You are probably aware that the law protects your tax return information from disclosure to other parties by the Internal Revenue Service. IRC Section 6103 generally prohibits the release of tax information by an IRS employee. However, there are important exceptions that you should be aware of.
IRC 6103(d) provides that return information may be shared with state agencies responsible for tax administration. The state agency must request this information in writing, and the request must be signed by an official designated to request tax information.
IRC 6103(i)(1) provides that, pursuant to court order, return information may be shared with law enforcement agencies for investigation and prosecution of non-tax criminal laws.
IRC 6103(k)(6) allows the IRS to make limited disclosures of return information in the course of official tax administration investigations to third parties if necessary to obtain information that is not otherwise reasonably available.
IRC 6103(l)(1) provides that return information related to taxes imposed under chapters 2, 21, and 24 may be disclosed to the Social Security Administration (SSA) as needed to carry out its responsibilities under the Social Security Act. Chapter 2 relates to self-employment income and does not normally concern employers. Chapter 21 concerns social security and Medicare (FICA) tax, and chapter 24 deals with income tax withholding.
The IRS may therefore share information with SSA about social security and Medicare tax liability if necessary to establish the taxpayer’s liability. This provision does not allow the IRS to disclose your tax information to SSA for any other reason. SSA employees who receive this information are bound by the same confidentiality rules as IRS employees. Therefore, they generally cannot disclose the information to state social security administrators, state officials or other Federal agencies.
IRC 6103(e)(6) and (c) provide for disclosures to powers of attorney and other designees. If you are notified of an audit by the IRS, you may want to have someone other than the authorized officer of your entity represent you or participate in the meeting. You may bring any individual you wish into the discussion, in person or by telephone. You may give oral consent to speak with a third party if necessary to resolve a Federal tax matter. However, oral consent does not substitute for a power of attorney or a legal designation, and the discussion is limited to the issue for which the consent is given. To officially establish a legal representative, you must provide consent using one of the following forms:
Use this form if you want someone to represent you before the IRS. An individual named on a Form 2848 is authorized to take actions on your behalf, including signing returns and making agreements with the IRS. Form 2848 may be used to designate only those admitted to practice before the Service.
Use this if you want someone to inspect or receive your confidential tax information. It can be sent to an accounts management center that handles your return, or directly to the office handling a matter. You can designate any periods or types of tax for the appointee to receive return information about you.
Both of these forms allow disclosure of information to the third party only for the tax years listed on them. You may send either of these forms to the IRS service center indicated on the form instructions, or, for handling a specific tax matter, you may mail or fax it directly to the office you are working with. A copy should be brought by your representative to any meeting with the IRS to discuss your return.
The powers granted by these forms can be revoked at any time. See the instructions on the forms for details on the procedures.
If you have a section 218 Agreement to provide social security coverage for your employees, you may wish to have the state social security administrator (SSSA) consulted or otherwise involved in the examination. The SSSA is not considered an official responsible for the administration of state or Federal tax laws under section 6103; therefore, there is no provision in the law allowing the IRS to disclose tax information to your SSSA. If you are reviewing an issue with the IRS involving section 218 social security coverage, you may wish to have the SSSA or a representative participate in the discussion. If you want the IRS to be able to communicate directly with the SSSA, you should complete one of the forms discussed above.