Taxpayer Information
Options Exist to Enable Data Sharing Between IRS and USCIS but Each Presents Challenges Gao ID: GAO-06-100 October 11, 2005In 2000, federal agencies estimated they saved at least $900 million annually through data sharing initiatives. The Internal Revenue Service (IRS) can use data from taxpayers and third parties to better ensure taxpayers meet their obligations. Likewise, Congress has authorized certain agencies access to taxpayer information collected by IRS to better determine benefit eligibility. In July 2004, we reported that data sharing between IRS and the United States Citizenship and Immigration Services (USCIS) has the potential to improve tax compliance as well as immigration eligibility decisions (GAO-04-972T). For this report, GAO determined (1) the potential benefits of data matching, and (2) the options and associated challenges.
Data sharing can help improve (1) tax compliance if businesses applying to sponsor immigrant workers are required to meet tax filing and payment requirements, and (2) the accuracy and timeliness of USCIS's immigration eligibility decisions if it obtained tax data from IRS to help ensure business sponsors meet eligibility criteria. As of December 2003, IRS databases showed 18,942 businesses (5 percent) applying to sponsor immigrant workers had $5.6 billion in unpaid assessments. Of this amount, businesses were not in installment agreements with IRS or otherwise making payments on $3.7 billion. If future business sponsors owe taxes and are required to meet their tax obligations, they would need to make arrangements with the IRS to come into compliance. Although USCIS officials acknowledge that no explicit prohibition exists in immigration laws against conditioning approval of employer applications on their tax compliance, USCIS officials said a statutory change is preferable because they have legal concerns about USCIS's authority to issue such a regulation absent specific authority. IRS data can help USCIS make more accurate eligibility decisions by better identifying businesses that may not have met eligibility criteria due to having unpaid assessments or not filing returns. In our nationwide selection, 67,949 of 413,723 (16 percent) business sponsors were in IRS's nonfiler database at the time of their application. A variety of options is available to IRS and USCIS for establishing and implementing data sharing. An applicant-initiated data-sharing arrangement could be implemented under existing Internal Revenue Code authority through taxpayer consent, whereby taxpayers authorize IRS to disclose their information. USCIS then could verify applicant-provided data by obtaining tax returns or tax transcripts. Treasury guidance suggests a small-scale pilot using consents as a way to make the business case for continued access to taxpayer information. In general, the more that data sharing could be done electronically, the more efficient the data sharing could be. However, achieving electronic data sharing may take longer than paper-based processes due to legal, technological, and cost challenges. Further, if business sponsors need to come into compliance, net tax collections might not increase if collecting their taxes displaces other IRS work. Establishing user fees to cover data-sharing costs could be a way to fund data sharing, but IRS lacks the authority to collect and retain a user fee to cover compliance-related costs associated with data sharing.
RecommendationsOur recommendations from this work are listed below with a Contact for more information. Status will change from "In process" to "Open," "Closed - implemented," or "Closed - not implemented" based on our follow up work.
Director: Team: Phone:GAO-06-100, Taxpayer Information: Options Exist to Enable Data Sharing Between IRS and USCIS but Each Presents Challenges
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Report to the Committee on Finance, U.S. Senate:
October 2005:
Taxpayer Information:
Options Exist to Enable Data Sharing Between IRS and USCIS but Each
Presents Challenges:
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-06-100]:
GAO Highlights:
Highlights of GAO-06-100, a report to the Committee on Finance, U.S.
Senate;
Why GAO Did This Study:
In 2000, federal agencies estimated they saved at least $900 million
annually through data sharing initiatives. The Internal Revenue Service
(IRS) can use data from taxpayers and third parties to better ensure
taxpayers meet their obligations. Likewise, Congress has authorized
certain agencies access to taxpayer information collected by IRS to
better determine benefit eligibility.
In July 2004, we reported that data sharing between IRS and the United
States Citizenship and Immigration Services (USCIS) has the potential
to improve tax compliance as well as immigration eligibility decisions
(GAO-04-972T). For this report, GAO determined (1) the potential
benefits of data matching, and (2) the options and associated
challenges.
What GAO Found:
Data sharing can help improve (1) tax compliance if businesses applying
to sponsor immigrant workers are required to meet tax filing and
payment requirements, and (2) the accuracy and timeliness of USCIS‘s
immigration eligibility decisions if it obtained tax data from IRS to
help ensure business sponsors meet eligibility criteria. As of December
2003, IRS databases showed 18,942 businesses (5 percent) applying to
sponsor immigrant workers had $5.6 billion in unpaid assessments. Of
this amount, businesses were not in installment agreements with IRS or
otherwise making payments on $3.7 billion. If future business sponsors
owe taxes and are required to meet their tax obligations, they would
need to make arrangements with the IRS to come into compliance.
Although USCIS officials acknowledge that no explicit prohibition
exists in immigration laws against conditioning approval of employer
applications on their tax compliance, USCIS officials said a statutory
change is preferable because they have legal concerns about USCIS‘s
authority to issue such a regulation absent specific authority. IRS
data can help USCIS make more accurate eligibility decisions by better
identifying businesses that may not have met eligibility criteria due
to having unpaid assessments or not filing returns. In our nationwide
selection, 67,949 of 413,723 (16 percent) business sponsors were in
IRS‘s nonfiler database at the time of their application.
Businesses Sponsoring Immigrant Workers That May Not Have Met USCIS‘s
Immigration Eligibility Criteria, 1997-2004:
[See PDF for image]
[End of figure]
A variety of options is available to IRS and USCIS for establishing and
implementing data sharing. An applicant-initiated data-sharing
arrangement could be implemented under existing Internal Revenue Code
authority through taxpayer consent, whereby taxpayers authorize IRS to
disclose their information. USCIS then could verify applicant-provided
data by obtaining tax returns or tax transcripts. Treasury guidance
suggests a small-scale pilot using consents as a way to make the
business case for continued access to taxpayer information. In general,
the more that data sharing could be done electronically, the more
efficient the data sharing could be. However, achieving electronic data
sharing may take longer than paper-based processes due to legal,
technological, and cost challenges. Further, if business sponsors need
to come into compliance, net tax collections might not increase if
collecting their taxes displaces other IRS work. Establishing user fees
to cover data-sharing costs could be a way to fund data sharing, but
IRS lacks the authority to collect and retain a user fee to cover
compliance-related costs associated with data sharing.
What GAO Recommends:
Congress may wish to consider (1) requiring businesses applying to
sponsor immigrant workers to meet tax filing and payment obligations,
and (2) authorizing a user fee to be retained by IRS to cover
compliance-related costs. To improve immigration eligibility decisions,
GAO recommends that USCIS, in consultation with the IRS, conduct a
pilot data-sharing test utilizing taxpayer consents. IRS agreed and
USCIS generally agreed with the pilot study. USCIS raised several
issues that GAO generally believes should be addressed as part of the
recommended pilot program.
www.gao.gov/cgi-bin/getrpt?GAO-06-100.
To view the full product, including the scope and methodology, click on
the link above. For more information, contact Michael Brostek at (202)
512-9110 or brostekm@gao.gov.
[End of section]
Contents:
Letter:
Results in Brief:
Background:
IRS and USCIS Could Benefit from Data Sharing Although an Immigration
Eligibility Change Would Be Key for IRS:
IRS and USCIS Have Data-Sharing Options but Each Presents Challenges:
Conclusions:
Matters for Congressional Consideration:
Recommendation for Executive Action:
Agency Comments and Our Evaluation:
Appendixes:
Appendix I: Objective, Scope, and Methodology:
Appendix II: Summary of IRS/USCIS Data-Matching Results:
Appendix III: Comments from the Internal Revenue Service:
Appendix IV: Comments from the Department of Homeland Security:
Appendix V: GAO Contact and Staff Acknowledgments:
Tables:
Table 1: Forms of Data Sharing Involving Taxpayer or Personal
Information:
Table 2: User Fee Guidance and Authority:
Table 3: Examples of State and Private Entities That Require Tax
Checks:
Table 4: Examples of Operational Data on the Paper Taxpayer Consent
Process:
Table 5: Characteristics of Selected Electronic Data-Sharing
Arrangements between IRS and Federal Agencies:
Table 6: Criteria Applied by Treasury and IRS When Evaluating Specific
Proposals for Governmental Disclosures:
Table 7: User Fees Collected by IRS, Fiscal Year 2004:
Table 8: Number and Percentage of Total Applications GAO Collected:
Table 9: Matching Results on Nationwide Data, 1997 through 2004 -
Automated Data:
Table 10: Matching Results on Nonprobability Sample, 2001 through
2003 - Hard Copy Application Files:
Figures:
Figure 1: Current Lack of Data Verification between IRS and USCIS:
Figure 2: Businesses Sponsoring Immigrant Workers That May Not Have Met
USCIS's Financial Feasibility or Legitimacy Requirements, 1997-2004:
Figure 3: USCIS General Adjudication Process for Employment-Based
Applications to Sponsor Immigrant Workers:
Figure 4: Average Reported Processing Times for Fiscal Years 2004 and
2005 and Fiscal Year 2006 Processing Time Goal for Select USCIS Forms:
Figure 5: Process for Retrieving Tax Return and Tax Transcript
Information:
Figure 6: Flow Chart on the Medicare Prescription Drug Process:
Letter October 11, 2005:
The Honorable Charles E. Grassley:
Chairman:
The Honorable Max Baucus:
Ranking Minority Member:
Committee on Finance:
United States Senate:
In 2000, federal agencies estimated that they saved at least $900
million annually in program costs through data-sharing initiatives. As
we have previously reported, federal agencies are increasingly using
data sharing to help verify applicant-provided information. Many
federal agencies use financial information to make eligibility
decisions or ensure compliance with program requirements. For instance,
the United States Citizenship and Immigration Services (USCIS) grants
immigrants admittance into the United States or allows immigrants to
remain in the country based, in part, on financial information provided
by the applicant and/or their sponsors. Likewise, the Internal Revenue
Service (IRS) uses financial information to ensure that taxpayers are
meeting their tax obligations.
To facilitate data sharing, Congress has authorized a number of
agencies to access federal taxpayer information collected by the IRS to
improve the accuracy of eligibility decisions. The Social Security
Administration (SSA) is one agency, for example, that has an extensive
data-sharing relationship with IRS, which aids in administering Social
Security benefit programs and ensuring taxpayer compliance. At the same
time, taxpayers' privacy must be protected and various federal laws and
agency policies regulate agencies' use and disclosure of taxpayer and
personal information. Internal Revenue Code (IRC) Section 6103 allows
IRS to disclose taxpayer information to federal agencies and authorized
employees of those agencies, but only under specific conditions. Such
privacy protection is an important component of continued voluntary
compliance with the internal revenue laws.
Data-sharing arrangements between agencies can take different forms.
These arrangements can be applicant-or agency-initiated data sharing.
Applicant-initiated arrangements entail requiring an applicant for a
benefit or employment to secure proof from another agency to qualify
for the benefit or employment. In these cases, the agency may share the
eligibility proof directly with the agency that would be providing the
benefit or employment. Agency-initiated sharing can include matching
data from two agencies to help one agency or both agencies verify data
accuracy.
In our July 2004 testimony, we reported that data sharing between IRS
and USCIS has the potential to improve tax compliance as well as
immigration eligibility decisions.[Footnote 1] You then requested
additional information on potential benefits and options for data
sharing between IRS and USCIS. For this study, our objectives were to
determine the (1) potential benefits of data matching for IRS and USCIS
and (2) options for establishing and maintaining a data-sharing
relationship between the IRS and USCIS, including any challenges
associated with those options.
In responding to the objectives, we performed work at several IRS
offices, including compliance and research, and at various program and
district offices, and service centers at USCIS. We also contacted
representatives of two immigration advocacy groups to obtain their
perspectives. Our findings are based on matching of immigration and IRS
taxpayer data, documents and various publications, and interviews with
agency officials. We used two sets of USCIS data to match with IRS
taxpayer data to determine the potential value for increased data
sharing and matching. We matched taxpayer data to automated immigration
applications and hard copy immigration applications. We used a
nationwide selection of automated USCIS applications from immigration
applications submitted to USCIS service centers from 1997 through 2004.
Approximately 3.4 million of 4.5 million automated immigration records
had Social Security numbers (SSN) or employer identification numbers
(EIN) that could be used to match with SSNs and EINs in IRS databases.
We used these data to determine whether businesses and others that had
applied to sponsor immigrant workers or immigrants applying to change
their immigration status had filed a tax return with IRS and, if so,
whether they owed taxes to IRS.[Footnote 2] Because the nationwide
selection did not include any financial information, we also selected a
nonprobability sample of about 1,000 immigration hard copy applications
for citizenship, employment, and family-related immigration and change
of immigration status filed by businesses and individuals from 2001
through 2003 at four immigration locations.[Footnote 3] We used the
hard copy applications to build a database of personal and financial
information. We used this sample as a second source of examples of
USCIS applicants who may not have filed tax returns and may have owed
taxes to IRS. For this report, our discussion will focus on businesses
applying to sponsor immigrant workers because the matching results from
our July 2004 testimony identified business sponsors as the most likely
group in which benefits would result.
We assessed the reliability of IRS's Individual Master File (IMF) and
Business Master File (BMF) data and the USCIS's Computer Linked
Application Information Management System, Version 3.0 (CLAIMS 3),
which is a database containing nationwide immigration data. As part of
our annual audits of IRS's financial statements, we also assessed the
reliability of IRS's BMF and IMF data with respect to unpaid
assessments by testing selected statistical samples of unpaid
assessment modules. We determined that the data were sufficiently
reliable for the purpose of this report. We conducted our work from
August 2004 through August 2005 in accordance with generally accepted
government auditing standards. For details on our scope and
methodology, see appendixes I and II.
Results in Brief:
IRS's tax compliance efforts could benefit from data sharing with USCIS
if immigration eligibility were changed to require business sponsors to
show that they met tax filing and payment requirements to qualify to
sponsor immigrant workers. Our analysis of automated immigration
records matched against IRS databases showed that 18,942 (5 percent) of
businesses applying to sponsor immigrant workers from 1997 through 2004
had $5.6 billion in unpaid assessments, as of December 2003. Business
sponsors who were not in an installment agreement with the IRS or
otherwise making payments to IRS had unpaid assessments totaling $3.7
billion of the $5.6 billion. USCIS officials said that businesses that
apply to sponsor workers tend to do so in multiple years. To the extent
future business sponsors owe taxes and are required to meet their tax
obligations, they would need to make arrangements with the IRS to come
into compliance before being eligible to sponsor immigrant workers to
enter the country. Although this likely would help IRS collect unpaid
tax assessments, not all taxes would be collected since, for example,
some businesses may not be able to repay their full debt. USCIS
officials said requiring business sponsors to meet their tax
obligations in order to sponsor immigrant workers could be accomplished
by a regulatory change. Although USCIS officials acknowledge that no
explicit prohibition exists in immigration laws against conditioning
approval of employer applications on their tax compliance, USCIS
officials said a statutory change is preferable because they have legal
concerns about USCIS's authority to issue such a regulation absent
specific authority.
