Disclosure of Return Information for Statistical Purposes -- Temporary and Proposed Regulations Under Section 6103(J)(1)

 [4830-01]

 ACTION: Temporary regulations.

 SUMMARY: This document provides temporary regulations relating to the disclosure of additional items of return information to the Bureau of the Census for use in certain statistical programs. These regulations provide guidance to Internal Revenue Service personnel responsible for disclosing the information. The text of the temporary regulations set forth in this document also serves as the text of the proposed regulations cross-referenced in the Proposed Rules portion of the Federal Register [IA-34-90].

 EFFECTIVE DATE: The regulations contained in this document apply to disclosures and related activities on or after February 28, 1991.

 FOR FURTHER INFORMATION CONTACT: Paul W. Winkler, (202) 566-4430 (not a toll-free number).

SUPPLEMENTARY INFORMATION:

BACKGROUND

Under section 6103(j)(1) of the Internal Revenue Code, upon written request from the Secretary of Commerce, the Secretary of the Treasury is to furnish to the Bureau of the Census tax return information that is prescribed by Treasury regulations. Section 301.6103(j)(1)-1 of the regulations provides an itemized description of the return information authorized to be disclosed for this purpose. Periodically, the disclosure regulations are amended to reflect the changing statistical needs of the Bureau of the Census for statutorily authorized statistical activities.

 This document adopts temporary regulations that authorize Internal Revenue Service personnel to disclose the additional items of return information that were requested by the Secretary of Commerce. Except for section 301.6103(j)(1)-1T(b)(1) and (b)(3), the text of the temporary regulations is the same as section 301.6103(j)(1)-1 of the regulations (as it appears in the Code of Federal Regulations revised as of April 4, 1990). The changes in section 301.6103(j)(1)-1T(b)(1) and (b)(3) are discussed below.

EXPLANATION OF PROVISIONS

 The request by the Secretary of Commerce for additional items of return information indicated several areas in which changes to existing Bureau access to tax return information either would improve present statistical programs or were necessary to implement new programs.

 First, to improve the statistical methodology of its company- based Plant & Equipment Expenditures Survey, the Bureau needs total asset figures from corporate and partnership returns.

 Second, in preparing for the 1992 census of agriculture, the Bureau intends to narrow its mailing list and reduce the respondent reporting burden by identifying actual farm operators as opposed to owners who do not materially participate in farm operations. To achieve this objective, the Bureau needs the answers to the material participation question on Form 1040, Schedule F, and the agricultural activity code.

 Several additional items of return information are required for the 1992 economic census. For this census, Congress authorized the Bureau to expand its coverage to include the transportation, communication, utility, finance, insurance, and real estate industries. Accordingly, more items are required from returns presently described in section 301.6103(j)(1)-1(b) as well as information from other categories of business related returns. The Bureau currently may obtain the business codes which the Service requires on returns and believes that its business statistical programs could be improved if it also had access to taxpayers' written descriptions of their businesses which were the bases for Service assignment of these codes. Present regulations authorize disclosure to the Bureau of the identities of no more than 10 shareholders of a Subchapter S corporation or 10 members of a partnership. In order to improve its determination of ownership composition, the Bureau needs the identities of all shareholders of such corporations and all members of partnerships. Finally, the Women's Business Ownership Act of 1988 requires the Bureau to collect data on corporations that are 51% or more owned by women, and this program is to be implemented as part of the 1992 economic census. While the Bureau presently requires tax information for this purpose with respect to individual proprietorships, partnerships, and Subchapter S corporations, corresponding tax information is not available regarding larger corporations, and the Bureau needs information from Form 1120 identifying officers of these corporations for matching to Social Security Administration sex codes. Further, in order to reclassify businesses owned by women, the Bureau needs figures from K-1 schedules attached to Forms 1120S and 1065 showing the percentage stock or equity interests of shareholders and partners.

 The Bureau currently uses adjusted gross income figures from individual income tax returns in its income estimates program. From a statistical standpoint, the Bureau believes that a more meaningful gauge of money income for this purpose would be a total of several special types of income reflected on these returns. Until this new measure of income can be fully utilized statistically, the Bureau would continue to use adjusted gross income.

