11.3.32  Disclosure to States for Tax Administration Purposes

11.3.32.1  (10-22-2010)
General

  1. The exchange of confidential tax information between the Internal Revenue Service (IRS) and states is intended to improve tax administration by reducing duplicate government resource expenditures and increasing taxpayer compliance. Congress has recognized the importance of this exchange program by permitting the disclosure of Federal tax information to state agencies for tax administration purposes. However, Congress balanced this disclosure authority with additional requirements designed to safeguard Federal tax information against misuse and unauthorized disclosure. A fundamental step toward reducing the risk of unauthorized disclosures is the elimination of unnecessary disclosures. Many of the guidelines, requirements and programs outlined in this IRM were developed with this goal in mind.

  2. Governmental Liaisons (GLs) are assigned responsibility for liaison with state tax authorities and are to be personally involved in the cooperative tax administration program.

  3. Disclosure Managers, GLs, and the Office of Safeguards personnel share responsibility for ensuring state tax agencies receive Federal tax information when appropriate and that they properly safeguard Federal tax information they receive. The GL may also represent the IRS at conferences and meetings with senior officials of state agencies.

  4. This section deals with disclosure for state tax purposes in accordance with IRC §6103(d). Other parts of IRC §6103 may be used for Fed/State purposes when state tax administration is not the reason for the disclosure, or it is determined that another disclosure provision is more appropriate from an administrative viewpoint. Other sections of this IRM may be applicable when considering the feasibility of Fed/State exchanges.

    Note:

    Licensing initiatives may utilize consents under Treasury Regulation §301.6103(c)-1. IRM 11.3.3, Disclosure to Designees and Practitioners, contains specific instructions for the elements required in this type of an authorization. Note these authorizations must contain specifics that include, but are not limited to, the year(s) and type(s) of tax, and the IRS must receive them within 120 days of the date signed by the taxpayer.

    The Chief of Disclosure must review and approve any non-6103(d) exchanges with state tax agencies involving tax information to ensure proper consideration of technical and operational aspects and that the exchange does not conflict with Treasury Tax Policy against broad-based consent programs or other disclosure provisions.

11.3.32.2  (10-22-2010)
Definitions

  1. The following terms are defined for use in this IRM:

  2. State - any of the fifty states, the District of Columbia, the Commonwealth of Puerto Rico, the Virgin Islands, Guam, American Samoa, the Commonwealth of the Northern Mariana Islands, and any municipality with a population in excess of 250,000, as determined by the most recent decennial United States census data available, that imposes a tax on income or wages and with which the Commissioner of the Internal Revenue Service has entered into an agreement regarding disclosure. The definition of state also includes any governmental entity formed and operated by a qualified group of municipalities that includes two or more municipalities each of which imposes a tax on income or wages and administers the law relating to the imposition of taxes through such entity and that collectively have a population in excess of 250,000.

    Note:

    Some municipalities are combined with county government. Due to the statutory complexities of such governmental arrangements, close coordination with the Chief, Disclosure is needed before agreements are negotiated.

    Note:

    All agreements with the Commonwealth of Puerto Rico, Virgin Islands, Guam, America Samoa, and the Commonwealth of the Northern Mariana Islands are tax conventions within the meaning of IRC §6105 even if information exchanges are covered by IRC §6103(d). See IRM 11.3.25, Disclosure to Foreign Countries Pursuant to Tax Treaty.

  3. State tax administration - the administration, management, conduct, direction, and supervision of the execution and application of the revenue laws (or related statutes) of the state; the development and formulation of state tax policy relating to existing or proposed revenue laws or related statutes of the state, including assessment, collection, enforcement, litigation, and statistical gathering functions under such laws and statutes. The term does not include non-tax functions of a state agency such as the determination of eligibility for unemployment compensation or the collection of such benefits if erroneously paid. If a state transfers tax administration functions (e.g., statistical gathering or revenue forecasting) from a revenue agency to a state agency that does not actually administer taxes, disclosures under IRC §6103(d) cannot be made to this successor agency. If residual functional responsibilities remain with the revenue agency, close coordination with Disclosure personnel is necessary to determine the disclosure statutory provisions that apply.

  4. Basic agreement - the Agreement on Coordination of Tax Administration executed by the Commissioner of Internal Revenue and the head of a state tax agency.

  5. Implementing agreement - an agreement, complementing the basic agreement, entered into between the IRS and the head of a state tax agency with which IRS has finalized a written agreement on coordination of tax administration.

  6. Primary Disclosure Office - the Disclosure office manager responsible for negotiating agreements and overseeing disclosures with the state tax agency.

  7. Secondary Disclosure Office - used with reference to multi-Disclosure office states only, the Disclosure office(s) other than the primary Disclosure office. A multi-Disclosure office state is a state having more than one IRS Disclosure office within its borders, e.g., California.

  8. Affected Campus - the campus(es) responsible for processing the returns of taxpayers residing in primary and/or secondary Disclosure offices’ geographical areas and involved in disclosures of data to a particular state tax agency.

  9. Field Disclosure Manager - the Disclosure official at a local IRS office.

  10. Governmental Liaison - the IRS Fed/State official designated to provide services to an identified state or states.

  11. The Office of Safeguards - the Safeguards Program office within Communications, Liaison and Disclosure, is responsible for oversight of IRC §6103(p)(4) and conducts periodic safeguards and on-site "need and use" reviews of state tax agencies.

11.3.32.3  (10-22-2010)
Authority for Disclosure

  1. IRC §6103(d)(1) permits the disclosure of returns and return information with respect to taxes imposed by chapters 1, 2, 6, 11, 12, 21, 23, 24, 31, 32, 44, 51, and 52, and subchapter D of chapter 36 of the Internal Revenue Code to any state agency, body or commission, or its legal representative charged under the laws of the state with the responsibility for administration of any state tax law. See (5) below for the titles of these chapters.

    Note:

    Basic agreements must be limited to the type of tax administered by the respective agency. For example, state employment offices will have no jurisdiction over consolidated corporate returns (Chapter 6 taxes) or excise taxes (Chapters 31 and 32 taxes). Thus, those types of taxes should not be listed in the basic agreement and no disclosures of those types of tax information can be made.

  2. Disclosure may be made only in response to a written request by the head of the agency, body or commission only for the purpose of, and to the extent necessary in, the administration of such tax laws.

  3. The request may designate representatives to inspect or receive copies of the returns or return information, but such representatives may not include any individual who is the chief executive officer of the state or anyone who is not an employee, legal representative, or authorized contractor of the agency (see IRC §6103(n)), body, or commission.

  4. Disclosure of returns or return information must be denied if it will identify a confidential informant or seriously impair a civil or criminal tax investigation.

  5. The titles of the chapters listed in IRC §6103(d)(1) are as follows:

    Chapter   Title
    1     Normal Taxes and Surtaxes
    2     Tax on Self-Employment Income
    6     Consolidated Returns
    11     Estate Taxes
    12     Gift Tax
    21     Federal Insurance Contributions Act
    23     Federal Unemployment Tax Act
    24     Collection of Income Tax at Source on Wages
    31     Retail Excise Taxes
    32     Manufacturers Excise Taxes
    44     Qualified Investment Entities
    51     Distilled Spirits, Wines and Beer
    52     Tobacco Products and Cigarette Papers and Tubes
    36, Sub. D     Tax on Use of Certain Vehicles

  6. IRC §6103(k)(5) permits the disclosure, to state or local agencies, bodies or commissions lawfully charged under any state or local law with the licensing, registration or regulation of income tax return preparers, of taxpayer identity information with regard to the preparers and information as to whether or not any penalty has been assessed against such preparers under IRC §6694, IRC §6695, or IRC §7216. In response to a written request from the head of the agency, body, or commission designating the officers or employees to whom the information is to be disclosed, the information may be furnished and used only for the purpose of licensing, registration, or regulation of the preparers. Disclosures are subject to the accounting requirements of IRC §6103(p)(3)(A), but are not subject to safeguards under IRC §6103(p)(4).

  7. IRC §4102 permits the inspection of records required to be kept regarding taxes on gasoline and lubricating oils (Subchapter A, Part III of Chapter 32, Manufacturers Excise Taxes) by officers of a state or political subdivision charged with the enforcement or collection of any tax on such products. Disclosures under this Code section are to be made pursuant to regulation. See Treasury Regulation §48.4102-1. Information other than that taken directly from returns may not be disclosed under this provision. Disclosures involving sole proprietors must be accounted for under the Privacy Act.

  8. Refund offset information disclosed to states by the Financial Management Service (FMS) under IRC §6103(l)(10), for offsets authorized by IRC §6402(e), is not governed by IRC §6103(d). The requirements and restrictions of IRC §6103(l)(10) apply to this information that differs from IRC §6103(d) and §6103(n) requirements and restrictions. For this reason, it is advisable that states not commingle IRC §6103(l)(10) data with IRC §6103(d) data, because contractors cannot have access to IRC §6103(l)(10) data.

11.3.32.4  (10-22-2010)
Need and Use

  1. Disclosure of Federal returns and return information to a state tax agency under IRC §6103(d)(1) are restricted to the agency’s justified state tax administration need for and use of such information. See Policy Statement P-1-35.

  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. Every effort will be made to eliminate disclosure of unnecessary information to state tax agencies. Requests for copies of tax returns 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.

    Example:

    An agency may simply need information concerning a specific item of information or schedule. If so, that item can be extracted or a copy of only the necessary schedule provided.

    Note:

    Because of the way some information is stored, it may be necessary in rare cases to disclose more tax information than can actually be used to ensure that the agency receives needed information. These accommodations should be temporary (i.e., used as a bridge until the necessary system changes can be made) and the state should destroy all unneeded information as soon as practicable. The overall disclosure scheme meets the need and use standard because without the accommodation, the core data could not be disclosed.

