The exchange of confidential tax information between the Internal Revenue Service (IRS) and the States is intended to increase tax revenues and taxpayer compliance and reduce duplicate resource expenditures. Congress has recognized the importance of this exchange program by permitting the disclosure of certain confidential Federal tax information to State agencies for tax administration purposes. However, Congress balanced this disclosure authority with additional requirements designed to safeguard Federal tax information against misuse and unauthorized disclosure. A fundamental step toward reducing the risk of unauthorized disclosures is the elimination of unnecessary disclosures. Many of the guidelines, requirements and programs outlined in this IRM were developed with this goal in mind.

Governmental Liaisons are assigned responsibility for liaison with State tax authorities and are to be personally involved in the cooperative tax administration program.

Disclosure Officers, Governmental Liaisons, and Mission Assurance and Security Services (MA&SS) share the responsibility for ensuring that resources are used to the best advantage and that Federal tax information is properly safeguarded. Some of the responsibilities that have traditionally been accomplished by the Disclosure Officer may be completed by the Governmental Liaison. This does not negate the need for the Disclosure Officer’s involvement in any negotiation or task that includes the disclosure of tax or other confidential information. The Governmental Liaison may also serve as the IRS representative at conferences and meetings with senior officials of state agencies.

As more and more third party data is requested from State agencies, privacy and security issues must be considered before third party data requests are made for compliance initiatives or interagency agreements. Database security is becoming more important as we promote local electronic/tape exchanges both with tax and nontax agencies. Responsibilities for maintaining external databases have been addressed in IRM 11.3.14.6, Spirit and Requirements of the Act, as well as in the Compliance Improvement Project Program. See IRM 4.17, Compliance Initiative Projects. Disclosure and Governmental Liaison employees should ensure that all applicable requirements have been met and the appropriate authorities for disclosure exist before data is disclosed.

This section deals with disclosure for State tax purposes in accordance with IRC 6103(d), whereas the concept of FedState is much more global. Other parts of IRC 6103 may be used for FedState purposes when State tax administration is not the reason for the disclosure or it is determined that another disclosure provision is best used from an administrative viewpoint. Other sections of this IRM may be appropriate when considering the feasibility of FedState exchanges.

The following terms are defined for use in this IRM:

State - any of the fifty States, the District of Columbia, the Commonwealth of Puerto Rico, the Virgin Islands, Guam, American Samoa, the Commonwealth of the Northern Mariana Islands, and any municipality with a population in excess of 250,000, as determined by the most recent decennial United States census data available, which imposes a tax on income or wages and with which the Commissioner of the Internal Revenue Service has entered into an agreement regarding disclosure.

State tax administration - the administration, management, conduct, direction, and supervision of the execution and application of the revenue laws (or related statutes) of the State, the development and formulation of State tax policy relating to existing or proposed revenue laws, or related statutes, of the State, including assessment, collection, enforcement, litigation, and statistical gathering functions under such laws and statutes. The term does not include nontax functions of a State agency such as the determination of eligibility for unemployment compensation or the collection of such benefits if erroneously paid. If a state transfers tax administration functions (e.g., statistical gathering or revenue forecasting) from a revenue agency to a state agency that does not actually administer taxes, disclosures under IRC 6103(d) cannot be made to this successor agency. If residual functional responsibilities remain with the revenue agency, close coordination with Disclosure is necessary to determine which disclosure statutory provisions apply.

Basic agreement - the Agreement on Coordination of Tax Administration executed by the Commissioner of Internal Revenue and the head of a State tax agency.

Implementing agreement - an agreement, complementing the basic agreement, entered into between the head of a State tax agency with which IRS has finalized an agreement on coordination of tax administration and the IRS GLD Area Manager—or higher GLD official.

primary Disclosure Office - the Disclosure Office responsible for negotiating agreements and overseeing disclosures with the State tax agency.

secondary Disclosure Office - used with reference to multi-Disclosure Office States only, the Disclosure Office(s) other than the primary Disclosure Office. A multi-Disclosure Office State is a State which has more than one IRS Disclosure Office within its borders.

affected Campus - the campus(es) responsible for processing returns of taxpayers residing in primary and/or secondary Disclosure Offices’ geographical areas and which will be involved in exchanging data with a particular State tax agency.

field Disclosure Officer - the Disclosure official at a local IRS office.

campus Disclosure Officer - the Disclosure official at an IRS Campus.

Governmental Liaison - the FedState IRS official designated to cover a particular state.

Mission Assurance and Security Services (MA&SS) - the Safeguards Program Office within Certification, Testing and Evaluation Assessment of MA&SS that is responsible for oversight of IRC 6103(p)(4), 6103(n), and periodic on-site need and use reviews of state tax agencies.

IRC 6103(d)(1) permits the disclosure of returns and return information with respect to taxes imposed by chapters 1, 2, 6, 11, 12, 21, 23, 24, 31, 32, 44, 51, and 52, and subchapter D of chapter 36 to any State agency, body or commission, or its legal representative, charged under the laws of the State with the responsibility for administration of any State tax law. See (5) below for the titles of these chapters.

