Taxpayer Information: Increased Sharing and Verifying of Information Could Improve Education's Award Decisions
Published: 2003-07-18T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: Data sharing can be a valuable tool for federal agencies in determining applicants' eligibility for benefit and loan programs. Congress has authorized the Department of Education, among others, to have limited access to federal taxpayer information collected by the Internal Revenue Service (IRS). Likewise, IRS is able to use personal information collected by outside sources to better ensure that taxpayers are meeting their tax obligations. GAO was asked to determine whether Education uses taxpayer information to verify information provided by student aid applicants, and the benefits of increasing data verification activities, and whether IRS uses personal information maintained by Education to ensure that taxpayers meet their tax obligations, and the benefits of increasing these activities.
section_title: What GAO Found
paragraphs: Education uses taxpayer information for several purposes, such as locating loan defaulters; researching and computing statistical data on overall borrower debt; and, upon taxpayers' consent, determining loan repayment amounts. However, Education is not authorized to directly receive taxpayer information from IRS to verify eligibility for student financial aid provided under Title IV of the Higher Education Act of 1965 (HEA). In academic year 2001-02, 11.4 million students applied for $54 billion in aid. A 1998 amendment to HEA was intended to authorize the matching of student aid applicant information with several elements of federal income tax return information. However, HEA could not be used as intended because Internal Revenue Code Section 6103 was not specifically amended so that Education and its contractors, which assist Education in administering the various financial aid programs, could have access to taxpayer information. Based on a study that matched Education data and IRS income information, Education estimates that it made approximately $602 million in grant overpayments during fiscal years 2001 and 2002. IRS does not use personal information collected from applicants and maintained by Education to ensure that taxpayers meet their tax obligations because IRS officials believe the taxpayer information IRS receives is more accurate. In general, IRS officials' views are supported by IRS's past estimates of taxpayers' levels of compliance and by the results of Education's studies and investigations. For example, in the mid-1990s, IRS estimated that taxpayers with only wage income had a 99 percent voluntary compliance rate and taxpayers with interest and dividend income were 95 percent compliant in reporting this income. However, Education's student aid application data are not suited to IRS's tax administration purposes because the applications ask students and/or their parents to report data that come directly from their tax returns.

section_title: Letter
paragraphs: Each year, federal agencies make billions of dollars of improper payments  under various federal programs. Over the years, Congress has authorized a  number of federal agencies to have access to federal taxpayer information  collected by the Internal Revenue Service (IRS) to improve the accuracy of  eligibility determinations made by those agencies. The authorized agencies  are able to verify (i.e., match or cross-check) some personal information  provided by applicants against corresponding information reported to IRS.
Similarly, IRS is able to use some of the personal information obtained  from federal and state agencies to better ensure that taxpayers are  meeting their tax obligations. Various federal laws and agency policies  regulate agencies’ use and disclosure of taxpayer and personal  information. Section 6103 of the Internal Revenue Code (IRC) 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.
Because of continued concerns about balancing taxpayer privacy interests  with potential increased benefits from the sharing of taxpayer information  among agencies administering federal benefit and loan programs, you  asked us to assess whether IRS and selected federal agencies—the Bureau  of Citizenship and Immigration Services (formerly the Immigration and  Naturalization Service), the Social Security Administration, and the  Department of Education—are making use of opportunities to use  taxpayer information and personal applicant information to improve  eligibility determinations and tax administration.
During the course of this work, you asked us to report separately on the  data sharing and verifying activities between IRS and Education and  provide information that can be used as Congress considers legislative  changes to IRC Section 6103. As agreed with your offices, our objectives  were to determine whether (1) Education uses IRS taxpayer information  to verify information provided by applicants for federal student financial  aid and the benefits, if any, of increasing verification activities and (2) IRS  uses personal information maintained by Education to ensure that  taxpayers meet their tax obligations and the benefits, if any, of increasing  these activities.
