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CHURCH COMMITTEE REPORTS
104
ApPENDIX
QUESTIONS BY SENATOR GOLDWATER TO COMMISSIONER ALEXAXDER CONCERNING
IRS ACTIVITIES, AND COMMISSIONER ALEXANDER'S RESPONSES
Question 1. (a) Out of 81 million tax returns that were filed in 1974 about
69 million, or 85 percent, were furnished to tax authorities in 38 State~ under
an Internal Revenue Treaty arrangement. What is the nature of the treaty?
( b) What safeguards, if any, are provided?
(c) What prevents States from distributing personal tax information to
lawyers, bankers, credit agencies or anyone else?
Response. (a) Under authority of section 6103 (b) of the Internal Revenue
Code, and under arrangements worked out between the Internal Revenue Service
and the National Association of Tax Administrators, the Service makes
available, each year, a selected list of data elements in maguetic tape mode
taken from our Individual )'Iaster File (IM~'). These data show taxpayer
identity and certain income and tax information for individuals filing Federal
individual income tax returns. Our Federal-State Agreements on Coordination
of Tax Administration provide a means for formalizing the efforts of the Service
and the States to continue their cooperative programs and to enter into additional
arrangements for improving the administration and enforcement of tax laws
of each respective jurisdiction. A copy of one of our recent agreements, with
the State of Ohio, is attached (Attachment 1. See page 106.)
(b) Each year, when notices are sent out to the States informing them of the
current year program for tape extracts from our IMF, copies of the Service's
Publication 664, Federal-State Exchangc Program, containing a detailed listing
of the participating States' data usage responsibilities, and a reminder of the
penalties for unauthorized disclosure of Federal tax return information. are
also furnished. (Copies of this publication are available as IRS Publication 664.)
Additionally. our Federal-State agreements contain similar provisions for safeguarding
Federal tax return information.
(0) State employees are subject to the same penalties, under section 7213(a)
of the Internal Revenue Code, for unauthorized disclosures of Federal tax
return information as are Federal empl'lyees. These penalties provide, upon conviction,
for a fine of not more than $1,000 or imprisonment of not more than 1
year, or both, together with the costs of prosecution. State tax personnel using
Federal tax return information furnished them on maguetic tape are reminded
of these penalties in the aforementioned PUblication 664.
Question 2. Why was it necessary to suspend operation of the Information
Gathering and Retrieval System earlier this year? What changes were made?
Response. These information gathering activities were suspended by telegram
on January 22, 1975. These activities were suspended to allow a revipw of our
procedures when it was alleged that some employees were collecting and retaining
non-tax-related items.
After a review of our procedures. I is~ued new guidelines for information
gathering in Manual Supplement 300-152 on June 23. 1975. This document is
available to the public. The new l:1lidelines were issued to afford clearer definition
of tax related data. They also require management involvement through
prior authorization in writing before an agent can gather or retain information.
The new procedures also require stringent review of information g<\tl)f>rin~
activities. A copy of the new guidelines is attached (Attachment 2. See page 116.)
Question 3. What is your electronic surveillance program in which telephone
calls are monitored?
Response. The Service has a program for taxpayer assistance in whieh telephone
calls are occasionally monitored by a supervisor or designated Taxpayer
Service Representative to see if correct answers are bein~ given in a courteou~
manner. However, "electronic surveillance" would not he an appropriate term to
describe this program. When monitoring taxpayer assistance calls. thp idpntity
of the taxpayer is not even known unless he 'l'olunteprs it. or unlpss thp question
is so complicated that it cannot hp answered withont somp rpsparch. In the
lattpr situation. it is more practical for IRS to call thp taxpllyer hllCk when the
answpr has hepn found, so we wonld ask for the taxpayer's name and phone
numher in i<uch Cllsei<.
Except in a call-hack situation, no notes of the conversation are held. and in
no case are converSlltions recorded in any way. Since the purpose of the monitoring
is to oversee the quality of the answers and the manner in which our em105
ployees deal with the public, a specific instance of monitoring is done without the
employee's knowledge, even though all employees who serve in the taxpayer assistance
program understand that the monitoring occurs as a regular practice.