Even if the eligibility criteria for business sponsors is not changed
as mentioned previously, USCIS can still benefit from data sharing with
IRS by making more accurate and timely immigration eligibility
decisions for businesses applying to sponsor workers. For businesses
applying to sponsor immigrant workers, immigration adjudicators use two
basic criteria for evaluating the eligibility of businesses to sponsor
immigrants: (1) the sponsor's financial feasibility and (2) the
legitimacy of the sponsor's existence. According to USCIS, because
filing and paying taxes is an indicator that these qualifications are
met, having access to IRS data may help them better identify businesses
that do not meet immigration eligibility criteria. In addition to the
18,942 business sponsors we identified that owed taxes, we found that
67,949 of 413,723 (16 percent) of business sponsors in our nationwide
selection did not file one or more tax returns at the time of their
application to sponsor an immigrant worker.
Since adjudicators receive self-reported--and sometimes false--
personal and financial information from applicants, USCIS officials
said that a data-sharing arrangement to verify applicant-provided data
during the adjudicatory process would help USCIS adjudicators make more
accurate immigration eligibility decisions. USCIS officials said that
adjudicators would find IRS information on small businesses
particularly useful; 25 of 43 businesses with unpaid tax assessments in
our nonprobability sample reported net incomes of less than $10 million
to USCIS. Although USCIS officials are seeking a regulatory change that
would shift adjudicators' focus away from a business sponsor's ability
to pay, IRS taxpayer data could still help adjudicators establish a
business sponsor's financial viability and legitimacy by providing
information on whether the business sponsor was a functioning business.
Further, USCIS officials said that access to IRS taxpayer data could
improve the timeliness of making benefit decisions by (1) decreasing
rework/follow-up work with applicants and (2) possibly reducing the
volume of applications received if benefits were made contingent on
applicants having met tax filing and payment requirements.
A variety of options is available to IRS and USCIS for establishing and
implementing data sharing regardless of whether data sharing is
applicant-or agency-initiated. An applicant-initiated data-sharing
arrangement could be implemented under existing IRC authority through a
taxpayer consent, whereby a taxpayer authorizes IRS to disclose his or
her information to other agencies. If so, USCIS could verify applicant-
provided data by obtaining the applicant's tax return or tax
transcript. However, the Department of the Treasury suggests that
before an agency uses taxpayer consents, the agency should first
conduct a statistical test match or a small-scale pilot demonstrating
that the need for information outweighs concerns about taxpayer privacy
and voluntary tax compliance. In general, the more that data sharing
could rely on electronic communications between applicants and the
agencies, the more efficient the data-sharing arrangements could be.
USCIS, which is working to move into a paperless environment, is
reluctant to receive additional pieces of hard copy information.
However, achieving efficient electronic data sharing may take longer
than implementing paper-based sharing due to legal, technological, and
cost challenges that must be overcome. For example, if taxpayer
consents were not used, IRC Section 6103 would need to be changed to
authorize IRS to disclose taxpayer information directly to USCIS for
immigration eligibility purposes. USCIS must also address a number of
technological challenges, such as ensuring all necessary data are
accurate and entered into automated systems to lay the foundation that
would enable data sharing to take place between the two agencies.
Further, estimating the cost benefit associated with data sharing can
be complicated. Unless IRS's costs to bring business sponsors with
unpaid assessments into compliance are reimbursed, net tax collections
may not rise since IRS might have to forgo bringing other noncompliant
taxpayers into compliance to bring the business sponsors into
compliance. Establishing user fees collected from businesses applying
to sponsor workers to cover data-sharing costs could be a way to fund
data sharing, but the IRS lacks authority to collect and retain fees
for compliance-related costs. USCIS, on the other hand, has authority
to collect and retain fees for adjudicatory services including
compliance related costs.
To improve taxpayer compliance and USCIS's immigration benefit
decisions, we suggest that Congress consider (1) changing immigration
eligibility to require businesses applying to sponsor immigrant workers
to meet tax filing and payment obligations and (2) authorizing a user
fee to be collected and retained by IRS to cover its costs to bring
business sponsors into compliance. To improve the accuracy and
timeliness of USCIS's immigration eligibility decisions absent
requiring business to have met their tax filing and payment
obligations, we recommend the Secretary of the Department of Homeland
Security (DHS) direct USCIS, in consultation with the IRS, to conduct a
pilot data-sharing test. In the test, USCIS should require a tax check
for selected businesses and other entities applying to sponsor
immigrant workers before qualifying for immigration benefits.
In commenting on a draft of this report (see app. III and IV), the
Commissioner of Internal Revenue agreed and the Director of DHS's
Office of Inspector General (OIG) Liaison--commenting on behalf of the
Secretary of DHS--generally agreed with our recommendation to conduct a
small-scale pilot test to determine whether a business case exists for
supporting data sharing before pursuing legislation or a large-scale
taxpayer consent program. The Commissioner also stated an executive
working group will determine the merits of applying user fees for
compliance data sharing. The Director of DHS's OIG Office liaison
generally agreed with our recommendation on the pilot program but said
he had serious concerns about our recommendation on the IRS user fee.
The Director acknowledged the pilot would be consistent with USCIS's
desire to explore ways to streamline its processes and provide
necessary information with respect to considering the feasibility of
initiatives such as data sharing on a larger scale. However, his
agreement was contingent on the extent to which USCIS can lawfully
engage in a pilot program that requires business sponsors to consent to
a tax check. The Director did not further describe his legal concerns
and therefore we do not have a basis to evaluate them. We agreed with
the Director's assessment in technical comments that immigration laws
contain no explicit prohibition on conditioning employer petitions on
their tax compliance and doing so might be legally defensible. We
believe consulting with IRS in determining how to design the pilot test
should help USCIS resolve those concerns.
In commenting on user fees, the Director stated that policy
considerations have kept USCIS from completely using its authority to
recover its full costs but did not identify the specific policy
considerations. The Director specifically cited concerns about
increasing fees to immigration benefit applicants without a
corresponding improvement in services. However, as stated in our
report, USCIS access to IRS data has the potential to improve the
agency's services because it could decrease rework and follow-up work,
which would help USCIS minimize processing time for all business
sponsors. Further, with more routine access to IRS data, USCIS might
not need to request as much financial information from business
applicants as it does now since USCIS officials themselves see IRS data
as more reliable than information provided by applicants.
Finally, the Director commented that the proposed user fee to cover
IRS's compliance-related costs seems to be different in concept from
other existing user fees. IRS officials say they do not receive a user
fee to bring applicants for any other agencies' benefits into
compliance with their tax obligations. However, Congress has authorized
new or expanded funding arrangements recently to help IRS deal with its
workload. For instance, the user fees authorized in connection with IRS
programs such as its Offers-In-Compromise Program and its private debt
collection program are to support costs associated with processing
agreements between IRS and the taxpayer that resolve the taxpayer's tax
liability. Given the substantial unpaid taxes that we found among
businesses applying to sponsor immigrant workers, we believe that it is
appropriate for Congress to consider steps for effectively bringing
these taxpayers into compliance without unduly deterring IRS from
pursuing other noncompliant taxpayers. Consequently, our report put
forth the user fee as one option for Congress to consider for
supporting a potential data sharing arrangement between IRS and USCIS.
Background:
As one of the largest repositories of personal information in the
United States, IRS receives tax returns from about 116 million
individual taxpayers who have wage and investment income and from
approximately 45 million small business and self-employed taxpayers
each year. IRS performs a variety of checks to ensure the accuracy of
information reported by these taxpayers on their tax returns. These
checks include verifying computations on returns, requesting more
information about items on a tax return, and matching information
reported by third parties to income reported by taxpayers on returns
(i.e., document matching). IRS's document matching program has proven
to be a highly cost-effective way of identifying underreported income,
thereby bringing in billions of dollars of tax revenue while boosting
voluntary compliance.
IRC Section 6103, amended significantly by the Tax Reform Act of
1976,[Footnote 4] is the primary law used to restrict IRS's data-
sharing capacity. The law provides that tax returns and return
information are confidential and may not be disclosed by IRS, other
federal and/or state employees, and certain others having access to the
information except as provided in IRC Section 6103. IRC Section 6103
allows IRS to disclose taxpayer information to federal agencies and
authorized employees of those agencies for certain specified purposes.
Accordingly, IRC Section 6103 controls whether and how tax information
submitted to IRS on federal tax returns can be shared. IRC Section 6103
specifies which agencies (or other entities) may have access to tax
return information, the type of information they may access, for what
purposes such access may be granted, and under what conditions the
information will be received. For example, IRC Section 6103 has
exceptions allowing certain federal benefit and loan programs to use
taxpayer information for eligibility decisions. Because the
confidentiality of tax data is considered crucial to voluntary
compliance, if agencies want to establish new efforts to use taxpayer
information, executive branch policy calls for a business case to
support sharing tax data.
USCIS is part of the Department of Homeland Security (DHS), which was
established by the Homeland Security Act of 2002.[Footnote 5] USCIS is
responsible for administering several immigration benefits and services
transferred from the former Immigration Services Division of the
Immigration and Naturalization Service. Included among the immigration
benefits and services USCIS's offices oversee are citizenship, asylum,
lawful permanent residency, employment authorization, refugee status,
intercountry adoptions, replacement immigration documents, family-and
employment-related immigration, and foreign student authorization.
USCIS's functions include adjudicating and processing applications for
U.S. citizenship and naturalization, administering work authorizations
and other petitions, and providing services for new residents and
citizens. USCIS's employees who review immigration benefit applications
and determine if they should be approved are its adjudicators. USCIS's
fraud detection units and Fraud Detection and National Security
immigration officers in the districts, service centers, and asylum
offices detect potential fraudulent applications and any trends or
patterns that suggest potential fraud. USCIS staff work with applicants
through the adjudicatory process beginning with initial contact when an
application or petition is filed, through the stages of gathering
information on which to base a decision. This contact continues to the
point of an approval or denial, the production of a final document or
oath ceremony, and the retirement of case records.
Under current legislative authority, USCIS is not authorized to receive
taxpayer information from IRS directly. USCIS currently obtains self-
reported personal and financial information provided by (1) businesses,
religious organizations, non-profit entities and individuals applying
to sponsor immigrant workers; (2) individuals applying to sponsor
relatives; and (3) individuals applying to enter the country, extend
their stay or obtain citizenship. USCIS also obtains information from
third parties, not including IRS, to verify applicants' self-reported
data. Figure 1 illustrates the current lack of data verification
between USCIS and IRS during the immigration application process.
Figure 1: Current Lack of Data Verification between IRS and USCIS:
[See PDF for image]
[End of figure]
Data-sharing arrangements between agencies can take different forms. As
used in this report, data sharing means obtaining and disclosing
information on individuals between federal agencies (IRS and USCIS) to
ensure taxpayers have met their tax obligations or to determine
eligibility for immigration benefits.[Footnote 6] Table 1 lists
different forms of data sharing, enabling authority, information
gained, and related examples.
Table 1: Forms of Data Sharing Involving Taxpayer or Personal
Information:
Type of sharing: Applicant-initiated;
Authority: Taxpayer consent;
Form: Applicant authorizes information to be sent from one agency to
another to be used to qualify for benefits or employment;
New information: gained or confirm agency information: New;
Examples (entities involved): Tax checks (IRS/states). Tax checks;
(IRS/mortgage bankers).
Type of sharing: Agency-initiated;
Authority: Specific authority allowing disclosure;
Form: Agency-to-agency data matching that benefits one agency;
New information: gained or confirm agency information: New;
Examples (entities involved): Taxpayer address request; (IRS/Department
of Education).
Form: Agency-to-agency data matching that benefits both agencies;
New information: gained or confirm agency information: Confirm;
Examples (entities involved): Combined annual wage reporting (IRS/SSA).
Form: Agency-to-agency matching to verify applicant provided data;
New information: gained or confirm agency information: Confirm;
Examples (entities involved): Employment Verification Pilot
(USCIS/SSA). Transitional Assistance Program (Centers for Medicare and
Medicaid Services/IRS).
Sources: IRS and USCIS documents.
[End of table]
An example of applicant-initiated sharing occurs via tax checks
required by some states. A taxpayer may authorize a third party to
receive his or her IRS tax return information via consent. According to
an IRS official, many states may require consents to qualify for
benefits or certain types of employment. For example, the state of
Missouri requires applicants to be current on their state taxes before
receiving a new professional license. An example of agency-initiated
sharing is an arrangement between IRS and SSA for the Combined Annual
Wage Reporting Program. SSA processes and maintains W-2 and W-3
information on employees. IRS maintains personal and financial
information on employees. SSA and IRS conduct exchanges of information
to ensure employers are submitting accurate wage information and to
identify nonfilers. The agencies have a direct data-sharing
arrangement.
Research shows that certain data-sharing programs have value for
increasing taxpayer compliance since these programs have identified
discrepancies in income reporting amounts and, in some cases, enabled
the assessment of additional dollars in unpaid taxes. For example,
matching IRS's unpaid assessment database with the Treasury's Financial
Management Service's (FMS) records shows a substantial amount of money
that could have been collected by either IRS or FMS. In particular, the
Taxpayer Relief Act of 1997[Footnote 7] allows IRS to continuously levy
up to 15 percent of certain federal payments made to delinquent
taxpayers.[Footnote 8] IRS's continuous levy program adds tax debts to
FMS's program for recovering debts owed to federal agencies. For the
levy program, FMS compares federal payee information from agency
payment records with extracts of IRS's unpaid assessments. We estimated
that IRS could recover at least $270 million annually from about 70,000
delinquent taxpayers.[Footnote 9] In addition, our analysis[Footnote
10] of a match between FMS's database on payments to contractors and
IRS's unpaid assessment database showed that about 33,000 contractors
who received substantial federal payments from civilian agencies during
fiscal year 2004 owed a total of more than $3 billion in unpaid
taxes.[Footnote 11] We estimated that if FMS database deficiencies such
as erroneous Taxpayer Identification Numbers (TINs) and invalid
contractor names were corrected, FMS could have collected at least $50
million more than it did in fiscal year 2004.[Footnote 12]
Although data-sharing arrangements can be useful, privacy advocates,
lawmakers, and others are concerned about the extent to which the
government can disclose and share citizens' personal information,
including sharing with other government agencies. Historically,
lawmakers and policymakers have created legislation to address these
concerns. For example, the Privacy Act of 1974[Footnote 13] regulates
the federal government's use of personal information by limiting the
collection, disclosure, and use of personal information maintained in
an agency's system of records. The Computer Matching and Privacy
Protection Act of 1988[Footnote 14] further protects personal
information by requiring agencies to enter into written agreements,
referred to as matching agreements, when they share information that is
protected by the Privacy Act of 1974 for the purpose of conducting
computer matches.