Disclosure may be made only in response to a written request by the head of the agency, body or commission only for the purpose of, and to the extent necessary in, the administration of such tax laws.

The request may designate representatives to inspect or receive copies of the returns or return information but such representatives may not include any individual who is the Chief Executive Officer of the State or anyone who is not an employee, legal representative, or authorized contractor of the agency (see IRC 6103(n)), body or commission.

Disclosure of returns or return information must be denied if it will identify a confidential informant or seriously impair a civil or criminal tax investigation.

The titles of the chapters listed in IRC 6103(d)(1) are as follows:

IRC 6103(k)(5) permits the disclosure, to State or local agencies, bodies or commissions lawfully charged under any State or local law with the licensing, registration or regulation of income tax return preparers, of taxpayer identity information with regard to such preparers and information as to whether or not any penalty has been assessed against such preparers under IRC 6694, IRC 6695, or IRC 7216. In response to a written request by the head of the agency, body, or commission designating the officers or employees to whom the information is to be disclosed, the information may be furnished and used only for the purpose of licensing, registration, or regulation of the preparers. Such disclosures are subject to the accounting requirements of IRC 6103(p)(3)(A), but are not subject to safeguards under IRC 6103(p)(4).

IRC 4102 permits the inspection of records required to be kept regarding taxes on gasoline and lubricating oils (Subchapter A, Part III of Chapter 32, Manufacturers Excise Taxes) by officers of a State or political subdivision charged with the enforcement or collection of any tax on such products. Disclosures under this Code section are to be made pursuant to regulation. See Treasury Regulation 48.4102-1. Information other than that taken directly from returns may not be disclosed under this provision. Disclosures involving sole proprietors must be accounted for under the Privacy Act.

Refund offset information disclosed to the States by FMS under IRC 6103(l)(10), for offsets authorized by IRC 6402(e), is not governed by IRC 6103(d). The requirements and restrictions of IRC 6103(l)(10) apply to this information which differs from IRC 6103(d) requirements and restrictions. For this reason, it is advisable for States to not commingle IRC 6103(l)(10) data with IRC 6103(d) data.

Disclosure of Federal returns and return information to a State tax agency under IRC 6103(d)(1) will be restricted to the agency ’s justified State tax administration need for and use of such information. See Policy Statement P-1-35.

Disclosure Officers will maintain separate written documentation of agency need for and use of information which is disclosed on a continuing basis, pursuant to an agreement on coordination of tax administration, and of each data item provided in magnetic tape or electronic format.

Every effort will be made to eliminate disclosure of unnecessary information to State tax agencies. Requests for copies of tax returns are to be carefully reviewed to determine what specific information is needed and whether a copy of the entire return should be provided or whether a computer transcript is more appropriate.

Tolerances and criteria will be established with regard to information furnished on a continuing basis, and information which the agency cannot use should normally not be provided. See IRM 11.3.32.6.1(2)c) below, for further discussion on tolerances and criteria.

In discussions and documentation of the particular State tax agency’s need for and use of specific information, it is understood that the State tax agency may subsequently use the Federal returns and return information for any State tax administration purpose authorized by the basic agreement even though such subsequent uses were not discussed or noted in the Disclosure office’s documentation records.

MA&SS, Safeguards will conduct an on-site "need and use" review of each State tax agency receiving Federal tax information in accordance with its established procedures. When appropriate as determined by MA&SS, Safeguards, Governmental Liaisons, and Disclosure Officers may accompany MA&SS on need and use reviews.

Disclosures made to State and local agencies under IRC 4102 and IRC 6103(k)(5) will likewise be subject to the same " need and use" restrictions as described above, except for the on-site inspection.

The "basic" agreement provides for the mutual exchange of tax data between a specific State tax agency and the IRS. The provisions of the "basic" agreement encompass the required procedures and safeguards.

Arrangements for continuing disclosures are made by means of an "implementing agreement," as discussed in IRM 11.3.32.6 below. State tax agency requests for tax data not covered by an Agreement on Coordination of Tax Administration must be made in accordance with instructions contained in IRM 11.3.32.13 below.

A "model" Agreement on Coordination of Tax Administration is shown in Exhibit 11.3.32-1. Individual modifications to the standard provisions of the model are not permitted. Necessary departures from the standard provisions, however, may be proposed and submitted to the Office of Governmental Liaison and Disclosure for consideration and approval by the Commissioner.

The scope of the basic agreement and subsequent implementing agreement will initially be developed and negotiated through discussions between the GLD Area Manager and the head of the State tax agency. The respective Disclosure Officer is expected to play a key role in the development, negotiation and administration of such agreements. All legal questions must be addressed before an agreement is sent forward. It may be necessary to engage Area Counsel during this stage. Common questions of this nature involve whether a municipality has a qualifying tax, whether an item called a " fee" is actually a tax, whether the structure of the revenue bureaucracy meets IRC 6103(d) standards, whether contemplated state uses constitute tax administration, etc. Where such legal questions are involved, the Area GLD personnel must involve the Director, Office of Disclosure in the resolution.

