an enormous and costly system which will

computerize highly personal information on the entire

citizenry, make it instantly retrievable from thousands

of remote terminals? and provide an attractive data base

for linkage with other government systems. Inevitably it

will be a prototype for future computerization of government records on individuals.

The report properly identifies those questions of

public importance which are raised by the technology of

the system. Both the new Administration and the Congress

need to examine them very closely before making any decisions. Without attempting to comment or restate the basic

social questions which must be resolved first, I would

like to make one observation which I think has not been

adequately dealt with in the draft report. If there is a

decision to proceed with the system in the face of the

increased potential for invasion of privacy by government

and others, then a much tougher set of safeguards and

165
penalties must be required. Special attention must be

paid to the problem of official abuse of tax information

for political purposes.

Decentralization of the records exacerbates this problem .

It will be much easier for government officials, federal ,

state and local, to develop the cozy relationships on th e

local level which will make possible abuse of tax return in -

formation . There is also highly increased potential for im -

proper private access to this tax return information. I n

addition to an expanded group of criminal and civil penalties ,

it needs to be made clear that civil remedies will be avail -

able to anyone injured by abuse of information . The govern -

ment should be obliged to notify victims when evidence of abus e

comes to its attention . To enforce that obligation and t o

deter those with incentive to seek improper access and use ,

an obligation should be placed on any employee with access t o

information to report to an agency outside the IRS imprope r

access, or requests therefor~made to an employee or to others .

I am hopeful that the publication of this report will be

the first step in a careful public debate on this issue. I

am happy to have had a chance to participate.

Associate Directo r

HE: meg

166
APPENDIX 7f

AMERICAN 1120 Connecticut Avenue. N.W.

BANKERS Washington. D.C.

ASSOCIATION 20036

G E NERAL COUNSEL AND SECR ETARY

Witllivn H. Smith

202)467-4240

November 11, 1976

Marcia MacNaughton

Office of Technological Assessment

Congress of the United States

Washington, D. C. 20510

Dear Marcia:

In a way I am disappointed that more time is not available to Study

and comment on the working COPY of the draft OTA report on the proposed

Tax Administration SY Stern of the Internal Revenue Service. On the other

hand, I am really not sure that I might productively make use of any

additional time since I doubt that line-for-line ~ page -by- page comments

and reactions would be Very helpful to OTA

t

s analysis of responses and

its obligation to present to the Congressional Boa r~ the substance of this

undertaking to date .

I have been over the material twice. In a first reading I concluded

that the report is terribly biased against any reasonably prompt approval

and installation of the TAS system as it has been proposed by the

Commissioner of Internal Revenue. However, 1 recognize that I also

have a bias at work and decided that it would not be fair for me to speak

from that bias without a second reading.

I have now completed that Second reading and I acknowledge that the

report does at least point to most, if not all, of the considerations tha t

should be taken into account in deciding an important question of this kind .

At the same time, and I think without reflecting my bias in any way, I

believe the report is seriously out of balance in that considerations that

favor adoption of a system that will make tax administration more

effective are treated almost perfunctorily. On the other hand, considerations

such as security, privacy, individual rights, confidentiality, equity, equal

protection of the laws, etc. , are examined in substantial detail and in a way

that suggests that each must be dealt with in a most complete and reassuring

way before the Internal Revenue Service might be authorized to arrange for

the procurement of the equipment necessary to place the system in use. I

167
Marcia MacNaughton

AMERICAN CONTINUING OUR UTTER OF

BANKERS

ASSOCIATION November 11, 1976

SHEET NO. 2

appreciate that the tenor, the tone and the direction of the draft OTA

report may in substantial measure reflect the charge from the Chairman

of the House Ways and Means Committee and the Subcommittee on

Oversight; in short, one can interpret that charge to mean that TAS by

its very nature calls for safeguards that will prevent it from becoming

a system of harrassment, surveillance Y

and political manipulation.

I think this is regrettable because I sincerely believe that more is being

made out of this problem than is really necessary, and because the charg e

must be based on apprehension rather than hard past evidence. In that

same way, the draft report tends to miror a Vague and unsubstantiated

apprehension.

Although the draft report does not try to settle the question with an

unequivocal recommendation,

it is pretty clear that a hearing is thought

to be the best way to get at all of the issues which have been raised so

that they can be disposed of one way or another. I see no need for a

hearing and submit that it would be sheer ‘overkill’ to use such a forum to

get at the problem. First, the system is adequately described and we all

know what it is designed to do and how it will be used. Second, safeguards

exist today and I have not yet seen any evidence that would suggest that

more need to be imposed upon this system. Finally, there ought to be

more r e cognition of the enormous responsibility carried by the Commissioner

in processing hundreds of millions of tax returns annually, and his need to

be allowed to upgrade today’s system in the absence of clear- cut evidence

,showing a need to slow him down any longer.

I appreciate that the report acknowledges the point I am about to

make, but perhaps not in the way I intend to make it. I believe -- indeed I

know -- that the Congress and the Office of Technological Assessment would

not even be addressing this question but for the state of the technology when

the current automated system used by IRS was installed 15 years ago.

Parenthetically, let me observe that the report notes that TAS is a “mere

automation” of today’s system; nothing could be further from the actual

fact. It will be difficult for anyone to point to a more highly automated

business /accounting system than that which the Service has been using for

the past 15 years.

168
Marcia MacNaughton

AMERICAN CONnNUING OUR IIllTR OF

BANKERS

ASSOCIATION November 11, 1976

SHEFINO. 3

The basic system was designed in 1958 and it could have accomodated

a number of technological and equipment configurations. For a variety of

reasons that I will be happy to go into at a later time if it should be

necessary, the de signers in 1958- 1960 preferred and could have made out

a strong case for the use of a random system. Unfortunately, the state of

the technology at that time simply Would not support this approach and it

was ne c ess a r y to adopt the ordered s e quentials batch pro c ess ing system

that the Service continues use today= This latter system has many

inefficienciess and handicaps, but it could continue to serve the needs of the

Tax Administrator for an indeterminate period. However, why should one

continue to drive a one -horse shay? The answer to this question is obvious.

First, the payoff for a more efficient random system is stificiently

promising that on a cost effectiveness basis I assume that much of the expense

attached to changeover and equipment acquisition will be recovered in time.

To the extent that is not the case, this is merely an illustration of capital

cos ts that must be incurred to enable tie Commissione r to keep pace with

enormous workloads .

Also, when the IRS proposal for TAS is stripped of all of its “bells

and whist les, it merely represents a conversion from a batch processing

system to a random system. unfortunately, ‘the Executive Branch is sometimes inclined to dramatize out of all proportion that which will be achieved

by new proposals. In a way this is understandable since it is yery difficult

otherwise for a proposition with high start-up costs to survive the budgetary

process -- particularly when, as in fiis case, we are talking about the

expenditure of $750 million. This is unfortunate because if the system is

ess entially a mere conversion of today’s array of taxpayer records from one

storage medium to another with an enhanced capability for retrieval,

posting and use of the updated record -- and I submit that is the case -- then

all the issues bound up in privacy confidentiality~ security, etc. , etc. ,

are quest ions that should be addressed **out regard to the proposal to

adopt the TA S system. And I submit that to the best of my knowledge the

evidence is simply not available fiat today’s system has been s o abused so as

to call for that kind of investigation.

I acknowledge that the Internal Revenue Service is frequently in the

press. I acknowledge that the agency has been guilty of excesses and abuses,

but I am far from convinced that even these have occurred in the magnitude

often sugge steal, and unfortunately the resulting impression too often cove rs

up the very fine Work done by this agency uncle r the most trying circumstances.

However, the important thing is that there does not seem to be any evidence

that today’s automated system was the source of any breach of privacy,

confidentiality, security, or whatever. Does the enhanced capability of TAS

en.large the possibility of such abuses in any significant way? I think not.

169
Marcia MacNaughton

AMERICAN

BANKERS

ASSOCIATION

CONllNUINGOUR l.EITER OF

November 11, 197

SHEIT NO. 4

why is this? In my opinion it is because the processing system is so

set apart from the enforcement operations of the Internal Revenue Service.