So that taxpayers are aware that telephone calls in taxpayer service offices are
monitored, we have highlighted the following statement on the front page of
the tax package sent out to all taxpayers at filing time: "To help us provide courteous
responses and accurate information, IRS supervisors occasionally monitor
telephone calls. Xo record is made of the taxpayer's name, address, or social security
number except where, at the taxpayer's request, a followup telephone call
must be made."
As a matter of Service policy, the use of electronic devices to intercept telephone
conversations without the consent of at least one of the parties to the
conversation, frequently referred to as "wiretapping," is absolutely prohibited.
In our investigations of suspected illegal activity, we do on occasions use the
legally permissable technique of intercepting telephone conversations by the use
of electronic devices if at least one of the parties to the conversation consents.
Such instances are strictly controlled and require the approval of an IRS official
designated by the Commissioner.
Question 4. Was the formal establishment of the Special Service Staff really
an extension of the checking that was started on the 22 extremists groups in 1961
and later expanded to include 25 more in 1963?
Response. Although the Special Service Staff activities were similar in some
respects to the checking that was started on extremist groups in 1961 and 1963,
the Special Services Staff was not an extension of the earlier activity.
As noted in the June 5, 1975 staff report of the investigation of the Special
Service Staff for the ,Toint Committee on Internal Revenue Taxation, the examination
which began in 1961 of the 22 organizations was largely completed in
1963. The examination which began in 1963 of the 25 organizations was completed,
for the most part, in 1966.
In Xovember of 1967, a status report on the cases involving these organizations
was given to Commissioner Sheldon Cohen. The report noted that the major
purpOses of the stUdy were fulfilled early in 1966. The Joint Committee Report
says that Commissioner Cohen told of his decision to wind down the project,
putting such examinations back into the normal channels, after he became
Commissioner (January, 1965 to January, 1969).
The origins of the Special Service Staff were in the summer of 1969. The
reasons for its creation are accurately discussed in the Joint Committee staff
report of investigation.
Question 5. In 1974 more than 8,000 Federal income tax returns were made
available to other Federal agencies for police work. Did the IRS receive adequate
assurances that these returns were being used for law enforcement purposes?
Was there any checking?
Response. Treasury regulations require that requests for tax information from
Federal agencies must state the reason for the request, and only if this and all
other requirements under the regulations are met is authorization granted. Most
requeMs contain paragraphs similar to the following:
"Unless it is determined that such documents should be filed with the Court or
otherwise used in evidence in such case, access thereto, on a need-to-know basis,
will be limited to those attorneys or employees who are actively engaged in the
case. Undf'r no condition will they he made puhlic f'xcept to the f'xtent that publicity
necessarily results if they are used in litigation. Persons having access to
these documents will be cautioned as to the confidentiality of the information
contained therein and of the penalty provisions of Section 7213 of the Internal
Revenue Code and Section 1905, Title 18, U.S.C., regarding the unauthorized disclosure
of such information."
In addition, all our responses contain a paragraph which reminds the requester
that the information is being' furnished only for the purpose for which
it was requested and again reminding them of the penalty provisions of the
Internal Revenue Code. Although we do not check further to see how the information
is being' used (or have the resources or ability, as a practical matter,
to do so), it should he noted that all ff'deral employees are subject to the sanctions
contained in the Code (fine up to $1,000 or imprisonment up to one year,
or hoth). We also feel it is the responsihility of the agency to ensure that an
unauthorized discloSure is not made of the information it has received.
106
ATIACHMENT 1
AGREEMENT ON COORDINATION OF TAX ADMINISTRATION WITH THE STATE
OF OHIO PROVIDED TO THE SENATE SELECT COMMITTEE BY COMMISSIONER
ALEXANDER
The State of Ohio and the United St;ates Internal Revenue Service,
U. S. Department of the Treasury, recognize the mutual benefits to be
derived through coordination of their tax adn,inistration programs to
sec:ure returns, determine tCiX liability, and effect collection of taxes;
and the p,>rttes, updating and renewing their agreement of Dacember 28,
1971, do hereby agree to continue ~ooperative programs already established
and to e~ter into additional arrangements designed GO improve the administrA.
tion and enforcerllent of the tax laws of their respective jurisdictions.