Two copies of the proposed basic agreement must be signed by the head of the State agency. For this purpose, the head of the agency is generally the official (other than the Governor or Mayor) responsible under the State law for the functions of the particular tax agency or department. While a Governor or Mayor could be a cosigner with this official, their signature alone is insufficient. IRC 6103(d) prohibits a state’s chief executive officer from accessing Federal tax information.

Both signed copies will then be transmitted by the GLD Area Manager to the Director, Office of Disclosure, for review and securing of the Commissioner’s signature. The transmittal document must contain the reasons for entering into the agreement. In addition, " need and use" justifications are to be addressed as well as IRC 6103(p)(8) considerations. See IRM 11.3.32.14.1 below. The Office of Disclosure will coordinate with Disclosure and Privacy Law of Chief Counsel if it is thought that HQ legal issues still need to be resolved. The agreement will be returned to the field if the issue is one that Area Counsel should have addressed. Copies of all applicable State statutes must accompany all new and revised agreements.

Following the Commissioner’s signature, one signed copy will be retained in Headquarters and the other will be returned to the GLD Area Manager, who will have copies made for the appropriate affected Disclosure offices. The other signed copy is to be returned to the State tax agency or department.

The agreement becomes effective upon the signature of both parties and continues in effect indefinitely unless terminated by either party. A change of incumbent in the office of either party to the agreement will have no effect on the agreement.

Sections 2.5 and 3.3 of the basic agreement require that the field Disclosure Officer(s), as well as the affected Campus Disclosure Officer, be furnished with a list of designated agency representatives by the agency head.

From time to time it may be necessary to amend specific sections of a basic agreement. Usually this occurs as a result of a change in State or Federal statutes or policy. Amendments will be effected by means of an addendum. A "model" addendum is to be used for broadening the scope of basic agreements to incorporate additional chapters of Federal tax is shown in IRM Exhibit 11.3.32-2 below. The " model" addendum is also available electronically on the GLD website.

Addenda for the original basic agreement will be prepared, signed and cleared in the same manner prescribed in (5)-(7) above. It is unnecessary to formally amend the basic agreement for State tax agency responsibility changes that do not affect the chapters of tax covered in the agreement. However ,see IRM 11.3.36, Safeguard Review Program, for information on the potential need for a new Safeguard Procedures Report

Copies of basic agreements, including addenda, may be made available to the general public upon request.

An implementing agreement should be developed and negotiated with each State tax agency that wishes to receive Federal returns and return information on a continuing basis pursuant to a basic agreement.

This agreement will supplement the basic agreement by specifying the detailed working arrangements and items to be exchanged, including tolerances and criteria for selecting those items, as agreed to by the State tax agency and the GLD Disclosure offices and campuses. All provisions contained in implementing agreements must be consistent with the terms and conditions set forth in the basic agreement.

The implementing agreement is to be used to:

Wherever possible, the IRS should make efforts to use data available from State agencies to avoid duplicate resource expenditures. A Data Identification Sheet, shown in IRM Exhibit 11.3.32-4, has been developed to aid in determining what information is available from State sources. The appropriate IRS function can then evaluate the information in light of IRS tax compliance programs.

The majority of exchanges with a State tax agency will be on a geographical area level that is within the purview of the local Disclosure Officer. Local Disclosure Officers are encouraged to forward any items felt to have nationwide significance to Headquarters.

Implementing agreements must be reviewed periodically and, if necessary, amended or revised.

The agreements may be amended at any time to reflect the addition of new exchange programs or modification to existing exchanges. Memorandums of Understanding (MOU) may be used in lieu of amending Implementing Agreements. See IRM 11.3.32.7 below, for information on MOUs.

Copies of implementing agreements and of any amendments are to be attached to the appropriate basic agreement maintained by the local Disclosure Officer.

If any conflict arises between the provisions of the Agreement on Coordination of Tax Administration and the implementing agreement, the terms of the basic agreement will govern.

Governmental Liaisons have primary responsibility for the development and coordination of MOUs. MOUs should be considered for specific projects/exchanges that are short term or when the disclosure is authorized under some Code section other than IRC 6103(d).

MOUs must normally be signed by an official in the Operating Division with Delegation Order 11-2 authority, having jurisdiction for the project/exchange, and the head of the State tax agency if disclosures are involved.

A title section of the MOU should include the names of the agencies involved in the agreement.

Specific instructions for the project/exchange should be included to avoid confusion.

If time is an issue, requirements for responsiveness should be described.

Comments regarding security and disposition of information exchanged may be appropriate.

Appropriate parties should be consulted before commitments are made to provide resources.

Chief Counsel should be consulted for any legal opinions that are required.

The Disclosure Officers must be involved in the approval process for all MOUs.

Signature areas should contain blanks for name, date and place.

Signed copies should be maintained by the Office of Governmental Liaison, Disclosure Office, and the Operating Divisions, Functions, and Campuses involved. Copies should be provided to any parties to the agreement.

