Taxpayer Information: Options Exist to Enable Data Sharing Between IRS and USCIS but Each Presents Challenges
Published: 2005-10-11T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: In 2000, federal agencies estimated they saved at least $900 million annually through data sharing initiatives. The Internal Revenue Service (IRS) can use data from taxpayers and third parties to better ensure taxpayers meet their obligations. Likewise, Congress has authorized certain agencies access to taxpayer information collected by IRS to better determine benefit eligibility. In July 2004, we reported that data sharing between IRS and the United States Citizenship and Immigration Services (USCIS) has the potential to improve tax compliance as well as immigration eligibility decisions (GAO-04-972T). For this report, GAO determined (1) the potential benefits of data matching, and (2) the options and associated challenges.
section_title: What GAO Found
paragraphs: Data sharing can help improve (1) tax compliance if businesses applying to sponsor immigrant workers are required to meet tax filing and payment requirements, and (2) the accuracy and timeliness of USCIS's immigration eligibility decisions if it obtained tax data from IRS to help ensure business sponsors meet eligibility criteria. As of December 2003, IRS databases showed 18,942 businesses (5 percent) applying to sponsor immigrant workers had $5.6 billion in unpaid assessments. Of this amount, businesses were not in installment agreements with IRS or otherwise making payments on $3.7 billion. If future business sponsors owe taxes and are required to meet their tax obligations, they would need to make arrangements with the IRS to come into compliance. Although USCIS officials acknowledge that no explicit prohibition exists in immigration laws against conditioning approval of employer applications on their tax compliance, USCIS officials said a statutory change is preferable because they have legal concerns about USCIS's authority to issue such a regulation absent specific authority. IRS data can help USCIS make more accurate eligibility decisions by better identifying businesses that may not have met eligibility criteria due to having unpaid assessments or not filing returns. In our nationwide selection, 67,949 of 413,723 (16 percent) business sponsors were in IRS's nonfiler database at the time of their application. A variety of options is available to IRS and USCIS for establishing and implementing data sharing. An applicant-initiated data-sharing arrangement could be implemented under existing Internal Revenue Code authority through taxpayer consent, whereby taxpayers authorize IRS to disclose their information. USCIS then could verify applicant-provided data by obtaining tax returns or tax transcripts. Treasury guidance suggests a small-scale pilot using consents as a way to make the business case for continued access to taxpayer information. In general, the more that data sharing could be done electronically, the more efficient the data sharing could be. However, achieving electronic data sharing may take longer than paper-based processes due to legal, technological, and cost challenges. Further, if business sponsors need to come into compliance, net tax collections might not increase if collecting their taxes displaces other IRS work. Establishing user fees to cover data-sharing costs could be a way to fund data sharing, but IRS lacks the authority to collect and retain a user fee to cover compliance-related costs associated with data sharing.

section_title: Letter
paragraphs: In 2000, federal agencies estimated that they saved at least $900 million  annually in program costs through data-sharing initiatives.  As we have  previously reported, federal agencies are increasingly using data sharing to  help verify applicant-provided information.  Many federal agencies use  financial information to make eligibility decisions or ensure compliance  with program requirements.  For instance, the United States Citizenship  and Immigration Services (USCIS) grants immigrants admittance into the  United States or allows immigrants to remain in the country based, in part,  on financial information provided by the applicant and/or their sponsors.   Likewise, the Internal Revenue Service (IRS) uses financial information to  ensure that taxpayers are meeting their tax obligations.
To facilitate data sharing, Congress has authorized a number of agencies to  access federal taxpayer information collected by the IRS to improve the  accuracy of eligibility decisions.  The Social Security Administration (SSA)  is one agency, for example, that has an extensive data-sharing relationship  with IRS, which aids in administering Social Security benefit programs and  ensuring taxpayer compliance.  At the same time, taxpayers’ privacy must  be protected and various federal laws and agency policies regulate  agencies’ use and disclosure of taxpayer and personal information. Internal  Revenue Code (IRC) Section 6103 allows IRS to disclose taxpayer  information to federal agencies and authorized employees of those  agencies, but only under specific conditions.  Such privacy protection is an  important component of continued voluntary compliance with the internal  revenue laws.
Data-sharing arrangements between agencies can take different forms.   These arrangements can be applicant- or agency-initiated data sharing.   Applicant-initiated arrangements entail requiring an applicant for a benefit  or employment to secure proof from another agency to qualify for the  benefit or employment.  In these cases, the agency may share the eligibility  proof directly with the agency that would be providing the benefit or  employment.  Agency-initiated sharing can include matching data from two  agencies to help one agency or both agencies verify data accuracy.
In our July 2004 testimony, we reported that data sharing between IRS and  USCIS has the potential to improve tax compliance as well as immigration  eligibility decisions.  You then requested additional information on  potential benefits and options for data sharing between IRS and USCIS.   For this study, our objectives were to determine the (1) potential benefits  of data matching for IRS and USCIS and (2) options for establishing and  maintaining a data-sharing relationship between the IRS and USCIS,  including any challenges associated with those options.
In responding to the objectives, we performed work at several IRS offices,  including compliance and research, and at various program and district  offices, and service centers at USCIS.  We also contacted representatives of  two immigration advocacy groups to obtain their perspectives.  Our  findings are based on matching of immigration and IRS taxpayer data,  documents and various publications, and interviews with agency officials.   We used two sets of USCIS data to match with IRS taxpayer data to  determine the potential value for increased data sharing and matching.  We  matched taxpayer data to automated immigration applications and hard  copy immigration applications.  We used a nationwide selection of  automated USCIS applications from immigration applications submitted to  USCIS service centers from 1997 through 2004.  Approximately 3.4 million  of 4.5 million automated immigration records had Social Security numbers  (SSN) or employer identification numbers (EIN) that could be used to  match with SSNs and EINs in IRS databases.  We used these data to  determine whether businesses and others that had applied to sponsor  immigrant workers or immigrants applying to change their immigration  status had filed a tax return with IRS and, if so, whether they owed taxes to  IRS. Because the nationwide selection did not include any financial  information, we also selected a nonprobability sample of about 1,000  immigration hard copy applications for citizenship, employment, and  family-related immigration and change of immigration status filed by  businesses and individuals from 2001 through 2003 at four immigration  locations. We used the hard copy applications to build a database of  personal and financial information.  We used this sample as a second  source of examples of USCIS applicants who may not have filed tax returns  and may have owed taxes to IRS.  For this report, our discussion will focus  on businesses applying to sponsor immigrant workers because the  matching results from our July 2004 testimony identified business sponsors  as the most likely group in which benefits would result.
We assessed the reliability of IRS’s Individual Master File (IMF) and  Business Master File (BMF) data and the USCIS’s Computer Linked  Application Information Management System, Version 3.0 (CLAIMS 3),  which is a database containing nationwide immigration data.  As part of our  annual audits of IRS’s financial statements, we also assessed the reliability  of IRS’s BMF and IMF data with respect to unpaid assessments by testing  selected statistical samples of unpaid assessment modules. We determined  that the data were sufficiently reliable for the purpose of this report.  We  conducted our work from August 2004 through August 2005 in accordance  with generally accepted government auditing standards.  For details on our  scope and methodology, see appendixes I and II.
subsections: section_title: Background
paragraphs: As one of the largest repositories of personal information in the United  States, IRS receives tax returns from about 116 million individual taxpayers  who have wage and investment income and from approximately 45 million  small business and self-employed taxpayers each year. IRS performs a  variety of checks to ensure the accuracy of information reported by these  taxpayers on their tax returns. These checks include verifying  computations on returns, requesting more information about items on a tax  return, and matching information reported by third parties to income  reported by taxpayers on returns (i.e., document matching).  IRS's  document matching program has proven to be a highly cost-effective way  of identifying underreported income, thereby bringing in billions of dollars  of tax revenue while boosting voluntary compliance.
IRC Section 6103, amended significantly by the Tax Reform Act of 1976, is  the primary law used to restrict IRS's data-sharing capacity. The law  provides that tax returns and return information are confidential and may  not be disclosed by IRS, other federal and/or state employees, and certain  others having access to the information except as provided in IRC Section  6103. IRC Section 6103 allows IRS to disclose taxpayer information to  federal agencies and authorized employees of those agencies for certain  specified purposes. Accordingly, IRC Section 6103 controls whether and  how tax information submitted to IRS on federal tax returns can be shared.  IRC Section 6103 specifies which agencies (or other entities) may have  access to tax return information, the type of information they may access,  for what purposes such access may be granted, and under what conditions  the information will be received.  For example, IRC Section 6103 has  exceptions allowing certain federal benefit and loan programs to use  taxpayer information for eligibility decisions. Because the confidentiality  of tax data is considered crucial to voluntary compliance, if agencies want  to establish new efforts to use taxpayer information, executive branch  policy calls for a business case to support sharing tax data.
USCIS is part of the Department of Homeland Security (DHS), which was  established by the Homeland Security Act of 2002.  USCIS is responsible  for administering several immigration benefits and services transferred  from the former Immigration Services Division of the Immigration and  Naturalization Service. Included among the immigration benefits and  services USCIS's offices oversee are citizenship, asylum, lawful permanent  residency, employment authorization, refugee status, intercountry  adoptions, replacement immigration documents, family- and employment- related immigration, and foreign student authorization. USCIS's functions  include adjudicating and processing applications for U.S. citizenship and  naturalization, administering work authorizations and other petitions, and  providing services for new residents and citizens. USCIS's employees who  review immigration benefit applications and determine if they should be  approved are its adjudicators.  USCIS's fraud detection units and Fraud  Detection and National Security immigration officers in the districts,  service centers, and asylum offices detect potential fraudulent applications  and any trends or patterns that suggest potential fraud. USCIS staff work  with applicants through the adjudicatory process beginning with initial  contact when an application or petition is filed, through the stages of  gathering information on which to base a decision. This contact continues  to the point of an approval or denial, the production of a final document or  oath ceremony, and the retirement of case records.