The people who staff the IRS Service Centers and the Computer Center have

a different mind set than those charged with the enforcement of a very

complex taxing statute. There is no inclination on the part of processing

personnel to play games. These individuals recognize that they are simply

char ged with a responsibility to extract data from tax returns; r e co rd it in

a machine-readable form so that it is readily convertible to magnetic tape

from which a file of taxpayer information may be established, updated, and

used to satisfy a variety of what are really very mundane tax administration

needs! The simply truth is that this is a mere accounting file and it is the

fulfillment of the accounting function that is its principal purpose.

Despite any of this, an important safeguard against abuse exists

already. Indeed, the Tax Reform Act of 1976 may very well supply all the

safeguards necessary to assure the privacy and the confidentiality of data

extract ed from tax returns today or uncle r the proposed TAS s y stem. It is

my opinion that the current files and those that would be c reatd uncle r TAS

are covered by the definition of “Tax Return Information” as this is used

in the Tax Reform Act of 1976. Thus, disclosure of any information will

be seriously dealt with. Indeed, the Ways and Means Committee -- the

very committee that has asked for an evaluation of the TAS system -- has

upgraded the crime of disclosure from misdemeanor to felony and has

upgraded the penalties from $1, 000 to $5, 000 and one year in jail to five

years in jail. I believe that the possibility of actionable disclosure has

been effectively eliminated by the Congress.

However, I suppose one can speculate that in the absence of other

safe guards the re could be unintended disclosure that occurs simply because

of the nature of TAS and the way that s y stem would work. I have thought

about this and without reaching -- indeed perhaps over r caching -- I simply

have not been able to conceive of unintended breaches of security or privacy

or confidentiality that might occur. I have no objection to setting other

safeguards in place in order to guard against abuses of the kind that

obviously are of concern in the draft OTA report. However, I must confess

that I do not know what practical safeguards there are, but if there are any,

then I hope that they can be set down quickly and imposed in a way that will

not overburden the system and render it less effective.

170
Marcia MacNaughton

AMERICAN CONTINUING OUR W7ER OF

BANKERS

ASSOCIATION November 11, 1976

SHEET NO. 5

The draft report also makes the point that “Oversight’l is an important

element that deserves attention, and I agree with this. However, I think

the machinery is already available. It has been used before by the Joint

Committee on Internal Revenue Taxation and its use has been reinforced

by some of the provisions of the Tax Reform Act of 1976. The Joint

Committee on Internal Revenue Taxation is authorized to use the General

Accounting Office for oversight and for investigation of any irregularities

or abuses that may come to its attention. Indeed, it may do this without

evidence of irregularities or abuses -- simply to assure itself that tax

administration is functioning in the way intended by the legislative branch

of the government. Thus, I think there is an adequate provision for

oversight and if properly used it should also put to rest many of the concerns

which have been expressed about the issues taken Up in the d r aft report.

In closing, I hope that this letter will enable those who have the

concerns expressed in the draft report to appreciate that they may be out

of all proportion to past evidence and to the prospect of excesses, abuses,

violations, accidental occurrences, or whatever in the future. Let me

als o note that the Section of Taxation of the American Bar Association is

inte re steal in this matter. Indeed, I feel I can safely say that the Section

would appreciate the opportunity to be brought into things and to express its

views with respect to the issues uncle r con side ration by the Office of

Technological Assessment on behalf of the Committee on Ways and Means

of the House of Representatives and the Subcommittee on Oversight of that

committee. For that reason, I propose to send a copy of this letter to

inte re steal officials of the Section of Taxation.

I appreciate very much the opportunist y that you have afforded me to

comment on OTAf

s draft report.

Sincerely, ●

&

William H. Smith

c c : Messrs. Harris, Pennell, Lefevre, Liles, Asbill, Delaney, Corey

171
APPENDIX 7g

March 8, 1977

Ms. Marcia MacNaughton

Office of Technology Assessment

Congress of the United States

Washington, D.C. 20510

Dear Marcia:

Having reviewed the Draft of the OTA Report “Investigation of a

Request to Assess the IRS Tax Administration System,” I would

comment that it is a precedent-setting report. I am aware of

no other report which has addressed such a conglomerate of issues

of societal, public and governmental import associated with a

highly complex automated information system as epitomized by the

IRS TAS.

The typical review or audit report contents itself with the

more tangible but less disquieting questions of physical

security, size of files, costs of operation and the like. What

we fail to recognize is that we have little skill or experience

in even asking the appropriate questions to enable an adequate

technology assessment to be made of a computerized record-keeping

network which is handling information of national significance.

Even more importantly, the IRS TAS is handling information of

significance to almost every adult U.S. citizen.

OTA has made a giant step forward in its willingness to tackle

a real technological unknown, even though the Draft Report may

seem to be a very tiny step in the race towards government

accountability. As a member of the Panel, I was disappointed

that OTA’S resources only permitted the holding of one meeting.

It is not surprising that we were unable to ask but a few of

the right questions: certainly, IRS should not be chastized

for not providjng all hoped-for responses under such circumstances.

This Draft Report which, unfortunately, was able to provide few

answers should not exemplify the normal end of a dialogue between

Congress and Executive Agencies in determining and assessing

government accountability in matters of deep concern to the public

as individuals and to the public at large.

173
The key issue in such questions of accountability involving computer

systems of individual records or computer systems for funds disbursing

or near real time control functions is the issue of RISK.

We need to ask ourselves: What is the level of risk we can tolerate

with this system? What kinds of risk are we introducing with this

system? How do the risks match the gains? and, Who is having to accept

the risks as opposed to benefiting from the gains? When those who must

accept the risks are not those who obtain the benefit, then the problems

of accountability are certainly exacerbated.

The issues raised in the OTA Report highlight some of the more important

risks. The open question is who will determine what is an acceptable

level of risk. I personally believe that Congress has assigned that

responsibility to itself in the Privacy Act and in recent Commiittee

actions.

The IRS TAS is just one of the many systems for which an acceptable

level of risk must be determined. OTA has pointed out to Congress the

difficulty of the task Congress has assigned itself. The OTA Report

properly alerts Congress and the public to the danger of leaving the

issue of acceptable levels of risk unanswered.

I was very glad to participate in this important, but unfinished exercise. 1 would like to endorse OTA’S entry into this area of technology

assessment typified by uncertainties, unknowns and indeterminables.

Sincerely,

Ruth M. Davis, Ph.D.

Director

Institute for Computer

Sciences and Technology

174
APPENDIX 7g – WORKING PAPER, AUGUST 1976

Dr. RUTH DAVIS, DIRECTOR INSTITUTE FOR COMPUTER SCIENCES

AND TECHNOLOGY, NATIONAL BUREAU OF STANDARDS,

U.s Owr. OF COMMERCE

Cm$mm$rrs AND SUGGE’s’mMw mNamwNG ‘mm MIvmw

OF THE m’ts PlWK3SEi) TAX ADWNISTUkTIION SYSTEM @’iAS)

A. Anyone can get lqrwlesdy mddlled in atmessilrg ‘a bmna.hz“ ed system uuch as T’AS for

accomplishing prescribed fumctiams dess a clear separation is made ~ÿ•~ the severa l

areas of concern, for exarrqikx

CONCERNS ABOUT:

1. The legislated or chartered miissicm of the ~ in #h”i.dh tlw fmmallbd

system ‘is embedded; m this awe, Ithe IRS.

Here, one appropriately .agksqu.esticmsztb out:

● The appropriateness of the miission m- b - ~=wessed reeds and feam of

the public.

. The political implications of the miatin=d lkwkmndbg of the miasim.

● Means of identifying the scope md.c!imnges tmfie scope of the ni.ki&m.

● Means and agents for accountability to ~-e=, the ‘l%seidmrt, A & @lie

in mission accornplishwmt. This ticludes IWtilaocountdxii.

● Etc.

3. The manner in which the means for carrying att me IRS missinn mmE4B -

legislated or executive requirements, e.g., b - Act of 1974, the %ham&ne”

Act, etc.