The primary Disclosure Officers have responsibility for ensuring the development and negotiation of implementing agreements with the appropriate State tax agencies within their States. This responsibility includes:

The primary Disclosure Officers will be responsible for maintaining complete and current documentation of the State tax agency ’s need for and use of all Federal returns, return information and data elements which are provided to the agency on a continuing basis pursuant to the implementing agreement.

Affected Campuses, Operating Divisions, and Functions are responsible for providing timely (generally within 30 days), input to the Disclosure Officers and assuring that the Disclosure Office is promptly, generally within 7 days, apprised of any significant changes in programs, practices and procedures which might affect exchange program activities.

Disclosure Offices involved in negotiating implementing agreements with the appropriate State tax agencies, are to ensure that affected Operating Divisions, Functions, and Campuses are involved in and concur with the terms of agreements which will affect their operations.

Implementing agreements do not need the approval of Headquarters’ Office of Governmental Liaison and Disclosure prior to signing. The negotiating Disclosure Office will distribute copies of signed implementing agreements to the GLD Area Manager and to affected Campuses, Operating Divisions, and Functions. Upon completion of signing both copies of the implementing agreement, one copy with original signatures will be given to the agency. The other copy with original signatures will be maintained by the respective Disclosure Office.

The Disclosure Office will distribute copies of amendments and revisions to implementing agreements, to the GLD Area Manager and to the affected Campuses, Operating Divisions, and Functions. Retention of the agreements by the GLD Area Manager is optional.

Copies of implementing agreements are generally available to the public. Portions of the implementing agreements which contain tolerance and criteria information are to be protected from disclosure and given the same protection accorded to LEM material as described in IRM Exhibit 1.16.13.2.5, Other Protectable Items, for a discussion. U.S. Possession agreements (e.g., Tax Information Agreements, Tax Coordination Agreements, MOUs), are considered Tax Conventions within the meaning of IRC 6105 and can only be disclosed consistent with IRC 6105.

MA&SS is responsible for safeguarding IRC 6103(p)(4) information exchanged via implementing agreements. See IRM 11.3.32.2(12) above, and IRM 11.3.36.

At least every three years (see subsections 11.3.36.9.2, Need and Use Reviews, and IRM 11.3.36.10(7), On-Site Safeguard Reviews) an on-site review (see IRM Exhibit 11.3.32-5 for a template that should be used) will be made of the agency’s actual use or non-use of data disclosed to them on a continuing basis under the tolerances and criteria established in the implementing or other agreement. MA&SS will notify the Governmental Liaison and Disclosure Officer in advance of the review as MA&SS deems appropriate and invite the Governmental Liaison and Disclosure Officer to attend. Magnetic media or electronic exchanges must be covered during this review. The report must specifically address whether or not the agency receives electronic data and/or tape extracts and, if applicable, the agency’s use of such data.

A report describing the method and scope of the review, and summarizing the review findings shall be incorporated into the report issued by MA&SS as a result of the safeguard review coordinated pursuant to IRC 6103(p)(4). See IRM 11.3.36.9.2. The results of the review must be transmitted to the agency by MA&SS within 30 days of the review, but not later than 45 calendar days after the closing conference.

The data obtained during the review will help identify those tolerances and criteria which should be modified to reduce or eliminate disclosures of data which, in practice, the agency does not or cannot use. MA&SS will share that information with GLD and SB/SE as appropriate.

The agencies should be encouraged to voluntarily collect and furnish any additional data necessary for the review. An agency ’s failure or inability to provide data, in whole or in part, for this review shall not be cause for suspending or diminishing any cooperative tax administration activity with the agency.

When it is appropriate, tolerances and criteria should be modified per (4) above. Disclosure Officers should discuss the results of this aspect of the need and use reviews in meetings with appropriate state tax agency personnel.

Subsequent documentation that addresses the modifications by the agency in response to the discussion should be forwarded to the Safeguards Program Office.

Disclosure Officers shall ensure that requests are processed in accordance with IRC 6103(d) requirements. Processing of these requests does not need to be done in the primary Disclosure Office. Alternative procedures may be developed between the primary Disclosure Office and Campuses, or secondary Disclosure Offices located within the same state.

An officer or employee of a State tax agency may inspect or receive Federal returns or return information of specifically identified taxpayers if:

A proper request is one directed to the appropriate IRS official designated in the basic agreement or the implementing or other agreement which includes:

The IRS official to whom a State agency representative has made a request to inspect returns or to obtain return information, shall satisfy himself/herself as to the identity of the individual, and with the assistance of the Disclosure Officer ensure that the above requirements have been met.

The means used to transmit returns and return information may vary according to the sensitivity of the material involved.

Form 8796, Request for Returns/Information, can be used by either IRS or employees of State tax agencies to request returns and/or return information in accordance with an approved Agreement on Coordination of Tax Administration (Basic Agreement). Use of this form by IRS or employees of State tax agencies is encouraged but not mandatory; however, when Form 8796 is used, sections C and D must be signed by officials who are authorized to make requests and/or release information under the terms of the Basic and Implementing Agreements.

