11.3.32. Disclosure to States for Tax Administration Purposes

(1) Purpose: This IRM section provides instructions concerning disclosures to states for tax administration purposes.

(2) Audience: These procedures apply to all IRS employees and contractors.

(3) Policy Owner: The Director of Governmental Liaison, Disclosure and Safeguards (GLDS) is responsible for oversight of Disclosure policy.

(4) Program Owner: The Disclosure office, under GLDS, is responsible for the Disclosure program and guidance. Each IRS organization is responsible for ensuring its employees are aware of and follow Servicewide Disclosure policy.

(5) Primary Stakeholders: The following GLDS offices have primary responsibility for disclosures to states for tax administration purposes:

• Data Services

• Disclosure

• Governmental Liaison

• Office of Safeguards

(6) Other Stakeholders: Business Units Servicewide may engage in memoranda of understanding to exchange information with state tax agencies when appropriate, with guidance from GLDS.

(1) Disclosure of federal tax returns and return information to a state tax agency under IRC 6103(d)(1) is restricted to the agency’s justified state tax administration need for and use of such information. See Policy Statement P-11-90 (formerly P-1-35) found in IRM 1.2.1.11.5, Agreements to exchange tax information with states entered into when in interests of good tax administration.

(2) Disclosure Managers will maintain separate written documentation of agency needs for and uses of information disclosed on a continuing basis, pursuant to an agreement on coordination of tax administration, and of each data item provided in digital or electronic format.

(3) Disclosure's role is to evaluate a state tax agency’s need and use of federal tax returns or return information before information is disclosed. See IRM 11.3.41, Disclosure Case Processing and Inventory Management, for specific Disclosure employee procedures.

(4) Every effort will be made to eliminate disclosure of unnecessary information to state tax agencies. Requests for copies of federal tax returns or return information are to be carefully reviewed to determine what specific information is needed and whether a copy of the entire return should be provided or if a computer transcript is more appropriate.

(5) When reviewing a state tax agency’s ad hoc request for disclosure of federal tax returns or return information, employees should ensure the request includes enough information to determine the need for and intended use of the information. Use of Form 8796-A, Request for Returns/Information (Federal/State Tax Exchange Program – State and Local Government Use Only), will generally meet this requirement. In some situations, more information may be necessary. For example, if an agency is seeking information about a taxpayer residing in another state, the agency must establish the need and use nexus of their tax administration authority over the non-resident taxpayer.

(6) Tolerances and criteria will be established for information furnished on a continuing basis and documented in written agreements and enrollment forms. Information that the agency cannot use should normally not be provided. See IRM 11.3.32.4.1(2)(c) below, for more about tolerances and criteria.

(7) When discussing and documenting a state tax agency’s need for and use of specific information, it is understood that the state tax agency may subsequently use the federal tax returns and return information for any state tax administration purpose authorized by the basic agreement even though such subsequent uses were not discussed or noted in the Disclosure manager’s documentation records. However, see IRM 11.3.32.19, Special Statistical Studies, Compilations, and Other Services for states' use of federal tax returns and return information for special statistical studies, revenue projections, tax modeling, or similar purposes.

(8) Office of Safeguards personnel will conduct an on-site "need and use" review of each state tax agency after receiving federal tax information in accordance with its established procedures. When determined appropriate by the Associate Director, Office of Safeguards, GLs and Disclosure staff may accompany Safeguards staff on "need and use" reviews. See IRM 11.3.32.7, “Need and Use” Reviews and IRM 11.3.36, Safeguard Review Program.

(9) Disclosures made to state and local agencies under IRC 4102 and IRC 6103(k)(5) will likewise be subject to the same need and use restrictions described above, except for the on-site review requirement.

(1) The Agreement on Coordination of Tax Administration (referred to as the basic agreement) provides for the mutual exchange of tax data between a specific state tax agency and the IRS. The provisions of the basic agreement encompass required procedures and safeguards of IRC 6103(d)(1) and 6103(p)(4).

(2) Arrangements for continuing disclosures are made by means of an implementing agreement discussed in IRM 11.3.32.4, Implementing Agreements. State tax agency requests for tax data not covered by a basic agreement must be made in accordance with instructions contained in IRM 11.3.32.11, Disclosure to Agencies that Have Not Entered into Agreements on Coordination of Tax Administration.

(3) When the state agency proposes language that deviates from the basic agreement template, GL coordinates with IRS Counsel and GLDS functions to review the changes. If the changes are acceptable, the basic agreement will be signed by the head of the state tax agency and then routed to the Chief Privacy Officer for signature.

(4) The scope of the basic agreement and subsequent implementing agreement will be initially developed and negotiated through discussions between the respective GL and the head of the state tax agency. The servicing Disclosure Manager is expected to play a key role in the development, negotiation and administration of such agreements. All legal questions must be addressed before an agreement is sent forward for review and approval. It may be necessary to engage Chief Counsel (Procedure & Administration, Area Counsel, or both) during this stage. Common questions include whether a municipality has a qualifying tax, whether an item called a "fee" is actually a tax, whether the structure of the revenue agency meets IRC 6103(d) standards, whether contemplated state uses of federal tax information qualify as tax administration, etc. When legal questions are involved, Disclosure PPO will reach out to Counsel and involve the Associate Director, Disclosure in any resolution.

(5) The head of the state agency will sign the proposed basic agreement. For this purpose, the head of the agency is generally the official (other than the governor or mayor) responsible under the state law for the functions of the tax agency or department. While a governor or mayor could be a cosigner with this official, their signature alone is not sufficient. IRC 6103(d) prohibits a state’s chief executive officer from accessing federal tax information.

(6) The GL, in GL Headquarters Policy, will prepare the signature package and send the signed agreement to Disclosure PPO for review and then to the Chief Privacy Officer for approval and signature. The transmittal document must include the reasons for entering into the agreement. In addition, need and use justifications and IRC 6103(p)(8) considerations must be addressed. See IRM 11.3.32.12.1, State Law Requirements pursuant to IRC 6103(p)(8) below. The Disclosure PPO Analyst will coordinate with Chief Counsel, Procedure & Administration, if legal issues still need to be resolved. The Chief Privacy Officer will sign the agreement on behalf of the Commissioner. The agreement will be returned to the field if the issue is one that Area Counsel should have addressed. Copies of applicable state statutes must accompany all new and revised agreements.

