International agreements, such as income tax treaties, permit the United States and other countries to provide information to each other for tax administration and enforcement purposes through a process referred to as exchange of information or information exchange. Information may be shared upon request or without a preceding request. The information shared between countries can cover a range of documents and sources, and can occur in a variety of formats. Exchanges include responses to narrowly tailored requests for documents related to a specific taxpayer, as well as records for thousands of taxpayers. Exchanges are not limited to tax returns and other tax system-specific information; other sources can involve public records, information from securities brokers, and real-estate information. Exchanges are also defined to include broad-based discussions of policy and administration between tax authorities. According to the Joint Committee on Taxation (JCT), there were nearly 2.5 million disclosures of tax returns or return information to foreign countries under tax treaty disclosure authority in 2010. The total number of disclosures may be greater than the number of taxpayers involved, as the same taxpayer may be the subject of more than one information exchange. Tax treaties, Tax Information Exchange Agreements (TIEA), and Mutual Legal Assistance Treaties (MLAT) provide U.S. officials working on tax matters the authority to exchange information with authorities in other countries. Generally, these agreements contain exchange of information provisions that have been agreed upon by the United States and one other country or jurisdiction; that is, they are bilateral. While U.S. domestic law or international law does not prevent countries from providing the United States with otherwise unprotected information, such exchanges typically do not occur outside the bounds of these agreements. Tax treaty provisions cover a wide range of tax issues but have two primary purposes; (1) avoiding double taxation and (2) enforcing the domestic tax laws of treaty partners. All but one tax treaty between the United States and other countries contains provisions that authorize exchange of information. According to officials at the Department of the Treasury, U.S. officials generally rely on a model income tax treaty to identify the terms and provisions that the United States would like to incorporate into its agreements with other countries. The U.S. Model Income Tax Convention of 2006 is the most recently published model treaty that U.S. officials rely on to negotiate tax treaty provisions, and includes Article 26 concerning information exchange. The Department of State serves as an advisor to the Department of the Treasury, which develops and negotiates tax treaties and other international agreements related to tax matters. Although model treaties are the starting point for U.S. negotiations with other countries, officials we spoke to noted that the terms and conditions of tax treaties, like other international agreements, are the product of negotiations between the countries involved. Specific agreements vary in the terms or provisions governing exchange of information between the United States and individual treaty partners, and, as discussed later in this report, these variations can have meaningful effects on the exchange of information process. When seeking approval for a treaty, including tax treaties, the Secretary of State formally submits the proposed treaty to the President of the United States for transmittal to the United States Senate. Following advice and consent of the United States Senate, the President of the United States signs the treaty, and directs the Secretary of State to take the actions necessary for the treaty to enter into force. After both countries have complied with the entry-into-force provisions of the treaty, it becomes binding under international law. TIEAs also authorize exchange of information between the United States and other countries for tax purposes. Like tax treaties, the provisions contained in TIEAs must be agreed upon by all parties to the agreement, and the terms and conditions governing exchange of information between the United States and other countries may differ from agreement to agreement. Unlike treaties, however, TIEAs are executive agreements that are signed by the President of the United States and do not require the advice and consent of the United States Senate. Also, while tax treaties cover a broad array of tax matters including exchange of information, the sole purpose of a TIEA is to facilitate the exchange of information. As with tax treaties, TIEAs become binding under international law once both countries have complied with the entry-into- force provisions. MLATs create a routine channel for obtaining a broad range of legal assistance for criminal matters. Like tax treaties, MLATs are treaties that require the advice and consent of the Senate. MLATs are negotiated by the DOJ in cooperation with the Department of State. Unlike the information obtained through tax treaties and TIEAs, which authorize the exchange of information for tax purposes, MLATs authorize the exchange of information for criminal matters, which can include criminal tax matters. Information shared through exchange of information and information about such exchanges is confidential and protected by domestic laws and provisions contained in tax treaties and other such agreements. The Internal Revenue Code (IRC) protects information exchanged under tax treaties and other relevant agreements from disclosure in