State tax agencies can participate in the Transcript Delivery System which will allow approved state employees to order certain IRS transcript products directly on-line. All regular rules regarding IRC 6103(d) disclosures apply, including need and use monitoring and accounting. IDRS TC 120s will automatically post to the Disclosure Accounting File. The transcripts will contain information for which the IRS would never make an impairment call to withhold disclosure to the state. As of the date of this IRM revision, final MOUs of participation and informational materials are still being developed. A pilot start-up is in place. The experience gained from the pilot may result in final roll-out modifications. Governmental Liaison is heavily involved in the initial roll-out, but after that, most activities should be routine and handled by the Disclosure Officer as any other "specific request" program.

The Governmental Liaison Data Exchange Program (GLDEP) provides state tax agencies with tax return information in the form of magnetic media or electronic extracts and is intended to minimize the need for State tax personnel to inspect or obtain copies of Federal tax returns and related records as well as minimizing the impact on the IRS’ s resources.

Magnetic media or electronic extracts will be made available to State tax agencies which have entered into basic agreements with the IRS.

The extracts will be made available only to the extent that the State agency can justify that the extract is needed for a State tax administration purpose. For certain extracts, specific data elements will be included in the extract only to the extent that the State agency can justify that the specific data elements are needed for a State tax administration purpose. Agencies will also be asked to explain how they intend to use the extracts and/or the specific data elements. See IRM 11.3.32.4 above for more details.

The GLDEP consists of many data extracts and is constantly undergoing change. Although all extracts must be enrolled for on an annual basis, distribution schedules vary. Some extracts are distributed annually, some monthly, some weekly, and some have irregular distribution schedules. For more information on the extracts, visit or contact the Office of Governmental Liaison.

Details on the production, content, and distribution of the extracts will be published annually in a series of documents called "Specification Books." The Specification Books are distributed prior to extract distribution via the local Governmental Liaison. Information and instructions on how to enroll in the program and receive extracts is made available on a yearly basis in the "GL Data Exchange Enrollment Package." Pertinent information regarding selection of specific data elements will be made available each year in the "IMF/IRTF and BMF/BRTF Data Element Selection Package," which is the mechanism by which states request specific data elements and submit a need and use justification for each. Both of these packages of forms are created and distributed each year by the Headquarters Office of Governmental Liaison staff.

The Governmental Liaisons are to contact the State tax agency liaison officials regarding these extracts and, in coordination with the Disclosure Officer, assist interested agencies in enrolling for extracts and requesting specific data elements. The shipping address for the media extracts must be that of an authorized employee within the State tax agency and cannot be that of a centralized data processing facility of the State.

Determinations and documentation of State tax agency need for and use of the data items selected will be made by the local Disclosure Officers and will be retained in their files for use in reviews. In addition, the Disclosure Officers will determine whether or not the data items selected are consistent with the types of tax available to the State agencies under Section 3.2 of their basic agreement. A copy of these determinations and documentation will be forwarded to the Office of Governmental Liaison.

All data received via the GLDEP must be kept in a secured area under the immediate protection and control of the State tax authority or its authorized IRC 6103(n) contractor. Processing of the data extracts must be performed in a manner which will protect the confidentiality of the information on the magnetic media.

Agencies that participate in the GLDEP may request enhancements or changes to the program. The IRS Governmental Liaison Data Exchange Enhancement or Data Availability Request Form must be used to request GLDEP enhancements. The form includes detailed instructions and is available from the local GL. State requests will be routed through the local GL, to the local Disclosure Officer for approval of need and use, to the GLD Area Manager, to Headquarters Governmental Liaison. Approval of such requests will depend on the availability of data as well as the impact on IRS resources. All requests must be signed by the requesting agency head or an authorized agency representative.

All requests for data extracts needing coordination through the Statistics of Income Division (e.g., state tax model), will be directed from the State tax agency through the Disclosure Officer, and possibly the GL to SOI, depending on coordination procedures of the GLD Area Manager.

SOI will determine whether the request can be honored and all subsequent communication with the requesting State tax agency regarding acceptance or denial of the request will be coordinated through the liaison Disclosure Officer. SOI will clearly communicate to the liaison Disclosure Officer any special conditions for the extract.

It will be the responsibility of the liaison Disclosure Officer to account for disclosure under IRC 6103(p)(3). Any release of SOI data should be reviewed during the next appropriate on-site need and use review.

The IRS made a policy decision to waive the charge to state and local tax agencies for extracts available under the GLDEP effective October 1, 1994. Special runs and recreation requests will continue to be processed on a cost reimbursable basis. Extracts provided to other state agencies, federal agencies, etc., will remain cost reimbursable. IRC 6103(p)(2)(B) provides authority to charge for extracts.

State tax administration, as defined in Section 2.13 of the Agreement on Coordination of Tax Administration, includes ongoing or potential conduct-related investigations of State tax agency employees. (See Exhibit 11.3.32-1 for more detailed information.) Such definition also includes compliance-type checks of employees and prospective employees of State tax agencies. The management and supervision of a State’ s internal revenue laws includes ensuring that its tax employees are free from conflicts of interest that could undermine the integrity of the State’s tax system. The standards for disclosures of this type are different from those for revenue compliance purposes.