 For simplification and consistency, the term "loss" is not stated in these regulations although it is the intent of the Service to provide any negative or loss figures to the Bureau.

SPECIAL ANALYSES

 It has been determined that these temporary regulations are not major rules as defined in Executive Order 12291. Therefore, a Regulatory Impact Analysis is not required. It has also been determined that section 553(b) of the Administrative Procedure Act (5 U.S.C. Chapter 5) and the Regulatory Flexibility Act (5 U.S.C. Chapter 6) do not apply to these temporary regulations, and, therefore, a final Regulatory Flexibility Analysis is not required. Pursuant to section 7805(f) of the Internal Revenue Code, these temporary regulations will be submitted to the Chief Counsel for Advocacy of the Small Business Administration for comment on their impact on small business.

DRAFTING INFORMATION

 The principal author of these regulations is Paul W. Winkler of the Office of Chief Counsel, Internal Revenue Service. However, personnel from other offices of the Internal Revenue Service and Treasury Department participated in developing these regulations on matters of both substance and style.

LIST OF SUBJECTS

26 CFR Part 301

 Administrative practice and procedure, Bankruptcy, Courts, Crime, Employment taxes, Estate taxes, Excise taxes, Gift taxes, Income taxes, Investigations, Law enforcement, Penalties, Pensions, Statistics, Taxes, Disclosure of information, Filing requirements.

ADOPTION OF AMENDMENTS TO THE REGULATIONS

Accordingly, 26 CFR part 301 is amended as follows:

Paragraph 1. The authority for part 301 is amended by adding the following citation:

Authority: 26 U.S.C. 7805 * * * Section 301.6103(j)(1)-1T also issued under 26 U.S.C. 6103(j).

Par. 2. A new section 301.6103(j)(1)-1T is added following section 301.6103(j)(1)-1 to read as follows:

SECTION 301.6103(j)(1)-1T DISCLOSURES OF RETURN INFORMATION TO OFFICERS AND EMPLOYEES OF THE DEPARTMENT OF COMMERCE FOR CERTAIN STATISTICAL PURPOSES AND RELATED ACTIVITIES (TEMPORARY).

(a) GENERAL RULE. Pursuant to the provisions of section 6103(j)(1) of the Internal Revenue Code and subject to the requirements of paragraph (d) of this section, officers or employees of the Internal Revenue Service will disclose return information (as defined by section 6103(b)(2) but not including return information described in section 6103(o)(2)) to officers and employees of the Department of Commerce to the extent, and for such purposes as may be, provided by paragraphs (b) and (c) of this section. Further, in the case of any disclosure of return information so provided by paragraphs (b) and (c), the tax period or accounting period to which such return information relates will also be disclosed.

(b) DISCLOSURE OF RETURN INFORMATION TO OFFICERS AND EMPLOYEES OF THE BUREAU OF THE CENSUS. (1) Officers or employees of the Service will disclose the following return information reflected on returns of an individual taxpayer to officers and employees of the Bureau of the Census for purposes of, but only to the extent necessary in, conducting and preparing, as authorized by chapter 5 of Title 13, United States Code, intercensal estimates of population and income for all geographic areas included in the population estimates program and demographic statistics programs, censuses, and related program evaluation:

(i) Taxpayer identity information (as defined in section 6103(b)(6) of the Code), validity code with respect to the taxpayer identifying number (as described in section 6109), and taxpayer identity information of spouse and dependents, if reported;

(ii) District office and service center codes;

(iii) Marital status;

(iv) Number and classification of reported exemptions;

(v) Wage and salary income;

(vi) Dividend income;

(vii) Interest income;

(viii) Gross rent and royalty income;

(ix) Total of:

(A) Wages, salaries, tips, etc.,

(B) Interest income,

(C) Dividend income,

(D) Alimony received,

(E) Business income,

(F) IRA distributions,

(G) Pensions and annuities,

(H) Income from rents, royalties, partnerships, estates, trusts, etc.,

(I) Farm income,

(J) Unemployment compensation, and

(K) Total Social Security benefits;

(x) Adjusted gross income;

(xi) Type of tax return filed;

(xii) Entity code;

(xiii) Code indicators for Form 1040, Schedules A, C, D, E, F, and SE;

(xiv) Posting cycle date relative to filing; and

(xv) Social Security benefits.