4. The ability of the organization, ~~, to =~ci= ~equate control to mmme that it

can meet its legislated or asaigned xeqmnsihility: lldddkmwy, ~ must be kble b

maintain continuity of operati~~. ‘H=, ‘one ~~ t@c~#@= that qgciing aiwessments, task grO Up S established to ~@ IMId -e co~erns, etc., din d *

the right to undermine or interfere - Il#llS managernent of its assigned functicms

until or unless alleged wrongs are wfiti ~~ements for chnge pF _ y

authorized. The American legal truism d

“A person is innocent until proven guilty”

presumably is equally applicable to corpmazte pmwams ~mqganizaticms.

5. The formalized system, which is the target of h aa=mmant, in this H, TAS.

Here, one appropriately asks questions such as:

● Do the prescribed ~ystem functions match directly with pozbicw of the legislated IRS mission?

175
● Does TAS improve or degrade IRS’ need to be accountable for its performance

to Congress, the President, and the public (including fiscal accountability)?

● What are the known threats to and Vulnerabilities of TAS?

● Does TAS increase — or decrease — the means and potential for allaying identifiable fears and abuses of individuals and organizations?

● What alternatives or options to TAS exist (and have been assessed) as means for

IRS to carry out its responsibility and to ensure continuity of operations?

● The specific manner in which the formalized system, e.g., TAS meets specific

requirements, e.g., the Privacy Act of 1974.

● Where are the points of accountability and responsibility within IRS for the

various aspects of TAS performance, propriety and the like?

B. I would suggest that OTA’S assessment of TAS focus on items 1.A.2 and 5, i.e.,

“2. Identifiable fears and abuses of individuals and organizations resulting

from carrying out the IRS mission,” and

6 5. The formalized system TAS as it is embedded in the IRS management

structure. ”

In order to permit this focused attention to yield useful results, the context in which the

assessment is being made needs to be carefully described and delineated, i.e.,

“I.A.1. The legislated or chartered mission of IRS which TAS serves, and concerns about this mission.

1.A.3. The manner in which IRS meets specific requirements relevant to its

mission and to TAS’S part in carrying out this mission.

LA.4. The need for IRS to retain its ability to function properly while assessments are underway. This includes recognition — or a decision not to recognize —

that IRS (and TAS) will be “presumed innocent until proven guilty.”

II. Specific Actions Suggested for OTA’S TAS Assessments Activities

A. I would suggest that OTA can, as a result of its June 28, 1976 meeting, provide an initial

report citing:

1. Identified fears and abuses — existing and potential — associated with TAS and with

the IRS mission.

Examples as mentioned at the June 28th meeting include: overlong retention of

records, presupposition of the goodness and immutability of tax laws, inability of

IRS or TAS to resist questionable requests . . .

2. Identifiable threats to and vulnerabilities of TAS matched against (a) public fears

and abuses, and (b) specific requirements such as the Privacy Act.

3. Pros and cons of legislation aimed just at TAS as contrasted to legislation directed

to IRS’ missions and responsibilities. Examples of when legislation would and would

not help can be given.

4. The context in which the OTA assessment is being considered, see I.B. above. A

clear boundary on OTA’S effort should be described emphasizing subjects with

which OTA will not deal, e.g., internal IRS administrative matters, generally, the

appropriateness of the present legislated IRS mission, etc., and

176
5. The specific questions which OTA will address within its bounded assessment (it

is not clear to me yet that OTA has properly bounded its assessment).

B. OTA can (and I understand has done so with an initial set) provide a set of questions to

IRS for response which will be necessary for OTA’S continuing assessment. These questions should, of course, take into account the information in the draft GAO report on

IRS.

It appears there are legitimate questions to which only IRS can provide the

needed responses. These include:

1. Specific statements regarding procedures for meeting Privacy Act requirements.

2. Procedures for linkage and prevention of linkage between fields in TAS files.

3. Procedures for recording accesses to file information and for refusing access to file

information.

4. Vulnerabilities due to decentralization of functions within TAS.

5. A formalized cross-walk between information items in files and the legislated

requirements for their collection, access and retention.

177
APPENDIX 8

CORRESPONDENCE OF THE

COMMITTEE ON WAYS AND MEANS

179
NINETY-FOURTH CONGRES S

AL ULLMAI% OR&., CHAIRMAN

WILSUR D. MIIAS, ARK. HER!4AN T. SCHNEEBELI, ● A.

JA~xS A. SURKE. MASS. m ARBER e. CONABLE, J R., N.y.

DAN ROSTENKOWSKI, ILL. JOHN J. DUNCAN, TENN.

PHIL M. LANDRUM, GA. DONALD D. CIANC7. OHIO

C~ES A. VANIK. O H IO B ILL ARCHER, TCX.

OMAR BU$tLESON, TU. GUV VANDER JAGT. MlCM.

JAMES C. CORMAN , CALIF . WILLIAM A. STEIGER, WIS.

WILLIAM J. GREE N . PA. P HIL IP M. CRANE, ILI-.

SAM M. GI-NS, FIA . BILL FRENZEL, MlNH.

JOE D. WAGGDNNER. JR., LA. JAMES G. MARTIN, N-C.

JOSEPH E. KARTH, MINN. l-. A. (SKIP) IIAFAL!S, FIA.

OTIS G. PIKE. N.Y. WILLIAM M. K-NUM, CALIF.

RICNARD F. VANDER VEEN, MlCl+.

J. J. PICKLE, TEX.

HENRY HELSTOSKI, N.J.

CNARLES B . RANGEL N .Y .

WILLIAM R. CDITER, CoNN.

FORTNEY H. (PETE) STARK+ -F.

JAMES R. JONES, OKI-A.

ANOY JACOSS, JR., INIJ.

ASNER J. MIKVA, I U.

MARTNA KEYS, KANS.

JOSEPN L. PISNER. VA.

HAROLD FORD, TENN.

JOHN M. MARTIN, JR., CNIEP ~SEL

J. P. SAKER, ASSISTANT CHIEF @NSEL

JONN K. M-HSR, M1-IIW COUNSEL

APPENDIX 8a

COMMITTEE ON WAYS AND MEANS

U.S. HOUSE OF REPRESENTATIVES

WASHINGTON, D.C. 20515

TELEPHONE (202) ~

February 11, 1976

The Honorable Emilio Q. Daddario

Director, Office of Technology

Assessment

Senate Annex, Suites 721-732

119 D Street, N. E.

Washington, D. C. 20510

Dear Emilio:

Several days ago , I received a letter from The Honorabl e

Charles A. Vanik, Chairman of the Subcommittee on Oversight

of the Committee on ways and Means with respect to the new

Tax Administration System (TAS) being developed by the Internal

Revenue Service and in which he raised a number of interesting

and serious questions as to the implications of that System as

it may relate to privacy of individuals and nondisclosure and

possible improper use of income tax returns .

I enclose for your information a copy of Mr. Vanikrs

letter to me.

The purpose of my letter to YOU is to request that the

office of Technology Assessment make a review of the new Tax

Administration System (TAS) and the proposed regulations

regarding its use and in due course, report back to me and to

W. Vanik, for use in connection with Oversight subcommittee

activities, including any recommendations which you may reach as

to the significant issues which he has raised.

we will appreciate your cooperation and assi-stance with

regard to this exceedingly important matter.

JMM:fb

Encl.

cc: The Honorable Charles A. Vanik

181
8AM M. Gl ~s. P’LA.

OTIS O. PIKC. N.Y.

RWNAw F. V-CR Vrsm. Mm .

J. J. ● IC%LE. TSX.

D4SNWY 14sLSTOSUI. NA

ouat-ss B. ~ N.y .

roRrNsY H. (PrTc) mAnN, -P.

JAMCO R. JoNcq OKLA.

~ D. CLAPuY. O w o

t- A (SKIP) MFALI% -

JAMc8 a. MARTW6, N.C.

JONN J. ~. YE- .