When a State tax agency wants tax information for a purpose described in (1) above, a specific written request must be submitted directly to the Disclosure Officer, generally following the procedures in IRM 11.3.32.10.

In order to meet the need and use standards of IRM 11.3.32.10(3)c), the request must include the following:

State requests for conduct-related disclosures should be contained in the implementing agreements.

In accordance with the principles of IRM 11.3.32.6.1(2), the IRS may initiate conduct-related disclosures when the State is eligible to receive the information and has shown a broad need for that category of information even though it has not identified a particular employee. In such cases, the IRS will make disclosures only if the following wording is contained in the implementing agreement:

The head of a State tax agency (other than the Governor or equivalent official), may request access to returns and return information on a case-by-case basis under IRC 6103(d) without entering into an Agreement on Coordination of Tax Administration.

Such requests will be signed by the agency head and addressed to the Commissioner of Internal Revenue, Attention: Director, Office of Governmental Liaison and Disclosure. The request should contain the following data:

The State tax agency must also state in its request that it agrees to all of the requirements imposed by IRC 6103(p)(4) and any additional requirements imposed by the IRS. These requirements are described in detail in IRM 11.3.32.14 below.

The Office of Governmental Liaison and Disclosure will provide specific disclosure instructions in response to these requests after coordination with Mission Assurance and Security Services and Disclosure Officers in affected offices to determine whether there is any objection to release of the information sought.

Requests for return information in magnetic tape format are to be made in the same manner as described in (1), (2) and (3) above, except that item (2)d) would be inapplicable. Also see IRM 11.3.32.11 above, for specific instructions.

IRC 6103(p)(4) authorizes the IRS to require that State agencies maintain adequate safeguard procedures for the returns and return information they receive pursuant to IRC 6103(d).

Such steps as are considered necessary may be taken in this regard, including the withholding of further Federal returns and return information, subject to an administrative appeal procedure, in the event a State agency does not maintain adequate safeguards or prevent and detect unauthorized disclosures and inspections, respectively. However, where a State is known to be allowing unauthorized accesses/disclosure, as opposed to being vulnerable to such prohibited acts, the IRS may immediately suspend disclosures after notifying the State. See Treasury Regulation 301.6103(p)(7)-1(a)(2), and IRM 11.3.36.

Disclosure of Federal returns and return information by the State tax agency to local tax authorities or others except for legal representatives, IRC 6103(n) contractors or State auditors, either directly or indirectly, is not permitted.

Congress intended that the statutory criteria applicable to access to Federal tax data by the Justice Department in a Federal tax investigation or in preparing for Federal tax litigation be applicable to disclosures to the State tax agency’s legal representative.

IRC 6103(d) does not authorize the IRS to disclose information to a state tax agency or its legal representative for nontax purposes, including joint tax/nontax state criminal investigations/prosecutions. Further, there is no other provision in IRC 6103 that permits the IRS to make disclosures for state nontax criminal prosecutions.

As a condition for their access to Federal returns or return information, State agencies must agree to the following requirements:

Guidelines for the periodic review of safeguard procedures are included in IRM 11.3.36. Publication 1075, Tax Information Security Guidelines for Federal, State and local Agencies , provides State agencies with further information about these requirements. Publication 1075 is available on IRS’ website at: http://www.irs.gov.

Pursuant to IRC 6103(k)(5), identity information may be furnished to designated officers or employees of State or local agencies, bodies or commissions lawfully charged under State or local law with the licensing, registration, or regulation of income tax return preparers.

Such information may be furnished only upon receipt of a written request signed by the head of such agency, body or commission designating the officers or employees to whom such information is to be furnished.

The following information may be furnished and used only for the purpose of licensing, registering, or regulation of the preparers:

The agency need not specifically list the names of return preparers for whom the information is requested. They agency could request information with respect to any preparer who was assessed a penalty under any of the code sections listed above.

Pursuant to IRC 4102, records required to be kept regarding taxes on gasoline and lubricating oil may be inspected by officers of a State or a political subdivision of any such state, charged with the enforcement or collection of any tax on any taxable fuel, as defined in IRC 4083. Inspection may be made only for purposes of such collection or enforcement. See IRC 4102 and 26 CFR 48.4102-1.

Requests for inspection must be in writing, addressed to the appropriate management official having custody of the records requested and signed by an officer of the State or political subdivision who is charged with the enforcement or collection of such taxes.

Requests must state the:

The appropriate management official will notify the person making the request, upon approval or disapproval of the request, after seeking technical advice from the local Disclosure Officer, if needed.

Inspection shall be made:

Although the safeguarding and recordkeeping requirements of IRC 6103(p) do not apply specifically to disclosures made under IRC 4102, State and local officials should be encouraged to make reasonable efforts to safeguard this information.

Arrangements to exchange gasoline and lubricating oil information between the IRS and a particular State or local agency may be made upon written agreement by the GLD Area Manager and the head of the agency. In the case of a State tax agency which has already entered into a basic agreement under IRC 6103(d), this exchange should be specified in the implementing agreement.