  4. Tolerances and criteria will be established for information furnished on a continuing basis. Information that the agency cannot use should normally not be provided. See IRM 11.3.32.6.1(2)(c) below, for more about tolerances and criteria.

  5. 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 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 11.3.32.21 for states' use of Federal returns and return information for special statistical studies, revenue projections, tax modeling, or similar purposes.

  6. Office of Safeguards personnel will conduct an on-site "need and use" review of each state tax agency receiving Federal tax information in accordance with its established procedures. When determined appropriate by the Director, Office of Safeguards, GLs and Disclosure staff may accompany Safeguards staff on "need and use" reviews. See IRM 11.3.32.9.

  7. 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.

11.3.32.5  (10-22-2010)
Basic Agreements

  1. 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.

  2. Arrangements for continuing disclosures are made by means of an implementing agreement discussed in IRM 11.3.32.6 below. State tax agency requests for tax data not covered by an Agreement on Coordination of Tax Administration (referred to as the basic agreement) must be made in accordance with instructions contained in IRM 11.3.32.13 below.

  3. A model Agreement on Coordination of Tax Administration is shown in Exhibit 11.3.32-1. Individual modifications to the standard provisions of the model are not permitted. Necessary departures from the standard provisions, however, may be proposed and submitted to the Director, GLD for consideration and approval by the Commissioner (office of the Secretariat).

    Note:

    The Headquarters Office of Governmental Liaison has this agreement available electronically on its website.

  4. The scope of the basic agreement and subsequent implementing agreement will be initially developed and negotiated through discussions between the GLD Area Manager 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. It may be necessary to engage Area Counsel 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, Area GLD personnel must involve the Chief, Disclosure in their resolution.

  5. The head of the state agency will sign two copies of 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 GLD Area Manager will send both signed copies to the Chief, Disclosure, for review and subsequent signature by the Commissioner. 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 11.3.32.14.1 below. The Chief, Disclosure will coordinate with Chief Counsel, Procedure and Administration, if it is thought that Head Quarters (HQ) legal issues still need to be resolved. 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 Commissioner’s signature, one signed copy will be retained in Headquarters and the other will be returned to the GLD Area Manager, who will have copies made for the affected Disclosure offices. The other signed copy will be returned to the state tax agency or department.

  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 broadening the scope of basic agreements is shown in IRM Exhibit 11.3.32-2 below. The "model" addendum is also available electronically on the GLD website.

  11. Addenda to the original basic agreement will be prepared, signed, and cleared as prescribed in (5)-(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 Procedures Report.

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

11.3.32.6  (10-22-2010)
Implementing Agreements

  1. An implementing agreement is developed and negotiated with each state tax agency that wants to receive Federal 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 should make efforts to use data available from state agencies to avoid duplicate resource expenditures. The appropriate IRS function can then evaluate the information in light of 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 local Disclosure Manager . Disclosure Managers are encouraged to send any items that may have nationwide significance to the Chief, Disclosure.

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

  7. Agreements may be amended at any time to reflect the addition of new exchange programs or modifications to existing exchanges. Memorandums of Understanding (MOU) are used in lieu of amending implementing agreements. See IRM 11.3.32.8, below, for information on MOUs.

  8. Copies of implementing agreements and any amendments are attached to the appropriate basic agreement maintained by the Disclosure Manager.

  9. When any conflict arises between the provisions of the Agreement on Coordination of Tax Administration and the implementing agreement, the terms of the basic agreement will govern.

11.3.32.6.1  (10-22-2010)
Content of Implementing Agreements

  1. Federal and State Liaison Officials -In order to establish one primary point of contact between state tax agencies and the IRS, a GL has been assigned to each state.

    1. The primary IRS liaison officials are the Disclosure Manager and the GL assigned to cover the state.

    2. The state agency should also designate a primary liaison official

    3. If desired, secondary liaison personnel may also be designated for contact regarding routine operational matters.

      Note:

      A campus employee could be designated to handle data processing questions or problems regarding transmittal of documents between the campus and the state tax agency. Likewise, an employee could be designated to handle problems with revenue agents’ reports, such as illegible copies.

  2. Information to be Exchanged - This topic is covered in the implementing agreement in sections III to VII.

    1. These sections contain a description of the specific types of documents that are exchanged. Form numbers and titles are indicated wherever possible. These sections should also specify the function that provides and receives the information as well as any specific procedures for making requests.

    2. Section III, Part .01.1.a of the implementing agreement contains a brief description of the state tax agency’s participation in the GL Data Exchange Program. Through the Detroit Computing Center, the Chief, Data Services coordinates certain data extract programs whereby state tax agencies may obtain return information. These programs include, but are not limited to, the following data extracts:

      Individual Master File (IMF)

      Individual Returns Transaction File (IRTF)

      Business Master File (BMF)

      Business Returns Transaction File (BRTF)

      Information Return Master File (IRMF)

      Exam/Appeals

      Taxpayer Address Request (TAR)

      Non-itemizer tape

      CP-2000 (UNDERREPORTER)

      Levy sources

      P-TIN and ITIN

      Corporate Affiliations

      Form 1099-Miscellanous

    3. Tolerances and/or criteria for selection of the data described in (2) above are specific. Avoid vague statements such as :"...to the extent that such adjustments may be reasonably expected to result in a state (or Federal) tax liability." Instead, dollar tolerances should be shown and should be based upon the projected volume of data available for exchange as well as the receiving agency’s anticipated ability to use the data. Whenever possible, criteria should be established that will prevent exchange of data that is of no value to the receiving agency (e.g., where a tax adjustment results solely from the use of an incorrect tax table). The most recent review of the state tax agency’s need for and use of IRS material is considered when establishing or revising the tolerances and criteria to be applied to data available to the agency. Portions of the agreement that contain tolerance and criteria information are designated as "Official Use Only" and accorded the same protection as all other Sensitive But Unclassified information. Tolerances and criteria for the formal data extract program (see IRM 11.3.32.11 below) are maintained and adjusted consistent with the documentation retained for that program. It is not necessary to repeat these in the implementing agreement, although the agreement must reference participation in the data extract program. Nothing in this section precludes disclosure programs based on state code extract.

    4. Other Returns and Return Information are specified in .03 of Section III. This permits notification to state tax officials about returns and return information that may be evidence of noncompliance with state tax laws that would not be transmitted to the state tax officials under other provisions of the implementing agreement.

    5. This section also establishes a procedure for disclosing these returns and return information in a manner compliant with the need and use and written request requirements of IRC §6103(d)(1). IRM Exhibit 11.3.32-3 contains the necessary language.

    6. Sections V and VI of the implementing agreement cover related disclosures. The state must use the specific language of Section VI if it wants to take advantage of IRS initiated disclosures when the specific information is not covered under other sections of the implementing agreement. These disclosures are necessary to insure the integrity of the tax administration system and retain public trust in the state tax agency.

  3. The implementing agreement should also include additional topics regarding mutually agreed upon programs, practices and procedures. The topics must not repeat or modify statements contained in the Agreement on Coordination of Tax Administration or information required in other documents or reports.

    1. Example:

      The safeguard and recordkeeping requirements of IRC §6103(p)(4) are stated in the Agreements on Coordination of Tax Administration and need not be repeated in implementing agreements. Implementing agreements should likewise exclude methods used for disposal of copies of returns and return information since the state tax agencies are required to provide this information in their reports of safeguard procedures.

  4. Disclosures field personnel are encouraged to use the implementing agreements to indicate all agreed-upon exchange activities when these activities are not specified elsewhere. Some possible topics include:

    1. Cooperative Training Programs.

    2. Cooperative Taxpayer Assistance Programs.

    3. Review of Lists of Authorized Personnel.

    4. Reproduction Costs.

    Note:

    Waiver of charges will not apply to special runs and re-creation requests. See IRM 11.3.32.11(10) below.

  5. The primary signatories to an implementing agreement are the GLD Area Manager and the head of the state tax agency. Close coordination by the GL and the Disclosure Manager with all affected operating divisions, functions, and campuses during the negotiation process is necessary so that all participants clearly understand the exchange process. This coordination also ensures that necessary resources are available to carry out agreed upon exchanges.

    Note:

    Additional signatures must be obtained from all affected operating divisions, functions, and campuses in accordance with current operating procedures. The involvement of Modernization & Information Technology Services (MITS) resources will be a prime consideration.

  6. Implementing agreements signed with the U.S. Possessions are considered Tax Conventions under IRC §6105. All such agreements must include the Deputy Director, International Large Business and International LB&I as a signatory. See IRC §6105, , and Delegation Order 4-12 .

11.3.32.7  (10-22-2010)
Implementing Agreement Roles, Responsibilities, and Procedures

  1. The primary Disclosure Managers have responsibility for ensuring the development and negotiation of implementing agreements with the appropriate state tax agencies within their jurisdiction.
    This responsibility includes:

    1. Initiating contact with the state tax agencies through the GL.

    2. Seeking input from affected campuses, operating divisions, and functions.

    3. Drafting the implementing agreements.

    4. Arranging meetings between state and IRS officials through the GL.

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

  2. The primary Disclosure Managers will be responsible for maintaining complete and current documentation of the state tax agency’s need for and use of all Federal returns, return information and data elements that are provided to the agency on a continuing basis pursuant to the implementing agreement.

