Better Management Needed in Exchanging Federal and State Tax Information

GGD-78-23: Published: May 22, 1978. Publicly Released: May 22, 1978.

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The Internal Revenue Service (IRS) and the states routinely exchange large amounts of tax information. IRS provides the states with federal audit report abstracts, computer tapes, and tax returns containing confidential information on millions of taxpayers; the states in turn make their tax returns and audit reports available to IRS. This exchange should increase tax revenues, reduce duplicate audits, and increase taxpayer compliance.

IRS has no formal program for exchanging information with states and devotes relatively little effort to exchange activities. Because of the low priority which IRS has historically given to tax information exchange activities, it and the states have not defined their mutual information needs specifically enough. As a result, states receive much information they do not need or use, while IRS does not make available much information that the states could use. IRS has not taken advantage of much state tax information which could be used to identify nonfilers. Much of the information the states need could be provided on computer tapes on a cost-reimbursable basis, but IRS has been reluctant to do this.

Recommendation for Executive Action

  1. Status: Closed

    Comments: Please call 202/512-6100 for additional information.

    Recommendation: The Commissioner, IRS, should: (1) fix managerial responsibility at the national office level with authority to coordinate all aspects of the program; (2) fix responsibility for managing the program at the regional, district, and service center levels; (3) establish formal policies, procedures, and guidelines for implementing, monitoring, and evaluating the program; (4) evaluate each state's need for and use of federal tax information; (5) tailor magnetic tapes of tax information to the particular needs of each state; (6) develop an implementation plan with each state specifying exact types and amounts of information to be exchanged and the methods of exchange; (7) require states to provide precise criteria and screen out IRS audit reports which do not meet the criteria; (8) obtain feedback from states on benefits resulting from IRS-supplied information; and (9) notify taxpayers that any change in the federal tax liability resulting from IRS audit could affect their state tax liability.

    Agency Affected:

 

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