To respond to your request, we performed our work at various IRS offices,  including compliance and research offices, and various program offices at  Education. As used in this report, “data sharing” means obtaining and  disclosing information on individuals between Education and IRS to  determine eligibility for student financial aid and to ensure that taxpayers  have met their obligations. We collected and analyzed information on data  sharing and verifying activities between IRS and Education, including the  type of information received and how the information is used. We  reviewed federal laws and agency guidance regarding the collection,  disclosure, and use of taxpayer and other personal information. We also  interviewed IRS and Education officials to obtain views on possible  impediments or missed opportunities to share and verify taxpayer and  other personal information, as well as the potential benefits of increasing  these activities. We conducted our work from August 2002 through June  2003 in accordance with generally accepted government auditing  standards. For details on our scope and methodology, see appendix I.
subsections: section_title: Background
paragraphs: IRC Section 6103 allows IRS to disclose taxpayer information to federal  agencies and to authorized employees of those agencies for specified  purposes. It was enacted, in part, to control whether and how tax  information submitted to IRS on federal tax returns could be shared. IRC  Section 6103 specifies which agencies (or other entities) may have access  to certain types of tax return information, for what purposes such access  may be granted, and under what conditions the information will be  received. For example, before receiving taxpayer information, agencies  are required to advise IRS how they intend to use the information and to  establish detailed plans that ensure the confidentiality and safeguarding of  the information.
Similar to IRC Section 6103, 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. Personal information is further protected by the  Computer Matching and Privacy Protection Act of 1988 (Privacy Act). It  requires that agencies enter into written agreements, referred to as  matching agreements, when they share information that is protected by  the Privacy Act for the purpose of conducting computer matches.
IRS receives tax returns from about 88 million individual taxpayers who  have wage and investment income, and approximately 45 million small  business and self-employed taxpayers. IRS performs a variety of checks to  ensure the accuracy of information these taxpayers report on their tax  returns. These checks include verifying computations on returns,  requesting more information about items on tax returns, and matching  information reported by third parties to income reported by taxpayers on  returns (e.g., 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 at the  same time boosting voluntary compliance.
Approximately 11 million individuals applied for over $50 billion in federal  student financial aid in academic year 2001-02. Title IV of HEA authorized  several student aid programs, including the following:    Pell Grants—grants to undergraduate students who are enrolled in degree  or certificate programs and have federally defined financial need;     Supplemental Educational Opportunity Grants (SEOG)—grants for  undergraduate students with federally defined financial need;    Stafford and Parent Loans for Undergraduate Students (PLUS) loans— loans that are made by private lenders and guaranteed by the federal  government (guaranteed loans) or made directly by the federal  government through a student’s school (Direct Loans);    Perkins loans—low-interest loans to undergraduate and graduate students  for which interest does not accrue while the students are enrolled at least  half-time in eligible programs; and    Work-study—on- or off-campus jobs for which students who have  federally defined need earn at least the current federal minimum wage and  for which institutions or off-campus employers pay a portion of their  wages.
As shown in figure 1, for academic year 2001-02, 78 percent of federal  student aid came from loans, 20 percent came from grants, and 2 percent  came from federal work-study programs.
Education has created many information systems to support the various  student financial aid programs it administers. In many cases, these  systems are maintained and operated by contractors, which are  responsible for processing the student financial aid application data and  providing such data to the schools, as well as to Education to use in  managing and overseeing the programs. As such, a student’s financial aid  process begins when he or she submits the Free Application for Federal  Student Aid (FAFSA). The student (and parents of a dependent student)  submits the FAFSA to the contractor that enters the data from the  application. On behalf of Education, the contractor calculates the  expected family contribution figure and performs database matches and  edits to ensure that all needed information is included and that the student  meets eligibility requirements, including not having defaulted on a prior  student loan. The contractor then sends the results of the matches and  other processing results to the student and the school(s). The school(s)  request any supporting documents needed to verify application data and  determine the student’s eligibility for aid, and construct an award package  of available types of aid. Funds are then disbursed to the school(s)  according to the student financial aid program requirements.
section_title: Education Could Benefit from Access to Taxpayer Information to Verify Student Eligibility for Financial Aid Programs
paragraphs: Education uses taxpayer information for some eligibility determinations  and other purposes, but is not authorized to directly receive taxpayer  information from IRS to verify student financial aid eligibility or determine  payment amounts for its federal student aid programs—due to IRC Section  6103 restrictions. During fiscal years 2001 and 2002, Education could have  benefited from using taxpayer information to verify personal information  from student aid applicants. Using aggregate IRS income information,  Education estimates that $602 million in grant overpayments occurred  during this time.
subsections: section_title: Education Uses Taxpayer Information for Several Purposes
paragraphs: Education uses the taxpayer information it receives from IRS to determine  approximately 100,000 borrowers’ monthly loan repayment amounts, to  determine the addresses for approximately 4.6 million records of  borrowers who may have defaulted on their student loans, and to develop  aggregate borrower debt statistics.
