Consideration of Whether the Existing Tax Disclosure Statute Strikes a Proper Balance Between Privacy Rights and Law Enforcement Information Needs

Since its enactment, the disclosure section of the 1976 Tax Reform Act has generated much concern and controversy because it has affected the coordination between the Internal Revenue Service (IRS) and law enforcement agencies. Changes to the law would constitute an important step toward resolving the coordination problems. In considering changes to the law, it is essential to strike a proper balance between legitimate privacy concerns and equally legitimate law enforcement information needs. The disclosure statute was enacted to safeguard taxpayers' privacy rights and to prevent abuses. However, the existing mechanisms for obtaining access to tax information are not used extensively. GAO believes that the law needs to be amended. There is no need to completely revamp the existing law; instead, refinements can be made to resolve coordination problems while still protecting important privacy rights. GAO specifically suggests the following changes: (1) establishing clear tax information categories; (2) giving U.S. attorneys the authority to seek access to tax information via court order or written request; (3) amending the criteria that Justice attorneys must meet to obtain a court order; (4) subject to advance approval by a court, IRS needs to be authorized to disclose information concerning nontax crimes; (5) authorizing IRS to disclose certain information concerning nontax crimes under emergency circumstances; (6) giving Justice attorneys the authority to use tax information in nontax criminal proceedings and related civil proceedings; (7) authorizing IRS to discuss ongoing criminal tax investigations with the Justice Department. H.R. 1502 or S. 1891 would resolve many of the problems. However, they need further modification to strike a better balance between privacy concerns and law enforcement information needs. The disclosure statute also limits the GAO ability to carry out its congressionally mandated responsibilities. GAO has experienced access-to-records problems when seeking tax return information to evaluate certain Federal programs. There is a need for a legislative change to provide GAO with the authority to gain access to tax information for use in evaluating the programs of nontax administration agencies.