(7) Following the signature of the Chief Privacy Officer, the signed basic agreements will be returned to the GL. The GL will forward one signed original to the agency. The GL will scan and send a copy of the second signed basic agreement to the GL SharePoint site coordinator for posting to the SharePoint agreements folder for the state and will record the agreement within the IRS Agreement Database (IAD).

(8) The agreement becomes effective upon the signature of both parties and continues in effect unless terminated by either party. A change of incumbent in the office of either party to the agreement has no effect on the agreement.

(9) Sections 2.5 and 3.3 of the basic agreement require that the agency head furnish the Disclosure Manager(s), with a list of designated agency representatives.

(10) From time to time, it may become necessary to amend sections of a basic agreement. Usually this occurs when there is a change in state or federal statutes or policy. Amendments will be made by addendum. A "model" addendum to be used for changing the scope of basic agreements is available electronically on the GL SharePoint site.

(11) Addenda to the original basic agreement will be prepared, signed, and cleared as prescribed in paragraphs (4) through (7) above. It is not necessary to formally amend the basic agreement for state tax agency responsibility changes that do not affect the chapters of tax covered in the agreement. However, see IRM 11.3.36 , Safeguard Review Program, for information about the potential need for a new Safeguard Security Report.

(12) Copies of basic agreements, including addenda, are made available to the general public through the Freedom of Information Act.

(1) An implementing agreement is developed and negotiated with each state tax agency that wants to receive federal tax returns and return information on a continuing basis.

(2) This agreement will supplement the basic agreement by specifying the detailed working arrangements and items to be exchanged, including tolerances and criteria for selecting those items, as agreed to by the state tax agency and the Disclosure office. All provisions contained in implementing agreements must be consistent with the terms and conditions set forth in the basic agreement.

(3) The implementing agreement can also be used to:

1. Improve communications between the state tax agencies and IRS

2. Eliminate unnecessary disclosures

3. Identify additional areas when exchanges are beneficial

(4) Wherever possible, the IRS can request and leverage the use of data available from state agencies to avoid duplicate resource expenditures. The appropriate IRS Business Unit can utilize state tax information to support IRS tax compliance programs.

(5) The majority of exchanges with a state tax agency are in a geographic area that is within the purview of the Field Disclosure Manager. Disclosure Managers are encouraged to send any items that may have nationwide significance to Disclosure PPO.

(6) Implementing agreements are reviewed periodically and amended or revised when necessary.

(7) Agreements may be amended from time to time to reflect the addition of new exchange programs or modifications to existing exchanges. A Memorandum of Understanding (MOU) may be considered in lieu of amending implementing agreements. See IRM 11.3.32.6, Memorandums of Understanding for information on MOUs.

(8) Copies of implementing agreements and any amendments are posted on the GL SharePoint site.

(9) When any conflict arises between the provisions of the basic and implementing agreements, the terms of the basic agreement will govern.

(10) Copies of implementing agreements, including exhibits and addenda, are made available to the general public through the Freedom of Information Act. Disclosure caseworkers processing requests should carefully review any implementing agreement prior to release since many will contain criteria and tolerances, the release of which could impair federal tax administration.

(1) The GL has primary responsibility for the development and negotiation of implementing agreements; the GL is also responsible for coordinating with the Disclosure Manager who has the appropriate state tax agencies within their jurisdiction.
This responsibility includes:

1. Initiating contact with the state tax agencies.

2. Seeking input from affected campuses and Business Units.

3. Drafting the implementing agreements.

4. Arranging meetings between state and IRS officials.

5. Ensuring timely submission and review of implementing agreements and any subsequent amendments.

(2) The Disclosure Managers will be responsible for maintaining complete and current documentation of the state tax agency’s need for and use of all federal tax returns, return information and data elements that are provided to the agency on a continuing basis pursuant to the implementing agreement. The Disclosure Manager should consult with Disclosure PPO if they have questions or need technical guidance.

(3) Affected campuses and Business Units are responsible for providing timely input to the Disclosure Managers and assuring that the Disclosure office is promptly appraised of any significant changes in programs, practices and procedures that might affect exchange program activities.

(4) GLs in coordination with the Disclosure Managers involved in negotiating implementing agreements with the appropriate state tax agencies are to ensure that affected Business Units and campuses are fully involved and concur with the terms of agreements that affect their operations.

(5) Implementing agreements do not need the approval of the Director, GLDS prior to signing. For that reason, Disclosure Managers involved must be sure the information exchanged is authorized by statute - IRC 6103(d). The information disclosed must fall within the specified chapters of IRC 6103(d)(1) and IRM 11.3.32.1.2, Authority above. GLs and Disclosure Managers must consult with Disclosure PPO when needed.

(6) Once the implementing agreement is signed by the head of the partner agency or someone that has delegated authority to legally bind the agency and the Director of GLDS, the GL will forward one copy to the agency and upload a copy to SharePoint.

(7) The GL will distribute copies of amended or revised implementing agreements to the affected campuses and business units.

(8) Portions of the implementing agreements that contain tolerance and criteria information are to be protected from disclosure and given the same protection accorded to all other material categorized as SBU. U.S. Possession agreements (e.g., Tax Information Agreements, Tax Coordination Agreements, MOUs), are considered Tax Conventions within the meaning of IRC 6105 and can only be disclosed consistent with IRC 6105.

(9) Office of Safeguards staff is responsible for ensuring that information exchanged via implementing agreements is safeguarded consistent with IRC 6103(p)(4) requirements. See IRM 11.3.32.1.5, Terms and Definitions(11) above and IRM 11.3.36, Safeguard Review Program.