APPENDIX 8b

COMMITTEE ON WAYS AND MEANS

U.S. HOUSE OF REPRESENTATIVES

WASHINGTON, D.C. 20515

SUBCOMM1l’TEE ON OVERSIGHT

NIN~+ OURTN CONQRtESS

AL ULLMAN, ORE6., CHAl#lMAN

COMMllTEC ON WAYS AND MEANs

MN M. MAHN. JR.. CNIEP COUNSCL

J. P. ● AKER, ASSa STANT CNISF cm.mtszL

JONN K. MSAG N~ MINORIYT CUJN -

Dt Orflao!

AL ~N. ORS= .

HERMAN T. ~EsDsLh PA .

February 3 ? 1976

Honorable Al Unman

Ckairman

Ways and Means Committee

2207 Rayburn Building

Washington * D. C. 20515

Dear Mr. Chairman;

During the January 28th hearing on the Confidenticalit y

of tax returns , I questioned IRS Commissioner Alexande r

about the disclosure implications of the new Ta x

Administration System (TAS) being developed by th e

Internal Revenue Service ,

TAS is a $400 million computer system which will

soon be let for bids , Once installed in 1981, it wil l

probably be the world’s largest and most Sophisticate d

computer system. Authorized IRS employees will be abl e

to scan the tax return of a taxpayer in a region withi n

seconds , In additio n other authorized employees will

be able to receive tax returns Of citizens from throughou t

the country within seconds , Obviously, the system wil l

greatly increase IRS efficiency and service .

.

I believe that the Commissioner has done a fine jo b

in ensuring the security of this new system . Nevertheless ,

I am concerned that the security and Confidentialit y

devices which have been planned exist only in regulations- -

and these regulations can be Changed by a stroke of the pe n

at some future date . without safeguards, the new TA S

system could become a system of harassrnen tl surveilanc e~

and political manipulation .

While it is unprecedented, I believe that the

unprecedented powers inherent in the management of the

new computer system require that we consider legislating

certain principles ab~ut the use of such equipment, i.e.,

access, audit trail, transfer of tax returns between

regions, etc.

183
Honorable Al Unman

February 3, 1976

Page Two

To ensure that the IRS has indeed considered all

of the possible safeguards for such a massive system

and to help in recommending legislation which will not

interfer with the system’s efficiency, I would like

to recommend that the Committee request the Office

of Technology Assessment to review TAS and the regulations

regarding its use, The Commissioner said that such a

study would be quite acceptable to the 1RS.

I believe that the publichs concern about government

agencies~ such as the IRS requires that We take every

step to ensure that in the future its files can never

be used for political or unconstitutional purposes% The

Oversight Subcommittee staff would be happy to work with

the Office of Technology Assessment on the details of

such a report,

Thank you for your consideration of this request~

ely yoursfl

Charles A% Vanik

Chairman

Subcommittee on Oversight

CAV/Jee

184
APPENDIX 8C

C}-IARLES A. VAN I I<

T V : L N Ti - SECOND DlsTRl~. O H I O

Us. COURT HC(JS E

cLEvuAr;D, OH!O <41 1;

(216) 222-4253

2371 RAYEURN BUILDING

WASHINGTON, D.C. 20515

(202) 225-6331

~~MB~R :

COM t41TTEE ON \vAYS

ANO MEAN S

6U=Oh!MlTTEEs :

OVERSIGHT. CHAl RMAN

HEALTH

S UITE 2 2 2

5031 MAYFIXD R3 A 0

L YNDHURST , 0,+ ID 4:1 ?.4

(216) 522-:252

February 4, 1977

Honorable Edward M. Kennedy

Chairman

Office of Technology Assessment

Room A 721, Senate Annex 1

Dear Mr. Chairman:

On January 24th, I relinquished the Chairmanship of the Ways and

Means Oversight Subcommittee and became Chairman of the Subcommittee

on Trade.

However before leaving Oversight activities, I would like to say

that I had an opportunity in the last several days to see a copy

of the draft report on the IRS Tax Administration System. I would

like to commend you and your staff for an excellent document. It

raises precisely the type of questions which were of concern to

me and provides an invaluable document for Congressional review of

the TAS system.

The new Oversight Chairman has not yet had an opportunity to read

the report, but I know that he shares many of my same concerns

about the rights of privacy, and I am sure that he will make excellent

use of your report,

Again, congratulations to OTA for an excellent report.

arles A. Vani_k

mber of Congres s

CAv/je e

185
APPENDIX 8d

SAM M. GISSONS, m., CHAIRMAN

SUBCOMMITTEE ON OVERSIGHT

NINETY-FIFTH CONGR ~

J. J. PICKLE, TEX.

CHARLES ❑ . RANCJEl_, N.Y.

FoR~Ey H . (PET E) STAR K, CA LI F .

JAMES R. JONES. OK LA.

HAROLD FORD, TENN.

RICHARD A. GEPHARDT, MO.

PHILIP M. CRAN E , IL L.

L. A. (SKIP) SAFALIS, FLA.

JAMEs Q. MARTIN, N.C.

Ex OEFICIO:

AL IJLLMAN, ORE(3.

SARBER B. CONABLE, JR., N.Y.

COMMITTEE ON WAYS AND MEANS

U.S. HOUSE OF REPRESENTATIVES

WASHINGTON, D.C. 20515

SUBCOMMITTEE ON OVERSIGHT

COMMITrEE ON WAYS AND MEANS

~ M. MARTIN, JR., CMIEF c~~ ~

J. P. BAKER. ASSlsr~ C HIEF COUNSE L

JONN K. M~ , M1-ITY COUNSE L

-

~Mt17EE srA w

LAWn~E J. ROSS, COW@3El -

February 16, 1977

Hon. Emilio Q. Daddari o

Directo r

Office of Technology Assessment

Senate Annex, 119 D Street, N. E.

Washington, ~. C. 20510

Thank you for providing the Committee with a

copy of OTAJS report on the Tax Administration

System. Although this report was originally

requested by the Ways and Means Committee and

its Subcommittee on Oversight, during the past

year, a number of other Committees have expressed

an interest in receiving copies of the study as

soon as possible.

In order that the issues involved in the interna l

Revenue Service’s new computer system may be full y

discussed as soon as possible, I would like to re -

quest that copies of your report be made availabl e

to other Committees and Members who may be interested i.n the issue .

Thank you for your assistance in this matter.

Chairman

AL:wkv

187
APPENDIX 9

Statement by Dr. Jerome Weisner, President, Massachusetts Institute of Technology;

Chairman, Advisory Council, Office of Technology Assessment, before the U.S. Senate

Judiciary Subcommittee on Constitutional Rights and the U.S. Senate

Commerce Special Subcommittee on Science, Technology, and Commerce, on

“Surveillance Technology,” 94th Cong., 1st Sess., Sept. 10, 1975 . . .

I am pleased to appear before your subcommittee once again to

talk about questions of electronic surveillance, communications, data

banks and their potential impact on privacy, because I believe that

issue is at the center of our efforts to survive as a free, democratic

society.

It is heartening that your subcommittee retains its deep concern

about the threats posed to the individual liberties and civil rights by

the modern electronic communication and information processing

capabilities and continues to seek ways of strengthening the laws that

insure those rights.

I testified regalding these problems before this same subcommittee

in 11171-albeit under different leadership. In preparation for that

testimony, I investigated the issues involved rather thoroughly.

Though I have not had the opportunity to prepare myself as well

for this appearance, I believe that I can make a useful contribution

by reviewing my earlier testimon and bringing it Up to date, particularly with regard to possible safeguards. !

We now know that individuals in this country actuallv experienced

abuses of their personal liberties that in 1971 were only theoretical

possibilities, or were merely suspected to exist.

We also know that these acts of surveillance and of,her violations of

rights of individual privacy were not merely an occasional excess, but

represented systematic behavior and therein represented a threat to

the integrity of the \’ery democratic process.

In earlier hearings witnesses told about the many possibilities for

employing electronic devices, computers, computer networks, and so

forth m surveillance activities and the committee assembled this information into a rather frightening prospectus of dangers of the constitutionally-guaranteed freedoms of us Americans.