With these ob,jectives, cffici<.il& of the State, acting under &uthorityvested
in or delegated to them ~o a~~intster State tax laws, and the
Distrid DtH:ctor and other "ppropriate officials cf the Internal Revenue
Service will consult from tim-:- to ~ime regarding cbeir rcspccLi·J0 0!lforc~-
m€'nt f8~ilitieE cend problems, and will establish mutually agreeable programs
for the exchange of information and assistance.
'I. K :;is for Insti tut ing Actions -- This agreement pro',ides the
gener"l hanis for achieving the stated objectives in the coC'rdin.a.tion
of tax administration and the general nature of the actions to be taken
in accordance with these objectIves. Specific arrangements to achieve
th"s..: object:;.ves will be initiated in a manner and at such tiJle as is
I:lu~a"lly agr2eable to the appropriate State and Int8rnal Rcve,me Service
officials. They shall explore ana adopt mutually acceptable techniques
and modes of exchange which will be most beneficial to improved tax
107
administration, with least possible interruption to their respective
operating routines, and with strict adherence to rules, regulations,
and laws for protecting the confidentiality of tax returns and tax
return information. To this end, they will seek to attain the maximum
exchange of data by electronic and mechanical means.
2. In~Dection of Tax Returns -- This agreement shall constitute
the requisite authorization for designated personnel of the Internal
Revenue Service to inspect all classes of State tax returns. This
agreement shall also constitute the requisite authorization for designated
tax personnel of the State to inspect ihcome, estate, gift,
emploJ~el1t, excise, and all other classes of Federal tax r~turns
administered by the Internal Revenue Service (except the return relating
to the occupational tax on coin-operated devices, Subchapter B
of Chapter 36), for the purpose of administering State tax laws or for
the purpose of furnishing information to local tax officials for use
in administering local tax laws.
This authorization shall continue in effect until such time as
the Commissioner of Internal Revenue, by written notice to the Governor,
provides that such inspection wiil be permitted only on the basis of
periodic applications therefor. The inspection of Federal returns pursuant
to this authOI'ization will be for the purpose of administering the
following State tax laws: perEonal property tax, franchise tax, income
tax, estate tax, excise tax and all other State tax laws.
108
As a prerequisite to inspection by Stu.te tax personnel of Federal
returns or receipt of related information, the Governor agrees to furnish
to the District Directors of Internal Revenue at Cincinnati and Cleveland
a list showing the names, official titles, and the social security numbers
of all State tax persor_~el designated by the Governor to inspect Federal
taz returns or receive related info"",.ation. Such list will note 1fhethel'
any State taz personnel so designated are limited to the inspection of
certain classes of Federal taz returns or related information. Additions
to and deletions fron the list vrile- be furnished. as they Occur. Likevrise,
information concerning Internal Revenue Service personnel designated to
inspect State taz returns or related information shall be furnished to
the State in the form and ~anner requested by the State.
Federal caz return or taX',:>ayer naIn", and. address infoIT.aicion f'lay be
furnished by State tax authorities to tax officials of a political subdivision
of the state for use in administering the tax laws of such subdivision
only after the Governor has requested and obtained vITitten
authorization from the COTI'J1lissioner of Internal Revenue. An;[ request
for such" authorization shall state the official titles of the local tax
officials who vrill receive the tax return infonnation, shall indicate the
specifi~ data to be furnished, ~nd shall refer to the local tax laws
which such officials are charged with administering. Any such authorization
is conditioned on the agreerr,ent of the State to furnish to local
tax officials only such tax return data as is directly pertinent and
essential to the administration of the local tax lavrs, to ensure that
such local officials establish and enf~dequate safeguards to prevent
109
unauthorized use or discLosure of' such infon~ation, and to maintain
a list of the n8Jlles of the local tax officials to "hom the information
is furnished.