(1) GLs have primary responsibility for the development and coordination of MOUs between the IRS and state agencies. GLs will also coordinate with the primary Disclosure Manager. See IRM 11.4.1, Governmental Liaison Operations for policy guidance, including an MOU template. MOUs should be considered for specific projects/exchanges that are short-term or when the disclosure is authorized under some Code section other than IRC 6103(d).
Examples of some standard MOUs are:

• EITC Erroneous Refund Reduction Program (ERRP)

• Excise Summary Terminal Activity Reporting System (ExSTARS)

• Modernized e-File (MeF) Electronic Filing Program

• Reportable Transactions

• State Income Tax Levy Program (SITLP)

• Tax Modeling Need and Use

• Taxpayer Identification Number (TIN) Matching

• Transcript Delivery System (TDS)

(2) MOUs involving disclosure of federal tax returns or return information are signed by an official in the Business Unit having jurisdiction for the project/exchange and who is authorized by Delegation Order 11-2 (Rev 4), found in IRM 1.2.2.12.2, Authority to Permit Disclosure of Tax Information and to Permit Testimony or the Production of Documents. The head of the state tax agency must also sign when disclosures of federal or state information are involved.

(3) When disclosure of federal tax returns or return information is involved, the agreement must be routed through the Disclosure Manager and GL for comment and concurrence since it constitutes an amendment to the implementing agreement. Nondisclosure agreements are routed the same way. For more information about signatory requirements, especially when IT or U.S. Possessions are involved, see IRM 11.3.32.4.1(5)-(6) above.

(4) The title section of the MOU should include the names of the agencies involved in the agreement.

(5) Specific instructions for the project/exchange should be included to avoid confusion. All significant operational processes, including the roles and responsibilities of the IRS and the respective agency, should be included.

(6) When the MOU authorizes disclosure of federal tax returns or return information subject to any required accountings for disclosure under IRC 6103(p)(3), the document must identify who is responsible for preparing and submitting the accounting information. Refer to IRM 11.3.37, Recordkeeping and Accounting for Disclosures.

(7) If time is an issue, requirements for responsiveness should be described.

(8) Clauses regarding the security and disposition of exchanged information are required.

(9) Before making commitments to provide resources, appropriate parties should be consulted.

(10) Chief Counsel, Procedure & Administration, should be contacted for any required legal opinions.

(11) Disclosure Managers must be involved in the approval process for all MOUs.

(12) Signature areas will contain blanks for name, date and location.

(13) The Associate Director, Governmental Liaison, the Associate Director, Disclosure, and the operating divisions, functions, and campuses involved will maintain signed copies. Any other parties to the agreement will also receive a copy.

(1) In accordance with Office of Safeguards requirements, (see IRM 11.3.36.15.3, Need and Use Reviews) an on-site review is made of the state tax agency’s actual use or non-use of data disclosed to them on a continuing basis under the implementing or other agreement and other ad hoc requests. The Associate Director, Office of Safeguards will notify the GL and Disclosure Manager in advance of the review as Safeguards deems appropriate and invite the GL and Disclosure Manager or staff member to attend. Electronic exchanges are covered during this review. The report must address whether the agency receives electronic data and/or extracts and, if so, the agency’s use of such data.

(2) Safeguards' report of their review conducted pursuant to IRC 6103(p)(4) will also include a report describing the method and scope of the "need and use" review, and a summary of review findings See IRM 11.3.36.15.4, Preliminary Findings Report

(3) The data obtained during the review will help to identify tolerances and criteria that should be modified to reduce or eliminate disclosures of data the agency does not or cannot use. Safeguards will share that information with GLDS as appropriate.

(4) When Safeguards recommends modification of tolerances and criteria, Disclosure managers should discuss the results of this aspect of the "need and use" reviews in meetings with appropriate state tax agency personnel.

(5) Subsequent documentation that addresses any tolerance and criteria modifications by the agency are forwarded to the Associate Director, Office of Safeguards.

(1) Disclosure Managers will ensure that state tax agency ad hoc requests for federal tax returns or return information are processed consistent with IRC 6103(d)(1) requirements. These requests are received by the GLDS Support Services (GSS), input into the Disclosure automated inventory management system and electronically assigned to the Field Disclosure Office.

(2) Form 8796-A, Request for Returns/Information (Federal/State Tax Exchange Program - State and Local Government Use Only) is used by employees of state tax agencies to request federal tax returns and/or return information in accordance with an approved basic agreement. Use of this form is encouraged but not mandatory. When Form 8796-A is used, section C is signed by officials who are authorized to make requests and/or release information under the terms of the basic and implementing agreements. See IRM 11.3.41, Disclosure Case Processing and Inventory Management, for specific Disclosure employee procedures.

(3) An officer or employee of a state tax agency may inspect or receive federal tax returns or return information of specifically identified taxpayers if:

1. The type of tax data is able to be disclosed to the agency under a basic agreement currently in effect between the agency and the IRS.

2. The officer or employee has been designated by name, in writing, by the head of the state tax agency to receive the type of tax data requested.

3. The officer or employee submits a proper written request in accordance with the basic agreement, the implementing, or other agreement; and

4. Disclosure of the information sought would not identify a confidential informant or seriously impair any civil or criminal tax investigation and is not otherwise restricted. See IRM 11.3.32.15, Restrictions on Disclosure of Federal Tax Returns and Return Information.

(4) The Disclosure Manager will maintain an authorization list of state employees who have the delegated authority to sign a request for disclosure of federal tax returns or return information. Each Disclosure office will ensure the list is periodically reviewed and updated.

(5) A valid request is one directed to the appropriate IRS official designated in the basic agreement or the implementing or other agreement that includes:

1. The name, signature, title, and office location of the authorized individual who is to inspect or receive the federal tax returns or return information.

2. The name and other identifying information of each person or entity whose federal tax return(s) or return information is to be disclosed and a description of the specific federal tax return(s) or information requested, including type of tax and taxable years, and

3. The purpose for which the information is being requested, including the reason why the information is needed and how the agency intends to use the information (need and use; nexus to state tax administration).

