Taxpayer Information:

Increased Sharing and Verifying of Information Could Improve Education's Award Decisions

GAO-03-821: Published: Jul 18, 2003. Publicly Released: Aug 18, 2003.

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Data sharing can be a valuable tool for federal agencies in determining applicants' eligibility for benefit and loan programs. Congress has authorized the Department of Education, among others, to have limited access to federal taxpayer information collected by the Internal Revenue Service (IRS). Likewise, IRS is able to use personal information collected by outside sources to better ensure that taxpayers are meeting their tax obligations. GAO was asked to determine whether Education uses taxpayer information to verify information provided by student aid applicants, and the benefits of increasing data verification activities, and whether IRS uses personal information maintained by Education to ensure that taxpayers meet their tax obligations, and the benefits of increasing these activities.

Education uses taxpayer information for several purposes, such as locating loan defaulters; researching and computing statistical data on overall borrower debt; and, upon taxpayers' consent, determining loan repayment amounts. However, Education is not authorized to directly receive taxpayer information from IRS to verify eligibility for student financial aid provided under Title IV of the Higher Education Act of 1965 (HEA). In academic year 2001-02, 11.4 million students applied for $54 billion in aid. A 1998 amendment to HEA was intended to authorize the matching of student aid applicant information with several elements of federal income tax return information. However, HEA could not be used as intended because Internal Revenue Code Section 6103 was not specifically amended so that Education and its contractors, which assist Education in administering the various financial aid programs, could have access to taxpayer information. Based on a study that matched Education data and IRS income information, Education estimates that it made approximately $602 million in grant overpayments during fiscal years 2001 and 2002. IRS does not use personal information collected from applicants and maintained by Education to ensure that taxpayers meet their tax obligations because IRS officials believe the taxpayer information IRS receives is more accurate. In general, IRS officials' views are supported by IRS's past estimates of taxpayers' levels of compliance and by the results of Education's studies and investigations. For example, in the mid-1990s, IRS estimated that taxpayers with only wage income had a 99 percent voluntary compliance rate and taxpayers with interest and dividend income were 95 percent compliant in reporting this income. However, Education's student aid application data are not suited to IRS's tax administration purposes because the applications ask students and/or their parents to report data that come directly from their tax returns.

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