3. Delinquent Returns and Collection of Taxes -- Under such
arran[;eJ-:lents [\s mo,y be practicable and feasible, the approl:riate State
and Internal Revenue Service offici8.1s will fill'nish each other information
'"hich >!ill assist in locatinG the ,mereabouts, sources of incor.le,
employers, or real and personal property of persons ,mose tax accounts
are delinquent. Additionally, they will exchange lists of taxpayers and
other information relevant to the identification of persons ,mo have
failed to file tax returns.
4. C0'2I'~rative Audits and AUdit Adjw,tYlents -- \'lithin the
frarne1'1Ork of available enforcement resources, the appropriate State
and Internal Revenue Service offi,cials will develop cooperative return
selection and eX8Jllination proe;rarns ,lith the objective of minimum duplicate
audit effort, increased Federal and State audit coverase and r.linimum
taxpayer- contact. They will fm'nish each other, in accordance with
mutually agreed schedules and routines, information on audit acljustments
made by their respect i ve offices, and such other inf0rmat ion as will
assist in determining final tax liability.
5. Scope of Exchange -- other information relevant to the administration
of State and Federal taxes may be exchanged, if feasible, unaer
60-877 0 - 76 - 8
110
arrangements made by the appropriate State and Federal tax officials.
Such information may include, but shall not be limited to, lists, magnetic
tapes, transcripts or abstracts pertaining to: (a) taxpayer
identity and address, and tax return and related data; (b) tax refunds
and rebates; (c) registrations of automobiles, trucks, tractors, and
other highvro.y motor vehicles; (d) dist:!'ibutol's and suppliers of motor
fuels and special fuels; (e) organizations exempt from taxes tmder State
or Federal law and revocation of exempt status; (f) individuals, partnerships,
and corporations engaged in a specific type of business or profession;
(g) incorporaticns and dissolutions of corporations; (h) valuations
and appraisals of real or personal property; (i) inventories of
lock ·Doxes of deceden'~s; (j) employers, together with their addresses
ana identification l1WLbers; (k) data relating to the production, processing,
and transportation of fossil fuels, minerals, and other natural
resources; and (1) other data, including information relating to the
regulation of tax return preparers, ,Thich the appropriate State tax and
Federal t~~ officials may de~~ to be useful in tax administration.
6. Other Cooperative Activities n In addition to the exchange
of tax information, State and Internal Revenue Service officials will,
to the extent feasible, extend to each other assistance in other tax
aJministration matters. This may include such activities as taxpayer
assistance, stocking tax formS for the public, training of per.sonnel,
special statistical studies and compilations of data, development and
improvement of tax administration systems and procedures, and such other
activities as may improve tax admi.nistration;
111
7. LimitCJ.tions -- The extent of exchange of tax return and :related
information between the Internal Revenue Service and the State is conditioned
upon similarities in tax structures and rates, statutory
authority, regulat ions , administrative procedures, and available
resources. Differences in the t·,;o tax systems will be taken into
~onsideration in detcrminine the extent of the exchange.
All tax information furnished pursuant to this agreement, irrespective
of the manner, form or mode, shall be used solely for the
purpose of tax administration. No person shall disclose any information
acquired by him to any person in any manner ,matever not provided
by law.
Inform~.tion generally ,fill not be furnished respecting any case
in which prosecution is pending 01' is under consideration, but may be
furnished after the criminal aspects of a case have been finally
disposed of, irrespective of the method of disposition.
Because some taX'}layers ma.y be una,-rare that State tax officials
are authorized under Federal law to obtain Federal tax return information
for State or local tax administration purposes, letters to
taxpayers from the State or its political subdivisions will clearly
state that such information ,ffiS obtained pursuant to law.
State tax officials IDay not disclose any Federal tax return or
return information to tax officials of any other State, or to political
112
subdivis ions of any State, vlithout \~itten authori zation from the
Commissioner of Internal Revenue.
8. Officials to Contact for the Obtaining of Information -Requests
by the State for tax return inforrcation in magnetic tape mode"
will be r.:ade to the Con"issioner of Internal Revenue, attention ACTS:A.