Under current legislative authority, USCIS is not authorized to receive  taxpayer information from IRS directly.  USCIS currently obtains self- reported personal and financial information provided by (1) businesses,  religious organizations, non-profit entities and individuals applying to  sponsor immigrant workers; (2) individuals applying to sponsor relatives;  and (3) individuals applying to enter the country, extend their stay or  obtain citizenship.  USCIS also obtains information from third parties, not  including IRS, to verify applicants’ self-reported data.  Figure 1 illustrates  the current lack of data verification between USCIS and IRS during the  immigration application process.
Data-sharing arrangements between agencies can take different forms.  As  used in this report, data sharing means obtaining and disclosing  information on individuals between federal agencies (IRS and USCIS) to  ensure taxpayers have met their tax obligations or to determine eligibility  for immigration benefits.  Table 1 lists different forms of data sharing,  enabling authority, information gained, and related examples.
An example of applicant-initiated sharing occurs via tax checks required by  some states.  A taxpayer may authorize a third party to receive his or her  IRS tax return information via consent. According to an IRS official, many  states may require consents to qualify for benefits or certain types of  employment. For example, the state of Missouri requires applicants to be  current on their state taxes before receiving a new professional license. An  example of agency-initiated sharing is an arrangement between IRS and  SSA for the Combined Annual Wage Reporting Program. SSA processes and  maintains W-2 and W-3 information on employees. IRS maintains personal  and financial information on employees. SSA and IRS conduct exchanges  of information to ensure employers are submitting accurate wage  information and to identify nonfilers.  The agencies have a direct data- sharing arrangement.
Research shows that certain data-sharing programs have value for  increasing taxpayer compliance since these programs have identified  discrepancies in income reporting amounts and, in some cases, enabled the  assessment of additional dollars in unpaid taxes.  For example, matching  IRS’s unpaid assessment database with the Treasury’s Financial  Management Service’s (FMS) records shows a substantial amount of  money that could have been collected by either IRS or FMS. In particular,  the Taxpayer Relief Act of 1997 allows IRS to continuously levy up to 15  percent of certain federal payments made to delinquent taxpayers. IRS’s  continuous levy program adds tax debts to FMS’s program for recovering  debts owed to federal agencies. For the levy program, FMS compares  federal payee information from agency payment records with extracts of  IRS’s unpaid assessments. We estimated that IRS could recover at least  $270 million annually from about 70,000 delinquent taxpayers. In addition,  our analysis of a match between FMS’s database on payments to  contractors and IRS’s unpaid assessment database showed that about  33,000 contractors who received substantial federal payments from civilian  agencies during fiscal year 2004 owed a total of more than $3 billion in  unpaid taxes. We estimated that if FMS database deficiencies such as  erroneous Taxpayer Identification Numbers (TINs) and invalid contractor  names were corrected, FMS could have collected at least $50 million more  than it did in fiscal year 2004.
Although data-sharing arrangements can be useful, privacy advocates,  lawmakers, and others are concerned about the extent to which the  government can disclose and share citizens’ personal information,  including sharing with other government agencies.  Historically, lawmakers  and policymakers have created legislation to address these concerns.  For  example, the Privacy Act of 1974 regulates the federal government’s use  of personal information by limiting the collection, disclosure, and use of  personal information maintained in an agency’s system of records.  The  Computer Matching and Privacy Protection Act of 1988 further protects  personal information by requiring agencies to enter into written  agreements, referred to as matching agreements, when they share  information that is protected by the Privacy Act of 1974 for the purpose of  conducting computer matches.
User fees are collected from identifiable recipients of special benefits  beyond those accruing to the general public, and the amounts are based on  the recovery of costs of providing the service, the market value of goods, or  may be set by legislation.  Various user fee authorities and guidance exist  which range from general to specific authority. Title V of the Independent  Offices Appropriations Act of 1952 codified at 31 U.S.C. § 9701 established  general authority to assess user fees or charges on identifiable  beneficiaries by administrative regulation.  Under this general authority, all  fees collected would be deposited as miscellaneous receipts to the General  Fund of the Treasury and their use would be determined through the  annual appropriations process. Authority to assess user fees may also be  granted to agencies through the enactment of specific authorizing or  appropriations legislation, which may or may not authorize the agencies to  retain and/or use the fees they collect.
In setting certain user fees, agencies must follow either the general user fee  statute 31 U.S.C. § 9701 or specific user fee statute. For example, IRS must  follow IRC section 7528 in certain cases while USCIS adheres to the  Immigration and Nationality Act, the general user fee statute, and DHS  regulations which outline fees that are collected, the amounts, and by  whom (see table 2).  The Office of Management and Budget’s (OMB)
Circular A-25, User Charges, establishes general federal policy and  guidance for user fees assessed for government services by executive  branch agencies. IRS’s chief financial office provides internal guidance on  user fees, which provides examples on how to implement the OMB  directives.  USCIS does not provide internal guidance. According to USCIS  officials, the agency’s fee setting is based upon cost studies and a full- fledged regulatory process under the Administrative Procedure Act, with  the actual fees provided in regulations.
section_title: IRS and USCIS Could Benefit from Data Sharing Although an Immigration Eligibility Change Would Be Key for IRS
paragraphs: IRS’s tax compliance efforts could benefit from data sharing with USCIS if  immigration eligibility were changed to require business sponsors to show  that they met tax filing and payment requirements to qualify to sponsor  immigrant workers.  In particular, IRS could benefit because businesses  applying to sponsor immigrant workers that had not filed a tax return or  paid taxes would need to come into compliance.  IRS data can also enable  USCIS adjudicators to make more accurate eligibility decisions by better  identifying businesses that may not have met immigration eligibility criteria  because they had unpaid assessments or did not file tax returns.  Further,  obtaining IRS data has the potential to improve the timeliness of benefit  decisions by (1) decreasing rework/follow-up work and (2) potentially  resulting in fewer applicants if benefits are contingent on having met tax  filing and payment requirements.
subsections: section_title: A Change in Eligibility Rules Is Key to IRS Benefiting from a Data-Sharing Relationship with USCIS
subsections: section_title: Compliance with Payment of Taxes
paragraphs: IRS could benefit from data sharing with USCIS if certain taxpayers, such  as business sponsors who owe taxes, were required to be in compliance  with tax filing and payment requirements to qualify for immigration  benefits such as sponsoring immigrant workers.  Our analysis of automated  immigration records matched against IRS databases showed that 18,942  businesses applying to sponsor immigrant workers from 1997 through 2004  had $5.6 billion in unpaid assessments, as of December 2003 (app. II).   Many were not paying their tax bill or making payments towards fulfilling  their tax obligations.  As of December 2003, business sponsors from our  nationwide selection who were not in installment agreements with the IRS  or otherwise making payments to IRS, for taxes due, had unpaid  assessments totaling $3.7 billion. Although these businesses with past  applications to sponsor immigrant workers would not be affected by a  change to requirements for sponsoring workers since they have already  received immigration benefits, USCIS officials said that businesses that  apply to sponsor workers tend to do so in multiple years.  If businesses  were required to meet their tax obligations, to the extent that future  business sponsors owe taxes, they would need to pay their tax bill or make  payment arrangements with the IRS to come into compliance before  becoming eligible to sponsor immigrant workers to enter the country.   USCIS officials said a statutory change would be preferable to a regulatory  change because, although they acknowledge no explicit prohibition exists  in immigration laws against conditioning approval of employer petitions on  their tax compliance, they have serious legal concerns about USCIS’s  authority to issue such a regulation absent specific statutory authority.
Although changing the eligibility requirement would likely help bring  taxpayers with unpaid assessments into compliance, IRS would be unlikely  to recover all taxes owed by the businesses.  IRS officials commented that  some businesses, even if they came forward to IRS, would not be able to  repay their full debt.  USCIS officials made a similar comment and added  some businesses may decide not to apply for immigration benefits knowing  they are not in compliance with tax filing and payment requirements.   Further, either IRS would only be able to pursue collection for business  sponsor cases that exceed thresholds IRS uses in determining how many  cases to pursue or, if IRS took steps to collect taxes in all of these cases, it  would be unable to work other cases.   As we have reported previously, IRS  has too many compliance cases to work.
section_title: Compliance With Filing of Taxes
paragraphs: Immigration data appear less likely to be useful to IRS for identifying  applicants who do not file tax returns.  For instance, we identified 33  business/entity sponsors from our nonprobability sample who appeared to  be unknown to the IRS because they did not show up in any of six different  IRS databases.  An IRS investigation of the 33 revealed no productive  compliance leads.  IRS determined most of the sponsors—businesses and  religious organizations—were either tax exempt, had no filing requirement,  or were no longer liable for the tax.  However, these 33 cases were a small  fraction of the almost 20,000 business sponsors that appeared to be  unknown to IRS based on our nationwide selection of USCIS business  sponsor applications (see app. II).