I recall that at the time, there was a certain skepticism about, the

likelihood of the more extreme dangers described, a common belief

that the committee was alarmist.

There existed then a reluctance to create adequate safeguards against

the violations of civil rights that, unbelievably, I find still exists to

some degree even after the revelations of the extraordinary extent and

range of the violations of personal right~ of privacy that even the

highest officials of the Government have condoned and, in some cases,

apparentl.v initiated.

The reluctance to believe that such things could-happen stems partially from an unwllingness of some people to beleive that important

persons in the Government and industry would know and systematically violate laws and, I fear, in part from the’widespread belief

already alluded to by you that because the primary targets of illegal

surveillance were criminals and polltlcal dlssldents, the practice was

acceptable.

In my earlier testimonv, 1 said tpat the surveillance problem had

become a crisis because ““informahon technology puts vastly more

power into the hands of government and private Interests that have the

resollrces to use it” and ‘ito the degree that the Constitution meant for

power to be in the hands of the ‘governed’, widespread collection of

personal information poses a threat to the Constitution itself.”

There was. I said at the time, no doubt that technology could be and

had been used to assist in the violation of the Bill of Rights. How little

189
we imagined then. In fact, even today, we-me, you—have no way of

knowing whether or not you have unearthed all of the surveillance

activities directed against individuals and organizations.

The weight of evidence would seem to indicate not. Certainly the

recent undenied leaks about surveillance of international commercial

traffic exposes another yet unexplored facet of the problem.

This latest revelation must have a chilling effect on businessmen, !

though some may accept it as part of the game because the do not

understand what the game really is. They are letting inividuals

within government change the ru es at will and, unbeknownst to the Y

citizens or the Congress , including suspending the Bill of Rights.

To accept such a uses just to set the stage for the ultimate elimination of the rights of all. Eternal vigilance indeed the price of liberty.

In my previous testimony, I said:

“I have wondered lately whether I am being watched as a threat, as

a dangerous enemy of the realm. How do you now that you and your

staff are not under continuous surveillance as you plan and carry out

this investigation ?“ The answer then was you dld not.

I went on to say, “I doubt that anyone is aware of the full extent of

the surveillance and information collecting activities that goon in this

Nation. I expect that It is the same way today.

Many people, myself included, have long operated on the assumption

that our activities are being monitored. I have also operated under the

premise that I should not allow myself to be inhibited by such a

possibility.

I do this because I have great confidence in the basic integrity of the

safeguards built into the administrative and judicial system of the

country.

If I lacked such confidence and did not feel that I could defend

myself,. were there to be unjust conclusions or accusations? I would

undoubtedly feel much more severely restricted.

Since my early testimony, extensive abuses have been uncovered

directed against almost every segment of the society. These are now

so well known that there IS no need to document those situations for

you.

Fortunately, there have also been efforts, through investigations and

hearings such as this. to bring these abuses into the open and under

legal control. Controls have been established on the uses and transmission of information in files and data banks and controlled access

has been provided to individuals to their files.

Rut in spite of such progress as has occurred, it is not possible to say

that the surveillance threat is now fully under control of the law and

that individuals or organizations whose actions seriously annoy Government officials or are regarded as threatening are free of illegal

..-

surveillance.

1 stressed previously, and I want to emphasize even more strongly

now, that the violations are made by humans, not by machines. Civil

rights can only be protected by men—through laws—as you are trying

to CIO, not by technolobgy. I still believe that additional legal safeguards

are necessary.

As you attempt to find safeguards against the infringements of

privacv that technology has made so much easier, it is lmportant to

look ahead and try to visualize how new developments will change

190
the situation, both in terms of the increased capabilities for surveillance that will be provided and the safeguards that could be provided

if they were sought.

1 believe that the most significant changes will come from further

computer developments, both in equipment and in the sophistication

of programing designed to carry out complicated information procssmg tasks.

Improvements in communication technology should also make a

‘difference. In particular, new transmission systems capable of carrying vast amounts of information at much reduced costs, facilitating

communication among computers, will make possible much more extensive data exchange, information manipulation, and information

search.

Three separate computer developments will play a role in the computer field and i@ expansion and extension:

1. The cost of computation continues to fall as new technologies—

particularly large-scale integrated circuits are developed. There is no

obvious ultimate limit to this trend.

2. More effective computers continue to be developed. Machines

with-greater speed and capacity continue to emerge. Storage systems

also improve in size, speed of access, and cost per unit of reformation

stored.

3. Software technology also continues to improve, making the use of

larger, more complex machines worthwhile for information processing

tasks.

These trends, if not counteracted, mean that it will become increasing

ly attractive to use computers and communications networks in

complex surveillance systems and to program the network to carry out

sophisticated sorting, correlation and other search procedures to ldentifv and keep track of subgroups of the population with special

characteristics.

With regard to technical safeguards against i misuse of information

in files and data banks, the situation remains the same—it depends

upon the integrity of the system operator and must remain so.

However, with regard to protection against unauthorized entory into

computer systems and communication systems, too, the situation has

improved dramatically.

There are now availab!e agreed+upon encryption algorithm for the

rotection of computer informatlon system? which provide a very

high degree of security against outside surveillance if the user is willing to accept the slight extra complexity and cost they involve.

I suspect that as experience with that program occurs, its use will

become quite common. However, I believe that strict controls and

tough laws, really en forced,. remam the essential elements of protection

against misuses of information technology.

In 1971, I questioned ~heth~r the Bill of Rights was adequate to protect people in their relationship to our modern state. Nothing that has

transpired since has calmed my concerns.

On the contrary, the revelations of the p~ 4 years here and observations of the situation m many other countries has reinforced m-y helief

thnt trends in modern states-even democratically governed socletics—

put too much power in the hands of rulers, even totally honest ones.

191
In my earlier testimony I said that there was serious danger of Creating an “information tyranny” in the innocent pursuit of a more efficient society. Man trends in social, technical, and industrial evolution

have restrictive e ects upon the actual freedom of choice and mobility f f

of individuals.

In my view, the most serious problem facing the democratic industrial societies, including our own, is the question of how to manage

adequately the complex interdependent world.that is emerging.

This Issue ss closely related to the informatlon problems we are discussing. Many practices that

e ?

pose long-term threats to democratic

government and personal fre dom are being, and will continue to be

inaugurated because they provide a means of making the society f unction more effectively.

The exchange of computerized credit information and the exchange

of criminal data are examples of this. The ever increasing scale of

industry and matching growth in the size of government are also

examples.

Many serious students of the social scene question whether it will be

possible to preserve our democratic institutions in the difficult time

ahead. Robert Heilbroner, for example, in his recent booli, “.4n Inquiry Into the Human Prospect,” raises many questions about the

viability of democratic government, in an era of confrontation politics

and resource shortages.

Some sociologists believe that the overriding commitment to efficiency implicit in technolo~ical society has meant from the start that

the “needs” of the system, t~e society, would inevitably be given priority over the rights of the individual, and that it was only a matter of

time before the democratic processes could not handle the evolving

sit uat ion.

This is the central question of our times. Incidentally: what evidence

one can gather from the experiences of other countries leads me to

conclude that overmanagemcnt of a societ,y actuallv reduces its effectiveness; that centralized control works considerably less effectively

than our form of industrial democracy for managing a technological

society.

One can see the effects of overcontrol in our own country. Rwulations, needed or desirable for one purpose or another, have almost

always restricted the ability of the regulated industries to innovate

and respond to changing conditions and thus in many cases have made

further controls necessary that in turn introduce further inhibitions

on adaptation, and so on.

While this set of problems is perhaps bqvond th~ present interests

of the subcommittee, I brin,g them to your attention for I see a major

extension of the present set of th r~nts to personal frwdorns in growing

controls in the economic and social system.

These trends w-ill pose less of a threat if the safeguards ngain+ misuses of information systems that you are considering are solid and

functioning well.

That is why I have stressed the fact that although new technology

was R factor in most of the recent excesses, they omlrrcd bemuse of the

nbil ity of individuals to carrv out widespread illegal activities undetected or. at least. unreported.

