Taxpayer Information:

Data Sharing and Analysis May Enhance Tax Compliance and Improve Immigration Eligibility Decisions

GAO-04-972T: Published: Jul 21, 2004. Publicly Released: Jul 21, 2004.

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Data sharing can be a valuable tool for federal agencies. The Internal Revenue Service (IRS) can use data from taxpayers and third parties to better ensure taxpayers meet their obligations. Likewise, Congress has authorized certain agencies access to taxpayer information collected by IRS to better determine eligibility for benefit programs. GAO determined (1) the extent to which the IRS and Citizenship and Immigration Services (CIS) within the Department of Homeland Security share and verify data and (2) the benefits and challenges, if any, of increasing such activities. GAO also studied IRS's Offshore Voluntary Compliance Initiative (OVCI) to provide information on (1) the characteristics of the taxpayers who came forward under OVCI and (2) how those taxpayers became noncompliant.

IRS and CIS do not share data with each other to ensure taxpayers meet their tax obligations or to determine immigration eligibility. IRS officials believe that data on taxpayers' income they currently use are more accurate and useful for enforcing tax law than CIS data. In a nationwide selection of 413,723 businesses applying to sponsor immigrant workers from 1997 through 2004, GAO found 19,972 (5 percent) businesses and organizations that were unknown to IRS. Information like this can be used to select taxpayers for audit or other enforcement efforts. Further, CIS officials believe IRS taxpayer data would useful for immigration decisions. In our nationwide selection, GAO found that 67,949 (16 percent) businesses applying to sponsor immigrant workers from 1997 through 2004 did not file one or more tax returns. Failure to file a return could be relevant to a CIS adjudicator's decision about whether a business meets the financial feasibility (ability to pay wages) and legitimacy (proof of existence) tests for sponsoring an immigrant. For data sharing to occur, challenges must be overcome, including I.R.C. Section 6103's limitation on IRS's ability to share data with CIS and technological problems like the lack of automated financial data at CIS. Because the confidentiality of tax data is considered crucial to voluntary compliance, executive branch policy calls for a business case to support sharing tax data. IRS and CIS have not analyzed data sharing benefits and costs. The OVCI program attempted to quickly bring taxpayers who held funds offshore illegally back into compliance while simultaneously gathering more information about them and the promoters of offshore schemes. Under OVCI, 861 taxpayers came forward and IRS received more than $200 million in unpaid taxes, penalties, and interest. According to IRS data, OVCI applicants are a diverse group, with wide variations in income, geographic location, and occupation. Some applicants' noncompliance appears to be intentional, while others' appears to be inadvertent. Given this diversity, multiple compliance strategies may be needed to bring taxpayers holding money offshore back into compliance.

Status Legend:

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  • Review Pending-GAO has not yet assessed implementation status.
  • Open-Actions to satisfy the intent of the recommendation have not been taken or are being planned, or actions that partially satisfy the intent of the recommendation have been taken.
  • Closed-implemented-Actions that satisfy the intent of the recommendation have been taken.
  • Closed-not implemented-While the intent of the recommendation has not been satisfied, time or circumstances have rendered the recommendation invalid.
    • Review Pending
    • Open
    • Closed - implemented
    • Closed - not implemented

    Recommendations for Executive Action

    Recommendation: The Secretary of Homeland Security and the Commissioner of Internal Revenue should assess the benefits that may be obtained and the costs that may be incurred to share information to enhance tax compliance and improve immigration eligibility decisions.

    Agency Affected: Department of the Treasury: Internal Revenue Service

    Status: Closed - Not Implemented

    Comments: In IRS's 60 day letter dated November 2, 2004 and USCIS's 60 day letters dated November 24, 2007, both agencies agreed data sharing between the agencies may be beneficial. USCIS and IRS formed a working group to conduct a pilot to test data sharing for businesses that sponsor immigrant workers. Both agencies collaborated on the design and agreed to implement a pilot. During 2007, USCIS accepted full responsibility from IRS for implementing the pilot and preparing a summary report to Congress. As agreed, IRS reported being ready to process tax transcripts for businesses covered by pilot program. As of November 2008, USCIS had not established a date to begin the pilot. Because USCIS has decided not to go forward with the data sharing pilot, this recommendation is moot and closed without implementation.

    Recommendation: The Secretary of Homeland Security and the Commissioner of Internal Revenue should assess the benefits that may be obtained and the costs that may be incurred to share information to enhance tax compliance and improve immigration eligibility decisions.

    Agency Affected: Department of Homeland Security: Directorate of Border and Transportation Security

    Status: Closed - Not Implemented

    Comments: In September 2009, the U.S. Citizenship and Immigration Services announced it had abandoned any work on data sharing between the USCIS and the Internal Revenue Service to enhance tax compliance and improve immigration eligibility decisions. The USCIS cited management concerns and public relations issues.

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