In the mid-1980s, IRS and USCIS entered into a cost-reimbursable data- sharing arrangement under which USCIS shared immigrant data with IRS  by completing IRS Form 9003.  According to IRS officials, IRS used Form  9003 information to help identify whether individuals who filed for U.S.  permanent residency had filed tax returns and properly reported their  income.  IRS and USCIS shared Form 9003 data for about 10 years but  ended this arrangement in 1996.  Much of the form 9003 immigrant data  received from USCIS lacked SSNs--a primary mechanism IRS uses for  tracking individual taxpayers, which made it increasingly difficult for IRS  to use the data to determine whether individuals had filed taxes and  properly reported income, according to IRS officials. Additionally, the costs  associated with the data-sharing agreement escalated each year, to the  point that, in IRS’s view, it was no longer cost effective.
section_title: USCIS Can Benefit from Data Sharing with IRS in Making Immigration Eligibility Decisions
subsections: section_title: More Accurate Immigration Eligibility Decisions
paragraphs: IRS data can enable USCIS adjudicators to make more accurate eligibility  decisions by better identifying businesses that may not have met  immigration eligibility criteria.  Our matching of immigration and taxpayer  data identified business sponsors that may not meet immigration financial  feasibility and legitimacy tests because they have failed to file tax returns  and/or pay all of their taxes.  Sixteen percent of businesses from our  nationwide selection (67,949 of 413,723 businesses) applying to sponsor  immigrant workers did not file one or more tax returns at the time of their  application to sponsor an immigrant worker between 1997 and 2004 (app.  II).  Twenty four percent of businesses (112 of 475 businesses) from our  nonprobability sample that applied to sponsor immigrant workers did not  file one or more tax returns at the time of their application to sponsor an  immigrant worker between 2001 and 2003 (app. II).  Five percent of  sponsors from our nationwide selection (18,942 of 413,723 businesses) and  20 percent of businesses in our nonprobability sample (94 of 475  businesses) had unpaid tax assessments at the time of application.  As of  December 2003, for the nationwide results, the assessments totaled $5.6  billion and for the nonprobability sample results, the assessments totaled  $39 million (app. II).  Filing and paying taxes is an indicator that financial  feasibility and legitimacy tests are met.  Figure 2 shows matching results  identifying business nonfilers and those with unpaid assessments from our  nationwide selection.
Immigration adjudicators use applicants’ self-reported personal and  financial information plus third party data to make decisions about  granting benefits to immigration applicants.  For businesses applying to  sponsor immigrant workers—employment-based applications— immigration adjudicators use financial information for evaluating two basic  eligibility criteria for businesses sponsoring immigrants:  (1) the sponsor’s  financial feasibility and (2) the legitimacy of the sponsor’s existence.   Financial feasibility refers to the sponsor’s ability to pay wages to or  financially support the individual being sponsored.  For example, if a  company is sponsoring an immigrant for employment, that company must  show that it has sufficient ability to pay the worker.  Information on tax  returns filed with IRS show income levels and these could be used to  validate applicant-provided information.  Legitimacy, in the case of  employment-based petitions, refers to whether a sponsoring business or  organization actually exists, has employees, and has real assets.  Figure 3  depicts an overview of the adjudication process for employment-based  applications.
Since adjudicators receive self-reported—and sometimes false—personal  and financial information from applicants, they sometimes obtain  additional or different documentation from the applicant or third parties.   For example, at the time of application or during the adjudicatory process,  applicants may be required to provide additional documentation, such as  tax returns from IRS or unofficial copies to verify financial information  reported on immigration forms.  However, immigration officials we spoke  with in five field locations said applicants could alter or falsify those  documents.  According to USCIS officials, designing a data-sharing  arrangement that includes verification of applicant-provided data during  the adjudicatory process would be useful to USCIS adjudicators for the  financial feasibility and legitimacy tests and afford more accurate  immigration eligibility decisions.  Additionally, with an eligibility change as  discussed earlier, business sponsors would be required to file tax returns,  pay amounts due, or make payment arrangements with IRS before  qualifying for immigration benefits.  This, in turn, could result in a higher  likelihood of USCIS getting applications from business sponsors that have  met their tax filing and payment obligations, thereby more likely meeting  USCIS’s financial feasibility and legitimacy criteria.  USCIS could then  better assure that it was granting benefits to those business sponsors that  accurately meet their criteria.
USCIS Ombudsman and representatives of immigration advocacy groups  have concerns about data sharing and immigration eligibility for business  sponsors.  Although the Ombudsman acknowledged the benefits of data  sharing, he was concerned that another step in the immigration application  process could be more cumbersome for business sponsors. He questioned  the type of information IRS would share and said businesses in dispute  with the IRS should not be prevented from applying for benefits while the  dispute is being resolved.  A representative from one advocacy group  expressed several concerns on behalf of business sponsors including:  Increased delays in the immigration process - from their perspective,  any additional step in the application process could lengthen the time  between when a business decides to sponsor a worker and obtaining  USCIS’s approval.
Problems with improving USCIS’s technological capabilities – according  to the immigration advocate, USCIS is still mostly paper-driven and  therefore it is questionable as to whether they could share data  electronically.
Special tax issues related to small businesses – many small business  sponsors file tax extensions and, therefore, may not have readily  available tax documents.  Additionally, newer small businesses have no  tax history.
Adjudicator training – adjudicators need to understand how to read and  interpret business tax documents because many, in the advocate’s  opinion, have no training in dealing with those complicated documents.
A representative of another immigration advocacy group also voiced the  same concern about adjudicator training and added that implementing data  sharing may be more useful in dealing with small- and medium-sized  businesses because, based on their experience, larger businesses are less  likely to be involved in immigration fraud.  In addition, although not  mentioned by USCIS officials, one potential unintended effect of data  sharing might be an increased incentive to employ illegal workers.  That is,  if a business knew that its tax status would be checked by USCIS, or if it  was required to meet tax filing and payment obligations before sponsoring  immigrant workers, some businesses might decide to meet their labor force  needs with workers not properly authorized to work in the United States.   Smaller employers, who are more likely to have tax compliance problems  according to IRS, may be more likely to make this choice than larger-sized  businesses.
According to USCIS officials, adjudicators would find IRS information on  small businesses particularly useful since they are limited in their ability to  assess these businesses’ financial feasibility and legitimacy.  IRS has also  encountered problems in corroborating financial information provided by  small businesses and its research generally shows higher noncompliance  among its small business population.  Among our nonprobability sample,  25 of 43 business sponsors with unpaid assessments reported their net  incomes as less than $10 million on USCIS employment-based  applications.  Additionally, USCIS has begun a series of benefit fraud  assessments, which take a random sample of applications filed within  certain immigrant and nonimmigrant categories and assess them for fraud  by verifying key data reported.  Based on the results of their fraud  assessments, USCIS could focus on businesses that are more prone to  fraud to match IRS data against in determining their financial feasibility  and legitimacy.
The type of taxpayer data USCIS adjudicators find useful could change  under a USCIS proposal to revise regulations for employment-based  immigration applications. USCIS officials are seeking to revise  requirements since they believe that (1) establishing the validity of the  sponsor is sufficient to meet immigration statutory requirements and (2)  adjudicators were spending too much time trying to establish a sponsor’s  income levels for well-known or established businesses. In the interim, in  May 2004, USCIS issued updated guidance to adjudicators directing them  not to reestablish a sponsor’s ability to pay with its USCIS Form I-485,  Application to Register Permanent Residence or to Adjust Status (see app.  II) to minimize processing delays.  If this regulatory change is made, IRS  taxpayer data could still help adjudicators establish the legitimacy or the  bona fide nature of a business sponsor.  According to USCIS officials, if the  proposed regulation were adopted, USCIS would still need tax documents  but would no longer need specific income information from tax returns.   USCIS adjudicators would need tax return information such as whether the  sponsor filed income tax returns, what years they filed, how many  employees they had, and if they paid taxes, and they would need to further  evaluate whether additional IRS information would be useful.  USCIS  would need specific income information from the tax return, such as  adjusted gross income, only in cases where the initial information provided  by IRS raised questions about the sponsor for USCIS (e.g., if the employer  had unpaid assessments or was a nonfiler).  As of July 2005, the proposed  regulatory change was with DHS’s legal office, awaiting approval.
section_title: More Timely Immigration Eligibility Decisions
paragraphs: USCIS officials said that access to IRS taxpayer data could also improve  the timeliness of making benefit decisions primarily because it could  decrease the rework and follow-up work with the applicant.  For example,  adjudicators said that if they could match applicant data against IRS data  early in the review process, they would spend less time researching and  following up on the validity of applicant-provided data (e.g., sending fewer  RFEs to applicants; see figure 3 for an overview of the adjudicatory  process).  According to adjudicators, it could take as long as 12 weeks to  receive responses from applicants for a certified IRS tax return, during  which time, the application file sits on a “suspense” shelf, thereby  extending the application processing time.  Due to this time gap, in certain  cases, background checks must be redone, which further lengthens the  application-processing time.  As we reported in May 2001, USCIS officials  said that lengthy processing times had resulted in increased public  inquiries on pending cases, which, in turn, caused USCIS to shift resources  away from processing cases to responding to inquiries, adversely affecting  processing time.
