Tax Analysts Blog

A Look at Information Sharing Agreements Between the IRS and States

Posted on Aug 7, 2015

In September 2014 Tax Analysts sent a Freedom of Information Act request to the IRS for a list of all states and localities currently participating in IRS taxpayer information sharing programs, and all taxpayer information sharing agreements entered into between any state or territory of the United States and the IRS. It took nearly a year, but on July 20 Tax Analysts received over 1,200 pages of responsive documents, including the requested list and 88 information sharing agreements.

The IRS shares taxpayer information with federal, state, and municipal government agencies with the goal of improving overall compliance with tax laws. The IRS is authorized by IRC section 6103(d) to disclose federal tax information to state and local tax authorities for tax administration purposes. IRS and state and local agencies share data such as audit results, federal individual and business return information, and employment tax information. (Separate agreements permit states to disclose taxpayer information to other states, but those were not the subject of this FOIA request.)

Tax Analysts has begun to examine the agreements in the hopes of being able to shed light on what taxpayer information is shared, how it is shared, who is receiving it, and whether it is being properly protected. While the IRS has always acknowledged that it must carefully protect confidential taxpayer information, there are many unknowns regarding how information is shared.

For example, Tax Analysts received a list of all the agencies that have an information sharing agreement with the IRS. It seems obvious that departments of revenue would be on that list, but numerous state departments of labor and transportation, and even attorney general’s offices, are also on the list. While those agencies are likely receiving federal taxpayer information for purposes of administering a specific program (for example, unemployment insurance), one would hope the scope of information they receive is tailored to that specific program.

Information sharing agreements with the IRS also generally permit continuing disclosures. That is, once a state or municipality is enrolled in the Government Liaison Data Exchange Program, a memoranda of implementation is entered into, which stipulates the information that will be shared and whether it will be shared on a continuing basis or intermittently by request. These memoranda also provide procedures for sharing information, including how the information will be protected.

Ultimately, these documents provide an initial view into how information is shared. From here, Tax Analysts plans to dig deeper and determine the extent to which information is shared (for example, we’re looking into information that gets shared with the Multistate Tax Commission and exactly what is in the Federation of Tax Administrators’ Uniform Exchange of Information Agreement). And beyond that, if information is being shared so widely, how is it being protected? There are many questions left to ask and to be answered.

Read Comments (2)

Michael DeanJun 30, 2016

Where does the research on IRS information sharing agreements with states and municipalities stand? Any new information?

Michael DeanJun 30, 2016

Any new info?

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