4. Requesting tax information compiled under a chapter of the Code as enumerated under IRC 6103(d) and the agency's authority.

(6) An IRS official receiving a request from a state tax agency representative to inspect federal tax returns or obtain return information, shall confirm the identity of the individual, and with the assistance of the Disclosure office, ensure that the above requirements are met.

(7) Employees should follow official policy for receipt and transmission of tax information. The means for transmitting federal tax returns and return information may vary according to the sensitivity of the material involved. Refer to the Transmission section of IRM 10.5.1, Privacy and Information Protection, Privacy Policy. In the event alternative transmission methods are considered, please ensure they are commensurate with, and adhere to, established IRM policy and/or other approved agency guidance regarding secure transmission (i.e. Publication 1075, Tax Information Security Guidelines for Federal, State and Local Agencies).

(8) IRC 6103(d) disclosures to a state tax agency require accounting by the IRS employee that makes the disclosure, pursuant to IRC 6103(p)(3). Form 5466-B, Multiple Record of Disclosure, or a Narrative Record of Accounting can be used for this purpose. Refer to guidance found in IRM 11.3.37, Recordkeeping and Accounting for Disclosure. Disclosure employees may provide guidance to the IRS employee if requested.

(9) Requests from IRS compliance employees seeking information from state tax agencies are not controlled as IRC 6103(d)(1) requests by the Disclosure office. Employees should complete Form 8796, Request for Return/Information (Federal/State Tax Exchange Program), sections A, B and C. An authorized IRS representative must sign the form (section C, box 3) before the state tax agency can process the request. Disclosure maintains a list of authorized IRS employees the state tax agency recognizes. Contact the Disclosure Help Desk for a list of IRS employees authorized to approve the request specific to a particular state tax agency.

(10) IRS employees should not use Form 8796 when seeking information from sources other than state tax agencies. IRS employees seeking information from non-tax agencies must follow their business unit’s procedures for requesting information.

(1) The GLDEP involves certain electronic data-sharing activities between the IRS and participating state tax agencies. For more information about the GLDEP, see IRM 11.4.2 , Data Exchange Program.

(2) Electronic extracts are available to state tax agencies that have entered into basic agreements with the IRS. These are provided to states via the IRS Secure Data Transfer (SDT) program.

(3) The extracts are available to the extent that the state agency can justify the extract is needed for a state tax administration purpose. For certain extracts, specific data elements are included in the extract to the extent that the state agency can justify the specific data elements are necessary for a state tax administration purpose. Agencies are asked annually to explain how they intend to use the extracts and/or the specific data elements. See IRM 11.3.32.2 for more details.

(4) The GLDEP consists of many data extracts and undergoes frequent changes. Although agencies must enroll for extracts on an annual basis, distribution schedules vary. Some extracts are distributed annually, monthly, weekly, and some have irregular distribution schedules. For more information about the extracts, see the Data Services web page and IRM 11.4.2.1, Program Scope and Objectives.

(5) Details on the production, content, and distribution of the extracts are published annually in a series of publications called "Specification Books." The Specification Books are distributed by the assigned GL prior to extract distribution. Enrollment information and instructions are available yearly in the "GL Data Exchange Enrollment Package." Pertinent information regarding selection of specific data elements are available each year in the "IMF/IRTF and BMF/BRTF Data Element Selection Package." This package is the mechanism by which states request specific data elements and submit a need and use justification for each. Both packages of forms are created and distributed each year by the GLDS Data Services staff. See IRM 11.4.2.5.1, Annual Enrollment Process.

(6) Field GLs contact the state tax agency liaison officials regarding these extracts and, in coordination with the Disclosure Manager, help interested agencies enroll for extracts and request specific data elements. The extracts, once approved, are sent electronically to the recipient agency.

(7) Determinations and documentation of state tax agency need for and use of the data items selected are made by the Disclosure Manager assigned to a state tax agency and are retained in their files for use in reviews by Safeguards personnel if requested.

(8) In addition, Disclosure Managers will determine whether the data items selected are consistent with the types of tax information available to the state agencies under IRC 6103(d)(1), Section 3.2 of their basic agreement, and IRM 11.3.32.1.2, Authority, above.

(9) All data received via the GLDEP is kept in a secured area under the immediate protection and control of the state tax authority or its authorized IRC 6103(n) contractor. Processing of data extracts are performed in a manner that will protect the confidentiality of the information on magnetic or digital media.

(10) Agencies that participate in the GLDEP may request enhancements or changes to the program. The IRS Governmental Liaison Data Exchange Enhancement or Data Availability Request Form is used to request GLDEP enhancements. The form includes detailed instructions and is available from the assigned GL.
Below are the roles, responsibilities, and steps taken to address these requests.

1. Data Services will review the request and confer with IT to ensure the enhancement is possible based on system resources. Approval of such requests will depend on the availability of data and the impact on IRS resources.

2. If IT provides provisional approval, Data Services will forward the request through the assigned GL to the servicing Disclosure office. The Disclosure Manager will determine whether the requested data is consistent with the types of tax statutorily available to the state agencies under IRC 6103(d)(1), section 3.2 of their basic agreement and IRM 11.3.32.1.2, Authority, above. The Disclosure Manager will evaluate the agency’s need and use for the additional data elements.

3. If the Disclosure Manager determines the need and use justification provided by the agency is not adequate, the Disclosure Manager will prepare a denial letter and forward it to the GL. The GL will then forward the denial letter to the requesting state tax agency and keep a copy for their records.

4. If the Disclosure Manager determines the need and use justification provided by the agency is adequate, the Disclosure Manager will sign the form indicating approval based on the information available and will forward the request to their Disclosure Area Technical Analyst (TA).

5. The TA will review and ensure the Disclosure Manager conducted, documented (i.e. within the e-mail to the TA), and arrived at the appropriate determination, and then forward to the Disclosure PPO point of contact for review and concurrence, or non-concurrence.

