Disclosure and Summons Provisions of 1976 Tax Reform Act--An Analysis of Proposed Legislative Changes

Views and suggestions are provided on proposed legislation which would revise the disclosure and summons provisions of the Tax Reform Act of 1976. Basically, the four bills seek a better balance than now exists between legitimate privacy concerns and equally legitimate law enforcement information needs. Two basic principles were used in analyzing the proposed bills: (1) the primary mission of the Internal Revenue Service (IRS) is to collect taxes and to encourage and achieve the highest possible degree of voluntary compliance with the tax laws rather than to enforce the law; and (2) taxpayers have a basic right to privacy with respect to the information they provide to IRS, and that information should be subject to disclosure only when society has a compelling interest which outweighs individual privacy concerns.

Although the bills and the GAO analysis address the disclosure and summons provisions' effects on criminal law enforcement efforts, neither addresses restrictions on the use of tax data for exclusively civil and administrative purposes. Suggested modifications to S. 2402 which would revise the disclosure provisions of the existing law include: simplify existing tax information categories; expand the definition of "taxpayer identity information"; extensd to other officials of the authority to seek tax information; limit IRS response time to access requests; require IRS to justify, to a court, decisions to deny access requests; clarify the requirement that IRS disclose information concerning non-tax crimes; authorize IRS to disclose tax information under exigent circumstances; authorize redisclosure of non-tax felony information; and authorize redisclosure of certain tax information for Federal civil litigation purposes. GAO supports the overall thrust of the four bills. Enactment of S.2404 with the modifications would provide law enforcement officials with needed access to tax information as well as provide adequate control to protect individuals' privacy rights. Enactment of S. 2403 would enable IRS to carry out its mission more effectively, and taxpayers would retain the right to contest administrative summonses in court. Enactment of S. 2404 and 2405 would enable Federal employees to make authorized disclosures without undue fear of criminal prosecution or responsibility for civil damages.