In order to determine the monthly repayment amount for borrowers  participating in the income contingent repayment (ICR) plan, Education,  under IRC Section 6103(l)(13), receives income information on the  borrower from IRS. The ICR plan allows Federal Direct Loan Program  borrowers to repay loans as a percentage of their income. To participate in  this program, the borrower must authorize IRS (i.e., give his or her  consent) to share income information with Education. Approximately  100,000 consents are processed under the ICR plan for repayment each  year.
Under the Taxpayer Address Request (TAR) program, as authorized by  IRC Section 6103(m)(4), IRS provides the mailing addresses of taxpayers  to Education to be used in collecting debt from student loan defaulters.  Specifically, Education furnishes the name and Social Security number  (SSN) to the IRS for each defaulted student. IRS then conducts a match of  the information and provides Education the most recent address for the  taxpayer. Education sends about 4.6 million records annually to IRS for  matching under the TAR program.
Additionally, as part of its research activities, Education receives  aggregate taxpayer income information from IRS in the form of tables that  it uses in establishing performance measures and selection criteria for its  student aid application verification process. Education also uses these  data in researching and computing statistical data on overall borrower  debt, such as determining the average and median debt burden ratios for  any given year.
As part of the federal student aid application process, every year since the  mid-1980s, Education selects approximately 30 percent of its student aid  applicants for verification purposes. When a student is selected for  verification, he or she is required to provide copies of his or her (or  parents’) tax returns to the school. If the student refuses to do so, he or  she will not receive federal aid. The school then compares the information  on the tax return to information on the FAFSA and corrects any  inconsistencies on the FAFSA to match the information on the tax return.  This current verification process has at least two drawbacks. The process  is time consuming and paper intensive because it involves approximately  3.6 million paper copies of tax returns that schools match. In addition, the  process relies on applicants providing copies of their tax returns, which  may not be the same as those submitted to IRS.
Beginning in October 2002, Education began an electronic verification  pilot project involving 148 of these selected students who were asked to  authorize IRS to release their tax information to their academic  institutions via the Internet. The purpose of this pilot was to take the  student and/or his or her parents out of the middle of the verification  process between the IRS and the school so that the school relies on  income information it obtains directly from IRS, thereby making the  process more efficient.
Under this pilot project, once the student, parent, or spouse authorized the  release of his or her tax information, IRS sent the tax transcripts for that  individual to the school, which then resolved any inconsistencies between  information on the tax transcript and on the FAFSA. This pilot match  ended on March 31, 2003, and, according to an Education official, the  initial feedback from the participating schools and taxpayers was very  positive. Education officials are currently compiling data from the pilot  schools and taxpayers and will be issuing a report in the fall of 2003 on the  ease of use, statistical data, and any needed changes.
section_title: Legal Impediment Hinders Data Sharing for Education’s Student Financial Aid Programs
paragraphs: Although Education receives some taxpayer information in conjunction  with some of its programs, IRC Section 6103 does not authorize Education  to obtain taxpayer information directly from IRS to verify eligibility or  determine payment amounts for its federal student aid programs.  Approximately 11.4 million individuals applied for over $50 billion in  federal student financial aid in academic year 2001-02. As shown in figure  2, over a 10-year academic period, the amount of student aid awarded  grew 92 percent, from approximately $28 billion in academic year 1991-92  to approximately $54 billion in academic year 2001-02.
Also, because IRC Section 6103 does not authorize Education to directly  obtain taxpayer information from IRS to establish the repayment amount  for ICR student loans, taxpayer consent is required for IRS to share  income information with Education.
IRC Section 6103 was enacted, in part, to control whether and how tax  information submitted to IRS on federal tax returns could be shared. It  was amended in 1976 in an attempt to balance confidentiality and the need  to disclose returns and return information for legitimate purposes.  Determining the most appropriate way to balance these two  considerations has been an issue that has faced Congress for a number of  years. Congress believed that not only did taxpayers have a right to expect  the personal information they report to IRS to remain private, but that  such privacy protection was also an important component of continued  voluntary compliance. Moreover, many observers and privacy advocates  believe that disclosure of return information may decrease taxpayers’  willingness to comply with the tax law and that tax administration suffers  when return information is disclosed for nontax purposes.