6. The Disclosure PPO POC will provide the TA, via e-mail, concurrence or non-concurrence based on the documented research/substantiation/ statutory authority provided by state/ Disclosure Manager /TA, etc.

7. If the Disclosure PPO POC concurs, then the TA will coordinate with the Disclosure Area Manager for approval and signature; then return it to the GL, and copy the Disclosure Manager, for continued GL coordination with Data Services. See also IRM 11.4.2.11.4, Extract Modification Request Disclosure Procedures.

(11) The IRS made a policy decision to waive the charge to state and local tax agencies for extracts available under the GLDEP. Special runs and re-creation requests will continue to be processed on a cost reimbursable basis. IRC 6103(p)(2)(B) provides the authority to charge for extracts.

(1) State tax administration, as defined in Section 2.13 of the basic agreement, includes ongoing or potential conduct-related investigations of state tax agency employees. This definition also includes tax compliance-type checks related to suitability or background investigations of employees and prospective employees of state tax agencies. Disclosure will process these state requests. See IRM 11.3.41, Disclosure Case Processing and Inventory Management, for specific Disclosure employee procedures.

(1) The head of a state tax agency (other than the governor or equivalent official) may request access to federal tax returns and return information on a case-by-case basis under IRC 6103(d) without entering into a basic agreement.

(2) These requests are signed by the agency head and addressed to the Commissioner of Internal Revenue, Attention: Director, GLDS. The request should contain the following data:

1. The name, title and office location of the state tax agency representative who is to inspect or receive federal tax returns, return information or taxpayer identity information on behalf of the agency.

2. The specific state tax law that the agency is charged with administering.

3. The agency’s specific tax administration need for the information being requested and an explanation of how the information will be used to satisfy that need (statements that information is needed for or will be used in administering state tax laws are not sufficient).

4. The name and identifying information of each person or entity whose federal tax returns or return information is to be disclosed, and a description of the federal tax returns or return information sought, including the type of tax and the taxable periods for such federal tax returns or return information.

5. When applicable, a copy of the state’s statutes that protect the confidentiality of a copy of any portion of a federal tax returns or information reflected on such returns that taxpayers are required to attach to or include in their state tax returns (see IRM 11.3.32.12.1, State Law Requirements pursuant to IRC 6103(p)(8), for specifics).

(3) The state tax agency must also indicate in its request that it agrees to all the requirements of IRC 6103(p)(4) and any additional requirements imposed by the IRS. These requirements are described in detail in IRM 11.3.32.12, State Agency Requirements.

(4) The Director, GLDS will provide specific disclosure instructions in response to these requests after coordination with the Director, Office of Safeguards, GL and the Disclosure Managers in affected offices to determine whether there is any objection to release of the information requested.

(5) Requests for federal tax return information in electronic format are made in the same manner as described in (1), (2), and (3) above. Also see IRM 11.3.32.9 above, for specific instructions.

(1) IRC 6103(p)(4) authorizes the IRS to require that state agencies maintain adequate safeguard procedures for the federal tax returns and return information they receive pursuant to IRC 6103(d).

(2) This is necessary to ensure federal tax returns and return information received are protected and not compromised. In the event a state agency does not maintain adequate safeguards or take action to prevent and detect unauthorized disclosures or inspections, the IRS can withhold federal tax returns and return information, subject to an administrative appeal procedure. However, when a state agency is known to be allowing unauthorized accesses/disclosure, as opposed to being vulnerable to such prohibited acts, the IRS may immediately suspend disclosures after notifying the state. See 26 CFR 301.6103(p)(7)-1(a)(2), and IRM 11.3.36, Safeguard Review Program.

(3) Direct or indirect disclosure of federal tax returns and return information by the state tax agency to local tax authorities or others, except for legal representatives, IRC 6103(n) contractors or state auditors, is not permitted.

(4) Congress intended that the statutory criteria applicable to access to federal tax data by the Justice Department in a federal tax investigation or in preparing for federal tax litigation under IRC 6103(h)(1) be similarly applicable to disclosures to the state tax agency’s legal representative under IRC 6103(h)(4). See IRM 11.3.32.17, Use of Federal Tax Returns and Return Information in State Judicial or Administrative Proceedings, pursuant to IRC 6103(h)(4), below.

(5) IRC 6103(d) does not authorize the IRS to disclose information to a state tax agency or its legal representative for non-tax purposes, including joint tax/non-tax state criminal investigations/prosecutions. Further, there is no other provision in IRC 6103 that permits the IRS to make disclosures for state non-tax criminal prosecutions.

(6) As a condition for their access to federal tax returns or return information, state agencies must agree to the following requirements:

1. Establish and maintain, to the satisfaction of IRS, a permanent system of standardized records with respect to any request made by the agency for inspection or disclosure, the reason for the request and the date of the request, and, in addition, any disclosure made by or to it.

2. Establish and maintain, to the satisfaction of IRS, a secure area or place in which the federal tax returns or return information are stored.

3. Restrict, to the satisfaction of IRS, access to the federal tax returns and return information to persons whose duties or responsibilities require access and to whom disclosure may be made.

4. Provide such other safeguards as IRS may determine necessary or appropriate to protect the confidentiality of the federal tax returns and return information.

5. Furnish to the IRS the safeguard reports described in IRM 11.3.36, Safeguard Review Program. Refer to this IRM Section for detailed procedures.

6. Upon completion of use, either return the tax information, along with any copies, to IRS or destroy the returns, return information, and copies, and furnish a written report to IRS describing how the destruction was accomplished.

7. Permit IRS, and to effectuate the provisions of IRC 6103(p)(6)(A), the Government Accountability Office, to review the extent to which the agency is complying with these requirements.

8. Give written notification to all agency representatives and any other person authorized to access federal tax returns or federal return information of the criminal penalties and civil liability provided by IRC 7213, 7213A, and 7431 for unauthorized disclosures or inspection of federal returns or return information.

9. Provide the IRS with the notification required in IRM 11.3.32.17, Use of Federal Tax Returns and Return Information in State Judicial or Administrative Proceedings, pursuant to IRC 6103(h)(4).