The disclosure of certain returns and return information and other information is prohibited by law notwithstanding the provisions of IRC 6103 or IRC 4102. Such data must be identified and removed from the file prior to disclosure of the record or documents to any authorized State or local agency representative, as follows:

Information obtained under immunity procedures must be referred to the Headquarters Office of Governmental Liaison and Disclosure.

No information shall be disclosed to any authorized agency representative without a determination that the disclosure would not identify a confidential informant or seriously impair a civil or criminal tax investigation. If it is determined subsequent to disclosure, that further use of the return or return information would identify a confidential informant or seriously impair a civil or criminal tax investigation, the State tax agency will be requested to discontinue use of the information.

All persons having access to Federal returns or return information under the terms of this IRM shall be informed, in accordance with the instructions in IRM 11.3.1, Introduction to Disclosure, of the criminal penalties and civil liability for unauthorized accesses or disclosures .

Any instances of intentional/willful unauthorized access, or misuse of tax returns or return information (including magnetic tape) by State personnel, should be reported to TIGTA. Any non-willful unauthorized access or disclosure should be reported to the local IRS Disclosure Officer.

The disclosure of Federal returns or return information by State tax agencies, bodies or commissions to their legal representatives for use in preparation for proceedings involving tax administration (or investigation which may result in such proceedings) is governed by the same standards that apply to tax administration disclosures by the IRS to attorneys at the Department of Justice. Thus, Federal returns or return information may be disclosed to State attorneys personally and directly engaged in, and solely for their use in, preparing for such proceedings only if:

State tax agencies may not disclose Federal tax information to their legal representative or other participating agencies where the state investigation involves nontax as well as tax aspects. That is, the provisions of Treasury Regulation 301.6103(h)(2)-1 do not apply to comparable state situations.

The disclosure of Federal returns or return information in State judicial or administrative proceedings pertaining to tax administration is further limited by IRC 6103(h)(4) which permits disclosure only if:

At the time of disclosure to the agency, or at the time an Agreement on Coordination of Tax Administration is signed, each agency receiving returns or return information is advised of its obligation to notify the IRS in writing of its intention to disclose any such returns or return information in a State judicial proceeding or to any party other than the taxpayer or his/her designee in a State administrative proceeding.

The notice is to be signed by the head or legal representative of the agency and directed to the liaison GLD Area Manager, primary Disclosure Officer, or IRS Campus Disclosure Officer from which the information was originally received, at least 30 days prior to the date the disclosure is to be made. The following information should be included in the notice:

The GLD official receiving the notification referred to above will coordinate the proposed disclosure in the manner described in IRM 11.3.32.17(3). In any case in which it is known that the actions described in IRM 11.3.32.17(1)-(2) have not been taken, the actions required there should also be taken.

Except in unusual circumstances, the coordinating GLD official will prepare an appropriate response to the State official proposing the disclosure within 30 days of receipt of the notification. In every case, GLD must see that a response is made prior to the date the disclosure is to be made.

State tax agencies will be advised to edit any documents which they intend to disclose in a judicial or administrative tax proceeding in order to delete Federal returns and return information where their disclosure is not permitted by IRC 6103(h)(4).

When State tax agencies are authorized to release information under IRC 6103(h)(4), it is irrelevant if the state hearing body/agency also hears nontax cases. While the hearing agency would not be subject to IRC 6103(p)(4), because of the wording of IRC 6103(a)(2), the hearing agency would be best advised to refrain from any redisclosure of the Federal tax information except in proceedings before the hearing agency or appeals therefrom as they relate to the original appeal.

Form letters to taxpayers from State or local agencies should clearly note that information obtained from the IRS was done so pursuant to law.

Agency representatives should be requested to utilize the following language, or its equivalent, in letters sent to taxpayers on the basis of information obtained from the IRS.

Statutory Authority Reference:

Subsequent phrases citing the statutory authority reference phrase might be followed by language such as:

State tax agencies as well as other agencies and organizations seeking statistical information compiled from Federal return information for nontax purposes should be advised to make their requests pursuant to IRC 6108(b). These requests would be addressed to:

State tax agencies may use Federal returns and return information in preparing statistical tabulations for State tax administration where that agency has the statutory/delegated responsibility for preparing such direct tax administration tabulations. Such tabulations may not be released outside the agency except in a form which cannot be associated with, or otherwise identify, directly or indirectly, a particular taxpayer.

Questions concerning the preparation of statistical tabulations in anonymous form may be directed to the Director, Statistics of Income Division. See Exhibit 11.3.32-6 for guidelines on State preparation of models.

Generally, release of statistical tabulations are to conform to the following:

For instructions regarding photocopy charges, billing, controls and procedures. See IRM 11.3.5, Fees, for more information.

State and local tax agencies may also be charged on a reimbursable cost basis for the time expended by IRS employees in complying with disclosure and recordkeeping requirements such as stripping return files of undisclosable information, preparing records of disclosure in accordance with IRC 6103(p), or for programming costs as special requests. However, as a general policy consistent with budgetary constraints, the IRS has not passed on such costs except for those associated with the special extract requests.