Under a presidential initiative, USCIS has a 5-year, $540 million effort under  way intended to reduce its backlog of applications, and ensure a 6-month  average processing time per immigration application by the end of 2006.   While USCIS has made progress on meeting most of its fiscal year 2004 and  2005 processing time goals, which range from 2 months to 20 months, its  overall goal is to reduce processing time to 6 months in fiscal year 2006.   This will be difficult because USCIS’s fiscal year 2004 and 2005 average  processing times for some forms are more than twice as long as its fiscal  year 2006 goal of a 6-month processing time.  As Figure 4 shows, for three  of the six forms we examined—the I-485 (Application to Register  Permanent Residence or to Adjust Status), I-751 (Petition to Remove the  Conditions on Residence), and N-400 (Application for Naturalization),— USCIS will need to cut its application processing times by more than 50  percent by fiscal year 2006 to meet its goal and thereby improve the  timeliness of eligibility decisions.
In his fiscal year 2006 budget request, USCIS’s director stated “Although we  are on track to achieve the President’s backlog elimination mandate, we  fully realize that funding alone will not enable us to achieve this goal…I  have worked closely with the leaders in USCIS to continually review our  processes, identify opportunities for streamlining and further  improvement, and to implement meaningful change.” USCIS’s director is  looking for opportunities to further streamline the adjudicatory process,  and, as stated previously, USCIS adjudicators said that if they could match  applicant data against IRS data early in the review process, they would  spend less time researching and following up on the validity of applicant- provided data, which could reduce USCIS’s processing times for business  sponsors’ applications.
USCIS staff in headquarters said that changing immigration eligibility to  require proof of tax filing and payment compliance for business sponsors  may also deter businesses that are not filing and paying their taxes from  submitting immigration applications because they would know that USCIS  would deny their applications.  If so, this could somewhat reduce the  volume of applications received and, thereby contribute to quicker  application processing times.
section_title: IRS and USCIS Have Data-Sharing Options but Each Presents Challenges
paragraphs: A variety of options is available to IRS and USCIS for establishing and  implementing data sharing.  An applicant-initiated data-sharing relationship  could be implemented under existing IRC authority through a taxpayer  consent, whereby a taxpayer authorizes IRS to disclose his or her  information to other agencies.  Under an agency-initiated option, agencies  could share information directly with each other in an electronic format, a  process that is viewed as more efficient and desirable by USCIS and IRS  officials.  However, achieving such efficient data sharing may take time due  to various legal, technological, and cost challenges that must be overcome.   Establishing user fees to cover data-sharing costs are a way agencies can  fund these various data-sharing options, but IRS lacks authority to include  in its user fees the costs for bringing non-compliant business sponsors into  compliance or to retain such fees.
subsections: section_title: Applicant-Initiated Option Could Be Implemented Using Existing Disclosure Authority
subsections: section_title: Taxpayer Consents Under Existing Disclosure Authority
paragraphs: One option for establishing data sharing between IRS and USCIS is to use  an existing authority within the Internal Revenue Code (IRC).  USCIS is not  currently authorized to directly receive taxpayer information for  immigration eligibility decisions under IRC Section 6103.  However,  individual taxpayers could authorize IRS to disclose their tax return  information to agencies like USCIS through a taxpayer consent submitted  either via paper or electronically. The consent must be in the form of a  separate written document pertaining solely to the authorized disclosure –  with text appearing on a paper document or text appearing on a separate  computer screen.  The consent must include: (1) taxpayer identity  information (i.e., name, address, SSN or EIN); (2) the designee to whom the  disclosure is to be made; (3) the type of tax return (or specified portion of  the return) or return information (and the particular data) that are to be  disclosed; and (4) the tax year or years to be covered.  The consent must be  signed and dated by the taxpayer who filed the return or to whom the  return information relates and IRS must receive the consent within 60 days  of the taxpayer’s signature and date.
Taxpayers use the Form 4506, Request for Copy of Tax Return, and the  Form 4506-T, Request for Transcript of Tax Return, to authorize the paper  consent.  A tax return can show that the taxpayer filed a tax return and a  tax transcript can show whether the taxpayer had a filing requirement,  owed taxes, or paid taxes.  Figure 5 is an overview of the way IRS  processes paper consents, any costs to the taxpayer, and the average  turnaround times.
IRS paper consents permit the agency to verify for a third party whether a  taxpayer has been filing required tax returns and paying his or her taxes.   These verifications may be referred to by various names but can be  generically called “tax checks.”  They are often done in connection with a  taxpayer’s application for benefits, licensing, or employment.  Entities that  use tax checks include mortgage institutions, major banks, financial  institutions, state revenue agencies, and federal agencies.  States are the  biggest users of taxpayer information. According to an official with the  Federation of Tax Administrators, many states have a taxpayer consent  requirement, along with their own consent form, to require potential  employees or contractors to consent to a state tax check as a condition of  employment or to receive a license.  When states verify individual and  business compliance with state tax requirements, they are also able to  determine federal compliance as permitted by IRC 6103(d), since states  routinely receive extracts of IRS taxpayer information (See table 3 for  examples of state and private entities that require tax checks.).
For example, an Executive Order permits the state of Kansas to require a  tax check in order for individuals and businesses to qualify for state  employment or state contracts. State law also permits the rejection of a  business’s application if the business owes the state taxes. Further, Kansas  requires a tax check on all new and renewing vehicle dealership licenses.  A  March 2003 Kansas Legislative Audit Report found 514 motor vehicle  dealers who owed $7 million in state sales tax. Before a business can apply  or renew its dealership license at the state’s Division of Motor Vehicles  (DMV), the business must present to the DMV proof that it fulfilled its state  tax filing and payment requirements. According to an official with the  Kansas Secretary of Revenue, for an active dealer, the threat of license  revocation provided an incentive to bring non-compliant businesses into  compliance. Businesses with unpaid assessments either paid their  assessments or set up a payment plan.  The state increased its car dealer  tax compliance rate by 97 percent, according to an official with the Kansas  Secretary of Revenue.
As noted previously, IRS taxpayer consents can also be implemented  electronically. Similar to the paper consent, the electronic consent must  indicate taxpayer identity information, the designee to whom the  disclosure is made, the type of return information that is to be disclosed,  and the tax year or years covered. USCIS officials are agreeable to using  taxpayer consents if they could be implemented electronically in a way  similar to an electronic verification pilot project that was undertaken by  IRS and the Department of Education (Education).  In the pilot, students  who wanted to qualify for financial aid authorized the IRS to release their  tax information to their academic institutions via the Internet.  After  authorizing the release, IRS sent the individuals’ tax transcripts directly to  the schools. This procedure then resolved any inconsistencies between  information on the tax transcripts and on financial aid applications.
section_title: Challenges Using Taxpayer Consents
paragraphs: One challenge agencies face in implementing data sharing based on  taxpayer consents is the costs IRS and USCIS would incur to make data  sharing work. Taxpayer consents can be costly and resource intensive  when using paper, according to IRS officials. For example, IRS processed  approximately 340,000 paper return and transcript requests at an IRS  estimated cost of about $6.2 million (see table 4) during fiscal year 2004.  Furthermore, the process can be paper intensive since IRS typically  receives only hard copies of taxpayer consents. The agency only accepts  paper requests via mail or fax, and no electronic versions of the paper  copies (e.g., scanned copies cannot be e-mailed to IRS) are accepted.  The  process also can be time intensive. For example, the average processing  turnaround time to process a copy of a tax return is 30 days; and the  average turnaround time for a tax transcript is 10 to 30 days.
USCIS officials are reluctant to use a paper consent because the agency is  moving from a paper to an electronic environment.  USCIS officials warned  that requiring applicants to consent to a paper or electronic tax check  would necessitate business process and procedural changes by USCIS, as  well as an education process to the immigration community and the third  parties that assist petitioners with their applications.  USCIS officials said  that requiring business and individual applications to undergo a tax check  could strain already limited agency resources.  USCIS application data  showed the estimated annual volume for the six immigration forms we  reviewed totaled about two million for fiscal year 2004.  USCIS officials  said implementing a tax check for employment-based business  applications—estimated to be at least 180,000 for fiscal year 2004—would  be less difficult to process than the six application forms that require  financial information.  Also, because the same business sponsor could file  applications more than once in a year, depending on how USCIS  implemented the requirement for a tax check, it could be valid for a certain  period of time according to whatever policy USCIS established.   Subsequently, the business would not have to undergo a tax check every  time it sponsored a worker, which would not strain USCIS’s resources.