(7) Guidelines for the periodic review of safeguard procedures are included in IRM 11.3.36, Safeguard Review Program. Publication 1075, provides state agencies with further information about these requirements. Publication 1075 is available on the IRS’ website at: http://www.irs.gov

(1) IRC 6103(k)(5) permits the disclosure of limited information to state agencies charged with licensing, registration, or regulation of tax return preparers. The state agency responsible for these rules may or may not be the state tax agency.

(2) The IRS may not disclose information regarding preparer penalties under IRC 6694, 6695, or 7216 to a state tax agency if the agency is not responsible for tax return preparer licensing, registration, or regulation. This is because IRC 6103(d)(1) only authorizes disclosure of information under specified IRC Chapters and these three penalty sections are not within the scope of the Chapters listed in IRC 6103(d)(1).

(3) The IRS will only disclose the following information under IRC 6103(k)(5) for the purpose of licensing, registering, or regulation of the preparers:

• Name

• Mailing Address

• Taxpayer Identification Number; and

• Information as to whether any penalty has been assessed against such preparer under IRC 6694, 6695, or 7216.

(4) Written requests are submitted to the GLDS Data Service’s GLDS Support Services and worked in Disclosure.

(5) See IRM 11.3.41, Disclosure Case Processing and Inventory Management, for specific Disclosure employee procedures.

(6) Disclosures pursuant to IRC 6103(k)(5) are subject to the accounting requirements of IRC 6103(p)(3)(A) but are not subject to safeguards under 6103(p)(4).

(1) Pursuant to IRC 4102, records required to be kept regarding taxes on gasoline and lubricating oil may be inspected by officers of a State or a political subdivision of any such state, charged with the enforcement or collection of any tax on any taxable fuel, as defined in IRC 4083. Inspection may be made only for purposes of such collection or enforcement. See IRC 4102 and 26 CFR 48.4102-1.

(2) Requests for inspection must be in writing, addressed to the appropriate management official having custody of the records requested and signed by an officer of the state or political subdivision who is charged with the enforcement or collection of such taxes.

(3) Requests must state the:

1. Kind of records requested, whether pertaining to taxable fuel or aviation fuel.

2. Period(s) covered (by the records involved).

3. Name of the officer who will inspect the records.

4. Name of any representative (of the officer) designated to make the inspection.

5. Law imposing state or local tax to be enforced or collected.

6. Law under which the officer is so charged; and

7. Purpose for the inspection.

(4) After approval or disapproval of the request, the appropriate management official will notify the person making the request.

(5) Inspection is made:

1. In the office of the appropriate management official having custody of the records requested,

2. In the presence of an IRS employee, and

3. During regular business hours.

(6) Although the safeguarding and recordkeeping requirements of IRC 6103(p) do not specifically apply to disclosures made under IRC 4102, state and local officials are encouraged to make reasonable efforts to safeguard this information.

(7) Arrangements to exchange gasoline and lubricating oil information between the IRS and a state or local agency may be made upon written agreement by the GL and the head of the agency. In the case of a state tax agency that has already entered into a basic agreement under IRC 6103(d), this exchange should be specified in the implementing agreement. The implementing agreement should indicate that the excise disclosures are being made pursuant to IRC 4102.

(1) The disclosure of certain federal tax returns and return information and other information is prohibited by law, notwithstanding the provisions of IRC 6103 or IRC 4102. This data must be identified and removed from the file prior to disclosure of the record or documents to any authorized state or local agency representative, as follows:

1. Information obtained pursuant to tax treaty or covered by IRC 6105.

2. Wagering tax information as defined in IRC 6103(o)(2) and IRC 4424.

3. Currency Transaction Reports or information taken from these reports filed under Title 31 are available to state tax agencies under the Bank Secrecy Act Re-Dissemination Guidelines (or Title 31 regulations). State agencies seeking this information can enter into separate agreements with FinCEN to obtain that information. The IRS cannot provide states with Title 31 data extracted from the FinCEN database pursuant to IRC 6103(d) unless that information was disclosed from an IRS administrative file and actually used in the administrative federal tax determination.

4. Grand Jury information.

(2) Information obtained under immunity procedures must be referred to the Director, GLDS.

(3) No information is disclosed to any authorized agency representative without a determination that the disclosure would not identify a confidential informant or seriously impair a civil or criminal tax investigation. If it is determined after disclosure, that further use of the federal tax returns or return information would identify a confidential informant or seriously impair a civil or criminal tax investigation, the state tax agency will be requested to discontinue its use of the information.

(1) All state agency officers, employees, and contractors having access to federal tax returns or return information under 6103(d) are required to maintain confidentiality over the information pursuant to 6103(a)(2) or (3). They shall be informed, in accordance with the instructions in Publication 1075, of the criminal penalties and civil liability for unauthorized access or disclosure.

(2) Upon discovering a possible improper inspection or disclosure of federal tax information, including breaches and security incidents by a state agency or officer, employee, contractor, or any other person, the individual making the observation or receiving information, must contact the office of the appropriate special-agent-in-charge, TIGTA, immediately, but no later than 24 hours after identification of a possible issue involving federal tax information. Concurrent to notifying TIGTA, the agency must notify Office of Safeguards. See Publication 1075, Section 10.

(3) When a disciplinary action is proposed for a state agency employee for unauthorized access or disclosure, state tax agencies are required to notify the affected taxpayer. The tax agency is also required to report such notification action to Office of Safeguards (Taxpayer First Act Section 3002 amended 26 U.S. Code 7431).

(1) The disclosure of federal tax returns or return information by state tax agencies, bodies, or commissions to their legal representatives for use in preparation for proceedings involving tax administration (or an investigation that may result in such proceedings) is governed by similar standards that apply to tax administration disclosures by the IRS to attorneys at the Department of Justice. Federal tax returns or return information may be disclosed to state attorneys personally and directly engaged in, and solely for their use in, preparing for such proceedings.