User fees are collected from identifiable recipients of special
benefits beyond those accruing to the general public, and the amounts
are based on the recovery of costs of providing the service, the market
value of goods, or may be set by legislation. Various user fee
authorities and guidance exist which range from general to specific
authority. Title V of the Independent Offices Appropriations Act of
1952 codified at 31 U.S.C. § 9701 established general authority to
assess user fees or charges on identifiable beneficiaries by
administrative regulation. Under this general authority, all fees
collected would be deposited as miscellaneous receipts to the General
Fund of the Treasury and their use would be determined through the
annual appropriations process. Authority to assess user fees may also
be granted to agencies through the enactment of specific authorizing or
appropriations legislation, which may or may not authorize the agencies
to retain and/or use the fees they collect.
In setting certain user fees, agencies must follow either the general
user fee statute 31 U.S.C. § 9701 or specific user fee statute. For
example, IRS must follow IRC section 7528[Footnote 15] in certain cases
while USCIS adheres to the Immigration and Nationality Act,[Footnote
16] the general user fee statute, and DHS regulations which outline
fees that are collected, the amounts, and by whom (see table
2).[Footnote 17] The Office of Management and Budget's (OMB) Circular A-
25, User Charges, establishes general federal policy and guidance for
user fees assessed for government services by executive branch
agencies.[Footnote 18] IRS's chief financial office provides internal
guidance on user fees, which provides examples on how to implement the
OMB directives. USCIS does not provide internal guidance. According to
USCIS officials, the agency's fee setting is based upon cost studies
and a full-fledged regulatory process under the Administrative
Procedure Act, with the actual fees provided in regulations.
Table 2: User Fee Guidance and Authority:
OMB Circular A-25;
Requires that agencies:
* Identify services and activities that convey special benefits;
* Determine services' and activities' full cost or market price, as
appropriate;
* Perform biennial reviews of user fees for unanticipated cost or
market price changes; and;
* Perform biennial reviews of agency programs not subject to user fees
to determine if such fees should be assessed.
IRC Section 7528;
Requires that IRS user fees:
* Vary according to categories or subcategories;
* Take into account the average time and difficulty of requests by
categories or subcategories;
* Be payable in advance; and;
* Be subject to appropriate exemptions and reduced fees within limits
specified by IRC Section 7528.
Internal CFO guidance:
* Provides steps and examples on developing cost estimates and
implementation considerations.
USCIS Guidance;
Immigration and Nationality Act permits:
* Setting fees for providing adjudication and naturalization services
at a level that will ensure recovery of the full costs of providing all
such services;
* Retention and use of fees to provide immigration services.
General statute requires agencies to establish fees that are:
* Fair;
* Based on the costs to the government; the value of the service or
thing to the recipient, public policy or interest served, and other
relevant facts.
DHS regulations outline:
* Fee remittances;
* Amounts of fees;
* Fee adjustments;
* Fee waivers. No internal guidance exists.
Sources: IRS and USCIS.
[End of table]
IRS and USCIS Could Benefit from Data Sharing Although an Immigration
Eligibility Change Would Be Key for IRS:
IRS's tax compliance efforts could benefit from data sharing with USCIS
if immigration eligibility were changed to require business sponsors to
show that they met tax filing and payment requirements to qualify to
sponsor immigrant workers. In particular, IRS could benefit because
businesses applying to sponsor immigrant workers that had not filed a
tax return or paid taxes would need to come into compliance. IRS data
can also enable USCIS adjudicators to make more accurate eligibility
decisions by better identifying businesses that may not have met
immigration eligibility criteria because they had unpaid assessments or
did not file tax returns. Further, obtaining IRS data has the potential
to improve the timeliness of benefit decisions by (1) decreasing
rework/follow-up work and (2) potentially resulting in fewer applicants
if benefits are contingent on having met tax filing and payment
requirements.
A Change in Eligibility Rules Is Key to IRS Benefiting from a Data-
Sharing Relationship with USCIS:
Compliance with Payment of Taxes:
IRS could benefit from data sharing with USCIS if certain taxpayers,
such as business sponsors who owe taxes, were required to be in
compliance with tax filing and payment requirements to qualify for
immigration benefits such as sponsoring immigrant workers. Our analysis
of automated immigration records matched against IRS databases showed
that 18,942 businesses applying to sponsor immigrant workers from 1997
through 2004 had $5.6 billion in unpaid assessments,[Footnote 19] as of
December 2003 (app. II). Many were not paying their tax bill or making
payments towards fulfilling their tax obligations. As of December 2003,
business sponsors from our nationwide selection who were not in
installment agreements with the IRS or otherwise making payments to
IRS, for taxes due, had unpaid assessments totaling $3.7
billion.[Footnote 20] Although these businesses with past applications
to sponsor immigrant workers would not be affected by a change to
requirements for sponsoring workers since they have already received
immigration benefits, USCIS officials said that businesses that apply
to sponsor workers tend to do so in multiple years. If businesses were
required to meet their tax obligations, to the extent that future
business sponsors owe taxes, they would need to pay their tax bill or
make payment arrangements with the IRS to come into compliance before
becoming eligible to sponsor immigrant workers to enter the country.
USCIS officials said a statutory change would be preferable to a
regulatory change because, although they acknowledge no explicit
prohibition exists in immigration laws against conditioning approval of
employer petitions on their tax compliance, they have serious legal
concerns about USCIS's authority to issue such a regulation absent
specific statutory authority.
Although changing the eligibility requirement would likely help bring
taxpayers with unpaid assessments into compliance, IRS would be
unlikely to recover all taxes owed by the businesses. IRS officials
commented that some businesses, even if they came forward to IRS, would
not be able to repay their full debt. USCIS officials made a similar
comment and added some businesses may decide not to apply for
immigration benefits knowing they are not in compliance with tax filing
and payment requirements. Further, either IRS would only be able to
pursue collection for business sponsor cases that exceed thresholds IRS
uses in determining how many cases to pursue or, if IRS took steps to
collect taxes in all of these cases, it would be unable to work other
cases. As we have reported previously, IRS has too many compliance
cases to work.[Footnote 21]
Compliance With Filing of Taxes:
Immigration data appear less likely to be useful to IRS for identifying
applicants who do not file tax returns. For instance, we identified 33
business/entity sponsors from our nonprobability sample who appeared to
be unknown to the IRS because they did not show up in any of six
different IRS databases.[Footnote 22] An IRS investigation of the 33
revealed no productive compliance leads. IRS determined most of the
sponsors--businesses and religious organizations--were either tax
exempt, had no filing requirement, or were no longer liable for the
tax. However, these 33 cases were a small fraction of the almost 20,000
business sponsors that appeared to be unknown to IRS based on our
nationwide selection of USCIS business sponsor applications (see app.
II).
In the mid-1980s, IRS and USCIS entered into a cost-reimbursable data-
sharing arrangement under which USCIS shared immigrant data with IRS by
completing IRS Form 9003.[Footnote 23] According to IRS officials, IRS
used Form 9003 information to help identify whether individuals who
filed for U.S. permanent residency had filed tax returns and properly
reported their income. IRS and USCIS shared Form 9003 data for about 10
years but ended this arrangement in 1996. Much of the form 9003
immigrant data received from USCIS lacked SSNs--a primary mechanism IRS
uses for tracking individual taxpayers, which made it increasingly
difficult for IRS to use the data to determine whether individuals had
filed taxes and properly reported income, according to IRS officials.
Additionally, the costs associated with the data-sharing agreement
escalated each year, to the point that, in IRS's view, it was no longer
cost effective.
USCIS Can Benefit from Data Sharing with IRS in Making Immigration
Eligibility Decisions:
More Accurate Immigration Eligibility Decisions:
IRS data can enable USCIS adjudicators to make more accurate
eligibility decisions by better identifying businesses that may not
have met immigration eligibility criteria. Our matching of immigration
and taxpayer data identified business sponsors that may not meet
immigration financial feasibility and legitimacy tests because they
have failed to file tax returns and/or pay all of their taxes. Sixteen
percent of businesses from our nationwide selection (67,949 of 413,723
businesses) applying to sponsor immigrant workers did not file one or
more tax returns at the time of their application to sponsor an
immigrant worker between 1997 and 2004 (app. II). Twenty four percent
of businesses (112 of 475 businesses) from our nonprobability sample
that applied to sponsor immigrant workers did not file one or more tax
returns at the time of their application to sponsor an immigrant worker
between 2001 and 2003 (app. II). Five percent of sponsors from our
nationwide selection (18,942 of 413,723 businesses) and 20 percent of
businesses in our nonprobability sample (94 of 475 businesses) had
unpaid tax assessments at the time of application. As of December 2003,
for the nationwide results, the assessments totaled $5.6 billion and
for the nonprobability sample results, the assessments totaled $39
million (app. II). Filing and paying taxes is an indicator that
financial feasibility and legitimacy tests are met. Figure 2 shows
matching results identifying business nonfilers and those with unpaid
assessments from our nationwide selection.
Figure 2: Businesses Sponsoring Immigrant Workers That May Not Have Met
USCIS's Financial Feasibility or Legitimacy Requirements, 1997-2004:
[See PDF for image]
[End of figure]
Immigration adjudicators use applicants' self-reported personal and
financial information plus third party data to make decisions about
granting benefits to immigration applicants. For businesses applying to
sponsor immigrant workers--employment-based applications--immigration
adjudicators use financial information for evaluating two basic
eligibility criteria for businesses sponsoring immigrants: (1) the
sponsor's financial feasibility and (2) the legitimacy of the sponsor's
existence. Financial feasibility refers to the sponsor's ability to pay
wages to or financially support the individual being sponsored. For
example, if a company is sponsoring an immigrant for employment, that
company must show that it has sufficient ability to pay the worker.
Information on tax returns filed with IRS show income levels and these
could be used to validate applicant-provided information. Legitimacy,
in the case of employment-based petitions, refers to whether a
sponsoring business or organization actually exists, has employees, and
has real assets. Figure 3 depicts an overview of the adjudication
process for employment-based applications.
Figure 3: USCIS General Adjudication Process for Employment-Based
Applications to Sponsor Immigrant Workers:
[See PDF for image]
[A] Some applicants may choose not to provide additional evidence,
thereby ending the adjudication process.
[End of figure]
Since adjudicators receive self-reported--and sometimes false--
personal and financial information from applicants, they sometimes
obtain additional or different documentation from the applicant or
third parties. For example, at the time of application or during the
adjudicatory process, applicants may be required to provide additional
documentation, such as tax returns from IRS or unofficial copies to
verify financial information reported on immigration forms. However,
immigration officials we spoke with in five field locations said
applicants could alter or falsify those documents. According to USCIS
officials, designing a data-sharing arrangement that includes
verification of applicant-provided data during the adjudicatory process
would be useful to USCIS adjudicators for the financial feasibility and
legitimacy tests and afford more accurate immigration eligibility
decisions. Additionally, with an eligibility change as discussed
earlier, business sponsors would be required to file tax returns, pay
amounts due, or make payment arrangements with IRS before qualifying
for immigration benefits. This, in turn, could result in a higher
likelihood of USCIS getting applications from business sponsors that
have met their tax filing and payment obligations, thereby more likely
meeting USCIS's financial feasibility and legitimacy criteria. USCIS
could then better assure that it was granting benefits to those
business sponsors that accurately meet their criteria.
USCIS Ombudsman and representatives of immigration advocacy groups have
concerns about data sharing and immigration eligibility for business
sponsors. Although the Ombudsman acknowledged the benefits of data
sharing, he was concerned that another step in the immigration
application process could be more cumbersome for business sponsors. He
questioned the type of information IRS would share and said businesses
in dispute with the IRS should not be prevented from applying for
benefits while the dispute is being resolved. A representative from one
advocacy group expressed several concerns on behalf of business
sponsors including:
* Increased delays in the immigration process - from their perspective,
any additional step in the application process could lengthen the time
between when a business decides to sponsor a worker and obtaining
USCIS's approval.
* Problems with improving USCIS's technological capabilities -
according to the immigration advocate, USCIS is still mostly paper-
driven and therefore it is questionable as to whether they could share
data electronically.
* Special tax issues related to small businesses - many small business
sponsors file tax extensions and, therefore, may not have readily
available tax documents. Additionally, newer small businesses have no
tax history.
* Adjudicator training - adjudicators need to understand how to read
and interpret business tax documents because many, in the advocate's
opinion, have no training in dealing with those complicated documents.
A representative of another immigration advocacy group also voiced the
same concern about adjudicator training and added that implementing
data sharing may be more useful in dealing with small-and medium-sized
businesses because, based on their experience, larger businesses are
less likely to be involved in immigration fraud. In addition, although
not mentioned by USCIS officials, one potential unintended effect of
data sharing might be an increased incentive to employ illegal workers.
That is, if a business knew that its tax status would be checked by
USCIS, or if it was required to meet tax filing and payment obligations
before sponsoring immigrant workers, some businesses might decide to
meet their labor force needs with workers not properly authorized to
work in the United States. Smaller employers, who are more likely to
have tax compliance problems according to IRS, may be more likely to
make this choice than larger-sized businesses.
According to USCIS officials, adjudicators would find IRS information
on small businesses particularly useful since they are limited in their
ability to assess these businesses' financial feasibility and
legitimacy. IRS has also encountered problems in corroborating
financial information provided by small businesses and its research
generally shows higher noncompliance among its small business
population.[Footnote 24] Among our nonprobability sample, 25 of 43
business sponsors with unpaid assessments reported their net incomes as
less than $10 million on USCIS employment-based applications.[Footnote
25] Additionally, USCIS has begun a series of benefit fraud
assessments, which take a random sample of applications filed within
certain immigrant and nonimmigrant categories and assess them for fraud
by verifying key data reported. Based on the results of their fraud
assessments, USCIS could focus on businesses that are more prone to
fraud to match IRS data against in determining their financial
feasibility and legitimacy.