the same manner as information obtained under domestic laws except in specific circumstances, such as to courts and administrative bodies. The identity of taxpayers, information about those taxpayers, and the identity of the countries involved in the exchange of information are protected from public disclosure. Tax treaties, TIEAs, and MLATs require that both the United States and its treaty partners designate and authorize an entity within their respective governments to interpret agreement provisions and disclose information. Tax treaties and TIEAs commonly refer to these entities as “competent authorities” or “taxation authorities,” while MLATs refer to these entities as “central authorities” or “competent authorities.” For information exchanges under tax treaties and TIEAs, the Secretary of the Treasury is the competent authority. For administrative purposes, the authority to exchange information with other tax authorities has been delegated to the IRS Deputy Commissioner (International), Large Business and International Division. All exchanges of information under an agreement involving the United States must occur through formal channels established between the United States and treaty partner competent or central authorities. Exchanges that occur within these formal channels restrict the disclosure of tax information. Also, some foreign governments may restrict foreign tax authorities from conducting investigative activities within their borders. Specific exchanges of information are those in which information is provided by one jurisdiction after it is requested by a partner jurisdiction in the context of a specific audit or investigation. From the U.S. perspective, requests for specific exchange of information are incoming or outgoing. When a treaty partner submits a request for specific exchange of information to the United States, these foreign initiated requests are called incoming requests for specific exchange of information. Conversely, when the United States initiates a request for specific exchange of information, that request is referred to as an outgoing request for specific exchange of information. Treaty partners may also exchange information with one another without a request. For example, tax administration officials may come across information about a taxpayer that officials believe could be of interest to tax administration and compliance officials in another country. The competent authority may then send this information to the treaty partner’s competent authority through what is referred to as a spontaneous exchange of information. Treaty partners may also exchange information with one another on a regular or routine basis, through what is referred to as an automatic exchange of information. Such exchanges typically involve the voluntary exchange of information on multiple taxpayers, and cumulatively can include millions of records. For example, a country may routinely provide information on domestic dividends paid to foreign citizens. Automatic exchanges of information are similar to spontaneous exchanges because they are not associated with a formal, one-time written request for information on a specific taxpayer or taxpayers. The United States also exchanges information with treaty partners through the Simultaneous Examination Program (SEP) and Simultaneous Criminal Investigation Program (SCIP). SEP/SCIP is used in situations where the United States and a treaty partner have common issues concerning the examination or investigation of a taxpayer or related taxpayers. Officials meet to discuss audit plans, information requirements, and other issues related to the examination or investigation. Treaties also allow broad-based discussions on matters such as tax administration trends, operating practices, and tax matters related to particular economic sectors. In the United States, these exchanges are referred to as industrywide exchanges of information. According to IRS officials, industrywide exchanges are rare and do not involve sharing information about specific taxpayers. While the provisions of most tax treaties and relevant agreements are broad enough to permit the exchanges of information previously described, specific exchanges of information are the only type of exchanges that the United States and its treaty partners are obligated or required to do under the terms of these agreements. Therefore, the administrative processes and much of the data presented in later sections of this report will focus on the activity occurring through specific exchanges of information. All administrative activities associated with processing incoming and outgoing requests for specific exchanges of information are handled by IRS Tax Attachés or EOI/OO staff located in one of the agency’s civilian posts of duty or in Washington, D.C. IRS has four overseas posts of duty located in Europe and Asia and one domestic duty post in Plantation, Florida. Each foreign duty post is headed by a Tax Attaché and the domestic post is headed by a Revenue Service Representative (RSR). Tax Attachés, RSRs, and EOI/OO headquarters staff are responsible for ensuring that the incoming and outgoing requests pertaining to their designated jurisdictions meet agreement standards and are processed in a timely manner. Requests for information involving Australia, Canada, France, Japan, and New Zealand are processed through EOI/OO in Washington, D.C. Incoming requests for information are assessed by the relevant Tax Attaché, RSR, or headquarters staff to ensure that they comport with the agreement in place with the country and with U.S. laws.