  3. Affected campuses, operating divisions, and functions 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. Disclosure offices involved in negotiating implementing agreements with the appropriate state tax agencies are to ensure that affected operating divisions, functions, 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, GLD prior to signing. For that reason, local Disclosure Managers involved must be sure the information exchanged can be done so by statute - IRC §6103(d). For example, if the implementing agreement contemplates the exchange of Title 31 or CTR data, it is statutorily prohibited from being provided to state tax agencies if taken from the IRMF or Currency and Banking Retrieval System (CBRS) systems. The negotiating Disclosure office will distribute copies of signed implementing agreements to the GLD Area Manager and to affected campuses, operating divisions, and functions. Upon completion of signing the implementing agreement, one copy with original signatures will be given to the agency. The affected Disclosure office will maintain the other signed copy.

  6. The Disclosure office staff will distribute copies of amended or revised implementing agreements to the GLD Area Manager and to the affected campuses, operating divisions, and functions. Retention of the agreements by the GLD Area Manager is optional.

  7. Copies of implementing agreements are generally available to the public through the Freedom of Information Act. 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 sensitive but unclassified (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.

  8. The 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 11.3.32.2(11) above and IRM 11.3.36, Safeguard Review Program.

11.3.32.8  (10-22-2010)
Memorandums of Understanding

  1. GLs have primary responsibility for the development and coordination of MOUs. 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).

    Note:

    MOUs may also augment an implementing agreement when instructions regarding the process are lengthy. MOUs should be later incorporated into the implementing agreement as appropriate, especially if they are going to be on-going exchanges.

  2. MOUs are signed by an official in the operating division having jurisdiction for the project/exchange and who is authorized by Delegation Order 11-2. The head of the state tax agency will also sign since disclosures of Federal or state information are involved.

    Note:

    When disclosure of tax returns or tax 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 MITS or U.S. Possessions are involved, see IRM 11.3.32.6.1(5)-(6) above.

  3. The title section of the MOU should include the names of the agencies involved in the agreement.

  4. 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.

    Note:

    This may also contain who is responsible for completing any required accountings for disclosure.

  5. If time is an issue, requirements for responsiveness should be described.

  6. Comments regarding the security and disposition of exchanged information may be appropriate.

  7. Before making commitments to provide resources, appropriate parties should be consulted.

  8. Chief Counsel, Procedures and Administration Branch, should be contacted for any required legal opinions.

  9. Disclosure Managers must be involved in the approval process for all MOUs.

  10. Signature areas will contain blanks for name, date and location.

  11. The Chief, Governmental Liaison, the Chief, Disclosure, and the operating divisions, functions, and campuses involved will maintain signed copies. Any other parties to the agreement will also receive a copy.

    Note:

    Two copies of the MOU are prepared for original signatures. Upon completion of signing, one copy with original signatures is sent to the agency, the other signed copy is maintained by the Chief, Governmental Liaison. Copies of the MOU are provided by GL to the Disclosure office and the involved operating divisions, functions, and campuses.

    Note:

    Prior to receipt of Federal tax information under any new MOU, the agency must certify that it meets IRS safeguard requirements. IRM 11.4.1, Governmental Liaison Operations, contains instructions pertaining to this certification.

11.3.32.9  (10-22-2010)
"Need and Use" Reviews

  1. In accordance with the Office of Safeguards requirements, (see subsection 11.3.36.9.2, "Need and Use" Reviews) an on-site review is made of the agency’s actual use or non-use of data disclosed to them on a continuing basis under the implementing or other agreement. The 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. Magnetic media or electronic exchanges are covered during this review. The report must address whether the agency receives electronic data and/or tape 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 11.3.36.9.2.

  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 GLD as appropriate.

  4. When appropriate, tolerances and criteria are modified. 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 Director, Office of Safeguards.

11.3.32.10  (10-22-2010)
Authorized Disclosures

  1. Disclosure Managers will ensure that requests are processed consistent with IRC §6103(d) requirements. These requests do not need to be processed in the primary Disclosure office. Alternate procedures may be developed between the primary Disclosure office and campuses, or secondary Disclosure offices located within the same state.

  2. An officer or employee of a state tax agency may inspect or receive Federal returns or return information of specifically identified taxpayers if:

    1. The type of tax data is disclosable to the agency under an Agreement on Coordination of Tax Administration currently in effect between the agency and the IRS.

    2. The officer or employee has been designated 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 Agreement on Coordination of Tax Administration and 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 11.3.32.17 below.

  3. A proper 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 returns or return information.

    2. The name and other identifying information of each person or entity whose return(s) or return information is to be disclosed and a description of the specific 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.

  4. An IRS official receiving a request from a state agency representative to inspect returns or obtain return information, shall satisfy himself/herself as to the identity of the individual, and with the assistance of the Disclosure office, ensure that the above requirements are met.

  5. The means for transmitting returns and return information may vary according to the sensitivity of the material involved.

  6. Form 8796, Request for Returns/Information (Federal/State Tax Exchange Program), is used by either IRS or employees of state tax agencies to request returns and/or return information in accordance with an approved Agreement on Coordination of Tax Administration (basic agreement). Use of this form is encouraged but not mandatory. When Form 8796, Request for Returns/Information (Federal/State Tax Exchange Program) is used, sections C and D are signed by officials who are authorized to make requests and/or release information under the terms of the basic and implementing agreements.

    Caution:

    Requests from IRS compliance employees seeking state tax information are not controlled as IRC §6103(d) requests, but are to be controlled as assisting office cases so not to be selected for later review by the DQMS process.

    Note:

    Supplies of Form 8796, Request for Returns/Information (Federal/State Tax Exchange Program) can be requested from the National Distribution Center or the electronic version on the IRS Publishing web page can be used.

  7. State tax agencies can participate in the Transcript Delivery System (TDS) that allows approved state employees to order certain IRS transcript products on-line. All regular rules regarding IRC §6103(d) disclosures apply, including need and use monitoring and accounting for disclosures. Integrated Data Retrieval System (IDRS) Transaction Code (TC) 120s will automatically post to the Disclosure Accounting File. The transcripts contain information that would never be subject to an impairment call to withhold disclosure to the state.

11.3.32.10.1  (10-22-2010)
Continuing Disclosures

  1. Disclosure of returns and return information on a continuing basis are carefully and thoroughly screened and evaluated to assure that the tolerances and criteria established by written agreement are observed.

  2. Disclosure Managers must have a written document in place describing the procedures, tolerances, and criteria to be used by IRS personnel when releasing information to state tax agencies.

    Example:

    The written document may be an inter- or intra-functional procedural memo.

  3. Disclosure Managers may periodically perform quality reviews of other IRS functions releasing documents to assure that the provisions of the implementing or other agreements are being met and that the restrictions imposed by IRM 11.3.32.17 are being followed. Both pre and post disclosure reviews can be conducted as appropriate as determined by the Chief, Disclosure.

11.3.32.11  (10-22-2010)
Release of Tax Data in Electronic Format

  1. The Governmental Liaison Data Exchange Program (GLDEP) is the title given to certain electronic data-sharing activities between the IRS and participating state tax agencies. For more information about the GLDEP, see IRM 11.4.2.1,Overview of the Governmental Liaison 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 will be asked to explain how they intend to use the extracts and/or the specific data elements. See IRM 11.3.32.4 above 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 11.4.2.3, Scope of the Program.

  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 local 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 GLD Data Services staff. See IRM 11.4.2.5.2.

  6. GLs are to 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 local Disclosure Managers and are retained in their files for use in reviews by Safeguards personnel if requested. In addition, Disclosure Managers will determine whether the data items selected are consistent with the types of tax available to the state agencies under Section 3.2 of their basic agreement. See IRM 11.4.2.11.4.

  8. 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.

    Note:

    Publication 1075 (as revised), Tax Information Security Guidelines for Federal, State and Local Agencies and Entities, describes the specific requirements for insuring the confidentiality of the tax data.

  9. 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 local GL. State requests are routed through the local GL to the servicing Disclosure office for approval of need and use, then to the GLD Area Manager, and finally to the Chief, Data Services for coordination and processing. Approval of such requests will depend on the availability of data and the impact on IRS resources. All requests are signed by the requesting agency head or an authorized agency representative.

    Note:

    The local Disclosure Manager is formally involved in the approval of the request.

  10. 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.

11.3.32.12  (10-22-2010)
Release of Tax Information Relating to State Tax Employees for Conduct Investigations or Employee Checks

  1. State tax administration, as defined in Section 2.13 of the Agreement on Coordination of Tax Administration, includes ongoing or potential conduct-related investigations of state tax agency employees. (See Exhibit 11.3.32-1 for more detailed information.) This definition also includes compliance-type checks of employees and prospective employees of state tax agencies. The management and supervision of a state’s internal revenue laws includes verification that its tax employees are free from conflicts of interest that could undermine the integrity of the state’s tax system. The standards for disclosures of this type are different from those for revenue compliance purposes.

  2. When a state tax agency wants tax information for a purpose described in (1) above, a specific written request is submitted directly to the Disclosure Manager, generally following the procedures in IRM 11.3.32.10.

  3. In order to meet the need and use standards of IRM 11.3.32.10(3)c), the request must include the following:

    1. Specific documentation regarding the particular conduct-related reason why disclosure of Federal tax information is necessary.