Requests for physical inspection or copying of Federal tax returns
sho',ring addresses ,'rithin the State will be made to the Director,
Inter:1al Revenue Service Center, 201 \'lest Second Street, Covington,
Kentucky 41011; requests for inspection and copying of audit abstracts
and reports pertaining to such returns will be made to the District
Directors at Cincirumti. and Cleveland, Hho vrill be responsible for
ma.1:ins proper arraneements for such i.nspection. For tax returns
shmri..Tlg addresses outside the State, the requests I'rill be made by
the Governor to the Cormnissioner of Internal Revenue, attention CP:D.
Requests by Internal Revenue Service personnel for inspection or copying
of State tax returns and related documents Ifill be made to the Tax
Commissioner of Ohio.
9. Protecting the Confidentiality of Tax Returns -- The State
of Ohio and the Internal Revenue Service recognize their mutual
responsibilities to protect the confidentiality of tax return information,
as pro'fided by ls,w, and to assure that such information is
disclosed only to those pel'sam , and for such purposes, as are
authorized by law". In recognition of these responsibilities, each
113
party to this agreement shall, when requested by the other party,
review with the other party its safeguard measures to protect the
confidentiality of tax return infor~ation made available to it under
Federal-State cooperative exchange programs.
Tne State OT Federal to.z officials, as appropriate, having
custody of tax return data made avo.ilo.ble to there, under this agreement
-- whether in hard copy, photocopy, rr~gnetic tape or other form
shall take all steps necessary to insure that the safeguard measures
established for protecting its confidentiality are c2.rried out. These
measures include establishing and maintaining a secure area or place in
,rhich the return or return information E"xchc.nged shall be stored, rcstcicting
access to the return or return information only to those
officials and employees having a neco. for access to such return or
return information, and providing such other safegua.rds as are deemed
necessary or appropriate or as may be reasonably requested by the party
furnishing the information.
Processing of Federal tax return information on the magnetic
tape file (including tape reformatting or reproduction, or conversion
to punch cards or hard copy printout) will be performed only under the
innaediate supervision and control of authorized employees of the State
ta,x authority, in a manner which '<1.11 protect the confidentiality of
the information on the file.
114
The State agrees that it will destroy copies of Federal returns
or return information in its possession after they have served their
purpose.
The Governor hereby designates the Tax Co~~issioner of Ohio to
be responsible for maintaininG the safeguards necessary ~o preserve
the confidentiality of ~cderal tax return information in the hands of
State, and- if applicable, local tax authorities, and for r:2-intaining
the list of local tax officials to Hhom infonclation is furnished.
10. Termination, or :-lodification, of Agreernent -- The provisions
of this agreement are subject to the provisions of the L~~ernal Revenue
Code and Regulations, and to the provisions of State statutes and regulations,
and this agre6cent may be ten"inated or modified at the
discretion of the Commissioner or of the Govenlor on aocount of
changes in Federal or State statutes and regulations or 1'lhenever in
the administration of Federal or State tax laws that action seems
appropriate.
Any unauthorized use or disclosure of tax returns or data therefrom
furnished pursuant to this agreement, or inadequate procedures for
safeguarding the confidentiality of such returns or data, also constitutes
grolUlds for the D"X'lediate termination of this agreement and the
exchange of infoITolation thereu,der.
115
Signed at \'ashin~on, D. C., this
20th day of March ,1975.
/A/lA_I_ ((Z;?,L.~~~'=- '--'-:;::C-~~:,:""=::~,L..""'I!:lr.;1--.~'",,
tne State of Ohio ~r of Internal Rev~
Signed at ft> (io<"M<l~ 0 r-6 c7
this ~ clay o~, 1975.
116
ATTACHMENT 2
INTERNAL REVENUE SERVICE MANUAL SUPPLEMENT
June 23, Information Gathering Guidelines
Section 1. Purpose
.01 This Supplement implements Policy Statement P-l-l (Approved 6-23-75), attached,
and provides guidelines for the gathering of information that may be solicited, obtained and
retained for use by Service personnel as background material prior to the assignment of a case
for collection, examination or investigation .