The type of taxpayer data USCIS adjudicators find useful could change
under a USCIS proposal to revise regulations for employment-based
immigration applications.[Footnote 26] USCIS officials are seeking to
revise requirements since they believe that (1) establishing the
validity of the sponsor is sufficient to meet immigration statutory
requirements[Footnote 27] and (2) adjudicators were spending too much
time trying to establish a sponsor's income levels for well-known or
established businesses. In the interim, in May 2004, USCIS issued
updated guidance to adjudicators directing them not to reestablish a
sponsor's ability to pay with its USCIS Form I-485, Application to
Register Permanent Residence or to Adjust Status (see app. II) to
minimize processing delays. If this regulatory change is made, IRS
taxpayer data could still help adjudicators establish the legitimacy or
the bona fide nature of a business sponsor. According to USCIS
officials, if the proposed regulation were adopted, USCIS would still
need tax documents but would no longer need specific income information
from tax returns. USCIS adjudicators would need tax return information
such as whether the sponsor filed income tax returns, what years they
filed, how many employees they had, and if they paid taxes, and they
would need to further evaluate whether additional IRS information would
be useful. USCIS would need specific income information from the tax
return, such as adjusted gross income, only in cases where the initial
information provided by IRS raised questions about the sponsor for
USCIS (e.g., if the employer had unpaid assessments or was a nonfiler).
As of July 2005, the proposed regulatory change was with DHS's legal
office, awaiting approval.
More Timely Immigration Eligibility Decisions:
USCIS officials said that access to IRS taxpayer data could also
improve the timeliness of making benefit decisions primarily because it
could decrease the rework and follow-up work with the applicant. For
example, adjudicators said that if they could match applicant data
against IRS data early in the review process, they would spend less
time researching and following up on the validity of applicant-provided
data (e.g., sending fewer RFEs to applicants; see figure 3 for an
overview of the adjudicatory process). According to adjudicators, it
could take as long as 12 weeks to receive responses from applicants for
a certified IRS tax return, during which time, the application file
sits on a "suspense" shelf, thereby extending the application
processing time. Due to this time gap, in certain cases, background
checks must be redone, which further lengthens the application-
processing time. As we reported in May 2001, USCIS officials said that
lengthy processing times had resulted in increased public inquiries on
pending cases, which, in turn, caused USCIS to shift resources away
from processing cases to responding to inquiries, adversely affecting
processing time.[Footnote 28]
Under a presidential initiative, USCIS has a 5-year, $540 million
effort under way intended to reduce its backlog of applications, and
ensure a 6-month average processing time per immigration application by
the end of 2006. While USCIS has made progress on meeting most of its
fiscal year 2004 and 2005 processing time goals, which range from 2
months to 20 months, its overall goal is to reduce processing time to 6
months in fiscal year 2006. This will be difficult because USCIS's
fiscal year 2004 and 2005 average processing times for some forms are
more than twice as long as its fiscal year 2006 goal of a 6-month
processing time. As Figure 4 shows, for three of the six forms we
examined--the I-485 (Application to Register Permanent Residence or to
Adjust Status), I-751 (Petition to Remove the Conditions on Residence),
and N-400 (Application for Naturalization),--USCIS will need to cut its
application processing times by more than 50 percent by fiscal year
2006 to meet its goal and thereby improve the timeliness of eligibility
decisions.
Figure 4: Average Reported Processing Times for Fiscal Years 2004 and
2005 and Fiscal Year 2006 Processing Time Goal for Select USCIS Forms:
[See PDF for image]
Note: USCIS application forms are described in app. II. USCIS provided
us with processing times for five of the six forms we examined.
[A] FY 2005 times are reported through May 2005.
[End of figure]
In his fiscal year 2006 budget request, USCIS's director stated
"Although we are on track to achieve the President's backlog
elimination mandate, we fully realize that funding alone will not
enable us to achieve this goal—I have worked closely with the leaders
in USCIS to continually review our processes, identify opportunities
for streamlining and further improvement, and to implement meaningful
change."[Footnote 29] USCIS's director is looking for opportunities to
further streamline the adjudicatory process, and, as stated previously,
USCIS adjudicators said that if they could match applicant data against
IRS data early in the review process, they would spend less time
researching and following up on the validity of applicant-provided
data, which could reduce USCIS's processing times for business
sponsors' applications.
USCIS staff in headquarters said that changing immigration eligibility
to require proof of tax filing and payment compliance for business
sponsors may also deter businesses that are not filing and paying their
taxes from submitting immigration applications because they would know
that USCIS would deny their applications. If so, this could somewhat
reduce the volume of applications received and, thereby contribute to
quicker application processing times.
IRS and USCIS Have Data-Sharing Options but Each Presents Challenges:
A variety of options is available to IRS and USCIS for establishing and
implementing data sharing. An applicant-initiated data-sharing
relationship could be implemented under existing IRC authority through
a taxpayer consent, whereby a taxpayer authorizes IRS to disclose his
or her information to other agencies. Under an agency-initiated option,
agencies could share information directly with each other in an
electronic format, a process that is viewed as more efficient and
desirable by USCIS and IRS officials. However, achieving such efficient
data sharing may take time due to various legal, technological, and
cost challenges that must be overcome. Establishing user fees to cover
data-sharing costs are a way agencies can fund these various data-
sharing options, but IRS lacks authority to include in its user fees
the costs for bringing non-compliant business sponsors into compliance
or to retain such fees.
Applicant-Initiated Option Could Be Implemented Using Existing
Disclosure Authority:
Taxpayer Consents Under Existing Disclosure Authority:
One option for establishing data sharing between IRS and USCIS is to
use an existing authority within the Internal Revenue Code (IRC). USCIS
is not currently authorized to directly receive taxpayer information
for immigration eligibility decisions under IRC Section 6103. However,
individual taxpayers could authorize IRS to disclose their tax return
information to agencies like USCIS through a taxpayer consent submitted
either via paper or electronically. The consent must be in the form of
a separate written document pertaining solely to the authorized
disclosure - with text appearing on a paper document or text appearing
on a separate computer screen. The consent must include: (1) taxpayer
identity information (i.e., name, address, SSN or EIN); (2) the
designee to whom the disclosure is to be made; (3) the type of tax
return (or specified portion of the return) or return information (and
the particular data) that are to be disclosed; and (4) the tax year or
years to be covered. The consent must be signed and dated by the
taxpayer who filed the return or to whom the return information relates
and IRS must receive the consent within 60 days of the taxpayer's
signature and date.
Taxpayers use the Form 4506, Request for Copy of Tax Return, and the
Form 4506-T, Request for Transcript of Tax Return, to authorize the
paper consent. A tax return can show that the taxpayer filed a tax
return and a tax transcript can show whether the taxpayer had a filing
requirement, owed taxes, or paid taxes. Figure 5 is an overview of the
way IRS processes paper consents, any costs to the taxpayer, and the
average turnaround times.
Figure 5: Process for Retrieving Tax Return and Tax Transcript
Information:
[See PDF for image]
Note: According to IRS officials, taxpayers who live in disaster relief
areas do not have to pay the $39 fee.
[End of figure]
IRS paper consents permit the agency to verify for a third party
whether a taxpayer has been filing required tax returns and paying his
or her taxes. These verifications may be referred to by various names
but can be generically called "tax checks."[Footnote 30] They are often
done in connection with a taxpayer's application for benefits,
licensing, or employment. Entities that use tax checks include mortgage
institutions, major banks, financial institutions, state revenue
agencies, and federal agencies. States are the biggest users of
taxpayer information. According to an official with the Federation of
Tax Administrators, many states have a taxpayer consent requirement,
along with their own consent form, to require potential employees or
contractors to consent to a state tax check as a condition of
employment or to receive a license. When states verify individual and
business compliance with state tax requirements, they are also able to
determine federal compliance as permitted by IRC 6103(d), since states
routinely receive extracts of IRS taxpayer information (See table 3 for
examples of state and private entities that require tax checks.)
For example, an Executive Order permits the state of Kansas to require
a tax check in order for individuals and businesses to qualify for
state employment or state contracts. State law also permits the
rejection of a business's application if the business owes the state
taxes. Further, Kansas requires a tax check on all new and renewing
vehicle dealership licenses. A March 2003 Kansas Legislative Audit
Report found 514 motor vehicle dealers who owed $7 million in state
sales tax. Before a business can apply or renew its dealership license
at the state's Division of Motor Vehicles (DMV), the business must
present to the DMV proof that it fulfilled its state tax filing and
payment requirements. According to an official with the Kansas
Secretary of Revenue, for an active dealer, the threat of license
revocation provided an incentive to bring non-compliant businesses into
compliance. Businesses with unpaid assessments either paid their
assessments or set up a payment plan. The state increased its car
dealer tax compliance rate by 97 percent, according to an official with
the Kansas Secretary of Revenue.
Table 3: Examples of State and Private Entities That Require Tax
Checks:
Entity: Banks/financial institutions;
For What Purpose: Income verification;
Criteria: To qualify for: A mortgage.
Entity: Kansas;
For What Purpose: Tax compliance;
Criteria: To qualify for: Employment, Vehicle dealer license.
Entity: Maryland;
For What Purpose: Tax compliance;
Criteria: To qualify for: Business and professional license.
Entity: Missouri;
For What Purpose: Tax compliance;
Criteria: To qualify for: Building permits, Professional license.
Source: GAO analysis.
[End of table]
As noted previously, IRS taxpayer consents can also be implemented
electronically. Similar to the paper consent, the electronic consent
must indicate taxpayer identity information, the designee to whom the
disclosure is made, the type of return information that is to be
disclosed, and the tax year or years covered. USCIS officials are
agreeable to using taxpayer consents if they could be implemented
electronically in a way similar to an electronic verification pilot
project that was undertaken by IRS and the Department of Education
(Education). In the pilot, students who wanted to qualify for financial
aid authorized the IRS to release their tax information to their
academic institutions via the Internet. After authorizing the release,
IRS sent the individuals' tax transcripts directly to the schools. This
procedure then resolved any inconsistencies between information on the
tax transcripts and on financial aid applications.[Footnote 31]
Challenges Using Taxpayer Consents:
One challenge agencies face in implementing data sharing based on
taxpayer consents is the costs IRS and USCIS would incur to make data
sharing work. Taxpayer consents can be costly and resource intensive
when using paper, according to IRS officials. For example, IRS
processed approximately 340,000 paper return and transcript requests at
an IRS estimated cost of about $6.2 million (see table 4) during fiscal
year 2004. Furthermore, the process can be paper intensive since IRS
typically receives only hard copies of taxpayer consents. The agency
only accepts paper requests via mail or fax, and no electronic versions
of the paper copies (e.g., scanned copies cannot be e-mailed to IRS)
are accepted. The process also can be time intensive. For example, the
average processing turnaround time to process a copy of a tax return is
30 days; and the average turnaround time for a tax transcript is 10 to
30 days.
Table 4: Examples of Operational Data on the Paper Taxpayer Consent
Process:
Process: Request for copy of tax return;
Volume of information shared: 161,000;
Data-sharing method: Mail or fax;
Turnaround time: 30 days;
Annual processing cost: $2.9 million.
Process: Request for transcript of tax return;
Volume of information shared: 179,000;
Data-sharing method: Mail or fax;
Turnaround time: 10 to 30 days; (48 hours for bulk requests);
Annual processing cost: $3.3 million.
Source: IRS.
[End of table]
USCIS officials are reluctant to use a paper consent because the agency
is moving from a paper to an electronic environment. USCIS officials
warned that requiring applicants to consent to a paper or electronic
tax check would necessitate business process and procedural changes by
USCIS, as well as an education process to the immigration community and
the third parties that assist petitioners with their applications.
USCIS officials said that requiring business and individual
applications to undergo a tax check could strain already limited agency
resources. USCIS application data showed the estimated annual volume
for the six immigration forms we reviewed totaled about two million for
fiscal year 2004. USCIS officials said implementing a tax check for
employment-based business applications--estimated to be at least
180,000 for fiscal year 2004--would be less difficult to process than
the six application forms that require financial information. Also,
because the same business sponsor could file applications more than
once in a year, depending on how USCIS implemented the requirement for
a tax check, it could be valid for a certain period of time according
to whatever policy USCIS established. Subsequently, the business would
not have to undergo a tax check every time it sponsored a worker, which
would not strain USCIS's resources.
Although use of tax data has helped some federal agencies better
administer their programs, some are concerned that widespread use of
taxpayer consents may undermine taxpayers' right to privacy and,
subsequently, voluntary tax compliance. The confidentiality of tax data
is considered by many to be crucial to voluntary compliance. The Joint
Committee on Taxation and Treasury's Office of Tax Policy warn that the
use of consents for programmatic governmental purposes potentially
circumvents the general rule of taxpayer confidentiality because the
taxpayer waives certain restrictions on agencies' use of the data. When
such waivers are granted, agencies are not obligated to follow the
recordkeeping, reporting, and safeguard requirements that apply to tax
data, although the less stringent requirements of the privacy act may
still apply. IRS's National Taxpayer Advocate stated in 2003 that
"Widespread use of tax information by federal or state agencies will,
in fact, undermine our tax administration system," and that "A change
in tax compliance of even one percentage point equates to an annual
loss of over $20 billion of revenue to the federal government." In its
October 2000 report to the Congress on taxpayer confidentiality,
Treasury's Office of Tax Policy recommended that before a government
program is allowed to use taxpayer consents, the requesting agency
should first conduct a statistical test match or a small-scale
pilot.[Footnote 32] If that test or pilot demonstrates that the
program's need for information outweighs concerns about taxpayer
privacy and voluntary tax compliance, then Treasury will determine
whether the agency can proceed with a limited program using taxpayer
consents or whether a legislative amendment should be sought permitting
direct access.
Agency-Initiated Electronic Option Is Seen as More Efficient, but
Additional Authority Would Be Needed:
Specific Disclosure Authorities for Sharing Data Electronically:
Another option for data sharing is direct agency-to-agency sharing.
Such data-sharing arrangements are enabled by specific statutes or
regulations and, in the case of electronic data matching, have written
agreements between agencies. Education, SSA, and the Centers for
Medicare and Medicaid Services (CMS) are examples of agencies that have
existing data-sharing relationships with IRS using electronic media
such as a magnetic tape. These agencies are able to share data with IRS
because they were each given specific authorities under IRC Section
6103, which authorizes the disclosure of a taxpayer's return
information and tasks IRS with oversight of safeguards for taxpayer
information. Further, agencies enter into a computer matching agreement
(CMA), which outlines the purpose for the data-sharing relationship,
the information to be shared, the method of sharing, the approximate
number of records to be shared, the frequency of sharing, and the
length of the data-sharing arrangement. The requesting agency is
required to attach to the CMA an analysis that measures the costs and
benefits associated with a data-sharing arrangement with IRS. Agencies
must also provide IRS an annual report on their security safeguards
that protect against any unauthorized access or disclosure of data
received during the arrangement.
As shown by the examples in table 5, each agency's data-sharing
relationship with IRS differs in terms of the number of records shared,
the method and frequency of sharing, the annual cost to the agency, and
the cost per record.