Although use of tax data has helped some federal agencies better  administer their programs, some are concerned that widespread use of  taxpayer consents may undermine taxpayers’ right to privacy and,  subsequently, voluntary tax compliance.  The confidentiality of tax data is  considered by many to be crucial to voluntary compliance.  The Joint  Committee on Taxation and Treasury’s Office of Tax Policy warn that the  use of consents for programmatic governmental purposes potentially  circumvents the general rule of taxpayer confidentiality because the  taxpayer waives certain restrictions on agencies’ use of the data.  When  such waivers are granted, agencies are not obligated to follow the  recordkeeping, reporting, and safeguard requirements that apply to tax  data, although the less stringent requirements of the privacy act may still  apply.  IRS’s National Taxpayer Advocate stated in 2003 that “Widespread  use of tax information by federal or state agencies will, in fact, undermine  our tax administration system,”  and that “A change in tax compliance of  even one percentage point equates to an annual loss of over $20 billion of  revenue to the federal government.” In its October 2000 report to the  Congress on taxpayer confidentiality, Treasury’s Office of Tax Policy  recommended that before a government program is allowed to use  taxpayer consents, the requesting agency should first conduct a statistical  test match or a small-scale pilot. If that test or pilot demonstrates that the  program’s need for information outweighs concerns about taxpayer privacy  and voluntary tax compliance, then Treasury will determine whether the  agency can proceed with a limited program using taxpayer consents or  whether a legislative amendment should be sought permitting direct  access.
section_title: Agency-Initiated Electronic Option Is Seen as More Efficient, but Additional Authority Would Be Needed
subsections: section_title: Specific Disclosure Authorities for Sharing Data Electronically
paragraphs: Another option for data sharing is direct agency-to-agency sharing.  Such  data-sharing arrangements are enabled by specific statutes or regulations  and, in the case of electronic data matching, have written agreements  between agencies.  Education, SSA, and the Centers for Medicare and  Medicaid Services (CMS) are examples of agencies that have existing data- sharing relationships with IRS using electronic media such as a magnetic  tape.  These agencies are able to share data with IRS because they were  each given specific authorities under IRC Section 6103, which authorizes  the disclosure of a taxpayer’s return information and tasks IRS with  oversight of safeguards for taxpayer information.  Further, agencies enter  into a computer matching agreement (CMA), which outlines the purpose  for the data-sharing relationship, the information to be shared, the method  of sharing, the approximate number of records to be shared, the frequency  of sharing, and the length of the data-sharing arrangement. The requesting  agency is required to attach to the CMA an analysis that measures the costs  and benefits associated with a data-sharing arrangement with IRS.  Agencies must also provide IRS an annual report on their security  safeguards that protect against any unauthorized access or disclosure of  data received during the arrangement.
As shown by the examples in table 5, each agency’s data-sharing  relationship with IRS differs in terms of the number of records shared, the  method and frequency of sharing, the annual cost to the agency, and the  cost per record.
Electronic Data Sharing between IRS and the Department of  Education The Department of Education obtains the mailing addresses of taxpayers  for use in collecting debt from students who have defaulted on loans.  Under the Taxpayer Address Request program, as authorized by IRC  Section 6103(m)(4), Education furnishes the name and SSN of each  defaulted student to the IRS.  IRS then matches the information to its  records and provides Education the most recent address for the taxpayer.  Education sends about 4.6 million records annually to IRS for matching.
Electronic Data Sharing between IRS and the Social Security  Administration SSA is using each section within IRC Section 6103 that authorizes the  disclosure of taxpayer information by IRS to SSA for benefit eligibility  purposes. For example, the Disclosure of Information to Federal, State, and  Local Agencies, under IRC Section 6103(l)(7), enables SSA to request and  use taxpayer information from IRS to determine the eligibility of applicants  and recipients of Supplemental Security Income, the nation’s largest cash  assistance program for the poor. SSA officials estimate a savings of  approximately $48 million annually with this data-sharing relationship. In  addition, with the Medicare Secondary Payer Program, as authorized by  IRC Section 6103(l)(12), SSA, through information collected from  employers of working-aged beneficiaries and Medicare-eligible spouses  such as name and SSN, is able to avoid duplicate payments for services by  identifying Medicare-eligible individuals who have primary coverage  through a group health plan. This data-sharing relationship’s annual savings  are estimated at $463 million.
Electronic Data Sharing between IRS and the Centers for Medicare  and Medicaid Services The most recent data-sharing relationship under IRC Section 6103 is  between IRS and CMS in which CMS uses taxpayer information on a daily  basis to determine eligibility for the Transitional Assistance Program,  which provides up to $600 to individuals to purchase prescription drugs.   IRC Section 6103(l)(19) authorizes IRS to disclose to CMS specified tax  return information of applicants for transitional assistance to help CMS  identify eligible applicants.  Figure 6 describes how the data matching  occurs. In fiscal year 2004, CMS sent IRS about one million records for  matching, and this data-matching arrangement cost CMS approximately  $130,000.
Electronic Data Sharing via Transcript Delivery System IRS offers electronic service, or e-service, products that are accessed  directly by authorized third parties such as tax practitioners and state  revenue agencies.  Available since July 2004, the Transcript Delivery  System (TDS) allows authorized third parties to immediately, electronically  access taxpayer transcript information like the return transcript, account  transcript, record of account, and verification of nonfiling—products that  otherwise are available via the paper consent Form 4506-T.  Tax  practitioners can use this service if the taxpayer authorizes disclosure via  Form 2848, Power of Attorney, which must be on file with IRS before the  practitioner can request and receive a taxpayer’s data.  This type of  disclosure is authorized via IRC Section 6103(e)(6).  Only three states are  currently using TDS, as authorized by IRC Section 6103(d).
The TDS e-services are Internet based and authorized users can access  them from any computer with minimal Internet capabilities. The authorized  individual retrieving taxpayer information inputs the request, and the  information is accessed immediately. For fiscal year 2004, IRS estimates  that it cost about 4.8 cents to provide access to a transcript using TDS.
section_title: Challenges Associated with Electronic Data Sharing
paragraphs: Legal Challenge of Data Sharing  Electronically sharing taxpayer information directly from IRS to USCIS  without a taxpayer consent has a number of legal, technological, and cost  challenges if it is used for immigration benefit purposes.  In order to  electronically share information without first obtaining taxpayers’ consent,  IRC Section 6103 would need to be changed to authorize IRS to disclose  taxpayer information directly to USCIS for immigration eligibility  purposes.  Over the years, a number of exceptions have gradually been  added to IRC Section 6103 that allow access to taxpayer information.  As  mentioned previously, some are concerned that disclosing taxpayer data  could affect the taxpayer’s right to privacy and, subsequently, undermine  voluntary tax compliance. According to Treasury, the burden of supporting  an exception to IRC Section 6103 should be on the requesting agency,  which should make the case for disclosure and provide assurances that the  information will be safeguarded appropriately.  Table 6 lists the criteria  Treasury and IRS have applied when evaluating specific legislative  proposals to amend IRC Section 6103 for governmental disclosures.
Technological Challenges of Electronic Data Sharing  USCIS must also address a number of technological challenges to lay the  foundation that would enable data sharing to take place between the two  agencies.  For example, in our July 2004 testimony, we reported that:  USCIS does not maintain any automated financial data on applicants.   Although USCIS automates certain personal information from benefit  applications, such as an individual’s name and alien registration number,  it does not automate any financial data that are reported on the benefit  application or in accompanying documents such as tax returns.
USCIS systems contain some inaccurate data.  We and the Department  of Justice’s Office of Inspector General have criticized USCIS systems  because they contain some inaccurate data for identifying pieces of  information that identifies applicants (such as immigrants’ addresses).
USCIS and IRS databases do not always have a common numerical  identifier for tracking individuals or businesses.  USCIS uses alien  registration numbers as tracking identifiers whereas IRS uses SSNs or  EINs.  Although USCIS’s systems capture SSNs/EINs if they are provided  on applications, USCIS does not require them to be entered into its  systems.  Thus, even though business sponsors should all have SSNs (if  sole proprietor) or EINs (if another form of business), USCIS may not  have entered the number into automated databases and therefore  cannot match directly to IRS records.
These limitations in USCIS’s record keeping would make electronic sharing  of data between USCIS and IRS less productive than it otherwise could be,  regardless of whether the data sharing was done directly between the  agencies pursuant to a change in IRC Section 6103 or whether done  through taxpayer consents.  USCIS officials recognize that these problems  could interfere with achieving data sharing in the fully electronic  environment that they hope to achieve for adjudicators, but if a policy  decision was made to share data, they believe that some form of electronic  data sharing could be achieved relatively quickly without major  technological improvements.  The officials believe that USCIS could  develop interim solutions while other USCIS transformation activities are  under way. For example, these officials said USCIS could modify its  existing automated systems to add a SSN/EIN identifier, and could adopt  procedures to ensure the identifiers are routinely entered in all locations.   They view this as a business process and policy challenge rather than a  technological challenge.  They also believe they could link the existing  USCIS record identifiers to SSNs and EINS to enable data sharing to take  place with IRS relatively quickly.
Officials did offer some cautions about how quickly even these changes  could be implemented.  For example, they said that although adding a  SSN/EIN identifier to their existing systems may only take a few months,  changing immigration forms and notifying adjudicators and the larger  community about the change could take much longer.  As mentioned  previously, these officials contend that establishing a new immigration  requirement on applicants for a tax check will necessitate business process  and procedural changes by USCIS, as well as an education process to the  immigration community and the third parties that assist petitioners with  their applications, which could take years.  Finally, these USCIS officials  pointed out, and the agency’s fiscal year 2006 budget request reflects, that  the agency’s current priorities fall into three areas:  (1) enhancing national  security, (2) eliminating the immigration benefit application backlog, and  (3) improving customer service.  They stated that implementing changes to  enable data sharing with IRS might take a longer time because it is not one  of the agency’s three main priorities.
If data sharing were to occur, officials ultimately would prefer to have it  integrated into a transformed USCIS information technology (IT)  environment.  Since July 2004, USCIS has taken a number of steps to  improve IT capability.  In March 2005, USCIS unveiled its IT transformation  plan that USCIS describes as a large scale and complex program to  increase capabilities, streamline processes and support the collection of  service fees.  As such, the overall planned IT upgrade includes changes,  which will improve the agency’s overall IT environment as well as facilitate  data sharing such as:   Moving from a paper to an automated environment;  Adding a unique identifier to track records for background checks; Implementing electronic adjudication whereby adjudicators will be able  to review immigration applications and supporting evidence online,  among the first increments of the IT upgrade.
