TREASURY INSPEcTOR GENERAL

TREASURY INSPEcTOR GENERAL

FOR TAX ADMINISTRATION
REVIEW OF TAXPAYER REQUESTS FOR DIScLOSURE OF TAX INFORMATION
Reference No. 090804

Date: November 4, 1998

Executive Summary

In fiscal year 1997, the Service received over 1.1 million requests for tax return information from the public. Requests are made for photocopies of tax returns or for transcripts of tax return information. Financial institutions and the Federal government generally request tax information for income verification purposes prior to granting loans.

Beginning October 1, 1994, the Service offered to provide taxpayers with transcripts of return information free of charge as an alternative to providing photocopies of returns at a cost to the taxpayer of $14. Providing transcripts of return information has increased the potential for unauthorized disclosure of tax information.

Results

The Service is extremely vulnerable to unauthorized disclosure of tax return information.

Four significant issues warrant management’s attention:

Processing controls are not adequate to prevent unauthorized disclosures.

Internal Audit submitted invalid written requests for tax return transcripts and the Service made an unauthorized disclosure in 46% of the requests. Tax return transcripts were sent to third parties based on requests that were not signed by the taxpayer. Other unsigned requests were honored and transcripts were sent to addresses other than the taxpayer’s Master File address.

Requirements for the release of tax return transcripts need strengthening to prevent unauthorized disclosure of tax information.

Individuals can obtain tax return information of a taxpayer even if they do not know the taxpayer’s Social Security Number (SSN). Internal Revenue Service guidelines allow research to add information missing from the written requests, including the SSN. Individuals only have to provide the taxpayer’s name and address and sign the request as the taxpayer to obtain the information. Internal audit submitted signed requests without taxpayers’ SSNs and received 83% of the tax return transcripts requested.

Taxpayer written requests for tax return information is not properly maintained to protect the Service from unauthorized accesses.

Management could not locate 5% of the written requests for tax return information. Such documentation is necessary to support employee computer accesses for all tax returns and transcripts issued.

We also found that required letters are not consistently issued to taxpayers when their requests for tax information are not processed within 30 days.

Summary Recommendations

The following summarizes the specific recommendations contained in this report. The Service should:

Establish a review process that will accurately measure the quality of work completed, correctly identify unauthorized disclosures and procedural errors, and prevent their recurrence.
Revise instructions to require the taxpayer to provide his/her name, address, and SSN before the request can be processed.
Update guidelines for processing requests submitted on forms not developed by the Service.
Revise Form 4506 to have the taxpayer include the filing status and number of exemptions.
Require managerial reviews be conducted to ensure that supporting documentation is available for all completed requests.
Require timeliness of issuing interim letters be included in any quality review process established.

Management Response: Management has agreed to take appropriate corrective action in response to each recommendation in the report. Management’s actions are summarized in the body of the report and the entire response is included as Attachment II.