Table 5: Characteristics of Selected Electronic Data-Sharing
Arrangements between IRS and Federal Agencies:
Agency: Education;
Purpose of data-sharing relationship: Education obtains the current
addresses of those taxpayers who have defaulted on their student loan;
IRC Section 6103 Provision: 6103(m)(4);
Annual number of records: 4.6 million;
Data-sharing method: Magnetic tape;
Frequency: Weekly;
Annual cost to agency and cost per record: $819,000;
Annual cost to agency and cost per record: $.18/record.
Agency: SSA;
Purpose of data-sharing relationship: SSA determines eligibility for
its cash assistance program for the poor;
IRC Section 6103 Provision: 6103(1)(7);
Annual number of records: 26 million;
Data-sharing method: Magnetic tape;
Frequency: Monthly;
Annual cost to agency and cost per record: $5.7 million;
Annual cost to agency and cost per record: $.22/record.
Purpose of data-sharing relationship: SSA identifies Medicare-eligible
individuals with insurance coverage to avoid duplicate payment for
health services;
IRC Section 6103 Provision: 6103 (1)(12);
Annual number of records: 40 million;
Data-sharing method: Magnetic tape;
Frequency: Annually;
Annual cost to agency and cost per record: $8.2 million;
Annual cost to agency and cost per record: $.21/record.
Agency: CMS;
Purpose of data-sharing relationship: CMS determines eligibility for
its prescription drug program;
IRC Section 6103 Provision: 6103(l)(19);
Annual number of records: 1,064,685;
Data-sharing method: Computer file;
Frequency: Daily;
Annual cost to agency and cost per record: $129,858;
Annual cost to agency and cost per record: $.12/record.
Source: CMAs.
Note: With the exception of CMS's FY 2004 actual figures, all other
agency figures are estimated based on the 18-month duration of the
matching agreement. Education's figures are estimated for February 2001
through August 2002. The first SSA program's figures are estimated for
July 2003 through December 2004. The second SSA program's figures are
estimated for October 2000 through March 2002.
[End of table]
Electronic Data Sharing between IRS and the Department of Education:
The Department of Education obtains the mailing addresses of taxpayers
for use in collecting debt from students who have defaulted on loans.
Under the Taxpayer Address Request program, as authorized by IRC
Section 6103(m)(4), Education furnishes the name and SSN of each
defaulted student to the IRS. IRS then matches the information to its
records and provides Education the most recent address for the
taxpayer. Education sends about 4.6 million records annually to IRS for
matching.
Electronic Data Sharing between IRS and the Social Security
Administration:
SSA is using each section within IRC Section 6103 that authorizes the
disclosure of taxpayer information by IRS to SSA for benefit
eligibility purposes. For example, the Disclosure of Information to
Federal, State, and Local Agencies, under IRC Section 6103(l)(7),
enables SSA to request and use taxpayer information from IRS to
determine the eligibility of applicants and recipients of Supplemental
Security Income, the nation's largest cash assistance program for the
poor. SSA officials estimate a savings of approximately $48 million
annually with this data-sharing relationship. In addition, with the
Medicare Secondary Payer Program, as authorized by IRC Section
6103(l)(12), SSA, through information collected from employers of
working-aged beneficiaries and Medicare-eligible spouses such as name
and SSN, is able to avoid duplicate payments for services by
identifying Medicare-eligible individuals who have primary coverage
through a group health plan. This data-sharing relationship's annual
savings are estimated at $463 million.
Electronic Data Sharing between IRS and the Centers for Medicare and
Medicaid Services:
The most recent data-sharing relationship under IRC Section 6103 is
between IRS and CMS in which CMS uses taxpayer information on a daily
basis to determine eligibility for the Transitional Assistance Program,
which provides up to $600 to individuals to purchase prescription
drugs. IRC Section 6103(l)(19) authorizes IRS to disclose to CMS
specified tax return information of applicants for transitional
assistance to help CMS identify eligible applicants. Figure 6 describes
how the data matching occurs. In fiscal year 2004, CMS sent IRS about
one million records for matching, and this data-matching arrangement
cost CMS approximately $130,000.
Figure 6: Flow Chart on the Medicare Prescription Drug Process:
[See PDF for image]
[End of figure]
Electronic Data Sharing via Transcript Delivery System:
IRS offers electronic service, or e-service, products that are accessed
directly by authorized third parties such as tax practitioners and
state revenue agencies. Available since July 2004, the Transcript
Delivery System (TDS) allows authorized third parties to immediately,
electronically access taxpayer transcript information like the return
transcript, account transcript, record of account, and verification of
nonfiling--products that otherwise are available via the paper consent
Form 4506-T. Tax practitioners can use this service if the taxpayer
authorizes disclosure via Form 2848, Power of Attorney, which must be
on file with IRS before the practitioner can request and receive a
taxpayer's data. This type of disclosure is authorized via IRC Section
6103(e)(6). Only three states are currently using TDS, as authorized by
IRC Section 6103(d).
The TDS e-services are Internet based and authorized users can access
them from any computer with minimal Internet capabilities. The
authorized individual retrieving taxpayer information inputs the
request, and the information is accessed immediately. For fiscal year
2004, IRS estimates that it cost about 4.8 cents to provide access to a
transcript using TDS.[Footnote 33]
Challenges Associated with Electronic Data Sharing:
Legal Challenge of Data Sharing:
Electronically sharing taxpayer information directly from IRS to USCIS
without a taxpayer consent has a number of legal, technological, and
cost challenges if it is used for immigration benefit purposes. In
order to electronically share information without first obtaining
taxpayers' consent, IRC Section 6103 would need to be changed to
authorize IRS to disclose taxpayer information directly to USCIS for
immigration eligibility purposes. Over the years, a number of
exceptions have gradually been added to IRC Section 6103 that allow
access to taxpayer information. As mentioned previously, some are
concerned that disclosing taxpayer data could affect the taxpayer's
right to privacy and, subsequently, undermine voluntary tax compliance.
According to Treasury, the burden of supporting an exception to IRC
Section 6103 should be on the requesting agency, which should make the
case for disclosure and provide assurances that the information will be
safeguarded appropriately. Table 6 lists the criteria Treasury and IRS
have applied when evaluating specific legislative proposals to amend
IRC Section 6103 for governmental disclosures.
Table 6: Criteria Applied by Treasury and IRS When Evaluating Specific
Proposals for Governmental Disclosures:
Criteria to be addressed by the requesting agency;
Is the requesting information highly relevant to the program for which;
it is to be disclosed?
Are there substantial program benefits to be derived from the requested
information?
Is the request narrowly tailored to the information actually necessary
for the program?
Is the same information reasonably available from another source?
Criteria to be addressed by the requesting agency and Treasury/IRS;
Will the disclosure involve significant resource demands on IRS?
Will the information continue to be treated confidentially within the
agency to which it is disclosed, pursuant to standards prescribed by
IRS?
Other than IRC Section 6103, are there any statutory impediments to
implementation of the proposal?
Criteria to be addressed by Treasury/IRS;
Will the disclosure have an adverse impact on tax compliance or tax
administration?
Will the disclosure implicate other sensitive privacy concerns?
Source: Office of Tax Policy, Department of the Treasury.
[End of table]
Technological Challenges of Electronic Data Sharing:
USCIS must also address a number of technological challenges to lay the
foundation that would enable data sharing to take place between the two
agencies. For example, in our July 2004 testimony, we reported that:
* USCIS does not maintain any automated financial data on applicants.
Although USCIS automates certain personal information from benefit
applications, such as an individual's name and alien registration
number, it does not automate any financial data that are reported on
the benefit application or in accompanying documents such as tax
returns.
* USCIS systems contain some inaccurate data. We and the Department of
Justice's Office of Inspector General have criticized USCIS systems
because they contain some inaccurate data for identifying pieces of
information that identifies applicants (such as immigrants' addresses).
* USCIS and IRS databases do not always have a common numerical
identifier for tracking individuals or businesses. USCIS uses alien
registration numbers as tracking identifiers whereas IRS uses SSNs or
EINs. Although USCIS's systems capture SSNs/EINs if they are provided
on applications, USCIS does not require them to be entered into its
systems. Thus, even though business sponsors should all have SSNs (if
sole proprietor) or EINs (if another form of business), USCIS may not
have entered the number into automated databases and therefore cannot
match directly to IRS records.
These limitations in USCIS's record keeping would make electronic
sharing of data between USCIS and IRS less productive than it otherwise
could be, regardless of whether the data sharing was done directly
between the agencies pursuant to a change in IRC Section 6103 or
whether done through taxpayer consents. USCIS officials recognize that
these problems could interfere with achieving data sharing in the fully
electronic environment that they hope to achieve for adjudicators, but
if a policy decision was made to share data, they believe that some
form of electronic data sharing could be achieved relatively quickly
without major technological improvements. The officials believe that
USCIS could develop interim solutions while other USCIS transformation
activities are under way. For example, these officials said USCIS could
modify its existing automated systems to add a SSN/EIN identifier, and
could adopt procedures to ensure the identifiers are routinely entered
in all locations. They view this as a business process and policy
challenge rather than a technological challenge. They also believe they
could link the existing USCIS record identifiers to SSNs and EINS to
enable data sharing to take place with IRS relatively quickly.
Officials did offer some cautions about how quickly even these changes
could be implemented. For example, they said that although adding a
SSN/EIN identifier to their existing systems may only take a few
months, changing immigration forms and notifying adjudicators and the
larger community about the change could take much longer. As mentioned
previously, these officials contend that establishing a new immigration
requirement on applicants for a tax check will necessitate business
process and procedural changes by USCIS, as well as an education
process to the immigration community and the third parties that assist
petitioners with their applications, which could take years. Finally,
these USCIS officials pointed out, and the agency's fiscal year 2006
budget request reflects, that the agency's current priorities fall into
three areas: (1) enhancing national security, (2) eliminating the
immigration benefit application backlog, and (3) improving customer
service. They stated that implementing changes to enable data sharing
with IRS might take a longer time because it is not one of the agency's
three main priorities.
If data sharing were to occur, officials ultimately would prefer to
have it integrated into a transformed USCIS information technology (IT)
environment. Since July 2004, USCIS has taken a number of steps to
improve IT capability. In March 2005, USCIS unveiled its IT
transformation plan that USCIS describes as a large scale and complex
program to increase capabilities, streamline processes and support the
collection of service fees. As such, the overall planned IT upgrade
includes changes, which will improve the agency's overall IT
environment as well as facilitate data sharing such as:
* Moving from a paper to an automated environment;
* Adding a unique identifier to track records for background
checks;[Footnote 34]
* Implementing electronic adjudication whereby adjudicators will be
able to review immigration applications and supporting evidence online,
among the first increments of the IT upgrade.
Of the many ongoing activities related to USCIS's IT transformation,
USCIS officials described three major projects under way to improve its
ability to receive and share data within the agency as well as with
other agencies:
* Data layer/repository - this project will present users with a
consolidated system to access information from 63 USCIS systems rather
than the current situation where users have to log onto separate
systems to obtain data. This capability would be available to
adjudicators and, eventually, to external users.
* Software updates - this project will upgrade, among other things,
USCIS's desktop and software capabilities, USCIS's servers and network,
and USCIS's capability to support the new electronic processes.
* E-adjudication pilots - this project will allow paperless
(electronic) adjudication for certain immigration forms. Initially,
USCIS has plans to pilot green card replacement/renewal applications
(Form I-90) and extension applications for temporary workers in
specialty occupations (Form I-129 H1B).
In the fall of 2004, USCIS officials anticipated implementing the e-
adjudication pilots by mid-April 2005 and having the ability to receive
data from IRS in June or July 2005. However, these projects have not
gotten under way as scheduled; the start of the pilots is dependent on
the data layer and software updates being in place. USCIS could not
provide us with a completion date for the data layer and e-adjudication
pilots due, in part, to uncertainty regarding future funding. USCIS
expects to complete full implementation for its information technology
transformation by fiscal year 2010. We are examining USCIS's
technological improvements as part of our ongoing work on immigration
backlog and benefit fraud issues.
Cost Challenges of Data Sharing:
Estimating the cost benefit associated with establishing and
maintaining a data-sharing relationship can be complicated. One reason
developing a cost estimate is difficult is because electronic methods
of sharing data can vary, and different costs are associated with
different methods of sharing. For example, USCIS may incur
technological costs related to improving their IT capability to enable
data sharing, which can be processed by either magnetic tape or
computer file, each of which has different costs. However, some of the
necessary IT improvements are already planned and would be funded as
part of USCIS's comprehensive upgrade of its IT systems if data sharing
with IRS does not occur.
Estimating the cost benefit is also complicated because of the
difficulty both agencies may encounter in establishing costs for
providing the service. The Computer Matching and Privacy Protection Act
of 1988 states that no matching program can be approved unless the
agency has preformed a cost-benefit analysis for the proposed matching
program that demonstrates the program is likely to be cost effective.
Similarly, Treasury's criteria for considering whether a statutory
change should be made for the sharing of tax data stresses the
importance of documenting whether a substantial benefit is likely and
what the resource demands on IRS would be to support sharing the data.
In our July 2004 testimony, we recommended that IRS and USCIS assess
the benefits and costs of data sharing to enhance tax compliance and
improve immigration eligibility decisions. IRS responded by stating it
would study the issues and work with USCIS to identify possible
solutions. DHS/USCIS agreed with our recommendation and said they were
"exploring a technical capability for effectively and efficiently
sharing data with the IRS on individuals who apply for immigration
benefits." In addition, in 2004, we reported IRS did not have a cost
accounting system capable of providing reliable cost information,
[Footnote 35] and in 2004, we also reported USCIS had insufficient cost
data to determine the full extent of its operating costs.[Footnote 36]
Finally, estimating the cost benefit is also complicated because of
uncertainty regarding the net benefits that would be gained from data
sharing. For example, IRS is unable to pursue all of the current leads
that it receives from existing data corroboration efforts, like
document matching. Therefore, to the extent that obtaining and
analyzing additional data from USCIS developed more leads for possible
enforcement actions, IRS likely would only be able to pursue the
portion of cases that exceeds thresholds IRS uses in determining how
many cases to pursue. Further, apparent noncompliance may not be
substantiated. For example, some of those who appear not to have filed
tax returns based on matching IRS and USCIS data may indeed have filed
but were not found in IRS's databases due to inaccurate information in
USCIS files or otherwise not have a filing obligation. Of business
sponsors with unpaid assessments, some portion likely would be unable
to repay all taxes owed. From USCIS's perspective, although we found
that many businesses may not have filed tax returns or may owe taxes,
some of these situations may not be significant enough to affect a
USCIS adjudicator's decision about their financial feasibility or
legitimacy. For instance, some of the businesses applying to sponsor
immigrant workers that owe taxes may not owe enough to raise doubts
about their ability to pay the worker. This may be especially true for
larger businesses.