. 02 These guidelines are not intended to alter 1n any way the gathering, solicitation
and documentation of tax related facts and evidence necessary in developing cases that have
been assigned for collection of taxes. examination or investigation of a tax liability"
Section 2. Background
.01 Compliance with the tax laws which the Service is authorized and directed to enforce
cannot be determined solely by reference to the information on returns and documents filed wit~
the Service. Therefore, the Service must obtain information from outside sources for the
effective administration of the tax laws. (
.02 Information gathering activities which were suspended by telegram to All Regional
Commissioners on January 22. 1975 (reissued in the Internal Revenue Manual as Manual Supplement
91RDD-7, CR 41RDD-lB and 51RDD-20 and 7lRDD-l) and by telegram to All Regional Commissioners,
District Directors and Service Center Directors on February 7. 1975 (reissued in the Internal
Revenue Manual as Manual Supplement 93G-l48, CR 42G-323. 45G-223, 5(l2)G-22, and 7lG-3) may be
resumed in accordance .....ith the guidelines and definitions set out in this Manual Supplement.
Section 3. Record Retention and Destruction
.01 No information documents of any type presently on hand or hereafter acquired in the
Service concerning Intelligence Information Gathering, Joint Compliance Program, Coordinated
Compliance Projects and Returns Compliance Program will be destroyed until the Senate Select
Committee and all other official reviewinR bodies complete their investigations of intelligence
activities carried out by or on behalf of the Federal Government. The suspension of destruction
procedures does not preclude use of such information for civil or criminal tax administration
purposes. provided such use does not include destruction. Instructions concerning
records disposition will be issued as soon as the investigations are completed .
. 02 District Directors wi_II ensure that documents and information relating to or arising
from information gathering activities (including projects and programs). whether solicited or
unsolicited, which are not necessary to the administration of the tax laws and do not indicate
a violation of a Federal law enforced by another agency will be segregated and placed in a
separate storage area with access limited to Division Chiefs~ To the extent practicable) the
data should be filed according to taxpayer name. An index of all documents from the discontinued
Information Gathering and Retrieval System should be retained. These records may
be transmitted to the Federal Records Center, or destroyed in accordance with IRM 1(15)59,
when the Congressional investigations specified in Section 3.01 are concluded .
. 03 Directly tax related documents (defined in Section 4) remaining after the review
specified in Section 3.02 shall be maintained in accordance with the provisions of these
guidelines.
117
Section 4. Definitions
.01 The term "directly tclX related information" means only documents, statements, facts
gnd testimony ....hich reasonably relate to or aid in determining the correct tax liability of
~he taxpayer. Noncompliance ma.y be indicated by such infot"m,3tion as:
1 Personal expenditures or investments not commensurate with known income and
assets;
Receipt of unreported income;
Overstatement of itemized deductions, business expenses, cost of sales, tax
credits, etc.;
Improper deduction of capital or personal and living expenses;
Failure to file required returns or pay tax due:
Omission of assets or improper deduction or exclusion of items from estate and
g1£ t tax ret urns:
7 Violations of conditions and requirements relating to tax exempt status of
organization5 ;
8 Improper operation of a qualified employee plan and trust; or
Other actions substantially similar to 1-8 above .
•02 The above factors do not stand alone, but should be considered in light of the
taxpayer's occupation, prior accumulation of wealth and data shown on tax returns and the
results of prior examinations or investigations. Prudent judgment must be exercised in
making the decision whether types of information in 4.011-4.019 are directly tax related .
. 03 Documents and data relating to agents' daily activities, time reports and other
case management and internal management documents are not considered to be background material
or taxpayer related information and may be retained for management purposes .
. 04 The following definitions of other terms apply to these guidelines:
1 A"case" is an accumulation of facts concer-ning a taxpayer. which are segregated
and associated with the taxpayer's name and evaluated for potential assignment to an employee
for appropriate action.
2 An "assigned case" is a case that has been assigned to an employee or group of
employees for action and that is subject to a requirement for a written report or an entry in
a log indicating the action taken when the case is completed.