(2) Officers or employees of the Service will disclose to officers and employees of the Bureau of the Census for purposes of, but only to the extent necessary in, conducting, as authorized by Chapter 5 of Title 13, United States Code, demographic, economic, and agricultural statistics programs and censuses and related program evaluation --

(i) From the business master files of the Service, the taxpayer name directory and entity records consisting of taxpayer identity information (as defined in section 6103(b)(6)) with respect to taxpayers engaged in a trade or business, the principal industrial activity code, the filing requirement code, the employment code, the service center and district and area office codes, and monthly corrections of, and additions to, such entity records;

(ii) From Form SS-4, all return information reflected on such return;

(iii) From an employment tax return --

(A) Taxpayer identifying number (as described in section 6109) of the employer,

(B) Total compensation reported,

(C) Master file tax account number,

(D) Taxable period covered by such return,

(E) Employer code,

(F) Document locator number,

(G) Record code,

(H) Total number of individuals employed in the taxable period covered by the return,

(I) Total taxable wages paid for purposes of Chapter 21, and

(J) Total taxable tip income reported for purposes of chapter 21; and

(iv) From Form 1040, Schedule SE --

(A) Taxpayer identifying number of self-employed individual,

(B) Business activities subject to the tax imposed by chapter 21,

(C) Net earnings from farming,

(D) Net earnings from nonfarming activities,

(E) Total net earnings from self-employment, and

(F) Taxable self-employment income for purposes of chapter 2.

(3) Officers or employees of the Service will disclose the following business related return information reflected on the return of a taxpayer to officers and employees of the Bureau of the Census for purposes of, but only to the extent necessary in, conducting and preparing, as authorized by chapter 5 of Title 13, United States Code, demographic, economic, and agricultural statistics programs, censuses, and surveys. The "return of a taxpayer" includes, but is not limited to, Form 941; Form 990 series; Form 1040 series and Schedules C, F, and SE; Form 1065 and all attending schedules and Form 8825; Form 1120 series and all attending schedules and Form 8825; Form 851; Form 1096; and other business returns, schedules and forms that the Service may issue:

(i) Taxpayer identity information (as defined in section 6103(b)(6) of the Code) including shareholder, partner, and employer identity information;

(ii) Gross income, profits, or receipts;

(iii) Net farm profits;

(iv) Sales of livestock and produce raised;

(v) Returns and allowances;

(vi) Cost of labor, salaries, and wages;

(vii) Total assets;

(viii) Royalty income;

(ix) Interest income, including portfolio interest;

(x) Rental income, including gross rents;

(xi) Tax-exempt interest income;

(xii) Percentage of stock owned by each shareholder;

(xiii) Percentage of capital ownership of each partner;

(xiv) Agricultural activity code;

(xv) Answers to material participation questions;

(xvi) End-of-year code;

(xvii) Months actively operated;

(xviii) Principal industrial activity code, including the business description;

(xix) All information on Schedule E filed with Form 1120 series;

(xx) Total number of documents and the total amount reported on the Form 1096 transmitting Forms 1099-MISC;

(xxi) Form 941 indicator on Schedule C; and

(xxii) Consolidated return indicator.

(4) Officers or employees of the Service will disclose return information relating to a taxpayer contained in the exempt organization master files of the Service to officers and employees of the Bureau of the Census for purposes of, but only to the extent necessary in, conducting and preparing, as authorized by chapter 5 of Title 13, United States Code, economic censuses. This return information consists of taxpayer identity information (as defined in section 6103(b)(6)), activity codes, and filing requirement code, and monthly corrections of, and additions to, such return information.

(5) Subject to the requirements of paragraph (d) of this section and section 301.6103(p)(2)(B)-1, officers or employees of the Social Security Administration to whom the following return information has been disclosed as provided by section 6103(l)(1)(A) or (5) may disclose such return information to officers and employees of the Bureau of the Census for necessary purposes described in paragraph (b)(2) or (3) of this section --

(i) From Form SS-4, all information reflected on such return; and

(ii) From Form 1040, Schedule SE --

(A) Taxpayer identifying number of self-employed individual,

(B) Business activities subject to the tax imposed by Chapter 21,

(C) Net earnings from farming,

(D) Net earnings from nonfarming activities,

(E) Total net earnings from self-employment, and

(F) Taxable self-employment income for purposes of chapter 2.