Of the many ongoing activities related to USCIS’s IT transformation, USCIS  officials described three major projects under way to improve its ability to  receive and share data within the agency as well as with other agencies:   Data layer/repository – this project will present users with a  consolidated system to access information from 63 USCIS systems  rather than the current situation where users have to log onto separate  systems to obtain data.  This capability would be available to  adjudicators and, eventually, to external users.
Software updates – this project will upgrade, among other things,  USCIS’s desktop and software capabilities, USCIS’s servers and  network, and USCIS’s capability to support the new electronic  processes.
E-adjudication pilots – this project will allow paperless (electronic)  adjudication for certain immigration forms.  Initially, USCIS has plans to  pilot green card replacement/renewal applications (Form I-90) and  extension applications for temporary workers in specialty occupations  (Form I-129 H1B).
In the fall of 2004, USCIS officials anticipated implementing the e- adjudication pilots by mid-April 2005 and having the ability to receive data  from IRS in June or July 2005.  However, these projects have not gotten  under way as scheduled; the start of the pilots is dependent on the data  layer and software updates being in place.  USCIS could not provide us  with a completion date for the data layer and e-adjudication pilots due, in  part, to uncertainty regarding future funding.  USCIS expects to complete  full implementation for its information technology transformation by fiscal  year 2010.  We are examining USCIS’s technological improvements as part  of our ongoing work on immigration backlog and benefit fraud issues.
Cost Challenges of Data Sharing  Estimating the cost benefit associated with establishing and maintaining a  data-sharing relationship can be complicated.   One reason developing a  cost estimate is difficult is because electronic methods of sharing data can  vary, and different costs are associated with different methods of sharing.   For example, USCIS may incur technological costs related to improving  their IT capability to enable data sharing, which can be processed by either  magnetic tape or computer file, each of which has different costs. However,  some of the necessary IT improvements are already planned and would be  funded as part of USCIS’s comprehensive upgrade of its IT systems if data  sharing with IRS does not occur.
Estimating the cost benefit is also complicated because of the difficulty  both agencies may encounter in establishing costs for providing the  service.  The Computer Matching and Privacy Protection Act of 1988 states  that no matching program can be approved unless the agency has  preformed a cost-benefit analysis for the proposed matching program that  demonstrates the program is likely to be cost effective. Similarly,  Treasury's criteria for considering whether a statutory change should be  made for the sharing of tax data stresses the importance of documenting  whether a substantial benefit is likely and what the resource demands on  IRS would be to support sharing the data.  In our July 2004 testimony, we  recommended that IRS and USCIS assess the benefits and costs of data  sharing to enhance tax compliance and improve immigration eligibility  decisions.  IRS responded by stating it would study the issues and work  with USCIS to identify possible solutions.  DHS/USCIS agreed with our  recommendation and said they were “exploring a technical capability for  effectively and efficiently sharing data with the IRS on individuals who  apply for immigration benefits.”  In addition, in 2004, we reported IRS did  not have a cost accounting system capable of providing reliable cost  information, and in 2004, we also reported USCIS had insufficient cost  data to determine the full extent of its operating costs.
Finally, estimating the cost benefit is also complicated because of  uncertainty regarding the net benefits that would be gained from data  sharing.  For example, IRS is unable to pursue all of the current leads that it  receives from existing data corroboration efforts, like document matching.   Therefore, to the extent that obtaining and analyzing additional data from  USCIS developed more leads for possible enforcement actions, IRS likely  would only be able to pursue the portion of cases that exceeds thresholds  IRS uses in determining how many cases to pursue.  Further, apparent  noncompliance may not be substantiated.  For example, some of those who  appear not to have filed tax returns based on matching IRS and USCIS data  may indeed have filed but were not found in IRS’s databases due to  inaccurate information in USCIS files or otherwise not have a filing  obligation.  Of business sponsors with unpaid assessments, some portion  likely would be unable to repay all taxes owed.  From USCIS's perspective,  although we found that many businesses may not have filed tax returns or  may owe taxes, some of these situations may not be significant enough to  affect a USCIS adjudicator's decision about their financial feasibility or  legitimacy.  For instance, some of the businesses applying to sponsor  immigrant workers that owe taxes may not owe enough to raise doubts  about their ability to pay the worker. This may be especially true for larger  businesses.
section_title: Currently Authorized User Fees Can Fund Data Sharing, but IRS Could Not Recover All Related Costs
paragraphs: Under current statutes, USCIS likely would be able to increase its user fees  to recover all costs associated with data sharing with IRS and to retain the  fees, but IRS would not be able to charge user fees that would include costs  to bring noncompliant business sponsors into compliance.  Because IRS  could not recover all costs, it might not realize an increase in net tax  collections through data sharing with USCIS.
Both IRS and USCIS currently have authority that states when and under  what circumstances they can charge user fees and defines permissible uses  of the funds.  IRS is statutorily restricted to retaining no more than the  $119 million in user fees annually.   If the additional user fees to perform  tax checks for USCIS business applicants seeking to sponsor workers  generate additional funds that exceed IRS’s limit, the agency would be  unable to retain the excess amounts.  Further, IRS is limited to recovering  the costs directly associated with providing a service to taxpayers.  USCIS,  on the other hand, does not have a limit on the amount of user fees it can  collect and currently is authorized to collect and retain a user fee related to  providing adjudicatory and naturalization services including compliance  related costs.
In 2004, IRS collected over $137 million in user fees for a wide range of  services, including installment agreements, offers in compromise, and  Freedom of Information Act (FOIA) requests. In fiscal year 2004, about 82  percent of all user fees collected by IRS were for installment agreements or  employee plans and exempt organizations’ letter rulings and determination  letters. The 1995 Treasury Appropriations Act specifies that IRS can keep  an overall maximum of $119 million per year of the user fees it collects for  specific purposes, with the rest of the user fees going into the Treasury  general fund.  However, statutory formulas also limit how much IRS can  retain of certain individual user fees. Due to these individual user fee limits,  in 2004, IRS retained about $90 million from the user fees collected (see  table 7) while the remaining $48 million went to the Treasury general fund.
According to USCIS officials, in 2004, USCIS collected $1.3 billion in user  fees for administering a variety of immigration services and benefits.   Altogether, the agency has about 60 user fees, which range from $2 to $585,  except for the $1000 premium-processing fee for select employment based  applications. With the exception of FOIA fees, which are retained by the  Treasury, DHS retains all user fees collected.  According to USCIS, the  agency’s budget will be entirely fee based beginning in fiscal year 2007.
IRS cannot collect and retain a user fee to support the compliance-related  costs it incurs in connection with data-sharing activities.  IRS currently  only has authority to collect and retain a user fee related to the direct cost  of providing the service—such as providing a copy of a tax return.  If  business sponsors were required to meet their tax obligations before they  could sponsor immigrant workers, IRS also would incur costs to bring  some sponsors into tax filing and payment compliance.  As discussed  earlier, bringing noncompliant business sponsors into compliance could  displace other compliance activities that IRS would otherwise undertake.
Depending on whether bringing the noncompliant business sponsors into  compliance brought in more, the same, or less taxes than the displaced  cases, bringing business sponsors into compliance could result in little  change to IRS’s overall net tax collections, an increase, or possibly even a  decrease.
If data sharing were begun between USCIS and IRS and a user fee is  charged, a number of implementation issues also would need to be  considered.  For example, would both agencies charge fees to cover their  costs?  Would one charge a fee sufficient to cover both agencies’ costs and,  if so, how often would it forward collected monies to the other agency?  In  addition, if IRS were authorized to include costs for bringing noncompliant  business sponsors into compliance, it likely would have to adjust the fees  as it gained experience in determining how much cost it would incur to  bring sponsors into compliance.
section_title: Conclusions
paragraphs: Data sharing between IRS and USCIS has the potential to better guide IRS’s  efforts to identify and correct noncompliance by taxpayers and result in  more informed, accurate, and timely immigration eligibility decisions by  USCIS adjudicators.  Although the agencies would benefit in differing ways,  establishing and implementing data sharing can be beneficial to both  agencies.  For tax compliance purposes, requiring a tax check— documenting whether a business sponsor has filed required returns and  paid required taxes—likely would lead some businesses to come into  compliance because they would know that USCIS would consider this  information in determining whether the business can sponsor immigrant  workers.  However, because USCIS would only consider this information as  one indication of whether businesses qualify to sponsor workers, a greater  tax compliance increase is likely if businesses were required to meet tax  filing and payment obligations as a condition for sponsoring workers.   Given the billions of dollars of unpaid tax assessments among past  business sponsors, our matching results illustrate strong potential for  increased tax collections from changing immigration eligibility  requirements.  Although USCIS officials say no statutory provision  prohibits USCIS from changing its regulations to require business sponsors  to meet their tax filing and payment obligations, officials believe a statutory  change would better withstand a legal challenge.  Further, because  collecting the unpaid assessments of business sponsors would displace  other tax collections work, absent funding to cover its costs of bringing the  business sponsors into compliance, IRS might not realize a net increase in  overall tax collections.
For immigration eligibility purposes, requiring business sponsors to meet  their tax filing and payment obligations would help ensure businesses  applying to sponsor immigrant workers are legitimate.  Short of this  change, either an applicant-initiated or an agency-initiated data-sharing  arrangement could help improve benefit decisions.  Our analysis shows  strong potential to improve thousands of immigration eligibility decisions if  USCIS uses IRS data to help support officials’ decisions about a business  sponsor’s financial health.