192
Safeguards must be provided against violation of constitutional

freedoms andthesecanonl be provided through legislation; they

cannot be provided by technoogy. 1’

In 1971, I suggested some actions that should be considered to provide such safeguards and in the interim new legislation has included

some, but not all of them. I know others of these are still very active

on the list of things still being considered

I made the following proposals:

1. Congress should establish a watchdog authority, perhaps an independent agency, possibly a division of the General Accounting Office,

perhaps the FCC, to review regularly the public and private information gathering and processing activities within the country. The

agency should have the authority to examine the nature and extent of

such activities and should report its findings to the Congress and the

public.

2 Congress should set rigid limitations on permissible surveillance

activities and establish much stronger safeguards—penalties—than

now exist against misuse of data-file inf ormatlon.

3. Action should be taken as quickly as feasible to reestablish public confidence in the sanctity of the boundaries. of an individual’s physical and psychological living Space. This will require a number ofi

steps. Outlawing some activities Such as the free exchange of private

information, which has already been done to some extent, collecting

data not needed b y an agency, and so forth,will help a good deal.

Acknowledging publicly the exten Of pemisslble surveillance and by

whom is also mport~n~. requiring disclosur of nonsecurity type data

to the concerned Individual seems possllible in many situations. In the

few situations where this will not work, as in national security matters,

judicial controls should be strong.

4. The development of technical means Of insuring data security and

safeguarding privacy should be stimulated and their use required for

systems Storing personal information. Much of this has been done.

“ These remain Sound go~ls ~nd to the degree that they are yet to be

realized, they should be pursued vigorously.

I have become con~rince~ in tl~~ interiln that the s~feguard ~?wtcm

needs another el~rnent. rt rn!~~t ~SSllre a greater degree of individual

responsibility and accoun$ablljtj’. ~~nfo~tunately, I clo not have a satisfactory proposal to make m this connection.

I see two aspe~ts to the Xlla!ter’. First, t~~e indi.vidwd responsibility

not to engage In illegal surve~ll~nee acts Of all k~nds should be firrn]y

established. This. does not appear ~0 present chfficult problems.

Second, there -1s q nepd to est~h!lsh some degree Of individual accountability for mstltut~onal b~ha~-l~r. Th does appear to POSC serious

. -

problems.

The first objective,. estab~is~~i?g personal responsibility h:ls bem

met to some degree. ~+lred hands In t~~~ ll~atergate C=.e defended their

actions on the grouqds that ~h~Y ~~~re just fO~lO~lng orders. The

courts, obviously> belleved that they had personal r~spcmsibility for

their actions.

The law does not extend this responsibility far enough at tile present

time. For example, I doubt that employees of a te~ephone company—

193
executives, technicians, and so on—who cooperate in an illegal wiretap are guilty of an illegal act. This obviously is a matter of considerab e importance. l

The second point is much more difficult, for in any obvious form

establishing personal accountability for institutional behavior would

involve an element of group surveilance which in itself does violence 1’

to the meaning of privacy.

Perhaps imposing a clear-cut responsibility u on a definition, smalI

number of officials in an organization is a way o handling this prob- !

lem. One needs to be extremely careful to avoid a cure that is worse

than the disease. Here is an opportunity for a creative act.

I had one final recommendation in 1971 that I want to make again.

We should be prepared to accept the cost of considerable inefficiency

in our various social and governmental processes to safeguard our

privacy and, as I judge it, our freedom, dignity, happiness and self-

-respect. By costs, I mean both the financial cost and the loss of a degree

of control that the state might otherwise have over genuinely threatening individuals such as criminals and violent revolutionaries and

even potential foreign agents.

Our difficult task is to achieve a proper balance between the ability

to cope with individual threats to the society and its capability to

abridge the freedom and happiness of its members.

In countries where the legal system cannot be counted on, the people

are at the mere of the administrators and they must hope that the

bureaucracy wi 1 be benign. Such a situation smothers freedom. We t

cannot afford to take the continuation of our liberties for granted.

Thank you.

194
APPENDIX 10

Department of Political Science

MOUNT HOLYOKE COLLEGE

South Hadley, Massachusetts O1O75

Telephone 413538-2132

March 18} 1977

Ms. Marcia J. MacNaughton } Project Director

Investigation of a Request to Assess

the IRS Tax Administration System

Office of Technology Assessment

Congress of the United States

Washington, D.C. 20510

Dear Ms. MacNaughton:

I have read OTAIS report on the internal Revenue service’s proposed

tax data bank with great interest. The report is excellent--precisely

the kind of broad-guaged study of the hum~ consequences of technology

that Congress ought to be doing. With this report) the Office of Technology Assessment is off to an auspicious start.

Like any citizens I am delighted whenever the seeks to im--

its abili~ to collect taxes and better serve the t~ayers. The proposed

Tax Administration System seems to make administrative sense and I applaud

the idea.

However, having spent a good deal of the studying the broder implications of government data banks and having personally been the target of

one of the IRS’S politic~ audits (because I was questioning the propriety

of military data banks on citizen's ad helping Congress to investigate

them), I must temper my enthusiasm for this obviously useful idea until it

has been more thoroughly examined.

If there is one thing I have le=ned from studying government data

banks, it is that decisions =$-W their contents md use are normally

made in bureaucratic seclusion W a~nistrators Who S= krgely oblivious

to, or unconcerned a~t~ l~ger issues of PrivacY) confidenti~itY~ due

pmcess$ or equity of administration. I think that was true of the illconsidered proposal for a Natio~ ~ta IB~ in lg~~ the Justice Department

and Amy data banks on civili~s in the late l$@s~ the nI’s National Crime

Information Center in the e=~ lY70s~ the ~D~ p~posal in 1974, and the

computerized tax audits of the government’s cfitics w~ch have more recerrtly

shmedtheIRS.

Information is one of the chief sources-of govermnental pmer--power

not only to carry out constitutional duties$ mt to h=ass po~tic~ opponents

and manipulate the ruutine lives of citizens for good or ill. Ikcisions governing

the use of this power belong not in the anonymous ranks of bureaucracy, but in

the public halls of Congress. It is there$ and only there> that a democratic

socie~ can properly weigh the promised gains of new information systems against

195
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the threats they may pose to liberty and privacy.

Moreover, these decisions must be made by men and women who understand the institution~ short-sightedness of administrators and recognize

the need for checks and balances, administrative and legislative accountability, and public participation, even at the cost Of some efficiency.

If this Madisonian view is to be found anywhere in governme nt today, it

lies in Congress and not in the executive branch.

Although OTA’S report is only a preliminary one, it demonstrates

quite ckarly that further investigation and analysis is imperative

before this new data system is implemented and the cost of reform

becomes prohibitive. The questions raised are not easy ones. Reasmable

men will differ, but the questions must be addressed.

It is regretabk that the IRS, which must reearn the respect of the

American people, did not address these questions more thorougly in its

initial presentations to Congress. Perhaps the OTA report will stimulate

it to do so now. If it does not, Congress should hold the proposed computer hostage until the Service does.

Even if the proposed system poses no threats not inherent in the

current system~ Congress should still use this occasion to conduct a

full-scale policy review> not just because the handling of tax data

affects virtuaUy every citizen in the country, but because a precedent

needs to be set for the scrutiny of other data systems now on the political

horizon..

This review might profitably begin with informational hearings,

followed by a more comprehensive OTA study, IRS studies, and another

round of legislative hearings at which the possibility of enacting a

charter for the proposed system could be considered. Indeed, the

entire inquiry might be constructively focused if the drafting of a

charter were made its ultimate objective.

It would be premature to anticipate the contents of that charter,

but it certainly could include due process rules to govern what information is collected (e.g. from grudge informers), how long it will be

kept, who shall have access to it and when citizens may have access tO

and may challenge the contents of their records. Special procedures

could be established to expedite the correction of errors and provide

ner channels of accountability. In sow instances, Congress might

want to prohibit the collection or collation of certain kinds

of information on the ground that they pose too high a risk of intentional

or unintentional abuse.