    2. Specific documentation why the requested return(s) and/or return information is, or may be, relevant to the inquiry.

    3. Where applicable, copies of, or reference to specific rules of conduct, regulations, personnel directives, etc.

  4. State requests for conduct-related disclosures should be addressed in the implementing agreements.

  5. In accordance with the principles of IRM 11.3.32.6.1(2), the IRS may initiate conduct-related disclosures when the state is eligible to receive the information and has shown a broad need for that category of information even though it has not identified a particular employee. In such cases, the IRS will make disclosures only if the following wording is contained in the implementing agreement:

    "When the IRS Disclosure Manager has a Federal return and/or return information that will not be transmitted to the Agency under other provisions of this agreement, but that may be evidence of any violation, suspected violation, or potential violation by an employee of the state tax agency of Federal or state tax law or statutes, regulations, or rules governing the conduct of state tax employees that violation or potential violation could damage the integrity of the tax administration system or, if known to the general public, could decrease public trust in the state tax agency, that Manager will contact the Agency liaison official and, without disclosing identifying information, describe the return and/or return information in sufficient detail to ascertain the Agency’s need and potential use of the return and/or return information. If, in the judgment of the IRS Disclosure manager, the Agency has a need and use of the return and/or return information, he/she shall then transmit the return and/or return information to the Agency."

11.3.32.13  (10-22-2010)
Disclosure to Agencies that Have Not Entered Into Agreements on Coordination of Tax Administration

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

  2. These requests are signed by the agency head and addressed to the Commissioner of Internal Revenue, Attention: Director, GLD. 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 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 return or return information is to be disclosed, and a description of the returns or return information sought, including the type of tax and the taxable periods for such return 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 return or information reflected on such returns that taxpayers are required to attach to or include in their state tax returns (see IRM 11.3.32.14.1 below, for specifics).

  3. The state tax agency must also indicate in its request that it agrees to all of the requirements of IRC §6103(p)(4) and any additional requirements imposed by the IRS. These requirements are described in detail in IRM 11.3.32.14 below.

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

  5. Requests for return information in magnetic tape format are made in the same manner as described in (1), (2), and (3) above, except that item (2)(d) would be inapplicable. Also see IRM 11.3.32.11 above, for specific instructions.

11.3.32.14  (10-22-2010)
State Agency Requirements

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

  2. This is necessary to ensure Federal tax information received is 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 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 Treasury Regulation §301.6103(p)(7)-1(a)(2), and IRM 11.3.36, Safeguard Review Program.

  3. Direct or indirect disclosure of Federal 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.

    Note:

    This is not intended to limit the disclosure of state tax returns and return information by state tax officials to local tax authorities. State return information that may be disclosed consistent with state law includes information resulting from tax audits and investigations conducted by state authorities, even where that information is based on or is substantially similar to Federal return information supplied to the state agency. State tax officials may not, however, merely transcribe Federal return information, designate it as state tax information, and furnish it to local tax authorities as information resulting from a state audit or investigation. No Federal tax information can be disclosed directly or indirectly (e.g., by revealing the fact of an IRS audit).

  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 be applicable to disclosures to the state tax agency’s legal representative.

  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 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 returns or return information are stored.

    3. Restrict, to the satisfaction of IRS, access to the 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 returns and return information.

    5. Furnish to the IRS the safeguard reports described in IRM 11.3.36.6.3, Agency Reports. The Safeguard Procedures Report is submitted no later than 45 days before scheduled receipt of Federal tax information. The Safeguard Activity Report is submitted annually.

    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 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 11.3.32.19(4) below.

  7. Guidelines for the periodic review of safeguard procedures are included in IRM 11.3.36, Safeguard Review Program. Publication 1075, Tax Information Security Guidelines for Federal, State and Local Agencies and Entities, provides state agencies with further information about these requirements. Publication 1075 is available on the IRS’ website at: http://www.irs.gov

11.3.32.14.1  (10-22-2010)
State Law Requirements

  1. IRC §6103(p)(8) provides that no return or return information shall be disclosed to any officer or employee of any state that requires a taxpayer to attach to, or include in, any state tax return a copy of any portion of his/her Federal return, or information reflected on such Federal return, unless the state adopts provisions of law that protect the confidentiality of the copy of the Federal return, or portion thereof, attached to, or the Federal return information reflected on the state tax return.

  2. At the request of a state, the IRS will render an advisory opinion as to whether any existing or proposed legislation fulfills the requirements of IRC §6103(p)(8). At a minimum, the expectation is that the confidentiality statute provides for at least a misdemeanor for unauthorized disclosure and that it covers both past and present agency employees.

  3. It is not intended that states enact confidentiality statutes that are copies of the Federal statute. State returns and return information, including any copy of any portion of a Federal return or any information on a Federal return required to be attached or included with a state return, may be disclosed by state tax officers or employees to other officers or employees of the state or its political subdivisions whose official duties or responsibilities require access to the state return or return information pursuant to the laws of the state. Interstate disclosures of IRC §6103(p)(8) information can only be made to state revenue agencies for tax administration purposes. The underlying policy is the attached copy of the return and the included information is treated by state and local governments as confidential rather than as public information.

11.3.32.15  (10-22-2010)
Disclosure of Tax Return Preparer Information

  1. The information is furnished only upon receipt of a written request signed by the head of the agency, body or commission designating the officers or employees to whom such information is to be furnished.

  2. The following information is furnished and used only 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

  3. The agency need not specifically list the names of return preparers for whom the information is requested. The agency could request information with respect to any preparer who was assessed a penalty under any of the Code sections listed above.

11.3.32.16  (10-22-2010)
Disclosure of Records Regarding Taxes on Gasoline and Lubricating Oil

  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 Code of Federal Regulations (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, after obtaining any needed technical advice from the local Disclosure Manager.

  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.

    Caution:

    Since excise taxes on gasoline and lubricating oil are reported on Form 720, Quarterly Federal Excise Tax Return, and other excise taxes are also reported on that form, care must be taken to see that information concerning other taxes is deleted from documents to be inspected.

  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 particular state or local agency may be made upon written agreement by the GLD Area Manager 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.

11.3.32.17  (10-22-2010)
Restrictions on Disclosure of Returns and Return Information

  1. The disclosure of certain 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 CBRS 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, Office of Governmental Liaison and Disclosure.

  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 subsequent to disclosure, that further use of the return 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.

11.3.32.18  (10-22-2010)
Unauthorized Access or Disclosure

  1. All persons having access to Federal returns or return information under the terms of this IRM shall be informed, in accordance with the instructions in IRM 11.3.1, Introduction to Disclosure, of the criminal penalties and civil liability for unauthorized accesses or disclosure.

  2. Unauthorized disclosures where no willfulness is involved, and as described in IRM 11.3.38, are not willful, are excepted from the TIGTA reporting procedures. Employees must follow the procedures in IRM 10.5, Reporting Losses, Thefts, and Disclosures of Sensitive Information, to report violations of this nature.

11.3.32.19  (10-22-2010)
Use of Returns and Return Information in State Judicial or Administrative Proceedings

  1. The disclosure of Federal 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 investigation that may result in such proceedings) is governed by the same standards that apply to tax administration disclosures by the IRS to attorneys at the Department of Justice. Thus, Federal 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 only if:

    1. The taxpayer is or may be 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;

    2. The treatment of an item reflected on such return is or may be related to the resolution of an issue in the proceeding or investigation; or

    3. Such return or return information relates or may relate to a transactional relationship between a person who is or may be a party to the proceeding and the taxpayer that affects or may affect, the resolution of an issue in such proceeding or investigation.

  2. State tax agencies may not disclose Federal tax information to their legal representative or other participating agencies where the state investigation involves non-tax as well as tax aspects. That is, the provisions of Treasury Regulation §301.6103(h)(2)-1 do not apply to comparable state situations.

  3. The disclosure of Federal 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 return 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.

  4. At the time of disclosure to the agency, or at the time an Agreement on Coordination of Tax Administration is signed, each agency receiving returns or return information is advised of its obligation to notify the IRS in writing of its intention to disclose any such 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.

  5. The notice is signed by the head or legal representative of the agency and directed to the liaison GLD Area Manager or primary Disclosure Manager, from whom the information was originally received, 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.

  6. The GLD official receiving the notification referred to above will coordinate the proposed disclosure in the manner described in IRM 11.3.32.17(3). In any case where it is known that the actions described in IRM 11.3.32.17(1)-(2) have not been taken, those actions should also be taken.

  7. Except in unusual circumstances, the coordinating GLD official will prepare a response to the state official proposing the disclosure within 30 days of receipt of notification by the state. In every case, GLD must verify that a response is made prior to the date the disclosure is to be made.

  8. 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 returns and return information where IRC §6103(h)(4) does not permit disclosure.

  9. When state tax agencies are authorized to release information under IRC §6103(h)(4), it is irrelevant if 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).

11.3.32.20  (10-22-2010)
Letters to Taxpayers

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

11.3.32.21  (10-22-2010)
Special Statistical Studies, Compilations, and Other Services

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

    Internal Revenue Service
    Director, Statistics of Income Division
    500 North Capitol Street, NW
    Washington, DC 20001

  2. State tax agencies may use Federal 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 are revenue projections, tax modeling or other similar activities related to state tax administration. 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 employees engaged in preparing statistical tabulations can have access to Federal tax information for this purpose. The end result or final model must be sufficiently blurred if it is to be further released to those inside the agency with no need to know or to anyone outside the state agency, such as a state legislative body.

  3. Questions states may have concerning the preparation of statistical tabulations in anonymous form are directed to the Director, Statistics of Income Division.

  4. Generally, release of statistical tabulations outside the agency or to others in the agency with no need to know, are to conform to the following:

    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.

  5. There have been a number of recent concerns with state agencies using contractors to perform tax modeling or revenue projection activities. If state agencies use contractors, they must obtain IRS approval prior to any release of Federal tax information to contractors.

  6. 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. Exhibit 11.3.32-4 contains additional information about the content and process to be used for agency need and use statements and approvals.

11.3.32.22  (10-22-2010)
Charges for Copies, Data Extracts, etc.

  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.