Currently Authorized User Fees Can Fund Data Sharing, but IRS Could Not
Recover All Related Costs:
Under current statutes, USCIS likely would be able to increase its user
fees to recover all costs associated with data sharing with IRS and to
retain the fees, but IRS would not be able to charge user fees that
would include costs to bring noncompliant business sponsors into
compliance. Because IRS could not recover all costs, it might not
realize an increase in net tax collections through data sharing with
USCIS.
Both IRS and USCIS currently have authority that states when and under
what circumstances they can charge user fees and defines permissible
uses of the funds. IRS is statutorily restricted to retaining no more
than the $119 million in user fees annually. If the additional user
fees to perform tax checks for USCIS business applicants seeking to
sponsor workers generate additional funds that exceed IRS's limit, the
agency would be unable to retain the excess amounts. Further, IRS is
limited to recovering the costs directly associated with providing a
service to taxpayers. USCIS, on the other hand, does not have a limit
on the amount of user fees it can collect and currently is authorized
to collect and retain a user fee related to providing adjudicatory and
naturalization services including compliance related costs.
In 2004, IRS collected over $137 million in user fees for a wide range
of services, including installment agreements, offers in compromise,
and Freedom of Information Act (FOIA) requests.[Footnote 37] In fiscal
year 2004, about 82 percent of all user fees collected by IRS were for
installment agreements or employee plans and exempt organizations'
letter rulings and determination letters.[Footnote 38] The 1995
Treasury Appropriations Act specifies that IRS can keep an overall
maximum of $119 million per year of the user fees it collects for
specific purposes, with the rest of the user fees going into the
Treasury general fund.[Footnote 39] However, statutory formulas also
limit how much IRS can retain of certain individual user fees. Due to
these individual user fee limits, in 2004, IRS retained about $90
million from the user fees collected (see table 7) while the remaining
$48 million went to the Treasury general fund.
Table 7: User Fees Collected by IRS, Fiscal Year 2004:
Dollars in millions.
Fee type: Installment agreements;
User fees collected: $69.4;
User fees to Treasury general fund: $0.0;
User fees retained by IRS: $69.4.
Fee type: Offers-in-compromise;
User fees collected: $6.6;
User fees to Treasury general fund: $0.0;
User fees retained by IRS: $6.6.
Fee type: Employee plans and exempt organizations letter rulings and
determination letters;
User fees collected: $43.1;
User fees to Treasury general fund: $41.2;
User fees retained by IRS: $1.9.
Fee type: Chief counsel letter rulings and determination letters;
User fees collected: $9.3;
User fees to Treasury general fund: $5.5;
User fees retained by IRS: $3.8.
Fee type: Photocopy reimbursable user fees;
User fees collected: $6.4;
User fees to Treasury general fund: $0.0;
User fees retained by IRS: $6.4.
Fee type: Other;
User fees collected: $2.8;
User fees to Treasury general fund: $1.2;
User fees retained by IRS: $1.6.
Total;
User fees collected: $137.6;
User fees to Treasury general fund: $47.9;
User fees retained by IRS: $89.7.
Source: IRS.
[End of table]
According to USCIS officials, in 2004, USCIS collected $1.3 billion in
user fees for administering a variety of immigration services and
benefits. Altogether, the agency has about 60 user fees, which range
from $2 to $585, except for the $1000 premium-processing fee for select
employment based applications.[Footnote 40] With the exception of FOIA
fees, which are retained by the Treasury, DHS retains all user fees
collected. According to USCIS, the agency's budget will be entirely fee
based beginning in fiscal year 2007.[Footnote 41]
IRS cannot collect and retain a user fee to support the compliance-
related costs it incurs in connection with data-sharing activities. IRS
currently only has authority to collect and retain a user fee related
to the direct cost of providing the service--such as providing a copy
of a tax return. If business sponsors were required to meet their tax
obligations before they could sponsor immigrant workers, IRS also would
incur costs to bring some sponsors into tax filing and payment
compliance. As discussed earlier, bringing noncompliant business
sponsors into compliance could displace other compliance activities
that IRS would otherwise undertake. Depending on whether bringing the
noncompliant business sponsors into compliance brought in more, the
same, or less taxes than the displaced cases, bringing business
sponsors into compliance could result in little change to IRS's overall
net tax collections, an increase, or possibly even a decrease.
If data sharing were begun between USCIS and IRS and a user fee is
charged, a number of implementation issues also would need to be
considered. For example, would both agencies charge fees to cover their
costs? Would one charge a fee sufficient to cover both agencies' costs
and, if so, how often would it forward collected monies to the other
agency? In addition, if IRS were authorized to include costs for
bringing noncompliant business sponsors into compliance, it likely
would have to adjust the fees as it gained experience in determining
how much cost it would incur to bring sponsors into compliance.
Conclusions:
Data sharing between IRS and USCIS has the potential to better guide
IRS's efforts to identify and correct noncompliance by taxpayers and
result in more informed, accurate, and timely immigration eligibility
decisions by USCIS adjudicators. Although the agencies would benefit in
differing ways, establishing and implementing data sharing can be
beneficial to both agencies. For tax compliance purposes, requiring a
tax check--documenting whether a business sponsor has filed required
returns and paid required taxes--likely would lead some businesses to
come into compliance because they would know that USCIS would consider
this information in determining whether the business can sponsor
immigrant workers. However, because USCIS would only consider this
information as one indication of whether businesses qualify to sponsor
workers, a greater tax compliance increase is likely if businesses were
required to meet tax filing and payment obligations as a condition for
sponsoring workers. Given the billions of dollars of unpaid tax
assessments among past business sponsors, our matching results
illustrate strong potential for increased tax collections from changing
immigration eligibility requirements. Although USCIS officials say no
statutory provision prohibits USCIS from changing its regulations to
require business sponsors to meet their tax filing and payment
obligations, officials believe a statutory change would better
withstand a legal challenge. Further, because collecting the unpaid
assessments of business sponsors would displace other tax collections
work, absent funding to cover its costs of bringing the business
sponsors into compliance, IRS might not realize a net increase in
overall tax collections.
For immigration eligibility purposes, requiring business sponsors to
meet their tax filing and payment obligations would help ensure
businesses applying to sponsor immigrant workers are legitimate. Short
of this change, either an applicant-initiated or an agency-initiated
data-sharing arrangement could help improve benefit decisions. Our
analysis shows strong potential to improve thousands of immigration
eligibility decisions if USCIS uses IRS data to help support officials'
decisions about a business sponsor's financial health.
Even though data sharing shows promise to benefit both agencies, they
would face implementation choices and challenges that could require
technological or statutory solutions. In order to develop a better
understanding of the implementation challenges and costs, to explore
the most practical options for full scale implementation of data
sharing, and to more completely assess benefits to IRS and USCIS from
data sharing, USCIS should undertake a pilot test of data sharing under
existing authority to use taxpayer consents to obtain tax data. Such a
study would be consistent with congressional and executive branch
policies that stress that sharing of tax data be thoroughly justified
given concerns about possible adverse effects on tax compliance if the
confidentiality of taxpayer's data is compromised. Additionally, a
study could assess issues raised by USCIS's Ombudsman and immigration
advocacy groups. A study would provide executive and legislative
policymakers better information for determining the costs and benefits
of data sharing and whether USCIS should require taxpayer consents from
all future business sponsors or whether a change to IRC Section 6103
would better support efficient data sharing.
Matters for Congressional Consideration:
To improve taxpayer compliance and USCIS's immigration benefit
decisions, Congress should consider (1) changing immigration
eligibility to require businesses applying to sponsor immigrant workers
to meet tax filing and payment obligations to sponsor immigrant workers
and (2) authorizing a user fee to be collected and retained by IRS to
cover the costs of bringing non-compliant taxpayers into compliance.
Recommendation for Executive Action:
To improve the accuracy and timeliness of USCIS's immigration
eligibility decisions absent requiring businesses to have met their tax
filing and payment obligations, we recommend the Secretary of the
Department of Homeland Security direct USCIS, in consultation with the
IRS, to conduct a pilot data-sharing test. In the test, USCIS should
require a tax check for selected businesses and other entities applying
to sponsor immigrant workers before qualifying for immigration
benefits. The pilot test should assess and document the costs and
benefits of data sharing including key issues such as using paper or
electronic consents, or pursuing specific IRC Section 6103 disclosure
authority, assessing resource implications, and considering how the
agencies would allocate responsibilities for collecting and allocating
user fees from the business sponsors.
Agency Comments and Our Evaluation:
The Commissioner of Internal Revenue provided written comments on a
draft of this report in a September 16, 2005, letter. The Commissioner
agreed that data sharing between the IRS and USCIS within the
Department of Homeland Security may have many benefits. IRS agreed to
conduct a small-scale pilot test, in conjunction with USCIS, to
determine whether a business case exists for supporting data sharing
before pursuing legislation or a large-scale taxpayer consent program.
The Commissioner also stated an executive working group will determine
the merits of applying user fees for compliance data sharing.
On behalf of the Secretary of DHS, the Director of DHS's Office of
Inspector General Liaison provided written comments on a draft of this
report in a September 26, 2005, letter. The Director generally agreed
with our recommendation and acknowledged the pilot program would be
consistent with USCIS's desire to explore ways to streamline its
processes and could provide necessary information with respect to
considering the feasibility of initiatives such as data sharing on a
larger scale. He appreciated GAO's recognition of the burden of paper
taxpayer consent forms place on USCIS and its reluctance to embark on a
process that would be largely paper-based.
Although the Director generally agreed with our recommendation, his
agreement was contingent on the extent to which USCIS can lawfully
engage in a pilot program as we recommend. The Director's letter did
not elaborate on his uncertainty regarding USCIS's ability to lawfully
engage in the recommended pilot program. Based on supplemental
communication, his concern focused on USCIS's authority to require
business sponsors to consent to a tax check. According to the Director,
immigration laws contain no explicit prohibition on conditioning
employer petitions on their tax compliance and doing so might be
legally defensible. Nevertheless, he said USCIS has serious legal
concerns about USCIS's authority to promulgate regulations with such a
requirement.
The Director did not describe the legal concerns and therefore we do
not have a basis to evaluate them. Consulting with IRS in determining
how to design the pilot test should help USCIS resolve these concerns.
We note that Education requires taxpayer consents as a condition of
participation in certain student loan repayment programs.[Footnote 42]
Should USCIS ultimately conclude that it does not have authority to
require such a waiver, an option for proceeding with the pilot test
would be to ask selected business applicants to voluntarily allow USCIS
to directly obtain tax data from IRS. Taxpayers may authorize others to
obtain their tax data directly from IRS.
The Director also expressed concerns about the impact of ongoing tax
disputes on immigration benefit decisions if those decisions are
contingent on a taxpayer being required to meet tax filing and payment
obligations. We believe consultations between USCIS and IRS in
designing a pilot program can address this issue. For instance,
officials might decide that businesses with some minimal level of tax
underpayment or businesses with tax delinquencies that are actively
participating in a payment arrangement with IRS would not be
disqualified from sponsoring immigrant workers. We would urge USCIS and
IRS to develop data-sharing policies that would minimize the impact of
ongoing tax disputes on immigration benefit decisions for business
sponsors.
In commenting on a user fee to be collected and retained by the IRS,
the Director agreed that IRS should be provided with adequate resources
to carry out its tax compliance mission but had serious concerns about
the user fee proposal. The Director commented that policy
considerations have kept USCIS from completely using its authority to
recover its full costs. He noted that Congress has mandated several
additional fees for certain employment-based applications and that, "in
short, the more interagency functions the overall cost of an
application to USCIS is expected to support, the higher the cost to the
applicant without consequent improvements in USCIS services, the less
likely it is that USCIS will be able to increase its fees as may be
necessary to fully recover its own costs." The Director also noted that
we had previously reported that fee collections are not sufficient to
pay USCIS's full costs.
We understand that many considerations must be taken into account in
setting USCIS's overall fees. However, as our report indicates,
obtaining a benefit from IRS's perspective depends substantially on
having sufficient funds to bring business applicants that have
outstanding tax filing or payment obligations into compliance. Further,
as also indicated in our report, USCIS access to IRS tax data for
determining immigration benefit decisions has the potential to improve
service to USCIS's business applicants because it could decrease rework
and follow-up work with the applicant that currently occurs. This would
help USCIS in minimizing processing time for all business sponsors.
Ultimately, with more routine access to IRS data, USCIS might not need
to request as much financial information from business applicants as it
does now since USCIS officials themselves see IRS data as more reliable
than information provided by applicants. Finally, the GAO report cited
by the Director did conclude that USCIS fees were not sufficient to
fully fund USCIS's operations. The insufficiencies, however, were not
due to fees being collected for interagency functions. Rather, we said
this resulted because USCIS's fee schedule was based on an outdated fee
study that did not include all costs of USCIS's operations and costs
had increased since the fee study was conducted.[Footnote 43]
Finally, the Director commented that the proposed user fee to cover
IRS's compliance related costs seemed to be different in concept from
other existing user fees. As the Director noted, it was not within the
scope of our review to examine all user fee relationships between IRS
and other agencies. Based on the work we did, we are not aware of
another case in which IRS receives a user fee to bring applicants for
other agencies' benefits into compliance with their tax obligations.
However, Congress has authorized new or expanded funding arrangements
to help IRS deal with its workload. For instance, in Treasury's
appropriations for 1995, Congress specifically authorized IRS to
establish new user fees or raise existing fees for services provided in
order to increase receipts.[Footnote 44] More recently, Congress also
authorized IRS to use private collection agencies to assist in
collecting delinquent taxes and specified that up to 25 percent of
money collected can be used to pay the collection agencies and another
25 percent can be retained by IRS.[Footnote 45] Given the substantial
unpaid taxes that we found among businesses applying to sponsor
immigrant workers, we believe that it is appropriate for Congress to
consider steps for effectively bringing these taxpayers into compliance
without unduly deterring IRS from pursuing other noncompliant
taxpayers. As our report explains, for this to occur, IRS's costs for
bringing the noncompliant business sponsors into compliance must be
covered, otherwise IRS might experience a net decrease in tax
collections. Consequently, our report put forth the user fee as one
option for Congress to consider for supporting a potential data-sharing
arrangement between IRS and USCIS.
As agreed with your office, unless you publicly release its contents
earlier we plan no further distribution of this report until 30 days
from the date of this letter. At that time, we will send copies to
interested congressional committees, the Secretary of the Treasury, the
Commissioner of Internal Revenue, the Secretary of the Department of
Homeland Security, the Director of the United States Citizenship and
Immigration Services, and other interested parties. We will also make
copies available to others on request.