Congress might also want to forbid the interfacing of the IRS data

bank with other systems without special legislative permission. For

example, it is common knowledge that the IRS works closely with the CIA

and military intelligence to provide special tax treatment for companies

owned or used as “fronts.” This special relationship might well be

abused, perhaps by giving the agency access to a terminal from which

data could be obtained facilitating the theft of trade secrets or the

exploitation of the economic vulnerabilities of Americans the CIA

might wish to recruit for clandestine operations. Tapping of the IRS

computer might also be forbidden} if that practice is not barred by

other legislation now pending before Congress.

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-3-

Finally, Congress might wish to SpeCfiY additional forms of’

public participation in the policy-making process beyond testimony

at its public hearings. For example, the IRS could be directed to

hold administrative rule-making hearings as it seekS to implement

the charter and a temporary study commission of official and citizen

experts might be set up to monitor the implementation and propose

further legislation, if necessary, to safeguard non-bureaucratic

interests.

These are just some thoughts that com to

report. I appreciate the opportunity to share

of Technology Assessment Please feel free to

be of further assistance.

mind as I read the

them with the Offie

call on me if I can

Christopher. le

Assistant Professor

197
APPENDIX 11

REVIEWERS’ COMMENTS

The charge of the OTA panel on TM which resulted in this report was to advise OTA how to proceed with the request from the Chairman of the Ways and Means Committee. There was therefore

no attempt to raise all of the relevant issues, nor to attempt to develop findings from those which

were raised.

The boundaries of the OTA preliminary review of the TAS were determined by the terms of the

Committee request. The Committee was aware, as was OTA, that the General Accounting Office

was already engaged in an evaluation of costs and benefits of the TAS and a study of information

privacy and technical and physical aspects of TAS.

At the request of OTA, a number of reviewers commented on the draft report, which recommended

that more information be obtained by the Committee on questions regarding privacy, due process

and civil liberties. In general, they recommended the addition of questions which would obtain

information to help determine the need for a full assessment of TAS. This advice is exemplified by

the following excerpts from one reviewer’s comments:

“I suggest that similar questions should be raised in relation to the existing tax system, so that

Congress may be able to determine whether and how the proposed new system would add to

(or diminish) existing risks and add to (or diminish) existing safeguards. Since Congress is to be

asked by IRS to change an existing system, such a comparative appraisal would appear necessary to evaluate the significance of the proposed changes.)

Second, I do not know whether the terms of the letter of request from the Subcommittee on

Oversight are intended to limit the proposed assessment to risks and safeguards concerning

due process, privacy, confidentiality, and security. These are matters of the utmost importance, too often neglected or treated inadequately in regard to governmental (and private)

information systems. Nevertheless, for the purposes of a broad congressional appraisal, would

it not also be necessary and appropriate to undertake a cost/benefit analysis of anticipated

financial costs and anticipated administrative and tax benefits, again on a basis which would

emphasize anticipated changes in costs and benefits to be discerned from a comparison between the proposed new system and the existing system? I therefore suggest the addition of a line of questions directed toward such comparative cost-benefit analysis.”

Other reviewers recommended that, in view of the complexity of the software, an assessment

include the entire question of the technical feasibility of the system. Extrapolation, they felt, could

be made from existing systems of comparable size, complexity and sensitivity.

The draft report was reviewed by the members of the OTA Advisory Council who recommended

that: (1) a cost benefit analysis be undertaken, and (2) that Congress consider the implications of

the misuse of the system for other than tax purposes.

198
APPENDIX 12

COMMENTS ON TAS BY DR. KENNETH LAUDON, JOHN JAY COLLEGE

OF CRIMINAL JUSTICE, CITY UNIVERSITY OF NEW YORK

I have carefully read the IRS “Report of Proposed Changes

in the Internal Revenue Service’s Computerized Data Processing and Accounting System,” and the draft of the OTA

“Investigation of a Request to Assess the IRS Tax Administration System. ” I am pleased to submit the following

remarks.

I. Nature of the Proposed Tax Administration Syste (TAS)

It is difficult to tell from the scanty IRS report

if, as IRS claims, they are simply building a better wheel,

or as previous commentators suggest, they are re-building

the entire transpiration system. Indeed the IRS report itself

seems confused on this: great advantages are promised (along

with great expenditure) but when objections are raised about

its social impact, the report claims very little changes from

existing practice will occur.

Some facts speak for themselves: the proposed system

will cost nearly a billion dollars when complete, will involve

the training of 50,000 employees in its use, and will be the

largest, most complex, and sophisticated state-of-the-art system

of its kind at completion in 1985. These facts alone argue f or

Congress and the public to make a thorough assessment of the

system.

-Do we want to build a billion dollar system on the basis of

an antiquated and unnecessarily complex tax structure?

-Will the building of the TAS simply permit the continuation

of existing tax practices, obviating the need for simplification

and reform?

-Could the same resources be better spent towards simplifying

the tax laws?

199
p. 2

II. Impact on the Quality of Life for Citizens

Previous commentators have argued that the TAS system

may pose a threat to the quality of life for citizens by

enfringing upon their privacy, threatening due process of

law, and inhibiting exercise of constitutional rights by

potential misuse of the system. These are very real threats

which careful assessment and monitoring by outside observers

may be able to avoid. But there are other aspects to the

quality of life than constitutional rights.

(A) Degradation of Service

Observations by myself and others indicate that in both

public and private sector applications there tends to be a

decline in the quality and often quantity of services provided

clients, supplicants and customers subsequent to the installation of management information systems. It appears that

unless systems are specifically developed to deliver more and

better service (such as the airline reservation system), they

tend to do so only as an incidental by-product. Indeed a

distinction ought to be made between service systems and

management systems. Most systems development follows rather

closely the management information systems design. The

purpose of these systems is to make life more convenient for

managers by orchestrating the flow of information from point

of collection to senior management and to provide for closer

surveillance over the client population and lower level

workers.

While management information systems may lead to laudable

advances in efficiency and effectiveness, the gains are often

at the expense of service. Examples abound in universities,

hospitals, government agencies, and private enterprise which

illustrate that the quality of service to clients declines.

The proposed TAS system is a management system. IRS claims

the average citizen will derive significant benefits in service

from the new system (largely by having more immediate access

to tax records). But several questions emerge:

-Has IRS done a survey of taxpayer needs for service?

-How will the TAS assist taxpayers in the preparation of returns?

-Will TAS make it easier for local IRS agents to serve the

public with tax preparation assistance?

The current TAS plan appears to distort the balance

between the goals of service to taxpayers and management

effectiveness in surveillance and enforcement. One topic

for consideration by any future assessment should be how

200
p. 3

this billion dollar system can be used to deliver more high

quality service to the average citizen.

(B) Taxpayers as Unpaid Labor

The decision by managers to build systems suited to

their convenience and the need for organizational efficiency

often leads to the seemingly bizarre result that the clientele

and lower level workers have to do more work for no pay. The

clientele in most cost-benefit studies of modern systems typically

appear as unpaid components who need nevertheless to behave in

a certain rigid way in order to make “the system” work

efficiently -- that is, to assure benefits accrue to the

organization and the convenience of management. Clients of

social agencies are expected to travel further, wait in longer

lines, sit in receiving rooms, all without pay so the system

can operate efficiently. Similarly in hospitals which have

developed hospital information systems, patients are still

queued before diagnostic and treatment centers although

individual appointments could be simply accomplished without

stressing modern computer technology. Likewise with students

who in automated registration systems must take class cards

back and forth from one instructor to another for signatures

which the computer cannot read anyway. It is precisely

this redundant labor which “modern computer systems” were

supposed to eliminate and which presumably they could eliminate.

The TAS proposal makes little or no mention of taxpayer

and lower level employee workloads in the preparation of taxes

or in the defense a taxpayer often has to mount when disagreements arise. Under the current accouting system where

citizens can count on several weeks or months delay, the work

of preparing taxes and defense thereof can be scheduled

to accommodate the timing of other responsibilities. Will

the new system with much faster response times impose more

disruptive scheduling requirements upon taxpayers? other

questions along these lines are:

-Will the proposed TAS system increase the case load of

lower level workers and thus decrease the amount of time they

can spend with individual taxpayers in face-to-face interaction?