    Note:

    Appropriate records of time spent performing such functions should be maintained to support billing.

  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 an Agreement on Coordination of Tax Administration with the IRS, the waiver of charges is incorporated into the implementing agreement (see IRM 11.3.32.6.1 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.

11.3.32.23  (10-22-2010)
Combined Federal/State Information Return Reporting

  1. This program permits payers who file information returns, Forms 1099, and Form 1087, Nominee’s Information Return, 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 Filing Form 1098, 1099, 3921, 3922, 5498, 8935, and W2-G or Electronically.

  3. The Director, GLD will provide technical assistance to Martinsburg Computing Center magnetic media coordinator to assure that payers participating in the Combined Federal/State Information Return Reporting Program submit valid IRC §6103(c) authorizations. Form 6847, Consent For IRS to Release Tax Information, is currently used for this purpose. 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.

11.3.32.24  (10-22-2010)
Disclosure of Returns and Return Information to State Audit Agencies

  1. Pursuant to IRC §6103(d)(2), any 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 only 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.

11.3.32.25  (10-22-2010)
Re-disclosures by State Tax Agencies

  1. IRC §6103(p)(2)(B) and its corresponding Treasury Regulation, §301.6103(p)(2)(B)-1, allow for the re-disclosure of 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 secondary agency received the information from IRS directly.

  2. Agencies involved in these types of exchanges may receive only returns or return information authorized by the provisions of IRC §6103 applicable to each respective recipient agency. Any 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 statutory exception to IRC §6103 allowing the IRS to provide tax information to all agencies involved in the request, then IRC §6103(p)(2)(B) cannot be used.

    Example:

    It would not be possible for the IRS to approve an IRC §6103(p)(2)(B) request allowing a state tax agency that receives federal tax information under IRC §6103(d) to provide federal tax information to another state agency unless the second receiving agency would use the information either for state tax administration purposes, pursuant to IRC §6103(d), or the agency qualifies for receipt of federal tax information under some other provision of IRC §6103.

    Caution:

    The Treasury Regulation is designed to give the IRS the flexibility to deal with certain re-disclosure needs. It was not anticipated that such needs would be routine or widespread. Agencies should consider the resources needed to obtain approval, make the disclosures and monitor the disclosures made, versus getting the tax information directly from the IRS, before making such requests.

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

  4. Agencies should also be advised of the fact that the agency providing tax information to all other participating agencies is responsible for maintaining a permanent system of standardized records that identifies any disclosure of 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).

    Note:

    If there is no accounting requirement noted in IRC §6103(p)(3)(A) for the information provided under the governing provision of IRC §6103, then this requirement does not apply.

11.3.32.25.1  (10-22-2010)
Form of Request

  1. Agencies must make a written request from an appropriate agency official and direct that request to:

    Internal Revenue Service
    Director, Governmental Liaison and Disclosure
    230 S. Dearborn Street MS 7002
    Chicago, Illinois 60604

  2. Agencies must include the following information in their request:

    1. Approval is requested to disclose information the agency receives from the IRS to another state or federal agency under the provisions of IRC §6103(p)(2)(B).

    2. Background information that explains why the federal tax information to be provided to the receiving agency or agencies is more readily available from the agency providing the tax information than from the IRS. The request must fully explain why use of this method is preferable to direct receipt of information from the IRS by the proposed recipients.

    3. The requesting agency must specify the Federal tax information (i.e., specific data extracts, including the specific data fields or other information received from the IRS) that they would like to provide or receive through this exchange to or from the other involved agency or agencies. They must specify how the information will be transmitted or made available to the other recipient agency or agencies and whether the tax information will be provided electronically or on paper. Their comments must also indicate if the data will be housed in the computer systems of the requesting agency or the other agency, how recipients will access the data, and any other pertinent information about the receipt of and access to the data to be provided. In addition, the request must state how the agency will account for the disclosures of tax information when required.

    4. The request must include detailed statements from all agencies that will receive information demonstrating their need for and use of requested tax information. Information specific to each item or element of tax information must be provided. The statements are necessary to determine first, that recipient agencies are statutorily allowed to receive the information, and second, their actual need for and use of the tax information to be exchanged.

11.3.32.25.2  (10-22-2010)
Acknowledgement Process

  1. Disclosure offices or GLs receiving IRC §6103(p)(2)(B) requests should promptly forward them to Chief, Disclosure. The receiving employee should maintain a copy of the request in the event of any questions.

  2. Once a request is received from a Disclosure Manager or GL, the Chief, Disclosure, or a member of his/her staff, will acknowledge receipt by telephone call, e-mail, or brief memorandum.

  3. If a request is received directly from a state tax agency, the Disclosure Manager and GL with jurisdiction over the agency will be notified.

  4. The agency official signing the request will also be notified in writing that the IRS has received the request. The notification letter will include the contact person’s name and telephone number.

11.3.32.25.3  (10-22-2010)
Assignment and Initial Review

  1. The Chief, Disclosure, will assign the request to a staff member. The assigned employee will conduct an initial review of the request to ensure it contains all information necessary for approval, including adequate need and use justification from all agencies.

  2. Imperfect or incomplete requests are returned to the Disclosure Manager or GL, along with written instructions detailing what is required to perfect the request. This information is shared or discussed with requesting agency point-of-contact.

  3. Once the Chief, Disclosure determines that the request meets all requirements, it is coordinated with the Director, Office of Safeguards to further ensure that all agencies involved have safeguard measures in place to adequately protect any Federal tax information they receive.

  4. The assigned Disclosure employee will prepare a notification memorandum to the Director, Office of Safeguards for signature by the Chief, Disclosure. The memorandum will summarize the determination and will include as an attachment, a copy of the request with all supporting documents provided by the requesting agency.

11.3.32.25.4  (10-22-2010)
Office of Safeguards Review

  1. The Director, Office of Safeguards will review the request to determine if all agencies involved are compliant with safeguard requirements. Safeguards can make this determination by reference to prior reviews of the agencies involved, or may initiate a new safeguard review, if required.

  2. The Director, Office of Safeguards will notify the Chief, Disclosure of the reasons for any denial including what the requesting or receiving agencies must do to correct noted deficiencies.

  3. If adequate safeguards are in place, the Director, Office of Safeguards will provide a letter or memorandum to that effect, to the Chief, Disclosure.

  4. The Director, Office of Safeguards will recommend how long the agreement should remain in place, based upon his/her assessment of the security features, the amount of data exchanged, and the period of time before the next scheduled safeguard reviews. All such exchanges will be subject to time limitations.

11.3.32.25.5  (10-22-2010)
Final Approval and Agency Notification

  1. The Chief, Disclosure will forward the certification letter from the Director, Office of Safeguards to the assigned Disclosure employee.

  2. If the Director, Office of Safeguards approves the exchange, the assigned employee will draft an authorization letter for the signature of the Director, GLD addressed to the head of the agency providing the federal tax information. The letter will include any necessary conditions or restrictions.

  3. If Safeguards does not approve the exchange, the assigned Disclosure employee will inform the requesting agency and include the specific reasons why.

  4. The authorization letter will include a statement that the Commissioner or his delegate may revoke the exchange agreement at any time. The authorization letter will also contain a statement requiring the agencies to notify the IRS at least 90 days prior to implementing any changes to the pattern of receipt or disclosure of the approved federal tax information. The authorization letter must be signed by Director, GLD.

  5. Copies are provided to other recipient agency officials who have signed the request to enter into this exchange agreement.

  6. Copies are also provided to the Disclosure Manager and the GL with jurisdiction over the agency or agencies involved. A copy is provided to Safeguards Program Office, attention, Director, Office of Safeguards, for inclusion in agency files.

11.3.32.26  (10-22-2010)
Availability and Use of Death Information

  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, Office of Governmental Liaison and Disclosure 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, Office of Governmental Liaison and Disclosure.