If you or your staff have any questions about this report, please
contact me at (202) 512-9110 or [Hyperlink, brostekm@gao.gov]. Contact
points for our Offices of Congressional Relations and Public Affairs
may be found on the last page of this report. GAO staff who made major
contributions to this report are listed in appendix IV.
Signed by:
Michael Brostek:
Director, Tax Issues, Strategic Issues Team:
[End of section]
Appendixes:
Appendix I: Objective, Scope, and Methodology:
Our objectives were to determine the (1) potential benefits of data
matching and the (2) options for establishing and maintaining a data-
sharing relationship between the Internal Revenue Service (IRS) and the
U.S. Citizenship and Immigration Services (USCIS), including any
challenges associated with those options.
We performed our work at various IRS offices, including the Office of
Governmental Liaison and Disclosure, the Office of Safeguards; and the
Office of Program, Evaluation, and Risk Analysis. Our work included
interviews with employees in IRS's Wage and Investment Operating
Division and Small Business/Self Employed Operating Division. We
interviewed USCIS officials in headquarters' operational,
technological, fraud, ombudsman, and policy offices. Additionally, we
interviewed representatives of two immigration advocacy groups--the
American Council on International Personnel and the American
Immigration Lawyers Association--to obtain their perspectives on
potential changes to immigration eligibility rules.
To determine the potential benefits of data matching between IRS and
USCIS, we summarized the benefits reported in our July testimony
([Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-04-972T]), including
the results of our data matching efforts (see app. II). We worked with
IRS on conducting additional research for business sponsors unknown to
IRS (identified in our July 21, 2004 testimony) to determine whether
they are operating businesses/organizations and have any tax compliance
problems. To better illustrate the potential tax compliance benefit
related to business sponsors who have unpaid tax assessments, we
further stratified the business sponsors with unpaid assessments from
our nationwide selection to identify subpopulations of business
sponsors that were or were not in a payment arrangement or had made
payments within 2 years.
To determine the options for establishing and maintaining a data-
sharing relationship between the IRS and USCIS, we interviewed IRS and
USCIS officials on processes in place that support data sharing under
existing disclosure authorities. We summarized operational information
such as timeliness, costs, and volume levels for existing data-sharing
relationships to provide perspective on the options for establishing a
data-sharing relationship between IRS and USCIS. We interviewed IRS
officials on the resource implications of sharing data via different
data-sharing arrangements. We compiled examples of private institutions
and state entities that use "tax checks"--IRS verification that a
taxpayer filed and/or paid his or her taxes--for eligibility
determination purposes and to summarize costs associated with "tax
checks." We interviewed IRS and USCIS officials and obtained and
reviewed statutory and regulatory guidance on the use of user fees and
summarized information on (1) types of user fees IRS has in place to
support compliance and enforcement activities, (2) regulatory
implications for employing a user fee to support data sharing between
USCIS and IRS, and (3) whether user fees go to the general fund or the
Treasury fund. Finally, we interviewed USCIS officials and reviewed
documents on planned changes to immigration eligibility that may impact
the type of IRS information immigration adjudicators will need for
eligibility decisions.
To determine the potential challenges of data matching between IRS and
USCIS under the various data-sharing options, we primarily summarized
the challenges reported in our July testimony, including the
technological, cost, and legislative barriers. We identified and
reviewed the legislative and regulatory authorities that govern
disclosure of personal and financial information for eligibility
determinations and tax compliance purposes. We interviewed USCIS policy
and legal staff on the implications of changing immigration eligibility
decisions to require applicants to (1) provide taxpayer consents that
allow IRS to share data and (2) be current on their taxes and review
related documentation. We also interviewed USCIS and IRS officials
regarding future cost challenges associated with establishing a data-
sharing relationship.
We assessed the reliability of IRS's Business Master File (BMF) and
Individual Master File (IMF) data and the USCIS's Computer Linked
Application Information Management System, Version 3.0 (CLAIMS 3), a
database containing nationwide data but not naturalization data, by (1)
performing electronic testing of required data elements, (2) reviewing
existing information about the data and the system that produced them,
and (3) interviewing agency officials knowledgeable about the data. As
part of our annual audits of IRS's financial statements, we also assess
the reliability of IRS's BMF and IMF data with respect to unpaid
assessments by testing selected statistical samples of unpaid
assessment modules. We determined that the data were sufficiently
reliable for the purposes of this report.
Our review was subject to some limitations. We relied on IRS officials
to identify offices that use personal information because there is no
central, coordinating point within IRS for receipt of this type of
information. We relied on USCIS officials to identify immigration forms
they believed would most benefit from data sharing with IRS, and we
relied on IRS and USCIS officials' views on possible impediments or
missed opportunities to verify information, any additional data sharing
and verification needs, and the benefits of increased disclosure of
taxpayer information. Because our sample of 984 hard copy applications
at selected USCIS field locations was not a probability sample, we
cannot make inferences about the population of applications. In
addition, because employer identification numbers/social security
numbers were only available for 3.4 million of the 4.5 million
applications in our nationwide selection of automated applications, our
findings from these records are not representative of the entire
population. We did not assess the reliability or quality of taxpayer
information collected by IRS or the accuracy of information applicants
reported to USCIS. Immigration applicants/taxpayers who were in IRS's
non-filer database could include individuals who did not meet IRS
filing requirements. We relied on IRS's investigation of the 33
business sponsors that were not in IRS's databases since disclosure
rules limit our contact with taxpayers. Since IRS searched its tax data
for the last 5 years (1999-2004) and we collected 7 years of
immigration data (1997-2004), an unknown but likely small percentage of
the businesses that submitted applications during 1997 and 1998, but
are unknown to IRS, could be no longer in operation. Additionally, we
did not assess the reliability of IRS data on the cost of paper
taxpayer consents since we used this information for background
purposes. We conducted our work from August 2004 through August 2005 in
accordance with generally accepted government auditing standards.
[End of section]
Appendix II: Summary of IRS/USCIS Data-Matching Results:
The tables that follow present the data we reported in our July 2004
testimony ([Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-04-972T])
on the results of matching two sets of USCIS immigration data with IRS
taxpayer data to determine the potential value for increased data
sharing and matching. First, we used a nationwide selection of
automated data on certain immigration applications: I-129 (Petition for
a Nonimmigrant Worker), I-140 (Immigrant Petition for Alien Worker),
and I-360 (Petition for Amerasian, Widow(er), or Special
Immigrant[Footnote 46]) submitted from January 1, 1997, through March
5, 2004, to USCIS service centers for immigration benefits. We used
only those applications in USCIS's Computer Linked Application
Information Management System, Version 3.0 (CLAIMS 3), a database
containing nationwide data that contained an individual's Social
Security Number (SSN) or a business's Employer Identification Number
(EIN). For the matching process, 3.4 million out of 4.5 million records
had usable SSNs or EINs. We obtained automated data for those years
because USCIS's automated system had historical data not readily
available in hard copy files. We used these data to determine whether
businesses and others that had applied to sponsor immigrant workers or
immigrants applying to change their immigration status had filed a tax
return with IRS and, if so, whether they owed taxes to IRS. Because the
nationwide selection did not include any financial information, we
could not use it to determine whether USCIS applicants reported the
same income amounts to IRS and USCIS.
Second, we visited five USCIS field locations and selected a
nonprobability sample of 984 immigration files covering the period of
2001 through 2003 at four of the locations because they contained
personal as well as financial information. These hard copy files were
applications for citizenship, employment, and family-related
immigration and change of immigration status applications. We used the
hard copy immigration files to build an automated database of certain
personal information, such as the individual's SSN or business's EIN
and income reported to USCIS. We obtained hard copy files for those
years because the USCIS offices we visited had immigration applications
for those years on-site. Immigration offices send older files to
storage. Since each district and service center organized and stored
its applications in a different way and immigration officials could not
always provide an updated count of applications by form number, we
developed an approach to selecting applications that included pulling
approximately every 50th file in immigration file rooms. We generally
selected approximately 50-75 files at each field location for the
following forms: I-129 (Petition for a Nonimmigrant Worker); I-140
(Immigrant Petition for Alien Worker); N-400 (Application for
Naturalization); I-751 (Petition to Remove the Conditions on
Residence); I-360 (Petition for Amerasian, Widow(er), or Special
Immigrant); and I-864 (Affidavit of Financial Support) that accompanies
the I-485 (Application to Register Permanent Residence or to Adjust
Status). We planned to select 50 files for Form I-829 (Petition by
Entrepreneur to Remove Conditions) but only reviewed 12 files due to
resource constraints and the voluminous nature of the application
files. The matching results for our nonprobability sample included Form
I-829s for a small number of individual immigrants who had unpaid
assessments or were nonfilers and none for business or individual
sponsors.
To facilitate matching immigration and taxpayer data, we divided
immigration applicants into three groups: business sponsors, individual
sponsors, and individual beneficiaries. We matched the SSNs/EINs in our
nationwide selection of immigration applications and our nonprobability
sample of immigration applications with IRS's Business Master File
(BMF) and Individual Master File (IMF) and other subsets such as the
Revenue and Refunds Database. We identified immigration
applicants/taxpayers that (1) matched with the IRS master files, (2)
had unpaid assessments, (3) were nonfilers, (4) were
businesses/organizations that had no record of tax activity in the last
5 years, and (5) did not match IRS master files. Additionally, to
ensure we identified only business and organization sponsors whose EINs
were unknown to IRS, we had IRS perform three additional matches using
its BMF Taxpayer Identification Number Cross-Reference File, the BMF
Entity File and the IMF Entity File.
We used this sample to determine whether USCIS applicants reported the
same income information to IRS as to USCIS and also as a second source
of examples of USCIS applicants may who not have filed tax returns and
may have owed taxes to IRS.
Tables 8-10 show our results on business sponsors, individual sponsors,
and individual beneficiaries that have unpaid assessments[Footnote 47]
or are nonfilers for both our nationwide selection and nonprobability
sample of immigration files.
Table 8: Number and Percentage of Total Applications GAO Collected:
Nationwide selection of automated immigration data (CLAIMS 3);
Years: 1997-2004;
Total: 4,518,875;
Total with identifiers: 3,430,754;
Percentage: 75.9%.
Nonprobability sample of hard-copy application files;
Years: 2001-2003;
Total: 984;
Total with identifiers: 984;
Percentage: 100.0%.
Source: GAO analysis of USCIS data.
[End of table]
Table 9: Matching Results on Nationwide Data, 1997 through 2004 -
Automated Data[A]:
Business sponsors (petitioners);
Total: 413,723;
Owe IRS taxes: Matched with IRS's database for unpaid assessments[B]:
Number: 18,942;
Percent: 4.6;
Amount: $5.6 billion;
Nonfilers: Matched with IRS's nonfiler database:
Number: 67,949;
Percent: 16.0;
Amount: Not available (N/A);
Unknown to IRS: Did not match IRS Master Files and subsets[C]:
Number: 19,972;
Percent: 4.8;
Amount: N/A.
Individual sponsors (petitioners);
Total: 51,169;
Owe IRS taxes: Matched with IRS's database for unpaid assessments[B]:
Number: 889;
Percent: 1.7;
Amount: 49.8 million;
Nonfilers: Matched with IRS's nonfiler database:
Number: 791;
Percent: 1.5;
Amount: N/A;
Unknown to IRS: Did not match IRS Master Files and subsets[C]:
Number: 4,378;
Percent: 8.6;
Amount: N/A.
Individual beneficiaries;
Total: 2,009,046;
Owe IRS taxes: Matched with IRS's database for unpaid assessments[B]:
Number: 38,877;
Percent: 1.9;
Amount: 327,859,723;
Nonfilers: Matched with IRS's nonfiler database:
Number: 25,662;
Percent: 1.3;
Amount: N/A;
Unknown to IRS: Did not match IRS Master Files and subsets[C]:
Number: 511,180;
Percent: 25.4;
Amount: N/A.
Source: GAO analysis of IRS and USCIS data.
[A] These results have been time controlled. That is, these numbers
reflect taxpayers' filing status with IRS at the time the USCIS
application was filed.
[B] Unpaid assessments are maintained in IRS's accounts receivable
database.
[C] Did not match IRS's IMF, BMF, accounts receivable, nonfiler,
revenue and refunds, BMF Taxpayer Identification Number Cross-Reference
file, BMF entity file, and the IMF entity file.
[End of table]
Table 10: Matching Results on Nonprobability Sample, 2001 through 2003
- Hard Copy Application Files:
Business sponsors (petitioners);
Total: 475;
Owe IRS taxes: Matched with IRS's database for unpaid assessments[A]:
Number: 94;
Percent: 19.8;
Amount: $39.0 million;
Nonfilers: Matched with IRS's nonfiler database:
Number: 112;
Percent: 24.0;
Amount: $533.4 million;
Unknown to IRS: Did not match IRS Master Files and subsets[B]:
Number: 13;
Percent: 2.7;
Amount: N/A.
Individual sponsors (petitioners);
Total: 273;
Owe IRS taxes: Matched with IRS's database for unpaid assessments[A]:
Number: 14;
Percent: 5.2;
Amount: 84,761;
Nonfilers: Matched with IRS's nonfiler database:
Number: 4;
Percent: 1.5;
Amount: 19,189;
Unknown to IRS: Did not match IRS Master Files and subsets[B]:
Number: 17;
Percent: 6.3;
Amount: N/A.
Individual Beneficiaries;
Total: 804;
Owe IRS taxes: Matched with IRS's database for unpaid assessments[A]:
Number: 20;
Percent: 2.5;
Amount: 100,821;
Nonfilers: Matched with IRS's nonfiler database:
Number: 7;
Percent: .9;
Amount: 903;
Unknown to IRS: Did not match IRS Master Files and subsets[B]:
Number: 83;
Percent: 10.3;
Amount: N/A.
Source: GAO analysis of IRS and USCIS data.
Note: Results from nonprobability samples cannot be generalized to the
population.
[A] Unpaid assessments are maintained in IRS's accounts receivable
database.
[B] Did not match IRS's IMF/BMF, accounts receivable, nonfiler, revenue
and refunds, BMF Taxpayer Identification Number Cross-Reference file,
BMF entity file, and the IMF entity file.
[End of table]
[End of section]
Appendix III: Comments from the Internal Revenue Service:
DEPARTMENT OF THE TREASURY:
INTERNAL REVENUE SERVICE:
WASHINGTON, D.C. 20224:
COMMISSIONER:
September 16, 2005:
Mr. Michael Brostek:
Director, Tax Issues:
Strategic Issues Team:
United States General Accountability Office:
Washington, DC 20548:
Dear Mr. Brostek:
I am writing to give you our comments on the Government Accountability
Office (GAO) draft report titled, "Options Exist to Enable Data Sharing
Between IRS and USCIS But Each Presents Challenges" (GAO-05-877). While
taxpayer confidentiality is always a foremost consideration, we agree
that data sharing between the IRS and the United States Citizenship
Immigration Services (USCIS) within the Department of Homeland Security
may have many benefits.
Because the confidentiality of tax data is considered critical to
voluntary compliance, Department of Treasury policy requires a business
case to support data sharing before pursuing legislation or a large-
scale taxpayer consent program. In conjunction with the USCIS, the IRS
will conduct a small-scale pilot test in order to determine whether a
business case exists for either option. The IRS Office of Chief Counsel
will assist in drafting consents that conform with Treasury Regulation
301.6103(c)-1 for use in this limited test, if needed. Finally, an
executive working group will determine the merits of applying user fees
for compliance data sharing.
If you have any questions, please call me or Kevin Brown, Commissioner
of the Small Business and Self-Employed Operating Division, at (202)
622-0600.
Sincerely,
Signed by:
Mark W. Everson:
[End of section]
Appendix IV: Comments from the Department of Homeland Security:
U.S. Department of Homeland Security:
Washington, DC 20528:
September 26, 2005:
Mr. Michael Brostek:
Director, Tax Issues:
Strategic Issues Team:
U.S. Government Accountability Office:
441 G Street, NW:
Washington, DC 20548:
Dear Mr. Brostek:
RE: Draft Report GAO-05-877, Taxpayer Information: Options Exist to
Enable Data Sharing Between IRS and USCIS But Each Presents Challenges
(GAO Job Code 450350):
The Department of Homeland Security appreciates the opportunity to
comment on the Government Accountability Office's (GAO) draft report.
The GAO concluded that both the Internal Revenue Service (IRS) and the
Department's U.S. Citizenship and Immigration Services (USCIS) could
benefit from a data-sharing arrangement. We appreciate GAO's research
and broad discussion of the challenges and benefits to both USCIS and
the IRS. Further, we appreciate the GAO's recognition of the burden of
paper taxpayer consent forms placed on USCIS and its reluctance to
embark on a process that would be largely paper-based.
The GAO recommended that to improve the accuracy and timeliness of
USCIS' immigration eligibility decisions absent requiring businesses to
have met their tax filing and payment obligations, the Secretary of the
Department of Homeland Security direct USCIS, in consultation with the
IRS, to conduct a pilot data-sharing test. In the test, the GAO has
recommended that USCIS should require a tax check for selected
businesses and other entities applying to sponsor immigrant workers
before qualifying for immigration benefits. The pilot test should
assess and document the costs and benefits of data sharing including
key issues such as using paper or electronic consents, using consents
or pursuing specific Internal Revenue Code Sections 6103 disclosure
authority, assessing resource implications, and considering how the
agencies would allocate responsibilities for collecting and allocating
user fees from the business sponsors.
USCIS generally agrees with this recommendation to the extent that it
can lawfully engage in a pilot program under applicable tax and
immigration laws to verify with the IRS the information that otherwise
USCIS would need to obtain by requesting a copy of the business
petitioner's tax returns. This approach could provide useful
information for some adjudications and provide necessary information
with respect to considering the feasibility of such initiatives on a
larger scale. A limited pilot program of this type would be consistent
with USCIS' desire to explore ways in which its processes could be
streamlined through validating information with other agencies rather
than requesting documentation (which may be voluminous) from its
customers. While of course acknowledging the importance of tax
compliance as a matter of public policy, USCIS is concerned about the
possible impact of ongoing tax disputes or other tax considerations as
a factor that could render immigration determinations more complex or
delayed.
We also would like to comment on your suggestion to Congress that it
consider authorizing a user fee to be collected and retained by the IRS
to cover the costs of bringing non-compliant taxpayers into compliance.
Although we agree that the IRS should be provided with adequate
resources from appropriate sources to carry out its tax compliance
mission, USCIS has serious concerns about the user fee proposal. While
it is true that USCIS has statutory authority to recover its full costs
through user fees, policy considerations historically have prevented
USCIS from using that authority to its full extent. In fact, the GAO
previously reported that fee collections are not sufficient to pay
USCIS' full costs. In recent years Congress has mandated several
additional fees for certain employment-based applications, but the
revenues have in part gone to other agencies for certain functions.
Whether an additional fee is a supplement paid directly to another
agency such as IRS, or is built into the base fee paid to USCIS, USCIS
customers obviously view it as part of the overall application cost
without particular regard to whether it is ultimately used for an IRS
or a USCIS purpose. In short, the more interagency functions the
overall cost of an application to USCIS is expected to support, the
higher the cost to the applicant without consequent improvements in
USCIS services, and the less likely it is that USCIS will be able to
increase fees as may be necessary to fully recover its own costs. In
addition, the suggested user fee to cover the costs of bringing certain
taxpayers into compliance with the tax laws seems to be quite different
in concept than the existing IRS user fees detailed at page 41 in the
draft report, which cover the actual costs of providing a specific
service rather than enforcement costs.
As noted in the draft report, the IRS has a number of existing data
share arrangements with other agencies for various purposes. None of
these arrangements appears to involve a user fee for the purpose of
ensuring taxpayer compliance. We question why the suggested fee would
be appropriate for immigration benefit petitioners but not for other
applicants for government benefits, to which similar considerations
might well apply; or, alternatively, whether the suggested fee should
serve as a model for other data sharing arrangements involving taxpayer
compliance. While we understand that a complete examination of all data
sharing arrangements is beyond the scope of this report, the suggested
user fee discussion would benefit by being placed in a broader context
that would more fully illuminate why it appears to be unique rather
than based upon existing models of user fees related to other benefit
programs supporting tax enforcement. For example, a broader approach
would include determining whether similar user fee arrangements have
been considered and rejected for other data sharing programs and the
reasons therefore.
Technical comments will be sent under separate cover.
Sincerely,
Signed for:
Steven Pecinovsky:
Director:
Departmental GAO/OIG Liaison Office:
[End of section]
Appendix V: GAO Contact and Staff Acknowledgments:
GAO Contact:
Michael Brostek, (202) 512-9110:
Acknowledgments:
In addition to the contact named above, major contributors to this
assignment were Signora J. May, Assistant Director; Jyoti Gupta, Tina
Younger, Michele Fejfar, Shirley Jones, Amy Rosewarne, and James
Ungvarsky who made key contributions to this report.
(450350):
FOOTNOTES
[1] GAO, Taxpayer Information: Data Sharing and Analysis May Enhance
Tax Compliance and Improve Immigration Eligibility Decisions, GAO-04-
972T (Washington, D.C.: July 21, 2004).
[2] The term immigrant as used in this report generically refers to any
employer-sponsored alien worker whether immigrant or nonimmigrant. The
term application as used in this report refers to immigration
petitions.
[3] USCIS has four service centers nationwide established to handle the
filing, data entry, and adjudication of certain applications for
immigration services and benefits. District offices are responsible for
providing certain immigration services and benefits to residents in
their service areas.
[4] Pub. L. No. 94-455, Oct. 4, 1976.
[5] Pub. L. No. 107-296, § 451, 116 Stat. 2195.
[6] GAO, The Challenge of Data Sharing: Results of a GAO-Sponsored
Symposium on Benefit and Loan Programs, GAO-01-67 (Washington, D.C.:
Oct. 20, 2000).
[7] Pub. L. No. 105-34, 1977.
[8] The American Jobs Creation Act of 2004 authorized IRS to levy 100
percent of the payment amount for certain federal payments [(Pub. L.
No. 108-357,§. 887 (a), 118 Stat. 1418, October 22, 2004, to be
codified at 26 U.S.C. § 6331(h)(3)].
[9] GAO, Tax Administration: Millions of Dollars Could Be Collected If
IRS Levied More Federal Payments, GAO-01-711 (Washington, D.C.: July
20, 2001). Since we issued our 2001 report, additional payment
categories have been added to the levy program, so the amount that
could be collected would likely be substantially higher.
[10] GAO, Financial Management: Thousands of Civilian Agency
Contractors Abuse the Federal Tax System with Little Consequence, GAO-
05-637 (Washington, D.C.: June 16, 2005).
[11] Our initial matches of civilian contractor payments made during
fiscal year 2004 with IRS tax debt as of Sept. 30, 2004, identified
about 63,000 contractors that had tax debt totaling $5.4 billion. We
excluded tax debts from our preliminary estimates that have not been
agreed to by the tax debtor or affirmed by the court, tax debts from
calendar year 2004, tax debts of $100 or less, and fiscal year 2004 FMS
payments of $100 or less.
[12] GAO previously issued a similar report on Department of Defense
(DOD) contractors where GAO reported that DOD and IRS records showed
that over 27,000 contractors owed about $3 billion in unpaid taxes as
of Sept. 30, 2002; GAO, Financial Management: Some DOD Contractors
Abuse the Federal Tax System with Little Consequence, GAO-04-414T
(Washington, D.C.: Feb. 12, 2004).
[13] Pub. L. No. 93-579, Dec. 31, 1974.
[14] Pub. L. No. 100-503, Oct. 18, 1988.
[15] Section 7528 was added to the IRC by section 202 of the Temporary
Assistance for Needy Families Block Grant Program, Pub. L. 108-89, and
was extended to Sept. 30, 2014, by section 690 of the American Jobs
Creation Act of 2004, Pub. L. 108-357.
[16] 8 U.S.C. § 1356(m), (n).
[17] 8 C.F.R. § 103.7.
[18] OMB Circular A-25 applies to executive branch agencies assessing
charges under the general user fee statute enacted in the Independent
Offices Appropriations Act of 1952 and codified at 31 U.S.C. § 9701.
The circular provides guidance to agencies imposing user fees under
other statutes to the extent that the circular is not inconsistent with
the statute in question.
[19] Unpaid assessments consist of (1) federal taxes receivable, which
are taxes due from taxpayers for which IRS can support the existence of
a receivable through taxpayer agreement or a favorable court ruling;
(2) compliance assessments where neither the taxpayer nor the court has
affirmed that the amounts are owed; (3) write-offs, which represent
unpaid assessments for which IRS does not expect further collections
due to factors such as the taxpayer's death, bankruptcy, or insolvency;
and (4) "memo," a module which includes duplicate assessments,
fraudulent returns, and cases the IRS/taxpaying entities need to
resolve due to overstatements or understatements.
[20] Of the $5.6 billion in unpaid assessments owed by these
businesses, business sponsors had entered into installment agreements
and payment arrangements for $168 million of the unpaid assessments. An
additional $1.7 billion in unpaid assessments that had not been
affirmed, had been judged by IRS to have no future collection
potential, or were from duplicate or fraudulent returns.
[21] GAO, Compliance and Collection: Challenges for IRS in Reversing
Trends and Implementing New Initiatives, GAO-03-732T (Washington, D.C.:
May 7, 2003).
[22] GAO-04-972T.
[23] USCIS completed Form 9003 whenever an immigrant filed for lawful
permanent residency status. The form contained personal identifying
information on the immigrant such as name and SSN as well as financial
information on an individual's income. USCIS provided a contractor with
the Form 9003, and the contractor then transcribed the Form 9003
immigrant data onto tape and sent it to IRS's Martinsburg Computing
Center. IRS conducted matches of the Form 9003 immigrant data against
its own databases to determine whether the individuals had filed taxes
and properly reported their incomes.
[24] IRS classifies small businesses as all sole proprietorships,
partnerships, and corporations with assets of $10 million or less. The
USCIS application forms for business sponsors we examined asked for net
income and gross income instead of assets.
[25] Our non-probability sample revealed 94 businesses with unpaid
assessments (see app. II). However, 47 of those businesses did not
report net incomes on their USCIS application forms and 4 reported
negative net incomes. We did not include these in our analysis of
businesses with net incomes of less than $10 million.
[26] 8 CFR 204.5(g)(2).
[27] 8 U.S.C. 1154.
[28] GAO, Immigration Benefits: Several Factors Impede Timeliness of
Application Processing, GAO-01-488 (Washington, D.C.: May 4, 2001).
[29] "The President's FY 2006 Budget Request", Statement of Eduardo
Aguirre, Jr., Director, USCIS, U.S. Department of Homeland Security
before the House Committee on Appropriations, Subcommittee on Homeland
Security, Mar. 17, 2005.
[30] The state of Kansas refers to this verification as a tax
clearance, which is defined as a thorough taxpayer account review (of
all tax types) to ensure the account is current, properly registered,
and compliant with all Kansas tax laws.
[31] GAO, Taxpayer Information: Increased Sharing and Verifying of
Information Could Improve Education's Award Decisions, GAO-03-821
(Washington, D.C.: July 18, 2003).
[32] U.S. Department of the Treasury, Office of Tax Policy, Report to
Congress on Scope and Use of Taxpayer Confidentiality and Disclosure
Provisions, Vol. 1: Study of General Provisions (Washington, D.C.:
October 2000).
[33] TDS was accessible in July 2004; thus, actual data are not
available for the 3 months of access during fiscal year 2004.
[34] USCIS is currently reviewing whether its integrated case
management system and electronic adjudication process will track
records using current immigration identification schemes (alien
registration numbers) or will develop and implement a modernized
immigrant identification scheme (still to be designed) that may use
EINs/SSNs to track records.
[35] GAO, Financial Audit: IRS's Fiscal Years 2004 and 2003 Financial
Statements, GAO-05-103 (Washington, D.C.: Nov. 10, 2004).
[36] GAO-04-309R.
[37] An offer-in-compromise is an agreement between a taxpayer and IRS
that resolves the taxpayer's tax liability for less than the full
amount owed for taxes, interest, and penalties. IRS charges a one-time
fee. FOIA requestors are charged a one-time fee and are provided with
agency records as requested, with some exceptions.
[38] A letter ruling is a written determination issued in response to a
written inquiry from an individual or an organization about its status
for tax purposes or the tax effects of its acts or transactions, prior
to the filing of returns or reports that are required by the revenue
laws. A determination letter is written and applies the principles and
precedents previously announced by IRS to a specific set of facts. It
is issued only when a determination can be made based on clearly
established rules in a statute, a tax treaty, the regulations, a
conclusion in a revenue ruling, or an opinion or court decision that
represents the position of IRS.
[39] Pub. L. 103-329, Sept. 20, 1994.
[40] 8 C.F.R. §103.7.
[41] According to USCIS, the agency will seek appropriations in the
fiscal year 2007 budget to fund its information technology upgrades.
[42] GAO-03-821.
[43] GAO-04-309R.
[44] P.L. 103-329, Sept. 30, 1994.
[45] P.L. 108-357, Oct. 22, 2004.
[46] The I-360 applications in our sample were submitted by religious
organizations sponsoring religious workers.
[47] Immigration applicants/taxpayers in IRS's unpaid assessment
database may include taxpayers that have entered into an installment
agreement, have proposed an offer-in-compromise or are in litigation
with IRS about amounts due.
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