IRC Section 6103 restrictions were the focus of past legislative action  taken to address limitations on data sharing and matching activities  between IRS and Education in connection with student financial aid  programs. According to Education officials, a 1998 amendment to HEA  was intended to authorize the matching of student aid applicant  information with several elements of federal income tax return  information. However, that provision could not be used as intended  because IRC Section 6103 was not specifically amended so that Education  and its contractors, which assist Education in administering the various  financial aid programs, could have access to taxpayer information.
In an October 2000 report to Congress on taxpayer confidentiality and the  use of taxpayer information, Treasury’s Office of Tax Policy recommended  that IRC Section 6103 be amended to permit disclosure of necessary items  to Education for income verification, and to permit the use of contractors  as contemplated by HEA, if Education could show that such disclosure  was warranted. Further, in August 2002, officials from Treasury, the  Office of Management and Budget, and Education proposed a legislative  amendment to IRC Section 6103 that would allow IRS to match the income  reported on federal student aid applications with income tax return  information and share the results with Education.
The language in the proposed amendment stresses balancing the need for  accurate student aid applicant information with the importance of  maintaining the integrity of IRS taxpayer information. The proposed  legislative amendment specifies, “the tax data would be disclosed only for  very limited purposes, only to the Department of Education and its  contractors, and then only after a series of rigorous safeguards were  implemented.”  The proposed amendment was included in the President’s  Fiscal Year 2004 Budget, which stated that IRS matching of student aid  application income data with applicant tax data “is projected to save     $638 million in Pell Grant costs over 2003–2004, significantly reducing  existing funding shortfalls.”  However, it does not appear in the Taxpayer  Protection and IRS Accountability Act of 2003—the most recent tax bill  that contains several other confidentiality and disclosure provisions.  Moreover, as of June 2003, Congress had not acted on the proposed  amendment.
Apart from the proposed legislative amendment, Education officials noted  that several operational details remain to be addressed by IRS and  Education, many of which depend ultimately on the final language in the  legislation. For example, because the schools act as agents for Education  in the review, collection, and disbursement of financial aid awards, the  details surrounding how best to make the matching program work for both  the schools and the applicants must be addressed. In addition, Education  officials said careful consideration must be given to the timing for  matching student aid applications with tax returns. According to the  officials, most students can submit their FAFSAs starting January 1. The  applications provide details on their income, or that of their parents’, for  the previous year. However, taxpayers have until April 15 to file their tax  returns and can request extensions. Therefore, IRS information may not be  available for matching purposes until well after initial student aid  eligibility determinations have been made. In a September 2000 report, we  noted that while such a match may not be timely enough for initial  eligibility verification purposes, it may be possible to conduct a match  with IRS using fairly complete taxpayer data because financial aid  payments are typically not made until late August or September.
Education officials contend that while the timing of the match would be  less than ideal for helping to make initial student financial aid decisions,  they have established interim steps to address the timing issue, such as  multiple disbursement periods and withholding of payments until income  verification is completed. Even with these interim steps in place, they  acknowledge that the timing of the matching program still remains a  challenge. Education officials said they are also in the process of  identifying other ways to address all operational details, and are  committed to working with IRS to make the matching program a success.
section_title: Increased Data Sharing Can Improve Student Financial Aid Decisions
paragraphs: Increased data sharing and verification between IRS and Education could  result in better decision making when awarding student financial aid and  reduced fraud. Both Education’s Office of the Inspector General (OIG) and  we have reported that increased data sharing can improve Education’s  student financial aid decisions. Additionally, Education is currently  conducting a project that supports the need for increased data sharing.
In a September 2000 report, we recommended that Congress consider  amending IRC Section 6103 to improve the ability of certain federally  funded benefit and loan programs to obtain and share information to make  timely and accurate eligibility determinations, while protecting personal  privacy and the confidentiality of personal information. Specifically, we  said “the Congress should consider amending Section 6103(l) of the  Internal Revenue Code to authorize IRS to disclose certain taxpayer data  to officers, employees, and contractors or other agents (such as schools)  of Education for purposes of verifying information reported on  applications for financial aid.”  Additionally, our recent January 2003  Performance and Accountability Series report indicates that Education  could benefit from receiving IRS taxpayer information to verify income  information reported on student aid applications.