Even though data sharing shows promise to benefit both agencies, they  would face implementation choices and challenges that could require  technological or statutory solutions.  In order to develop a better  understanding of the implementation challenges and costs, to explore the  most practical options for full scale implementation of data sharing, and to  more completely assess benefits to IRS and USCIS from data sharing,  USCIS should undertake a pilot test of data sharing under existing  authority to use taxpayer consents to obtain tax data.   Such a study would  be consistent with congressional and executive branch policies that stress  that sharing of tax data be thoroughly justified given concerns about  possible adverse effects on tax compliance if the confidentiality of  taxpayer’s data is compromised.  Additionally, a study could assess issues  raised by USCIS’s Ombudsman and immigration advocacy groups.  A study  would provide executive and legislative policymakers better information  for determining the costs and benefits of data sharing and whether USCIS  should require taxpayer consents from all future business sponsors or  whether a change to IRC Section 6103 would better support efficient data  sharing.
section_title: Matters for Congressional Consideration
paragraphs: To improve taxpayer compliance and USCIS’s immigration benefit  decisions, Congress should consider (1) changing immigration eligibility to  require businesses applying to sponsor immigrant workers to meet tax  filing and payment obligations to sponsor immigrant workers and  (2) authorizing a user fee to be collected and retained by IRS to cover the  costs of bringing non-compliant taxpayers into compliance.
section_title: Recommendation for Executive Action
paragraphs: To improve the accuracy and timeliness of USCIS’s immigration eligibility  decisions absent requiring businesses to have met their tax filing and  payment obligations, we recommend the Secretary of the Department of  Homeland Security direct USCIS, in consultation with the IRS, to conduct a  pilot data-sharing test.  In the test, USCIS should require a tax check for  selected businesses and other entities applying to sponsor immigrant  workers before qualifying for immigration benefits.  The pilot test should  assess and document the costs and benefits of data sharing including key  issues such as using paper or electronic consents, or pursuing specific IRC  Section 6103 disclosure authority, assessing resource implications, and  considering how the agencies would allocate responsibilities for collecting  and allocating user fees from the business sponsors.
section_title: Agency Comments and Our Evaluation
paragraphs: The Commissioner of Internal Revenue provided written comments on a  draft of this report in a September 16, 2005, letter.  The Commissioner  agreed that data sharing between the IRS and USCIS within the Department  of Homeland Security may have many benefits.  IRS agreed to conduct a  small-scale pilot test, in conjunction with USCIS, to determine whether a  business case exists for supporting data sharing before pursuing legislation  or a large-scale taxpayer consent program.  The Commissioner also stated  an executive working group will determine the merits of applying user fees  for compliance data sharing.
On behalf of the Secretary of DHS, the Director of DHS’s Office of  Inspector General Liaison provided written comments on a draft of this  report in a September 26, 2005, letter.  The Director generally agreed with  our recommendation and acknowledged the pilot program would be  consistent with USCIS’s desire to explore ways to streamline its processes  and could provide necessary information with respect to considering the  feasibility of initiatives such as data sharing on a larger scale.   He  appreciated GAO’s recognition of the burden of paper taxpayer consent  forms place on USCIS and its reluctance to embark on a process that would  be largely paper-based.
Although the Director generally agreed with our recommendation, his  agreement was contingent on the extent to which USCIS can lawfully  engage in a pilot program as we recommend.  The Director’s letter did not  elaborate on his uncertainty regarding USCIS’s ability to lawfully engage in  the recommended pilot program.  Based on supplemental communication,  his concern focused on USCIS’s authority to require business sponsors to  consent to a tax check.  According to the Director, immigration laws  contain no explicit prohibition on conditioning employer petitions on their  tax compliance and doing so might be legally defensible.  Nevertheless, he  said USCIS has serious legal concerns about USCIS’s authority to  promulgate regulations with such a requirement.
The Director did not describe the legal concerns and therefore we do not  have a basis to evaluate them.  Consulting with IRS in determining how to  design the pilot test should help USCIS resolve these concerns.  We note  that Education requires taxpayer consents as a condition of participation in  certain student loan repayment programs.  Should USCIS ultimately  conclude that it does not have authority to require such a waiver, an option  for proceeding with the pilot test would be to ask selected business  applicants to voluntarily allow USCIS to directly obtain tax data from IRS.   Taxpayers may authorize others to obtain their tax data directly from IRS.
The Director also expressed concerns about the impact of ongoing tax  disputes on immigration benefit decisions if those decisions are contingent  on a taxpayer being required to meet tax filing and payment obligations.   We believe consultations between USCIS and IRS in designing a pilot  program can address this issue.  For instance, officials might decide that  businesses with some minimal level of tax underpayment or businesses  with tax delinquencies that are actively participating in a payment  arrangement with IRS would not be disqualified from sponsoring  immigrant workers.  We would urge USCIS and IRS to develop data-sharing  policies that would minimize the impact of ongoing tax disputes on  immigration benefit decisions for business sponsors.
In commenting on a user fee to be collected and retained by the IRS, the  Director agreed that IRS should be provided with adequate resources to  carry out its tax compliance mission but had serious concerns about the  user fee proposal.  The Director commented that policy considerations  have kept USCIS from completely using its authority to recover its full  costs.  He noted that Congress has mandated several additional fees for  certain employment-based applications and that, “in short, the more  interagency functions the overall cost of an application to USCIS is  expected to support, the higher the cost to the applicant without  consequent improvements in USCIS services, the less likely it is that USCIS  will be able to increase its fees as may be necessary to fully recover its own  costs.”   The Director also noted that we had previously reported that fee  collections are not sufficient to pay USCIS’s full costs.
We understand that many considerations must be taken into account in  setting USCIS’s overall fees.  However, as our report indicates, obtaining a  benefit from IRS’s perspective depends substantially on having sufficient  funds to bring business applicants that have outstanding tax filing or  payment obligations into compliance.  Further, as also indicated in our  report, USCIS access to IRS tax data for determining immigration benefit  decisions has the potential to improve service to USCIS’s business  applicants because it could decrease rework and follow-up work with the  applicant that currently occurs.  This would help USCIS in minimizing  processing time for all business sponsors.  Ultimately, with more routine  access to IRS data, USCIS might not need to request as much financial  information from business applicants as it does now since USCIS officials  themselves see IRS data as more reliable than information provided by  applicants.  Finally, the GAO report cited by the Director did conclude that  USCIS fees were not sufficient to fully fund USCIS’s operations.  The  insufficiencies, however, were not due to fees being collected for  interagency functions.  Rather, we said this resulted because USCIS’s fee  schedule was based on an outdated fee study that did not include all costs  of USCIS’s operations and costs had increased since the fee study was  conducted.
Finally, the Director commented that the proposed user fee to cover IRS’s  compliance related costs seemed to be different in concept from other  existing user fees.  As the Director noted, it was not within the scope of our  review to examine all user fee relationships between IRS and other  agencies.  Based on the work we did, we are not aware of another case in  which IRS receives a user fee to bring applicants for other agencies’  benefits into compliance with their tax obligations.  However, Congress has  authorized new or expanded funding arrangements to help IRS deal with its  workload.  For instance, in Treasury’s appropriations for 1995, Congress  specifically authorized IRS to establish new user fees or raise existing fees  for services provided in order to increase receipts.  More recently,  Congress also authorized IRS to use private collection agencies to assist in  collecting delinquent taxes and specified that up to 25 percent of money  collected can be used to pay the collection agencies and another 25 percent  can be retained by IRS.  Given the substantial unpaid taxes that we found  among businesses applying to sponsor immigrant workers, we believe that  it is appropriate for Congress to consider steps for effectively bringing  these taxpayers into compliance without unduly deterring IRS from  pursuing other noncompliant taxpayers.  As our report explains, for this to  occur, IRS’s costs for bringing the noncompliant business sponsors into  compliance must be covered, otherwise IRS might experience a net  decrease in tax collections.   Consequently, our report put forth the user fee  as one option for Congress to consider for supporting a potential data- sharing arrangement between IRS and USCIS.
As agreed with your office, unless you publicly release its contents earlier  we plan no further distribution of this report until 30 days from the date of  this letter.  At that time, we will send copies to interested congressional  committees, the Secretary of the Treasury, the Commissioner of Internal  Revenue, the Secretary of the Department of Homeland Security, the  Director of the United States Citizenship and Immigration Services, and  other interested parties.  We will also make copies available to others on  request.
If you or your staff have any questions about this report, please contact me  at (202) 512-9110 or brostekm@gao.gov.  Contact points for our Offices of  Congressional Relations and Public Affairs may be found on the last page  of this report.  GAO staff who made major contributions to this report are  listed in appendix IV.
section_title: Objective, Scope, and Methodology
paragraphs: Our objectives were to determine the (1) potential benefits of data  matching and the (2) options for establishing and maintaining a data- sharing relationship between the Internal Revenue Service (IRS) and the  U.S. Citizenship and Immigration Services (USCIS), including any  challenges associated with those options.
We performed our work at various IRS offices, including the Office of  Governmental Liaison and Disclosure, the Office of Safeguards; and the  Office of Program, Evaluation, and Risk Analysis. Our work included  interviews with employees in IRS's Wage and Investment Operating  Division and Small Business/Self Employed Operating Division.  We  interviewed USCIS officials in headquarters’ operational, technological,  fraud, ombudsman, and policy offices. Additionally, we interviewed  representatives of two immigration advocacy groups—the American  Council on International Personnel and the American Immigration Lawyers  Association—to obtain their perspectives on potential changes to  immigration eligibility rules.