(2) The disclosure of federal tax returns or return information in state judicial or administrative proceedings pertaining to tax administration is further limited by IRC 6103(h)(4) that permits disclosure only if:

1. The taxpayer is a party to such proceeding or the proceeding arose out of or in connection with determining the taxpayer’s civil or criminal liability, or the collection of such civil liability in respect of any tax imposed; the return information relates to the resolution of a tax issue in the proceeding; or

2. The treatment of an item reflected on such return is directly related to the resolution of a tax issue in the proceeding; or

3. Such federal tax returns or return information directly relates to a transactional relationship between a person who is a party to the proceeding and the taxpayer that directly affects the resolution of a tax issue in the proceeding; and

4. The disclosure does not identify a confidential informant or seriously impair a civil or criminal tax investigation as determined by the IRS.

(3) State tax agencies may not disclose federal tax information to their legal representative or other participating agencies where the state investigation, administrative or judicial proceeding only involves non-tax matters. The provisions of 26 CFR. 301.6103(h)(2)-1 do not apply to comparable state situations.

(4) State tax agencies may not disclose federal tax information to their legal representative where the state investigation, administrative or judicial proceeding contemplates using federal tax returns or return information for a non-tax matter. For proceedings that involve both tax and non-tax matters, the state may only re-disclose federal tax returns or return information in furtherance of the tax administration matter under one of the subsections in IRC 6103(h)(4).

(5) At the time of the initial disclosure to the agency, or at the time a basic agreement is signed, the IRS will advise an agency receiving federal tax returns or return information of its obligation to notify the IRS in writing of its intention to disclose any such federal tax returns or return information in a state judicial proceeding or to any party other than the taxpayer or his/her designee in a state administrative proceeding.

(6) The state tax agency is only required to notify the IRS of its intention to re-disclose federal tax returns or return information in a criminal administrative or judicial tax proceeding or if the agency is seeking to disclose any information obtained from a Reportable Transaction MOU. If the proceeding is for a civil tax matter, the agency is not required to submit a re-disclosure request. The purpose for submitting a request to re-disclose is so the IRS can consider if such disclosure would impair federal tax administration or identify a confidential informant. The agency may not submit a request for federal tax returns or return information under IRC 6103(d) and 6103(h)(4) at the same time. These are two separate actions based on different statutes, therefore must be in two separate requests.

(7) The request to re-disclose federal tax information under this section must be signed by an authorized employee of the agency and directed to the Disclosure Manager for that state, at least 30 days prior to the date the disclosure is to be made. The following information is included in the notice:

1. The name and other identifying information.

2. The tax periods involved and type of tax.

3. A description of the information to be disclosed.

4. The purpose for which the proceeding is being conducted; and

5. How the provisions of IRC 6103(h)(4) will apply.

(8) The Disclosure office receiving the notification referred to above will coordinate the proposed disclosure in the manner described in IRM 11.3.32.15(3), Restrictions on Disclosure of Federal Tax Returns and Return Information. In any case where it is known that the actions described in IRM 11.3.32.15(1)-(2) have not been taken, those actions should also be taken.

(9) Except in unusual circumstances, the coordinating Disclosure office will prepare a response to the state official proposing the disclosure within 30 days of receipt of notification by the state. In every case, the Disclosure office must ensure that a response is made prior to the date the disclosure is to be made.

(10) State tax agencies will be advised to edit any documents that they intend to disclose in a judicial or administrative tax proceeding to delete federal tax returns and return information where IRC 6103(h)(4) does not permit disclosure.

(11) When state tax agencies are authorized to release information under IRC 6103(h)(4), it is irrelevant that the state hearing body/agency also hears non-tax cases. While the hearing agency would not be subject to IRC 6103(p)(4) requirements, the hearing agency should be advised to refrain from any re-disclosure of the federal tax information except in proceedings before the hearing agency or appeals therefrom, because of the wording of IRC 6103(a)(2).

(1) Form letters to taxpayers from state or local agencies should clearly state that any information received from the IRS was obtained pursuant to federal law.

(2) Agency representatives are asked to use the language in (3) below, or equivalent wording, in letters to taxpayers where changes were made based upon information obtained from the IRS.

(3) Statutory Authority Reference: "Under authorization of federal law, [specify appropriate section of the IRC], this office [or name of the agency, body, commission] has obtained from the Internal Revenue Service information that...."

(4) Examples of subsequent phrases might contain the following language:

1. "..you filed a federal income tax return for the year showing an address within this state but we have been unable to locate your [name of state] income tax return...."

2. "...a change has been made in your federal income tax liability.... "

3. "...you received dividend and/or interest income and thus may own property subject to state intangible personal property taxes..."

4. "...you have been assessed a penalty under IRC 6695.... "

5. "...you reported excise tax on lubricating oil on your Form 720, Federal Quarterly Excise Tax Return, for period ending [tax period], but we have been unable to locate your [name of jurisdiction] excise tax return...."

(1) State tax agencies as well as other agencies and organizations seeking statistical information compiled from federal tax return information for non-tax purposes are advised to make their requests pursuant to IRC 6108(b). Address these requests to:

Internal Revenue Service
Statistics of Income
Statistical Information Services
1111 Constitution Avenue, NW K-Room 4112
Washington, DC 20224

(2) State tax agencies may use federal tax returns and return information to prepare statistical tabulations for state tax administration where that agency has the statutory/delegated responsibility for preparing such direct tax administration tabulations. Examples of allowable uses of federal tax information include developing tax models to assess the impact of changes in tax policy on state tax revenues, or the use of data to project estimated revenues for future tax years. A state tax administration purpose pertains to activities that directly relate to the administration of the state’s tax laws or the formulation of policy concerning existing or proposed tax laws.

(3) Such tabulations may not be released outside the agency except in a form that cannot be associated with, or otherwise identify, directly or indirectly, a particular taxpayer. State tax agency employees engaged in preparing statistical tabulations can have access to federal tax information for this purpose. Any findings, reports, or models must be sufficiently blurred if it is released to those inside the agency without a need to know or to anyone outside the state agency, such as a state legislative body.