According to Education’s OIG, some students report inaccurate  information either through error or fraud on their federal student aid  applications through, for example, underreporting of income. In a  statement before Congress in 2000, the Education’s Inspector General  stated that underreporting of income by student aid applicants costs  federal taxpayers over $100 million annually in overawards of Pell Grants  and awards to ineligible persons. In addition to underreporting,  Education’s OIG found numerous examples of fraud, as shown in table 1.  Applicants’ ability to receive student aid fraudulently could be reduced if  Education could verify applicant information using IRS taxpayer data.
In addition to these examples of fraud, Education’s research indicates it  may have overpaid an estimated $602 million in Pell Grants over a 2-year  period. As part of its efforts to show the effect of IRC Section 6103  restrictions on eligibility and payment decisions, Education is conducting  the Pell Grant Payment Study by matching information provided on  student aid applications with IRS taxpayer information. The study began in  1999 and measures the extent of underreporting and overreporting of  income based on student aid applicants’ characteristics, such as income,  tax filing status, and recipients’ schools.
To enable this match, Education provides IRS with a file of student aid  applicants’ SSNs. IRS officials match these SSNs with taxpayer income  information and provide the aggregated results to Education. This format  protects the taxpayers’ confidentiality, in accordance with IRC Section  6103, which prohibits IRS from revealing the identity of these taxpayers to  Education. Since Education does not know the identity of the taxpayers, it  can estimate the amount of overpayments but cannot associate a specific  overpayment with a particular individual and cannot ascertain when a  mismatch may be legitimate. Thus far, the study has estimated the  percentage of Pell Grant overpayments to be 3.4 percent, or $272 million  dollars, in fiscal year 2001 and 3.3 percent, or $330 million dollars, in fiscal  year 2002, for a total of $602 million. Education has not done a similar  study for its loan programs, which account for approximately 80 percent  of federal student aid funds.
Education officials believe amending IRC Section 6103 to enable  Education to match student aid applicant information with several  elements of federal income tax return information “would substantially  reduce the risk of fraud and overpayments” associated with Education’s  student financial aid program, would eliminate the need for taxpayer  consent in conjunction with the ICR program, and would make the  program more administratively efficient. This, in turn, would enhance the  integrity of the federal student aid programs and ensure that students are  receiving the amounts of assistance for which they are eligible.
section_title: IRS Does Not Use Education’s Student Aid Data and the Potential Benefit of Doing So Appears to Be Limited
paragraphs: IRS does not use personal information from applicants that Education  collects and maintains to ensure that taxpayers meet their tax obligations  because IRS officials believe the taxpayer information IRS receives is  more accurate. In general, IRS officials’ views are supported by its past  estimates of taxpayers’ levels of compliance and by the results of  Education studies and investigations.
IRS officials cite a number of reasons for not using information Education  collects and maintains to ensure that taxpayers meet their tax obligations.  IRS officials said they believe the taxpayer information IRS collects and  maintains on over 100 million individual taxpayers, who file income tax  returns annually, is more accurate than that collected and maintained by  Education from applicants applying for federal student aid. The officials  noted that because federal student aid is based on income, applicants  seeking financial aid might be inclined to underreport their income to  Education in hopes of securing larger aid awards. The officials said they  believe most taxpayers know that failure to fully disclose income to IRS  could result in an audit or the use of IRS enforcement authorities to collect  delinquent taxes. Further, the officials also said they believe the  requirement to file a tax return annually helps to ensure that some of the  information IRS maintains, such as taxpayers’ addresses, is more current  when compared to similar information maintained by Education.
IRS routinely relies on information from third-party sources (e.g., banks)  to ensure that taxpayers meet their tax obligations, including both whether  taxpayers correctly report information necessary to determine the taxes  due, if any, and whether any taxpayers who should have filed returns did  not. Through its document matching programs, IRS uses these third-party  documents to verify what taxpayers report on their tax returns. Similarly,  IRS identifies individuals who did not file tax returns if it receives third- party documents for these individuals.