To determine the potential benefits of data matching between IRS and  USCIS, we summarized the benefits reported in our July testimony (GAO- 04-972T), including the results of our data matching efforts (see app. II).   We worked with IRS on conducting additional research for business  sponsors unknown to IRS (identified in our July 21, 2004 testimony) to  determine whether they are operating businesses/organizations and have  any tax compliance problems.  To better illustrate the potential tax  compliance benefit related to business sponsors who have unpaid tax  assessments, we further stratified the business sponsors with unpaid  assessments from our nationwide selection to identify subpopulations of  business sponsors that were or were not in a payment arrangement or had  made payments within 2 years.
To determine the options for establishing and maintaining a data-sharing  relationship between the IRS and USCIS, we interviewed IRS and USCIS  officials on processes in place that support data sharing under existing  disclosure authorities. We summarized operational information such as  timeliness, costs, and volume levels for existing data-sharing relationships  to provide perspective on the options for establishing a data-sharing  relationship between IRS and USCIS.  We interviewed IRS officials on the  resource implications of sharing data via different data-sharing  arrangements.  We compiled examples of private institutions and state  entities that use “tax checks”— IRS verification that a taxpayer filed and/or  paid his or her taxes--for eligibility determination purposes and to  summarize costs associated with “tax checks.”  We interviewed IRS and  USCIS officials and obtained and reviewed statutory and regulatory  guidance on the use of user fees and summarized information on (1) types  of user fees IRS has in place to support compliance and enforcement  activities, (2) regulatory implications for employing a user fee to support  data sharing between USCIS and IRS, and (3) whether user fees go to the  general fund or the Treasury fund.  Finally, we interviewed USCIS officials  and reviewed documents on planned changes to immigration eligibility that  may impact the type of IRS information immigration adjudicators will need  for eligibility decisions.
To determine the potential challenges of data matching between IRS and  USCIS under the various data-sharing options, we primarily summarized  the challenges reported in our July testimony, including the technological,  cost, and legislative barriers.  We identified and reviewed the legislative and  regulatory authorities that govern disclosure of personal and financial  information for eligibility determinations and tax compliance purposes.   We interviewed USCIS policy and legal staff on the implications of  changing immigration eligibility decisions to require applicants to (1)  provide taxpayer consents that allow IRS to share data and (2) be current  on their taxes and review related documentation.  We also interviewed  USCIS and IRS officials regarding future cost challenges associated with  establishing a data-sharing relationship.
We assessed the reliability of IRS's Business Master File (BMF) and  Individual Master File (IMF) data and the USCIS's Computer Linked  Application Information Management System, Version 3.0 (CLAIMS 3), a  database containing nationwide data but not naturalization data, by (1)  performing electronic testing of required data elements, (2) reviewing  existing information about the data and the system that produced them,  and (3) interviewing agency officials knowledgeable about the data.  As  part of our annual audits of IRS’s financial statements, we also assess the  reliability of IRS’s BMF and IMF data with respect to unpaid assessments  by testing selected statistical samples of unpaid assessment modules.  We  determined that the data were sufficiently reliable for the purposes of this  report.
Our review was subject to some limitations.  We relied on IRS officials to  identify offices that use personal information because there is no central,  coordinating point within IRS for receipt of this type of information. We  relied on USCIS officials to identify immigration forms they believed would  most benefit from data sharing with IRS, and we relied on IRS and USCIS  officials’ views on possible impediments or missed opportunities to verify  information, any additional data sharing and verification needs, and the  benefits of increased disclosure of taxpayer information. Because our  sample of 984 hard copy applications at selected USCIS field locations was  not a probability sample, we cannot make inferences about the population  of applications. In addition, because employer identification  numbers/social security numbers were only available for 3.4 million of the  4.5 million applications in our nationwide selection of automated  applications, our findings from these records are not representative of the  entire population. We did not assess the reliability or quality of taxpayer  information collected by IRS or the accuracy of information applicants  reported to USCIS.  Immigration applicants/taxpayers who were in IRS’s  non-filer database could include individuals who did not meet IRS filing  requirements.  We relied on IRS’s investigation of the 33 business sponsors  that were not in IRS’s databases since disclosure rules limit our contact  with taxpayers. Since IRS searched its tax data for the last 5 years (1999– 2004) and we collected 7 years of immigration data (1997-2004), an  unknown but likely small percentage of the businesses that submitted  applications during 1997 and 1998, but are unknown to IRS, could be no  longer in operation.  Additionally, we did not assess the reliability of IRS  data on the cost of paper taxpayer consents since we used this information  for background purposes.  We conducted our work from August 2004  through August 2005 in accordance with generally accepted government  auditing standards.
section_title: Summary of IRS/USCIS Data-Matching Results
paragraphs: The tables that follow present the data we reported in our July 2004  testimony (GAO-04-972T) on the results of matching two sets of USCIS  immigration data with IRS taxpayer data to determine the potential value  for increased data sharing and matching.  First, we used a nationwide  selection of automated data on certain immigration applications: I-129  (Petition for a Nonimmigrant Worker), I-140 (Immigrant Petition for Alien  Worker), and I-360 (Petition for Amerasian, Widow(er), or Special  Immigrant) submitted from January 1, 1997, through March 5, 2004, to  USCIS service centers for immigration benefits.  We used only those  applications in USCIS’s Computer Linked Application Information  Management System, Version 3.0 (CLAIMS 3), a database containing  nationwide data that contained an individual’s Social Security Number  (SSN) or a business’s Employer Identification Number (EIN).  For the  matching process, 3.4 million out of 4.5 million records had usable SSNs or  EINs. We obtained automated data for those years because USCIS’s  automated system had historical data not readily available in hard copy  files. We used these data to determine whether businesses and others that  had applied to sponsor immigrant workers or immigrants applying to  change their immigration status had filed a tax return with IRS and, if so,  whether they owed taxes to IRS. Because the nationwide selection did not  include any financial information, we could not use it to determine whether  USCIS applicants reported the same income amounts to IRS and USCIS.
Second, we visited five USCIS field locations and selected a nonprobability  sample of 984 immigration files covering the period of 2001 through 2003 at  four of the locations because they contained personal as well as financial  information. These hard copy files were applications for citizenship,  employment, and family-related immigration and change of immigration  status applications. We used the hard copy immigration files to build an  automated database of certain personal information, such as the  individual’s SSN or business’s EIN and income reported to USCIS. We  obtained hard copy files for those years because the USCIS offices we  visited had immigration applications for those years on-site. Immigration  offices send older files to storage.  Since each district and service center  organized and stored its applications in a different way and immigration  officials could not always provide an updated count of applications by form  number, we developed an approach to selecting applications that included  pulling approximately every 50th file in immigration file rooms. We  generally selected approximately 50-75 files at each field location for the  following forms: I-129 (Petition for a Nonimmigrant Worker); I-140  (Immigrant Petition for Alien Worker); N-400 (Application for  Naturalization); I-751 (Petition to Remove the Conditions on Residence); I- 360 (Petition for Amerasian, Widow(er), or Special Immigrant); and I-864  (Affidavit of Financial Support) that accompanies the I-485 (Application to  Register Permanent Residence or to Adjust Status). We planned to select 50  files for Form I-829 (Petition by Entrepreneur to Remove Conditions) but  only reviewed 12 files due to resource constraints and the voluminous  nature of the application files. The matching results for our nonprobability  sample included Form I-829s for a small number of individual immigrants  who had unpaid assessments or were nonfilers and none for business or  individual sponsors.
To facilitate matching immigration and taxpayer data, we divided  immigration applicants into three groups:  business sponsors, individual  sponsors, and individual beneficiaries.  We matched the SSNs/EINs in our  nationwide selection of immigration applications and our nonprobability  sample of immigration applications with IRS's Business Master File (BMF)  and Individual Master File (IMF) and other subsets such as the Revenue  and Refunds Database.  We identified immigration applicants/taxpayers  that (1) matched with the IRS master files, (2) had unpaid assessments, (3)  were nonfilers, (4) were businesses/organizations that had no record of tax  activity in the last 5 years, and (5) did not match IRS master files.  Additionally, to ensure we identified only business and organization  sponsors whose EINs were unknown to IRS, we had IRS perform three  additional matches using its BMF Taxpayer Identification Number Cross- Reference File, the BMF Entity File and the IMF Entity File.
We used this sample to determine whether USCIS applicants reported the  same income information to IRS as to USCIS and also as a second source of  examples of USCIS applicants may who not have filed tax returns and may  have owed taxes to IRS.
Tables 1-3 show our results on business sponsors, individual sponsors, and  individual beneficiaries that have unpaid assessments or are nonfilers for  both our nationwide selection and nonprobability sample of immigration  files.
section_title: Comments from the Internal Revenue Service
section_title: Comments from the Department of Homeland Security
section_title: GAO Contact and Staff Acknowledgments
subsections: section_title: GAO Contact
section_title: Acknowledgments
paragraphs: In addition to the contact named above, major contributors to this  assignment were Signora J. May, Assistant Director; Jyoti Gupta, Tina  Younger, Michele Fejfar, Shirley Jones, Amy Rosewarne, and James  Ungvarsky who made key contributions to this report.