Exhibit 11.3.32-1 
Agreement on Coordination of Tax Administration

SECTION 1. Introduction
1.1 This agreement provides the basis for coordination of Federal and State tax administration. The parties to this agreement will explore and adopt mutually acceptable techniques and modes of exchange most beneficial to improved tax administration with the least possible interruption of their respective operating routines and with strict adherence to laws, regulations, and rules for protecting the confidentiality of exchanged information.
1.2 This agreement may be supplemented by an implementing agreement, prescribing the nature, quantity and mechanics for the continuous exchange of tax information, including criteria and tolerance for selection of tax returns and return information as well as other cooperative activities. If an implementing agreement has been approved, subsections preceded by asterisks(*) will have corresponding provisions in the implementing agreement that should be consulted for more detailed information about specific working arrangements and operational procedures for the exchange of tax information authorized by this agreement. All provisions contained in implementing agreements must be consistent with the terms and conditions in this agreement. In any situation where a conflict arises between the provisions of this agreement and the implementing agreement, the terms of this agreement will govern.
SECTION 2. Definitions
For purposes of this agreement, the following definitions apply:
2.1 Agency. The term "Agency" means (      Name of State agency, body, or commission                       ) .
2.2 IRS. The term "IRS" means the Internal Revenue Service, U.S. Department of Treasury.
2.3 State Audit Agency. The term "State Audit Agency" is defined in the same manner as provided in IRC §6103(d)(2)(B). State Audit Agency means (        Name of State agency, body, or  commission        ) .
2.4 State. The term "State" means the (       Name of State, Commonwealth, etc.                                     ) .
2.5 Agency Representative. The term "Agency Representative " means an Agency officer or employee designated in writing by the head of the Agency, to the designated IRS Disclosure Manager, as an individual who is to inspect or receive Federal returns or Federal return information on behalf of the Agency as provided by IRC §6103(d), but only so long as the duties and employment of such officer or employee require access to Federal returns and Federal return information for purposes of State tax administration.
2.6 IRS Representative. The term "IRS Representative" means an officer or employee of the IRS who has been designated in writing to the head of the Agency by the designated IRS Disclosure Manager, as an individual who is to inspect or receive State returns or State return information on behalf of IRS, but only so long as the duties and employment of such officer or employee require access to State returns and return information for the purpose of Federal tax administration.
2.7 Federal Return. The term "Federal Return" is defined in the same manner as provided in IRC §6103(b)(1).
2.8 Federal Return Information. The term "Federal Return Information" is defined in the same manner as provided in IRC §6103(b)(2). However, "Federal Return Information" does not include that information in the hands of the State that is obtained by means wholly from sources independent from the IRS.
2.9 State Return. The term "State Return" means any tax or information return, declaration of estimated tax, or claim for refund required by or provided for or permitted under the provisions of the internal revenue laws, or related statutes, of the State, and any amendment or supplement thereto, including supporting schedules, attachments, or lists that are supplemental to, or part of, the return so filed.
2.10 State Return Information. The term "State Return Information" means a taxpayer's identity, the nature, source, or amount of his/her income, payments, receipts, deductions, exemptions, credits, assets, liabilities, net worth, tax liability, tax withheld, deficiencies, over assessments, or tax payments, whether the taxpayer's State return was, is being, or will be examined or subject to other investigation or processing, or any other data received by, recorded by, prepared by, furnished to, or collected by the Agency with respect to a State return or with respect to the determination of the existence, or possible existence, of liability (or the amount thereof) of any person under the internal revenue laws, or related statutes, of the State, for any tax, penalty, interest, fine, forfeiture, or other imposition, or offense.
2.11 Inspection. The term "Inspection " means any examination of a return or return information.
2.12 Disclosure. The term "Disclosure " means the making known to any person in any manner whatever a return or return information.
2.13 State Tax Administration. The term "State Tax Administration"
  (a) means:
    (i) the administration, management, conduct, direction, and supervision of the execution and application of the revenue laws, or related statutes of the State, and
    (ii) the development and formulation of State tax policy relating to existing or proposed internal revenue laws, or related statutes, of the State, and
  (b) includes assessment, collection, enforcement, litigation, and statistical gathering functions under such laws or statutes.
2.14 Code. The term "Code" means the Internal Revenue Code of 1986, as amended.
SECTION 3. Disclosure of Federal Returns and Federal Return Information
3.1 Pursuant to the laws of the State, the Agency is charged with the responsibility for the administration of State taxes imposed on (                                  specify                                    ) (list the type of tax e.g. income, employment, excise, etc.). Federal returns and Federal return information (whether originals, paper copy, photocopy, microfilm, magnetic media, or any other form) received from IRS will be used for the purpose of, and only to the extent necessary in, State tax administration.
3.2 This agreement constitutes the requisite authorization pursuant to IRC §6103(d)(1) for IRS to disclose to, and permit inspection by, an Agency Representative of Federal returns and Federal return information relating to taxes imposed by chapter(s) (list only those that are applicable to the agency from chapters 1, 2, 6, 11, 12, 21, 23, 24, 31, 32, 44, 51, 52, and 36 (D) of the Code).
3.3 Upon the occurrence of any change in employment, duties, or relevant matters affecting an Agency Representative's right of access to Federal returns and Federal return information or status as Agency Representative, the head of the Agency shall promptly advise in writing the designated IRS Disclosure Manager that such individual is no longer an Agency representative.
3.4 An Agency representative to whom a Federal return or Federal return information has been disclosed, may thereafter disclose such return or return information to:
  (a) another employee of the Agency for the purpose of, and only to the extent necessary in, the administration of the State tax laws for which the Agency is responsible;
  (b) a person described in IRC §6103(n) or to any officer or employee of such person, solely for the purpose of State tax administration and in a manner consistent with applicable regulations, published rules or procedures, or written communications. Additionally, pursuant to Treasury Regulation §301.6103(n)–1, whenever Federal tax returns and return information are to be disclosed to a person described in IRC §6103(n), the above named State agency will notify the IRS prior to the execution of any agreement to disclose to such person, but in no event less than 45 days prior to the disclosure of that information to the person.
  (c) a legal representative of the Agency personally and directly engaged in, and for use in, preparation for a civil or criminal proceeding (or investigation that may result in a proceeding) before a State administrative body, grand jury, or court in a matter involving State tax administration, if the returns and return information satisfy one or more of the criteria established in IRC §6103(h)(2)(A), IRC §6103(h)(2)(B) or IRC §6103(h)(2)(C).
  (d) an officer or employee of the State audit agency for the purpose of, and only to the extent necessary in, making an audit of the State tax agency.
3.5 A Federal return or Federal return information may be disclosed in a judicial or administrative proceeding pertaining to State tax administration, but only if the same criteria established in IRC §§6103(h)(4)(A), 6103(h)(4)(B) or 6103(h)(4)(C) are met.
3.6 Notwithstanding any other provision of this section, IRS will not disclose a Federal return or Federal return information under this section if such disclosure would identify a confidential informant or seriously impair a Federal civil or criminal tax investigation. The Agency agrees that neither it nor its legal representatives will make any further use or disclosure of a Federal return or Federal return information disclosed to an Agency Representative by IRS if IRS notifies the head of the Agency in writing that such further use or disclosure would identify a confidential informant or seriously impair a Federal civil or criminal tax investigation. The Agency further agrees that prior to the disclosure of any Federal return or Federal return information in a State judicial proceeding or to any party other than the taxpayer or his/her designee in a State administrative proceeding as provided by paragraph 3.5 of this agreement, the head or legal representative of the Agency will notify in writing the designated IRS Disclosure Manager, from whom the return or return information was received, of the intention to make such disclosure. No officer, employee or legal representative shall so disclose a Federal return or Federal return information in such State judicial or administrative proceeding if the designated IRS Disclosure Manager or other IRS official, within 30 days following receipt of such written notice, informs the head or legal representative of the Agency that such disclosure would identify a confidential informant or seriously impair a Federal civil or criminal tax investigation.
3.7 Additionally, the Agency agrees that it will notify the IRS when, during an audit of the Agency by the State Audit Agency, Federal returns and Federal return information are disclosed to the State Audit Agency and such information is made part of the State Audit Agency's work papers.
SECTION 4. Disclosure of State Returns and Return Information
4.1 This agreement constitutes the requisite authorization for the Agency to disclose to, and permit inspection by, IRS Representatives of State returns and State return information for the purpose of, and only to the extent necessary in, the administration of the internal revenue laws, or related statutes, of the United States.
4.2 Nothing in this agreement shall be construed as authority for the Agency to disclose State returns and State return information where such disclosure would be contrary to State law.
4.3 Upon the occurrence of any change in employment duties, or other relevant matters affecting an IRS representatives right of access to State returns and State return information or status as an IRS Representative, the designated IRS Disclosure Manager, shall promptly advise the Agency in writing that such individual is no longer an IRS Representative.
SECTION 5. Other Cooperative Activities
5.1 Subject to the restrictions and other provisions of this agreement and the availability of enforcement resources, the Agency and IRS will develop cooperative return selection and examination programs with the objective of avoiding unnecessary duplication of Federal and State audit coverage.
5.2 Information other than Federal or State returns and return information, that the Agency and IRS may deem to be relevant or useful to the administration of State and Federal tax laws, may be exchanged pursuant to arrangements made by the Agency and IRS.
5.3 In addition to the exchange of tax and other information, the Agency and IRS will, to the extent feasible, extend to each other assistance in other tax administration matters. This may include such activities as taxpayer assistance, stocking tax forms for the public, training of personnel, special statistical studies and compilations of data, development and improvement of tax administration systems and procedures, and such other activities as may improve tax administration.
SECTION 6. Safeguards and Other Requirements
6.1 As an express condition for the inspection and disclosure of Federal returns and Federal return information, the Agency agrees to comply with the safeguards and requirements prescribed by IRC §6103(p)(4) and any implementation of such safeguards and requirements as may be provided by regulations and published procedures including:
  (a) furnishing an annual report to the IRS describing the procedures established and utilized by the agency for ensuring the confidentiality of such returns and return information;
  (b) permitting IRS to review the extent to which the Agency is complying with the requirements of this paragraph; and
  (c) informing in writing all Agency Representatives and other persons to or by whom disclosure or inspection of Federal returns or Federal return information is authorized of the criminal penalties and civil liability provided by IRC §§7213, 7213A, and 7431 for a disclosure and inspection of such returns and return information that is unauthorized by the Code.
6.2 To the extent consistent with Federal law, IRS will accord State returns and State return information confidentiality safeguards comparable to those required of the Agency pursuant to this agreement.
6.3 Processing of Federal returns and Federal return information received by the Agency from IRS in electronic, digital, hardcopy or other format, and transmission and storage of such Federal returns or Federal return information by or on behalf of the Agency may be performed by either Agency owned and/or operated computer facilities, or State shared facilities, or by any other person described in IRC §6103(n). In those cases where such facilities used by the State Agency are shared with other State agencies or operated by any other person described by IRC §6103(n), the Agency will ensure the confidentiality of the Federal returns and Federal return information provided to such shared facility or person. As part of this responsibility the terms of any contract or agreement between the Agency and a shared computer facility or other person to whom Federal return or Federal return information is or may be disclosed for a purpose described in this subsection, will provide, or will be amended to provide, that such person, and officers and employees of the person, will comply with the applicable safeguard conditions contained in regulations, published rules or procedures, or written communications.
6.4 Because some taxpayers may be unaware that Agency tax officials are authorized under Federal law to obtain Federal returns and Federal return information for State tax administration purposes, the Agency will publicize, in a manner satisfactory to IRS, that such returns or return information were obtained pursuant to specific authority granted by the Code. Similar publicity will be provided by IRS, if requested by the Agency, for State tax information furnished IRS pursuant to State law.
SECTION 7. Limitations
7.1 Pursuant to the provisions of IRC §6103(p)(2), and of State law, if any, IRS and the Agency may charge each other a reasonable fee for furnishing returns and return information under the terms of this agreement. IRS and the Agency may agree not to charge each other for the costs of routine reproduction of returns and return information mutually exchanged.
7.2 Under no circumstances will the Agency permit any Federal return or Federal return information to be inspected by, or disclosed to an individual who is the chief executive officer of the State or any person other than one described in section 3 of this agreement.
7.3 Notwithstanding any other provision of this agreement, IRS will not disclose or make known in any manner whatever to any person described in section 3 of this agreement;
  (a) any original, copy, abstract of any return, payment, or registration made pursuant to chapter 35 of the Code (relating to taxes on wagering);
  (b) any record required for making any such return, payment, or registration made or required pursuant to chapter 35 that IRS is permitted by the taxpayer to examine or that is produced pursuant to IRC §7602 (relating to the examination of books and witnesses); or
  (c) any information obtained by the exploitation of any such return, payment, registration, or record made or required pursuant to chapter 35.
7.4 Notwithstanding any other provision of this agreement, IRS will not disclose or make known in any manner to any person described in section 3 of this agreement information that was obtained pursuant to a tax convention between the United States and a foreign government.
SECTION 8. Officials to Contact for Obtaining Information
8.1 Requests by the Agency for Federal returns or Federal return information should be made to the officials named in the implementing agreement or to the officials below if an implementing agreement has not been executed.
  (a) Requests by the Agency for Federal return information in electronic or digital mode are made to the designated IRS Disclosure Manager who coordinates the requests with Headquarters.
  (b) Requests for physical inspection or copying of Federal returns, or requests for audit abstracts and reports pertaining to such returns, showing addresses within the State are made to the designated IRS Disclosure Manager, who is responsible for making the proper arrangements for inspection or copying.
  (c) Requests by the head of the Agency or his/her designee for Federal returns of taxpayers or Federal return information relating to taxpayers showing addresses outside the State are made to the designated IRS Disclosure Manager unless viable separately stated procedures for such requests are specified within the implementing agreement.
8.2 Requests by authorized officers and employees of the IRS for inspection or copying of State returns and State return information are made to the officials named in the implementing agreement supplementing this agreement, or to the (title of agency officials) if an implementing agreement has not been executed.
SECTION 9. Termination or Modification of Agreement
9.1 The provisions of the agreement are subject to provisions of the Code, implementing regulations, published procedures, and to the provisions of State statutes and regulations. This agreement may be terminated or modified at the discretion of IRS or the Agency due to changes in Federal or State statutes and regulations or whenever in the administration of Federal or State laws that action seems appropriate.
9.2 Any unauthorized use or disclosure of Federal returns or Federal return information furnished pursuant to this agreement or inadequate procedures for safeguarding the confidentiality of such returns and return information also constitutes grounds for termination of this agreement and the exchange of information there under, subject to the rights of administrative appeal as provided by regulations prescribed by IRC §6103(p)(7).
9.3 Notwithstanding any other provision of this agreement, no Federal return or Federal return information shall be disclosed by IRS to any person described in section 3 of this agreement if the requirements of IRC §6103(p)(8) are not met.
APPROVED:
 
