The IRS Fed/State Program saves government resources by partnering with state government agencies to enhance voluntary compliance with tax laws. This includes facilitating the exchange of taxpayer data, leveraging resources, and providing assistance to taxpayers to improve compliance and communications.
The IRS also assists state agencies by identifying and reporting information on emerging tax administration issues. This is accomplished through the IRS entering into agreements to share information with the state agencies. To ensure the privacy of all taxpayer data, the Disclosure program provides oversight and education to all employees and external partners to ensure the protection of taxpayer confidentiality rights regarding Fed/State exchanges.
There are more than 900 joint efforts underway. Examples include the sharing of examination reports, abusive scheme data, and licensing verification. Through partnerships with state government agencies, the IRS is able to facilitate taxpayer efforts to meet their tax obligations, with a focus on customer service, integrity, and fairness to all.
Frequently Asked Questions
Q1) What kind of information does the IRS share with other tax agencies?
A1) Federal tax returns and return information. “Tax returns” include Form 1040, U.S. Individual Income Tax Return, as well as other income tax and information returns, such as Form 941, Employer’s Quarterly Federal Tax Return; Form 730, Tax on Wagering; Form 1120, U.S. Corporation Income Tax Return; various Forms 1099, U.S. Information Returns; and Form W-2, Wage and Tax Statement.
Return information includes everything else used by the IRS that has anything to do with a person’s tax liability. Examples are any information extracted from a return like names of dependents, business location, or bank account information; the taxpayer's name, mailing address, or identification number; information on whether a return has been or will be examined or subject to any other investigation; information contained on transcripts of accounts or on IRS computer systems; the fact of filing a return; and whether a taxpayer has a balance due account.
Q2) What kind of information do other tax agencies share with the IRS?
A2) Generally state agencies share state tax returns and return information similar to the information described in the answer to Question 1.
Q3) What do the IRS and other tax agencies do with the information shared with them?
A3) The IRS and state tax agencies use shared tax information for their respective federal and state tax administration purposes including compliance, enforcement, and research.
Q4) What law gives the IRS and other tax agencies authority to share information?
A4) Internal Revenue Code (IRC) Section 6103(d) authorizes the IRS to share tax information with state tax agencies for tax administration purposes. Comparable state statutes allow the states to share their information with the IRS.
Q5) Does the IRS share information with all 50 states?
A5) Yes, in accordance with written agreements generally known as Fed/State agreements. Details of Fed/State information exchanges are covered in Implementing Agreements, which normally cover a variety of exchange activities, as well as in Memorandums of Understanding (MOUs), which normally involve specific information exchanges or activities. For example, the IRS has MOU agreements to partner with most states on Abusive Tax Avoidance Transaction issues.
Q6) How often is information shared?
A6) Under Fed/State agreements information is shared on a recurring basis, such as monthly, quarterly, or annually. In addition, on an ad hoc basis, either the IRS or the states may submit written requests for information not specifically covered in the agreements. On an annual basis, states also enroll in the IRS Data Exchange Program, which enables them to obtain additional valuable federal tax information in an electronic format, based on established schedules.
Q7) What is the Abusive Tax Avoidance Transactions (ATAT) Memorandum of Understanding (MOU)?
A7) Under the ATAT MOU, the IRS has entered into agreements with 48 states and two cities to work together in combating abusive tax avoidance schemes.
Q8) What makes the ATAT MOU different from other agreements the IRS has with state tax agencies?
A8) The ATAT MOU established a new procedure for up-front information sharing including the exchange of leads between the IRS and the participating cities and states. Previous sharing agreements focused on the sharing of tax adjustments after the completion of examinations.
The partnership allows the agencies to leverage resources by greatly decreasing the possibility of two or even three tax agencies performing a lengthy examination of the same taxpayer. The agencies also conduct joint outreach and education activities.