Past IRS estimates of taxpayers’ compliance have indicated that taxpayers  whose incomes are subject to document matching are among the most  compliant. For example, in the mid-1990s, IRS estimated that taxpayers  with only wage income had a 99 percent voluntary reporting compliance  rate, and taxpayers with interest and dividend income were 95 percent  compliant in reporting this income. IRS is currently conducting a study  that is intended to update these compliance estimates.
However, although document matching programs work well for taxpayers  whose incomes are subject to third-party reporting to IRS, they do not help  when taxpayers have sources of income that are not subject to such  reporting. Both the Treasury Inspector General for Tax Administration and  we have previously reported that taxpayers whose incomes are not subject  to information reporting, like those who are self-employed, are much less  compliant in fulfilling their tax obligations than those whose incomes are  subject to such reporting.
However, the data collected and maintained by Education are not suited to  helping IRS identify taxpayers who are not covered by existing document  matching programs. The student aid applications ask students and/or their  parents to report income information directly from their tax returns and  generally do not ask for other corroboration of income.
IRS officials’ view that IRS data are likely to be more accurate than  Education’s data is also supported by Education’s studies. As noted  earlier, Education’s Pell Grant Payment Study results have found that  some student aid applicants have underreported income on their  applications compared to the income that they reported to IRS. Although  Education estimates some underpayments to students during these  studies, officials say that these, in their judgment, appear to result from  mistakes in filling out applications. The work of the Education OIG also  suggests that a significant number of student aid applicants falsify copies  of tax returns or other information that they submit to Education to show  lower incomes and thereby claim higher amounts of student aid.
Given that Education data may have limited utility for tax administration,  IRS has not investigated use of the data for tax administration. If Congress  does authorize Education to obtain taxpayer information to verify  students’ eligibility for financial aid, the resulting database of mismatches  between data reported to each institution may represent a ready and low- cost opportunity for IRS to investigate whether there is any reasonable  potential for using Education information for tax administration purposes.  The database mismatches would identify how many, if any, student aid  applicants reported less income to IRS than to Education and the number  of cases in which the applicants may not have filed tax returns at all.
section_title: Concluding Observations
paragraphs: Education obtains some information from IRS to use in administering its  programs but is unable to obtain information that could help it reduce  financial aid overpayments that it estimated to total $602 million in fiscal  years 2001 and 2002. As government agencies continue to seek efficient  ways to improve federal benefit and loan program decisions by reducing  fraud and error, data sharing has been a valuable tool for supporting  integrity in federal programs. However, the need to verify self-reported  information must be balanced with privacy concerns. Existing disclosure  laws help ensure that federal agencies properly handle the personal  information they collect. Modifying the legal constraints in IRC Section  6103 for sharing taxpayer information—with accompanying requirements  to ensure that the data are used only for authorized purposes—is one way  to address student aid program vulnerabilities while retaining protections  for personal privacy. We have previously recommended that Congress  consider such a change.
IRS does not use student aid application data because IRS officials believe  that the data IRS receives are more accurate than student aid application  data. This belief is supported by IRS data and by Education studies, and  thus there appears to be little benefit to attempting to use the Education  data for tax administration purposes.
section_title: Agency Comments and Our Evaluation
paragraphs: We requested comments on a draft of this report from the Commissioner  of Internal Revenue and the Secretary of Education.  On July 15, 2003, the  Commissioner of Internal Revenue and the Chief Operating Officer of  Education’s Office of Federal Student Aid each provided written  comments on a draft of this report. (See apps II and III, respectively.)  Officials representing the Office of Federal Student Aid also provided  technical comments to clarify specific sections of the draft report.  We  have incorporated these comments into the report where appropriate.
The IRS Commissioner and Education officials raised no concerns.  In his  comments, the Commissioner noted that although we did not make any  recommendations, the report provides an accurate and comprehensive  review of the issue, and will be a good source document for policymakers  as they address increased sharing of taxpayer information. Additionally,  the Chief Operating Officer acknowledged the potential for saving  hundreds of millions of dollars annually in overpayments and other  benefits through an effective data matching program with IRS, and said  that Education officials would continue to support necessary legislative  changes.
As agreed with your offices, unless you publicly announce its contents  earlier, we plan no further distribution of this report until 30 days from its  date.  At that time we will send copies to the Chairman and Ranking  Minority Member, House Committee on Ways and Means; the Chairman  and Ranking Minority Member, Subcommittee on Oversight, House  Committee on Ways and Means; the Secretary of Education; the Secretary  of the Treasury; and the Commissioner of Internal Revenue. We will also  make copies available to others on request. In addition, the report will be  available at no charge on the GAO Web site at http://www.gao.gov.