                                                    
(signature)
Commissioner of Internal Revenue
Signed at Washington, DC, this          day of                                        , 20     .
 
                                                    
(signature)
(title of agency official)
Signed at                                         , this        day of                                       , 20     .

Exhibit 11.3.32-2 
Addendum to Agreement on Coordination of Tax Administration

Section 3.1 and 3.2 of the Agreement on Coordination of Tax Administration signed by the Commissioner of the Internal Revenue on                                                         , 20     , and the (              title of agency official          ) , of the (                    name of agency                          ) on                                                         , 20     , are hereby supplemented as follows:
   
3.1 In addition to those State taxes listed in the original Agreement, the Agency is also responsible for the administration of State laws imposed on (list the additional type of tax the agency is now responsible for) Federal returns and return information (whether originals, paper copy, photocopy, electronic, digital or any other form) received pursuant to this agreement will be used for the purpose of, and only to the extent necessary in, State tax administration.
3.2 In addition to the disclosure authorization in the original Agreement, this addendum constitutes the requisite authorization pursuant to IRC §6103(d) for IRS to disclose to, and permit inspection by, an Agency Representative of Federal returns and return information relating to the taxes imposed by chapter ____________ of the Code.
APPROVED:
 
                                                    
(signature)
Commissioner of Internal Revenue
Signed at Washington, DC, this          day of                                        , 20     .
 
                                                    
(signature)
(title of agency official)
Signed at                                         , this        day of                                       , 20     .

Exhibit 11.3.32-3 
Implementing Agreement







Implementing Agreement

for

The Agreement On Coordination
of Tax Administration

between the

Xxxxxxx
Department Of Revenue

and the

Internal Revenue Service








Portions of this document are for Official Use Only
Official Use Only Sections are designated by #
Table of Contents
Section Title Page
I. Purpose and Definitions 2
II. Federal and State Liaison Officials 2
III. Information to be Exchanged on a Continuing Basis 3
IV. Requests for Information not Exchanged on a Continuing Basis 4
V. Disclosures Concerning State Employees in Conduct Investigations or Employee Checks 5
VI. IRS Initiated Conduct Related Disclosures 5
VII. Administering the Federal State Filing Program 6
VIII. Transmittal Procedures 6
IX. Restrictions on Disclosures by IRS 6
X. Meetings Between State and IRS Personnel 7
XI. List of Individuals Authorized to Receive Tax Information 7
XII. Memoranda of Understanding 7
XIII. Limitations of this Implementing Agreement 8
XIV. Reproduction Costs 8
XV. Modifications to the Implementing Agreement 8
  Approval Signatures 9
I. PURPOSE AND DEFINITIONS
         
  The purpose of this agreement is to provided implementing procedures for the Agreement on Coordination of Tax Administration between the Internal Revenue Service and xxxxxxxx (hereafter referred to as the "Agency" ).
  The terms of this Implementing Agreement cover, but are not limited to, areas of early intervention and education, joint compliance, data exchanges and technological advances and improvements.
  This Implementing Agreement supersedes any and all other Implementing Agreements except for the Agreement on Coordination of Tax Administration between the parties that predate this one. Notwithstanding this statement, this Implementing Agreement does not revoke nor supersede current ad hoc Memoranda of Understanding, unless so specified herein.
  For the purposes of this document the following definitions apply:
  Agency refers to the XXXXX Department of Revenue.
  IRS Campus refers to the Internal Revenue Service Campus (formerly known as Service Center).
  Commissioner refers to the Commissioner of Internal Revenue.
  Area Manager refers to the Area Manager, Governmental Liaison and Disclosure, SB/SE Communications, Liaison & Disclosure, Internal Revenue Service.
  Directors IRS Campus refers to the Directors, Compliance, CAS and Submission Processing located at the IRS Campuses.
  Implementing Agreement refers to this document entitled "Implementing Agreement for the Agreement on the Coordination of Tax Administration between the xxxxxxxxxxxxxxxxxxxxx Department of Revenue and the Internal Revenue Service."
  IRS or Service refers to the Internal Revenue Service, U.S. Department of the Treasury.
II. FEDERAL AND STATE LIAISON OFFICIALS
  Liaison officials have been designated to establish points of contact between the Agency and the IRS. The primary IRS liaison officials are the Disclosure Manager and the Governmental Liaison. The IRS Disclosure Manager is the contact for matters of policy and procedure with regard to: Agency requests for case-specific Federal returns and return information, any/all disclosures of Federal returns and return information, and safeguards of Federal returns and return information. The Governmental Liaison is the contact for developing and implementing local and area long-range planning and the design and establishment of joint Fed/State programs, including joint projects between the Agency and the IRS. Governmental Liaisons have responsibility for administering the IRS Data Exchange Program. The IRS Disclosure Manager must still be involved in any negotiation or planning that includes the disclosure of tax or other confidential information.
  The primary liaison official for the Agency is the xxxxxxxxxxx. (A secondary may be named if the Agency so desires.)
III. INFORMATION TO BE EXCHANGED ON A CONTINUING BASIS
  01. Types of Returns and Return Information
    To the State Taxing Agency From IRS
    1. Information to be sent to the Agency from IRS Campuses
      a. Information provided to the Agency under the IRS Data Exchange Program
        The Agency may participate in the Data Exchange Program. The items to be exchanged will be provided annually in the IRS Governmental Liaison Data Exchange Enrollment Form along with a Need and Use justification statement. These exchanges include, but are not limited to the following data extracts: Individual Master File (IMF), Information Returns Master File (IRMF), Taxpayer Address Request (TAR), Non-itemizer, CP2000 (Underreporter), and Levy sources. Please refer to the annual enrollment forms for a comprehensive listing.
    2. Information to be sent to the Agency from the IRS
    3. Transcripts obtained via IRS Transcript Delivery System (TDS)
    To the IRS from the State
    1. Information to be sent to the IRS Campus from the Agency
    2. Information to be sent to the IRS from the Agency
  02. Tolerances and Criteria
    Tolerances and criteria may be listed here or as an exhibit to the Implementing Agreement.
  03. Other Returns and Return Information
    When the IRS Disclosure Manager has a Federal return and/or return information that will not be transmitted to the Agency under other provisions of this agreement but that may be evidence of any inadvertent or intentional understatement of any State tax described in section 3 of the Agreement on Coordination of Tax Administration, the IRS Disclosure Manager shall, if the understatement is of tax that potentially exceeds $ _______ or if the understatement is potentially a criminal tax violation, contact the Agency liaison official and, without disclosing identifying information, describe the return and/or return information in sufficient detail to ascertain the Agency’s need and potential use of the return and/or return information. If, in the judgment of the IRS Disclosure Manager, the Agency has a need and use for the return and/or return information, he/she shall then transmit the return/return information to the Agency.
IV. REQUESTS FOR INFORMATION NOT EXCHANGED ON A CONTINUING BASIS
  1. Specific Written Requests for Information
  The IRS and Agency personnel designated in writing by the IRS and the Agency are the only individuals authorized to request information not specifically outlined in this Agreement. See Section VII below for address information and transmittal procedures. Such requests are directed to the appropriate liaison official as follows:
    a. The Agency will direct requests to the IRS Liaison Disclosure Manager using Form 8796 (or its equivalent), Request for Return/Information (Federal/State Tax Exchange Program) , written request for Federal returns and return information, e.g., Federal returns, Master File transcripts and/or Return Views (RTVUE).
    b. The IRS will direct, using Form 8796, Request for Returns/Information(Federal/State Tax Exchange Program) (or its equivalent), written requests for State tax information to the Agency liaison, for specific returns and/or return information.
    c. Requests from the Agency for a list of Potentially Dangerous Taxpayers (PDT) will be sent on Form 8796, Request for Returns/Information(Federal/State Tax Exchange Program) (or its equivalent) to the IRS Liaison Disclosure Manager for the State.