(4) Questions states may have concerning the preparation of statistical tabulations in anonymous form are directed through the IRS Governmental Liaison to the Director, Statistics of Income (SOI), a function of Research, Applied Analytics & Statistics (RAAS).

(5) State tax agencies that conduct statistical analyses for tax modeling or revenue projection purposes must submit a need and use statement to the servicing Disclosure office for approval. Agencies should contact their Disclosure Manager and GL, who can assist and provide a template need and use agreement.

(6) The Disclosure Manager will serve as the primary point of contact for all agency tax modeling tasks and coordinate the review and approval of the need and use statement with other IRS functions, including Office of Safeguards. This may also include review and/or approval by SOI, if the agency’s tax modeling plans included the use of contractors. The Disclosure Manager should consult with Disclosure PPO if they have questions or need technical guidance.

(7) Generally, release of statistical tabulations outside the agency or to others in the agency without a need to know, are to conform to the following guidelines:

1. No statistical tabulation at the state level is released with cells containing data from fewer than three returns;

2. Statistical tabulations prepared for geographic areas below the state level is not released with cells containing data from fewer than ten returns; and

3. Tabulations that would pertain to specifically identified taxpayers or would tend to identify a particular taxpayer either directly or indirectly may not be provided.

(8) If state agencies use contractors to perform tax modeling or revenue projection activities, they must obtain IRS approval prior to any release of federal tax information to contractors.

(1) For instructions regarding photocopy charges, billing, controls, and procedures, see IRM 11.3.5, Fees, for more information.

(2) State and local tax agencies may also be charged on a reimbursable cost basis for the time expended by IRS employees to comply with disclosure and recordkeeping requirements such as: stripping return files of un-disclosable information, preparing records of disclosure in accordance with IRC 6103(p), or programming costs for special requests. As a general policy consistent with budgetary constraints, the IRS has not passed on these costs except for those associated with special extract requests.

(3) Charges may be waived for routine photocopying of documents in those instances where the state reciprocates and does not charge the IRS for similar services. If the agency has entered into a basic agreement with the IRS, the waiver of charges is incorporated into the implementing agreement (see IRM 11.3.32.4.1, Content of Implementing Agreements, above). A waiver in the implementing agreement will not, however, automatically extend to charges for special extracts or statistical studies. Currently, charges for all permanent extracts are waived, except in instances of special requests that are determined on a case-by-case basis.

(1) This program permits payers who file information returns in electronic format to make a single filing with the IRS that satisfies both federal and state information reporting requirements.

(2) The payer must apply to participate and must meet IRS specifications. Revenue Procedures provide detailed instructions for filing electronically. The Revenue Procedures are published yearly in Publication 1220, Specifications for Electronic Filing of Forms 1097, 1098, 1099, 3921, 3922, 5498, and W2-G.

(3) The Director, GLDS will provide technical assistance to Martinsburg Computing Center coordinator to assure that payers participating in the Combined Federal/State Information Return Reporting Program submit valid IRC 6103(c) authorizations. The Combined Filing program is not an IRC 6103(d) exchange program and, therefore, is not subject to IRC 6103(d) requirements.

(4) The records filed under this combined reporting program are federal tax returns. Before a payer participates and before information is provided to a state tax agency, the payer must submit an authorization meeting the requirements of IRC 6103(c) and related regulations. The authorization will permit the state tax agency to treat data received pursuant to this program as state tax information.

(1) Pursuant to IRC 6103(d)(2), any federal tax returns and return information obtained by a state tax agency in accordance with IRC 6103(d)(1) may be open to inspection by, or disclosure to, officers and employees of the state audit agency.

(2) Disclosures are made for the purpose of, and only to the extent necessary in, making an audit of the state tax agency, body, or commission.

(3) A "state audit agency" means any state agency, body, or commission charged under the laws of the state with the responsibility for auditing state revenues and programs.

(1) IRC 6103(p)(2)(B) and 26 CFR 301.6103(p)(2)(B)-1, allow for the IRS to authorize the re-disclosure of federal tax returns and return information obtained by federal, state or local agencies in accordance with IRC 6103. Disclosures are subject to the same use restrictions and safeguards as if the second recipient agency received the information directly from the IRS.

(2) Agencies involved in these types of exchanges may receive only federal tax returns or return information authorized by the provisions of IRC 6103 applicable to each respective recipient agency. Any federal tax returns or return information disclosed by one agency to another agency are used only for a purpose authorized by, and subject to, any conditions imposed by IRC 6103 and the regulations. If there is no current disclosure provision in IRC 6103 that allows the IRS to provide federal tax information to all agencies involved in the request, then IRC 6103(p)(2)(B) cannot be used.

(3) Written requests to engage in these types of exchanges are initiated by either the initial recipient of the federal tax information or an agency that wants to obtain federal tax information provided by the IRS to another agency, and must identify all other agencies involved in the exchange of federal tax information.

(4) Agencies should also be advised of the fact that the agency providing federal tax information to all other participating agencies is responsible for maintaining a permanent system of standardized records that identifies any disclosure of federal tax returns and return information made to any other recipient agency or agencies. The agency shall provide this information to the IRS, in order to comply with the IRS’s obligation to keep accountings for disclosures and to make annual reports of disclosures to the Joint Committee on Taxation in accordance with IRC 6103(p)(3)(A).

(1) Pursuant to IRC 6103(d)(4), all states must have in place a signed contract with the Social Security Administration (SSA) that allows SSA to re-disclose the death information it receives from states to other federal agencies. Any state that has not entered into such a contract will no longer be able to receive federal tax information under the provisions of IRC 6103(d).

(2) SSA will notify the Director, GLDS when contracts are scheduled for renewal. If any changes are made that would adversely affect the re-disclosure clause, or if the contract is not renewed, any exchange of federal tax information with that state under IRC 6103(d) is terminated.

(3) Any termination of an Agreement must be coordinated through the Director.