-Is it conceivable that TAS be built in such a fashion that

some of the benefit of modern systems would accrue to the

citizen, e.g., through less redundant and unpaid labor?

-Has the IRS investigated existing workload requirements

on taxpayers and considered how the TAS may affect them?

201
p.4

(c)

are

Systems Take on a Life of Their Own:

Harassment and Svstem Error

It is a sanguine thought that computers only do what the y

programed to do. There at least three reasons why thi s

notion is untenable:

1) Dirty Data: The admittedly mundane consideration

of how information comes to the computer and how it is put into

the machine takes on real significance when dealing with

large numbers and when important decisions affecting reputations and government action are involved. Public sector

systems are notorious for basing decisions on erroneous

input data. Recent studies have found State Criminal

Justice Information systems operating with 20% of the files

having substantial errors of fact and welfare systems with case

errors of 24%. Private systems-- from credit data reporting

systems to insurance company medical files--may be just

as unreliable.

In the case of IRS, basic data is supplied by individuals,

financial institutions having transactions with individuals,

and other government agencies. Even if we assume this information to be correct, actually putting it into the computer

requires some keypunching. With the kind of data IRS works

from, skilled keypunchers can be expected to make at least

one error in a hundred strokes and probably more. With a 1:100

error rate, a reliability check can be used to reduce the

probability of error to 1:10,000. If 100 million new returns

are filed in a year, this works out to 10,000 cases where

business returns, but includes only individual taxpayer

returns. If we admit that other institutions which report

to IRS also are subject to the same kinds of errors, the

actual number of errors is probably a good deal larger than

10,000 returns. Several questions should be asked:

-What is the rate of error in the existing system attributable

to erroneous input data, and keypuncher error?

-What steps have been taken in planning the TAS system to

reduce this error rate?

-In planning TAS, has the IRS taken steps to increase the

reliability of data supplied to them by employers and financial

institutions?

2) Programming Error: The internal reality of a computer

is a program, composed of thousands of hierarchically arranged

and logically related statements which instruct the machine

how to deal with information fed to it from outside. Unfortunately,

202
p.5

the internal systems reality often does not jibe with the

reality most of us inhabit. This occurs for a variety of

reasons. In translating manual information practices to

machine form, important rules of thumb invoked by employees

but not part of the official decisionmaking procedure are

overlooked by programmers and systems designers. In New

York City, for instance, the Traffic Violations Bureau built

a traffic scofflaw system to increase compliance from violators.

Unfortunately they failed to allow for the situation where a

car is stolen, and then driven around town for several weeks

by the thief before it is recovered. The computer was programmed to send threatening messages to the legitimate owner.

In the most recent publicized case, the legitimate owner had

to appear several times in court, and before several hearings

where he was advised it would be better to pay up.

Moreover, it turns out to be very difficult to modify

the Traffic Department’s procedure. In the manual tub days

it was possible to reach in and pull out a single file and

expunge it. Not with computers. In this event the

original programmers had moved on to other jobs or were deceased,

and they left very poor documents on how the program worked

(not untypical at all). As the Director of the Bureau

pointed out, it was impossible to estimate how much it might

cost to “patch” the program. A patch might work, but it

might not, in which case the system would “crash.” In this

latter event, an entire new program costing a considerable

amount of time and money would have to be developed.

To some extent these problems can be avoided by adequate

documentation of programs, and the use of modular as opposed

to global programming strategies which more readily permit

changes (and which are more expensive in terms of machine

efficiency).

-Has IRS adequately anticipated the inherent difficulties in

re-arranging existing automated flows and the creation of new

programs to serve entirely different functions that heretofore?

What level of resources have been devoted to de-bugging the

system?

3) Inter-Dependency of Systems: With the discovery that

computers could talk to one another, a new problem arose:

it is possible for one system to take incorrect output from

another system and treat that output as if it were correct.

I was recently asked by the State of New York, for instance, to

pay taxes on a capital gains made in a previous year. Soon

letters arrived from the City Income Tax Bureau. Several

letters to both jurisdictions protesting that I never made

a capital gains in that year were to no avail. I was able

to obtain copies of my federal returns from the IRS, and

203
p.6

fortunately was able to show both the State and City at

a hearing that there exist no physical records of such a

capital gains despite the fact that computer records supplied

by the IRS indicated such a gain.

The actual source of the error in federal computer tapes

will no doubt remain obscure. But this illustrates the kind

of organizational ping-pong to which citizens are subject

as very complex systems socialize with one another. There

seem to be no mechanisms developed to allow one system to

check on the reliability of incoming data from another

system. No doubt these mechanisms would be expensive. But

I am concerned that as the speed of transactions among

federal and state systems increases, and as the volume

increases, states and cities will devote few if any resources

to checking the reliability of incoming data from the IRS.

It is much more efficient to accept the system reality as

the only reality.

Most commentators point to the danger that the TAS

could be used intentionally to harass groups of citizens.

The point of rTW remarks on system errors is to suggest that a

good deal of harassment generated by any large system is

unintentional. This kind of harassment can be reduced to a

minimum, technologically feasible level only with careful

planning and the expenditure of resources.

(D) Obfuscation of Authority

As large systems centralize into larger and larger

operations, as dependencies grow among systems, it becomes

increasingly difficult to find responsible individuals who

can change the action of the systems involved. The computer

scientist !1. Minsky has written that major programs of large

systems involving millions of transactions “can no longer

be understood by any single person or by a small team of

individuals. ” Joseph Weizenbaum, another computer scientist,

suggests that we are placing great reliance on huge systems

in the hope of being able to rationally control and analyze

society but which have surpassed the understanding of their

users and become indispensable to them.

When eminent computer scientists begin raising red flags,

suggesting that some large systems may be beyond the control

of even those who build them, I think society should pause

at least one moment and take stock. These statements are not

just idle musings as the following incident in New York illustrates.

In 1968 New York State completed conversion of its criminal

records (arrests, rap sheets, finger print file) from manual

to computer files. Shortly thereafter it began routinely

204
P. 7

sending all new arrest records to the F.B.I. to check for

potential outstanding warrants in other jurisdictions. In

establishing the computer programs to govern this exchange,

programmers simply forgot about the 1944 Youthful Offender Law

which barred government agencies, banks, and other institutions

from access to criminal files for persons judged to be youthful

offenders. The F.B.I. criminal offender system accepted

what was essentially illegal output from New York, and made

it available to all agencies which typically have access to

its files. And since 196? the F.B.I. has collected over

100,000 computerized youthful offender records. In 1973

the Director of Data Systems for the State Division of Criminal

Justice Services informed the FBI it was releasing information

which according to State law should be sealed. The F.B.I.

responded that it was not its responsibility to verify the

accuracy or legality of data submitted by the state, and

moreover that the State would have to submit the names

on a purge list (and bear the cost of programming.) By 1977

there remained 67,000 illegal files from New York State

in the F.B.I. system.

It is important to note that the facts in the example

became available only after the threat of legal action by

a man who had lost two jobs with banks because of improperly

sealed files.

The above example illustrates how important features

of social reality, in this case State laws, can be easily

overlooked by programmers. It also illustrates the problem of

responsibility; to argue the FBI not responsible for,

illegal information in its files supplied by another agency

is like arguing a fence is not responsible for selling property

he knows is stolen.

Who Will Oversee These Systems?

The example above also illustrates the problem of

oversight with these mammoth systems. I am optimistic that

these systems can be effectively monitored if sufficient

resources are devoted to the task. The question is will

the society actually develop mechanisms for effective oversight

and guidance? With respect to TAS:

Is there an agency of Congress with sufficient resources

and skill to provide effective oversight?

What are the costs of an oversight mechanism sufficient

to the task? Should these costs be added to the overall

TAS system costs?

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p.8

The question of whether the TAS system should be built

as planned seems ultimately to depend on an assessment of

society’s ability to guide and monitor this system. Without

this social assessment we are liable to find the rockets

we shoot up coming down on our heads.

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