Federal tax information (FTI)—tax returns and return information (as defined in fig. 1 below)—is kept confidential under Section 6103 of the IRC except as specifically authorized by law. Information in a form that cannot be associated with or otherwise identify, directly or indirectly, a particular taxpayer is not FTI. Section 6103 specifies what FTI can be disclosed, to whom, and for what purpose. Prior to passage of Section 6103 amendments in the Tax Reform Act in 1976, the executive branch had discretion over decisions to share taxpayer information. The 1976 amendments were written to address concerns about the potential for too much dissemination of tax information and the misuse of tax information. In general, FTI is collected and developed to administer tax law. This information, however, can be useful for other purposes, such as to detect possible noncompliance with nontax criminal laws or administer other kinds of government programs. In 1976 and since, Congress has granted some statutory exceptions to confidentiality and repealed or modified certain existing exceptions. Congress also has considered but not enacted other proposals. Congress has generally attempted to balance the expectation of taxpayer privacy with the competing policy goals of efficient use of government resources, the public health and welfare, and law enforcement. Exceptions to the general rule of confidentiality can be very narrowly prescribed. For example, for the purpose of determining creditworthiness for a federal loan, the law authorizes the IRS to disclose to a federal agency whether or not a loan applicant has a delinquent tax debt, but not more information than that. The law grants more-general disclosures of FTI to state tax agencies for the administration of state taxes. Additionally, Section 6103 authorizes disclosures for nontax administration purposes to specific entities such as certain congressional committees or the President or for specific purposes such as statistical use or determining eligibility for federal programs. Appendix I has more information on the current exceptions to FTI confidentiality, including safeguard and reporting requirements. The last comprehensive reviews of the Section 6103 framework were done more than a decade ago when the IRS Reform and Restructuring Act of 1998 required the Joint Committee on Taxation (JCT) and the Secretary of the Department of the Treasury (Treasury) to report to Congress on the scope and use of Section 6103 provisions regarding taxpayer confidentiality. In their reports, JCT and Treasury called for strict scrutiny of proposed exceptions and the circumstances when such exceptions should be made. To identify what criteria or other policy factors Congress might wish to consider when deciding whether to grant exceptions to the general rule of tax information confidentiality, we reviewed Treasury and JCT reports; congressional reports and hearing records dated between 1999 through April 2011 with references to Section 6103, including proposals enacted and not enacted; available research on the effect of tax-information confidentiality on Treasury and IRS criteria used in assessing proposals to disclose tax information for nontax purposes, the Fair Information Practices; and GAO internal guidance for recommendations on using tax data for nontax purposes. The Fair Information Practices were a key basis for this guide. First proposed in 1973 by a U.S. government advisory committee, the Fair Information Practices are now widely accepted and, with some variation, the basis of privacy laws and related policies in the United States and many countries. They are also reflected in a variety of federal-agency policy statements on information privacy. The Fair Information Practices are not precise legal requirements. Rather, they provide a framework of principles for balancing the need for privacy with other public policy interests, such as national security, law enforcement, and administrative efficiency. Included in the practices is the principle that the collection and use of data should be limited to specific purposes and that individuals should have ready means of learning about the collection and use of information about them. Appendix II has more information on the Fair Information Practices. IRS’s 1994 memorandum republished in app. B of Treasury’s 2000 report elaborates on these criteria. sector business concerns.that represent different perspectives and with expertise in tax administration, privacy, and information issues. We provided a draft of this guide to officials from Treasury and IRS for comment regarding facts and incorporated their comments as appropriate. We selected them to get views from parties We conducted our work from December 2010 to December 2011 in accordance with all sections of GAO’s Quality Assurance Framework that are relevant to our objectives. The framework requires that we plan and perform the engagement to obtain sufficient and appropriate evidence to meet our stated objectives and to discuss any limitations in our work. We believe that the information and data obtained, and the analysis conducted, provide a reasonable basis for any findings and conclusions. This guide was developed to assist and inform decision making regarding proposed statutory exceptions to tax information confidentiality or modifications to existing exceptions. It is intended to help policymakers think about important factors and competing interests rather than to provide a single right answer or optimal decision. The guide consists of two sections of key questions for evaluating Section 6103 exception proposals, as shown in figure 2. The first section includes five