Charges may be waived for routine photocopying of documents in those instances where the State reciprocates and does not charge the IRS for similar services. If the agency involved has entered into an Agreement on Coordination of Tax Administration with the IRS, the waiver of charges should be incorporated in the implementing agreement (see IRM 11.3.32.6.1 above). Such waiver in the implementing agreement will not, however, automatically extend to charges for special magnetic tape extracts or statistical studies. Currently, charges for all permanent extracts are waived, except in instances of special requests which will be determined on a case-by-case basis.

This program permits payers who file information returns, Form 1099, U. S. Information Return for Calendar Year 1971, and Form 1087, Nominee’s Information Return , in a magnetic media format to make a single filing with the IRS which satisfies both Federal and State information reporting requirements.

The payer must apply to participate and must meet IRS magnetic media specifications. Revenue Procedures provide detailed instructions for filing on magnetic media. The Revenue Procedures are published yearly in Publication 1220, Specifications for Filing Form 1098,1099, 5498, and W2-G Magnetically or Electronically.

The Office of Governmental Liaison and Disclosure will provide technical assistance to the Martinsburg Computing Center magnetic media coordinator in assuring that payers participating in the Combined Federal/State Information Return Reporting Program submit valid IRC 6103(c) authorizations. Form 6847, Consent For IRS to Release Tax Information, is currently being used for this purpose. The Combined Filing program is not an IRC 6103(d) exchange program and, therefore, is not subject to IRC 6103(d) requirements.

The records filed under this combined reporting program are Federal tax returns. Before a payer participates and before information is provided to a State tax agency, the payer must submit an authorization meeting the requirements of IRC 6103(c) and related regulations. The authorization will permit the State tax agency to treat data received pursuant to this program as State tax information.

Pursuant to IRC 6103(d)(2), any returns and return information obtained by a State tax agency in accordance with IRC 6103(d)(1) may be open to inspection by or disclosure to, officers and employees of the State audit agency.

Such disclosures may be made only for the purpose of, and only to the extent necessary in, making an audit of the State tax agency, body or commission.

A "State audit agency" means any State agency, body, or commission charged under the laws of the State with the responsibility of auditing State revenues and programs.

IRC 6103(p)(2)(B) and its corresponding Treasury Regulation, 301.6103(p)(2)(B)-1 allow for the redisclosure of returns and return information obtained by Federal, state or local agencies in accordance with IRC 6103. Such disclosures are subject to the same use restrictions and safeguards as if the secondary agency had received the information from IRS directly.

Agencies involved in these types of exchanges may receive only returns or return information as authorized by the provision of IRC 6103 applicable to each respective recipient agency. Any returns or return information disclosed by one agency to another agency may be used only for a purpose authorized by and subject to any conditions imposed by IRC 6103 and the regulations thereunder. If there is no current statutory exception to IRC 6103 allowing the IRS to provide tax information to all agencies involved in the request, then IRC 6103(p)(2) cannot be used.

Written requests to engage in these types of exchanges can be initiated by any agency, either the initial recipient of the tax information or an agency that wants to obtain tax information provided by the IRS to another agency, and must identify all other agencies involved in the exchange of tax information.

Agencies should also be properly apprised of the fact that the agency providing tax information to all other participating agencies shall be responsible for maintaining a permanent system of standardized records that identifies any disclosure of returns and return information made to any other recipient agency or agencies. The agency shall provide this information in order to enable the IRS to comply with its obligation to keep accountings for disclosures and to make annual reports of disclosures to the Joint Committee on Taxation in accordance with IRC 6103(p)(3)(A).

Pursuant to IRC 6103(d)(4), all States must have in place a signed contract with the Social Security Administration (SSA) which would allow SSA to redisclose the death information it receives from the States to other Federal agencies. Any state which has not entered into such a contract will no longer be able to receive Federal tax information under the provisions of IRC 6103(d).

The law provides two exceptions to this requirement:

SSA will notify the Office of Governmental Liaison and Disclosure on a scheduled basis as to when contracts are up for renewal. If any changes are made which would adversely affect the redisclosure clause, or if the contract is not renewed, any exchange of Federal tax information under IRC 6103(d) with that State would have to be terminated.

Any termination of an Agreement must be coordinated through the Office of Governmental Liaison and Disclosure.

Prepared by the State tax administration agency.

Must include specific state law(s) that outlines responsibility for conducting tax modeling.

Must clearly state and demonstrate that the microdata will be used for revenue estimating and tax policy analysis at the state level and will be used only for "tax administration" purposes.

Must include sample design methodology, including strata definitions and estimated number of observations.

Must provide detailed description of the blurring procedures to be used.

Must clearly address on an item by item basis, examples of the proposed use of the data elements.

Must provide a complete record layout of the items to be included in the final merged Federal/State data file.

Must include state tax authority’s disclosure procedures to ensure the confidentiality of taxpayers when the results are released.

Should include the names and titles of employees who will have access to the IRS data.

Address the state tax authority’s procedures and time frames for the disposition of input and output files including control over contractor disposition of files after the final product is delivered to the state.

Must submit a specific plan addressing how the state will adhere to: