Effects of the 1976 Tax Reform Act Disclosure Provisions on Law Enforcement Activities

For several years, GAO has supported the need for changes to disclosure laws to improve the effectiveness of law enforcement. It is essential to strike a proper balance between legitimate privacy concerns and equally legitimate law enforcement information needs. The primary mission of the Internal Revenue Service (IRS) is to collect taxes. Taxpayers who supply information to IRS have a basic right to privacy with respect to that information. Such information should be subject to disclosure for nontax purposes only when society has a compelling interest which outweighs individual privacy concerns. The disclosure provisions of the 1976 Tax Reform Act have affected cooperation and coordination between IRS and other law enforcement agencies. The IRS ability to coordinate effectively with other law enforcement agencies has been reduced. Since the enactment of the Act, Department of Justice attorneys have made few attempts to obtain tax information for use in nontax criminal cases, even when they have a bona fide need to know. IRS cannot self-initiate the disclosure of information about certain nontax crimes. Information that attorneys obtain from IRS through court order or written request cannot be used in civil proceedings directly related to the criminal investigation. While some administrative actions have been taken to enhance law enforcement efforts, legislative changes are also needed. GAO supports the concept of simplified tax information proposed in S. 732 but feels that some information supplied to the IRS by a taxpayer under the return information category should be afforded a higher level of protection than the category warrants. Proposed decentralization should facilitate and improve the timeliness of the disclosure process. Relaxing the court order criteria would encourage use of this access mechanism where there is a bonafide need for tax information. The proposed legislation could be modified to recognize that Justice attorneys should not seek access to tax information via court order if the information can be more readily obtained elsewhere. GAO sees no need for agency heads and inspectors general to have the authority to seek access via written request. GAO made suggestions for clarification of other provisions of the proposed legislation as well. Congress could facilitate cooperation between IRS and other agencies and still maintain essential privacy controls by enacting a modified S. 732.