(6)(i) Officers or employees of the Service will disclose the following return information (but not including return information described in section 6103(o)(2)) reflected on the return of a corporation with respect to the tax imposed by Chapter 1 to officers and employees of the Bureau of the Census for purposes of, but only to the extent necessary in, developing and preparing, as authorized by law, the Quarterly Financial Report --

(A) From the business master files of the Service --

(1) Taxpayer identity information (as defined in section 6103(b)(6)).

(2) Consolidated return and final return indicators,

(3) Principal industrial activity code,

(4) Partial year indicator,

(5) Annual accounting period,

(6) Gross receipts less returns and allowances,

(7) Net income or loss, and

(8) Total assets; and

(B) From Form SS-4 --

(1) Month and year in which such return was executed,

(2) Taxpayer identity information,

(3) Principal industrial activity, geographic, firm size, and reason for application codes.

(ii) Subject to the requirements of paragraph (d) of this section and section 301.6103(p)(2)(B)-1, officers or employees of the Social Security Administration to whom return information described in paragraph (b)(6)(i)(B) of this section with respect to a corporation has been disclosed as provided by section 6103(l)(1)(A) may disclose such return information to officers and employees of the Bureau of the Census for a purpose described in this paragraph (b)(6).

(c) DISCLOSURE OF RETURN INFORMATION TO OFFICERS AND EMPLOYEES OF THE BUREAU OF ECONOMIC ANALYSIS. (1) Officers or employees of the Service will disclose to officers and employees of the Bureau of Economic Analysis for purposes of, but only to the extent necessary in, conducting and preparing, as authorized by law, statistical analyses return information consisting of Statistics of Income transcript-edit sheets containing return information reflected on returns of designated classes or categories of corporations with respect to the tax imposed by chapter 1 and microfilmed records of return information reflected on such returns where needed for further use in connection with such conduct or preparation.

(2) Subject to the requirements of paragraph (d) of this section and section 301.6103(p)(2)(B)-1, officers and employees of the Social Security Administration to whom the following return information reflected on returns of designated classes or categories of corporations of designated classes or categories of corporations has been disclosed as provided by section 6103(l)(1)(A)(5) may disclose such return information to officers and employees of the Bureau of Economic Analysis for necessary purposes described in paragraph (c)(1) of this section --

(i) From Form SS-4, principal industrial activity and geographic codes; and

(ii) From an employment tax return --

(A) Total compensation reported, and

(B) Taxable wages paid for purposes of chapter 21 to each employee.

(d) PROCEDURES AND RESTRICTIONS. Disclosure of return information by officers or employees of the Service or the Social Security Administration as provided by paragraphs (b) and (c) of this section will be made only upon written request to the Commissioner of Internal Revenue by the Secretary of Commerce describing --

(1) The particular return information to be disclosed,

(2) The taxable period or date to which such return information relates, and

(3) The particular purpose for which the return information is to be used, and designating by name and title the officers and employees of the Bureau of the Census or the Bureau of Economic Analysis to whom such disclosure is authorized. No such officer or employee to whom return information is disclosed pursuant to the provisions of paragraph (b) or (c) shall disclose such return information to any person, other than the taxpayer to whom such return information relates or other officers or employees of such bureau whose duties or responsibilities requires such disclosure for a purpose described in paragraph (b) or (c), except in a form which cannot be associated with, or otherwise identify, directly or indirectly, a particular taxpayer. If the Service determines that the Bureau of the Census or the Bureau of Economic Analysis, or any officer or employee thereof, has failed to, or does not, satisfy the requirements of section 6103(p)(4) of the Code or regulations or published procedures thereunder, the Service may take such actions as are deemed necessary to ensure that such requirements are or will be satisfied, including suspension of disclosures of return information otherwise authorized by section 6103(j)(1) and paragraph (b) or (c) of this section, until the Service determines that such requirements have been or will be satisfied.

(e) EFFECTIVE DATE. Section 301.6103(j)(1)-1T applies to disclosures and related activities on or after February 28, 1991. For disclosures and related activities before February 28, 1991, see section 301.6103(j)(1)-1.