Note:

Use of Form 8796, Request for Returns/Information (Federal/State Tax Exchange Program) by IRS or employees of the State tax agency is encouraged, but not mandatory as long as the written request conforms to the form.

V. DISCLOSURES CONCERNING STATE EMPLOYEES FOR CONDUCT INVESTIGATIONS OR EMPLOYEE CHECKS
  Agency requests for returns and information on conduct-related investigations of State tax agency employees will be submitted to the IRS Liaison Disclosure Manager and will include the following information:
  a. Specific documentation regarding the particular conduct-related reason why the disclosure of Federal tax information is necessary.
  b. Specific documentation why the requested return(s) and/or return information is, or may be, relevant to the inquiry.
  c. Where applicable, copies of, or reference to specific rules of conduct, regulations, personnel directives, etc
VI. IRS INITIATED CONDUCT RELATED DISCLOSURES
  When the IRS Disclosure Manager has a Federal return and/or return information that will not be transmitted to the Agency under other provisions of this Agreement, but that may be evidence of any violation, suspected violation, or potential violation by an employee of the State tax agency, of Federal or State tax law or statutes, regulations, or rules governing the conduct of State tax employees that violation or potential violation could damage the integrity of the tax administration system or, if known to the general public, could decrease public trust in the state tax agency, the IRS Disclosure Manager will contact the Agency liaison official and, without disclosing identifying information, describe the return and/or return information in sufficient detail to ascertain the Agency’s need and potential use for the return and/or return information. If, in the judgment of the IRS Disclosure Manager the Agency has a need and use for the return and/or return information, he/she shall then transmit the return and/or return information to the Agency.
VII. ADMINISTERING THE FEDERAL/STATE FILING PROGRAM
  During the course of administering the Federal/State Filing Program, it may become necessary for State tax administration to make disclosures of Federal tax information beyond the scope outlined in the MOU. It is agreed that this document shall constitute the requisite authorization (or request). The type of information may include, but is not limited to, tax information about return preparers and/or transmitters developed during suitability testing and incidental disclosures necessary during testing or problem resolution, and information concerning indications of fraud. Specific procedures will be developed as needs are identified and these will be in accordance with the provision of the existing agreements.
VIII. TRANSMITTAL PROCEDURES
  1. Disclosures by IRS Liaison Disclosure Office and IRS Campus to the Agency
    A count of documents by type is recorded on Form 3210, Document Transmittal, in preparation for physical release of Federal returns and return information to the Agency. The Form 3210 and documents are inserted into an envelope marked with the name of the official designated under Section II of this Implementing Agreement. The package is hand delivered to the address shown below or mailed via the United State Postal Service, Federal Express, United Parcel Service, or a Federally accredited expedited mail delivery service, in a second envelope marked "TO BE OPENED BY ADDRESSEE ONLY" inscribed with the following address:

    [INSERT APPROPRIATE MAILING ADDRESS]
  2. Disclosures by the Agency to IRS Disclosure Offices or Campuses
    State returns and return information is disclosed to the IRS Liaison Disclosure office at the following address:
      [ INSERT APPROPRIATE MAILING ADDRESS ]
    State returns and return information are disclosed to the IRS Campus at the following address:
    [ INSERT APPROPRIATE MAILING ADDRESS ]


IX. RESTRICTIONS ON DISCLOSURES BY IRS
  The disclosure of certain returns and return information is prohibited by law notwithstanding the provisions of IRC §§6103 or 4102.
  a. Information obtained pursuant to tax conventions;
  b. Wagering tax information as defined in IRC §§6103(o)(2) and 4424;
  c. Currency transaction reports filed under Title 31;
  d. Grand Jury information;
  e. Information obtained under immunity procedures (must be referred to the Director, Office of Governmental Liaison and Disclosure).
  Disclosures by IRS to the Agency are made only after a determination that disclosure will not identify a confidential informant or seriously impair any Federal civil or criminal tax investigation. If it is determined subsequent to disclosure that further use of the return/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 use of the information.
  Refer to the Agreement on Coordination of Tax Administration, Section 3, Disclosure of Federal Returns and Federal Return Information, for additional contingencies prior to actual disclosure of Federal tax returns or Federal tax return information.
X. MEETINGS BETWEEN STATE AND IRS PERSONNEL
  Liaison officials from IRS Communications, Liaison and Disclosure , IRS Operating Divisions, IRS Campus(es) and the Agency will meet to: review the success of the existing exchange program, examine the need and use for data being exchanged, explore additional areas where exchange would be beneficial and determine whether the provisions of the Implementing Agreement require amendment or revision. The frequency of the meetings are determined by the liaison officials based on local circumstances and needs.
XI. LIST OF INDIVIDUALS AUTHORIZED TO RECEIVE TAX INFORMATION
  The parties agree to review their respective lists of employees authorized to receive Federal or State tax information on at least a semi-annual basis and to promptly inform each other of additions and/or deletions to such lists. The Agency will send notifications of changes to the Internal Revenue Service Liaison Disclosure Manager.
XII. MEMORANDA OF UNDERSTANDING
  When the Agency and the IRS mutually agree in writing to a joint project that may be for a limited duration, or when disclosure is authorized under an Internal Revenue Code section other than IRC §6103(d), a description of the project, its purpose, and the roles of the parties is documented in a separate Memorandum of Understanding (MOU). No amendment to this agreement is required. However, such MOU may be incorporated into this Implementing Agreement by reference in this section. Governmental Liaisons have primary responsibility for the development and coordination of MOUs.
  MOUs must normally be signed by the Operating Division (by an official with Delegation Order 11-2 authority), having jurisdiction for the project/exchange and the head of the State tax agency, if disclosures are involved.
  IRS Disclosure Managers are involved in the approval process for all MOUs.
XIII. LIMITATIONS OF THIS IMPLEMENTING AGREEMENT
  The terms of this Implementing Agreement are not intended to alter, amend or rescind any provision of the Agreement on Coordination of Tax Administration now in effect between the Agency and the Commissioner of Internal Revenue. In the event of conflict, the provisions of the Agreement on Coordination of Tax Administration will govern, and conflicting provisions of the agreement are null and void.
  The terms of any Memorandum of Understanding are not intended to alter, amend or rescind any provision of this Implementing Agreement. In the event of any conflict, the Implementing Agreement will take priority unless such discrepancy is noted in the MOU and the MOU is signed by the same officials as for the Implementing Agreement.
XIV. REPRODUCTION COSTS
  It is mutually agreed that the parties signing this agreement will not charge each other for costs incurred in production or reproduction costs incurred in providing the information outlined in this agreement.
XV. MODIFICATIONS TO THE IMPLEMENTING AGREEMENT
  If the need for any of the information being exchanged ceases, each agency shall notify the other to discontinue submission within 30 calendar days of the determination.
  It is understood by the parties to this agreement that the exchange of tax information is not a static program and that changes may be necessary from time to time. It may, therefore, become necessary to amend or supersede this agreement. Any such changes in the agreement will be made upon approval of the parties signing this document. The amendments will be reduced to writing and signed by the parties to this agreement.
  The IRS anticipates that there may be changes to the titles and/or responsibilities of officers and employees designated within this agreement. In the event of such changes, any actions that may be taken under this agreement by said officers or employees, may be taken by any officer(s) or employee(s) the IRS determines to have succeeded to the relevant portions of said employee’s authorities or responsibilities. Such changes will not require modification of the Implementing Agreement.
APPROVAL SIGNATURES
                                              
(Signature)
                                                
(Signature)
   
Internal Revenue Service
GLD Area Manager
                                                
State Agency Official
(title of official agency head)
Signed at:

                                           , this               day of

                                    , 20      .
Signed at:

                                           ,

this               day of                                      , 20      .
Additional Signatures as necessary, Internal Revenue Service from all Affected: Campuses, Functions, and Operating Divisions (Signatories are as authorized by Delegation Order 11-2)

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