threshold questions for screening proposals to address basic issues, such as whether they are adequately developed and tailored to minimize disclosure of confidential tax information. Under this framework, all of the threshold questions would be resolved with a “yes” answer before further consideration of the proposal. The second section includes six policy- factor questions that explore the proposal’s expected benefits and costs,privacy effect and safeguards, and effects on the tax system. Generally the policy questions deal with issues of magnitude, or “how much.” These questions help identify trade-offs to consider among policy factors as well as potential risks to mitigate. In summary, the questions and their answers are intended to support a determination of whether approving the confidentiality exception is the best alternative. The order of the threshold and policy questions reflects a logical sequence of important issues that should all be given careful consideration. Appendix III is a full list of the threshold and policy-factor questions and subquestions discussed throughout the body of the guide. The guide is intended both for evaluating FTI disclosure proposals having an expected tax benefit or tax-specific use as well as proposals for other types of benefits or uses not directly related to tax administration. Whether proposed uses, particularly disclosures for uses beyond tax administration, are seen as appropriate depends in part on how one views the role of tax information held by IRS. Some have advocated that FTI should be used only for tax administration and not disclosed outside of IRS. Others believe that FTI should be used as any other government information resource to achieve non-tax-related policy ends. In between these two positions is the view that FTI disclosures are acceptable in some cases but must be well justified. Regardless of one’s view, the questions in this guide are designed to support evaluating the relevant important taxpayer privacy rights, tax-system effects, and other key issues raised by proposals to disclose FTI. This guide may also assist Congress with oversight of existing exceptions to confidentiality under Section 6103. Evaluating a proposal to use tax information will likely involve considerable judgment because objective information about likely effects may not be available. Therefore when developing and assessing an FTI disclosure proposal, it would be beneficial to build in mechanisms, such as performance reporting requirements, to assess the exception after it is implemented. It would, of course, be appropriate to weigh the cost of complying with any such reporting requirements against the expected value of the reports. Threshold Question 1: Does the proposal have a clear purpose and description of how the tax information will be used? The first step in answering the threshold and policy-factor questions is to have a clear description of basic elements of the exception proposal and its intended purpose. The description should detail the following: What specific information will be disclosed? To whom will the information be disclosed? What category or categories of taxpayers will be affected? How will the information be used? What purpose will be achieved? Threshold Question 2: Does the proposal consider reasonable alternatives? Any disclosure of tax information comes with costs and creates risks. These are discussed in detail in the policy-factor questions below. In order to consider a proposal, however, it is important that such consideration be done in light of any reasonable alternatives. Assessing a proposal’s alternatives could involve a separate evaluation of the alternatives using this guide, though much of this framework is specific to FTI disclosures. One alternative for some proposals may be to obtain the information through taxpayer consent, as permitted under Section 6103(c). For example, when applying for home loans, taxpayers often consent to have income information from their tax returns disclosed to a mortgage company for verification. These disclosures are not subject to the safeguards otherwise required by Section 6103 as a condition for entities to receive tax information from IRS. However, other restrictions on the information may apply, such as the Privacy Act in the case of federal agencies receiving tax information pursuant to taxpayer consent. The Section 6103 safeguard requirements are discussed later in the safeguards policy-factor question and in appendix I. Threshold Question 3: Is the tax information accurate, complete, and current enough for the stated purpose? Any proposal to disclose and use FTI depends on the information being accurate and complete enough to use and available when it is needed. One challenge related to disclosure proposals stems from the errors that tax information can contain. Information reported to IRS by tax filers and third parties is not always accurate. IRS may also introduce errors when processing the information, for example when transcribing tax information from paper returns. IRS finds and corrects some errors in the course of its return processing and examination processes, but not all of them. Consideration should also be given to whether tax information is sufficiently complete for the stated purpose. Certain groups are underrepresented in IRS tax data because not everyone is required to file income-tax returns. For tax year 2010, single people under the age of 65 earning less than $9,350, and married people both under the age of 65 jointly earning less than $18,700, were not required to file tax returns. Also, some individuals and businesses that are supposed to file returns fail to do so.