If you or your staffs have any questions about this report, please contact  me at (202) 512-9110 or on brostekm@gao.gov, or Signora May at (404)  679-1920 or on maysj1@gao.gov. Other staff who made key contributions  to this report were Michelle Bowsky, Michele Fejfar, Jyoti Gupta, Shirley  Jones, Anne Laffoon, and Miltresa McMichael.
section_title: Appendix I: Objectives, Scope, and Methodology
paragraphs: To respond to your request, we performed our work at various Internal  Revenue Service (IRS) offices, including the Office of Governmental  Liaison; the Office of Safeguards; the Office of Program, Evaluation, and  Risk Analysis; and the Privacy Advocate’s Office. Our work also included  interviews with employees in IRS’s Wage and Investment Operating  Division and IRS’s Small Business/Self Employed Operating Division, the  Department of the Treasury’s Office of Tax Policy and the Office of the  Treasury Inspector General for Tax Administration, and program offices at  the Department of Education. We collected and analyzed information on  data sharing and matching between IRS and Education during fiscal years  2000 through 2002.
To determine whether Education uses IRS taxpayer information to verify  information provided by applicants for federal student aid and the benefits  of increasing verification activities, we analyzed the student financial aid  application and determined what personal information Education collects  from applicants. We interviewed Education officials as well as IRS officials  to obtain data on the type of taxpayer information received from IRS,  including how, when, and for what purpose the information is received.  We identified the legislative and regulatory authorities that govern IRS’s  disclosure of taxpayer information to Education.
Additionally, we determined how Education is using the information  received from applicants and IRS, and whether it is matching/cross- checking the information to improve eligibility determinations. To  determine the benefits of increasing verification activities, we collected  and analyzed data to assess how increased disclosure of information  would affect taxpayer confidentiality and privacy interests. We  interviewed IRS and Education officials to obtain views on possible  impediments or missed opportunities to match/cross-check information to  make better programmatic decisions, and we reviewed existing studies or  reports on data matching/cross-checking activities. We determined what  personal information Education collects but does not match/cross-check  with IRS and why not, and whether officials believed matching/cross- checking would be useful for eligibility determinations.
To determine whether IRS uses personal information maintained by  Education to ensure that taxpayers meet their tax obligations and the  benefits of increasing such activities, we collected data to determine what  personal information IRS obtains from Education. We interviewed IRS and  Education officials to obtain data on the type of personal information that  is received from Education, including how, when, and for what purpose  the information is received. We identified the legislative and regulatory  authorities that govern Education’s disclosure of personal information to  IRS.
Additionally, we assessed how IRS is using the information received from  Education, and whether it is matching/cross-checking the information to  better ensure taxpayers are meeting their tax obligations. To determine  the benefits of increasing verification activities, we collected and analyzed  data to determine what personal information IRS receives from Education  but does not match/cross-check and why not, and whether officials believe  the information would be useful for tax administration. We determined  what personal information IRS does not receive from Education, whether  IRS is aware of the information, and whether IRS officials believe  receiving it would be useful for tax administration.
As used in this report, “data sharing” means obtaining and disclosing  information on individuals between Education and the IRS to determine  eligibility for student financial aid and to ensure that taxpayers have met  their obligations. Education’s use of taxpayer information to verify  information obtained from applicants refers to the matching or cross- checking procedures that are conducted, and is covered by interagency  computer matching agreements between IRS and Education.
Our review was subject to some limitations. We did not assess the  reliability or quality of taxpayer and other personal information that is  shared and verified between Education and IRS. We relied on officials to  identify those IRS offices that use personal information because there is  no central, coordinating point within IRS for receipt of this type of  information. Additionally, we relied on IRS and Education officials’ views  on possible impediments or missed opportunities to match/cross-check  information, any additional data sharing and verification needs, and the  benefits and challenges of increased disclosure of taxpayer information.
We conducted our work from August 2002 through June 2003 in  accordance with generally accepted government auditing standards.
section_title: Appendix II: Comments from the Internal Revenue Service
section_title: Appendix III: Comments from the Department of Education