3 A "case file" is the accumulated notes, documentation and information assembled
as a result of Service inquiries of and about a taxpayer which contains the taxpayer's name
or identifying nwnber or symbol assigned to the taxpayer.
4. An "informant's communication" is a communication from anyone outside the
Service, written or oral, voluntarily submitted to the Service identifying one or more taxpayers
and providing some information about the ta.xpayer. The informant may be anonymous.
118
Section 4 -- Conrd.
5 A "project" is a study. surveyor canvassing activity involving a limited number
of taxpaye.rs within such categories as an occupation. an industry, a geographic area or those
involved in a specific economic activity, undertaken to identify noncompliance with the tax
laws.
Section 5. Broad Service Guidelines Governing All Pune t ions (Except Inspec tion)
.01 District employees are encouraged to continue to be alert for indications of tax
noncompliance which come to their attention. Audit, Collection, EP/EO and Intelligence
employees ....i11 report such information as provided in their respective sections of this
Supplement. All other employees will report such information via memorandum through channels
to the Chief. Intelligence Staff at the appropriate Service Center .
. 02 Indications of noncompliance identified by Service Center. Regional and National
Office employees will be forwarded to the Chief. Intelligence Staff at the appropriate
Service Center .
. 03 Information received by Service employees. which indicates a violation of a Federal
law enforced by another agency, will be forwarded through channels to the Director, Intelligence
Division, for forwarding subject to disclosure provisions, to the appropriate agency.
(Reference IRM 9382.4) .
. 04 No employee shall maintain background or historical files on taxpayers except
where such files are an integral part of the case file pertaining to a currently assigned
case, unless specifically authorized to gather information as provided in Section 8.03 .
. 05 Employees assigned to a proj ect involving information gathering must ensure that
all infomation received is included within the project files .
. 06 Employees assigned to projects or individual information gathering may obtain
information from sources outside the Service for purposes of verifying the filing of required
returns, payment of tax, exempt status, proper reporting of income, deductions or credits, or
otherwise determining compliance with the tax laws. However, the information obtained must
be directly tax related and necessary to the administration of the tax laws. (See Sections
4.01 and 4.02) .
. 07 The Information Index System will be used whenever it is necessary to index information
.
. 08 Any employee who receives information concerning Service employee misconduct will
forward the information directly to Inspection .
. 09 Informants' communications will be forwarded to the Chief, Intelligence Division
for trans[[';ittal to the Chief, Intelligence Staff at the appropriate Service Center. The
informants I communications will be evaluated by appropriate personnel at the Service Centers .
. 10 Informants 1 communications concerning violations of other Federal laws will be
forwarded by the Chief. Intelligence Staff. subj ect to disclosure provisions, to the appropriate
agency .
. 11 Information received which is not directly tax related and does not indicate a
violation of other Federal laws will be segregated and stor~d, as provided in Section 3, for
disposition when instructions are issued.
119
Section 6. Responsibilities
.01 Assistant Commissioners will provide for an annual review of each region's information
gathering activities as a part of the National Office Review Program (NORP) to ensure
compliance with Service policy and these guidelines •
. 02 Regional Commissioners will provide for a review of each district's information
gathering activities in their semi-annual visitations to the districts to ensure compliance
\lith Service policy and these guidelines .
. 03 District Directors are responsible for the approval of all district information
gathering projects. While the Chief, Intelligence Division may authorize information
gathering on specific taxpayers outside the scope of projects as and to the extent provided
in Section 8.03, the District Director shall provide for quarterly reviews of all information
gathering activities on proj ects and specific taxpayers, to ensure compliance with Service
policy and these guidelines .
. 04 Each employee is responsible, in the interest of safeguarding taxpayer privacy. for
ensuring that information other than that necessary for the administration or enforcement of
the tax laws is not solicited, indexed or associated with the name or other identifying
symbol of a taxpayer. (See Section 3.02 for the disposition of any such information
described therein as may be or may have been received.)
Section 7. Initiation of Projects to Determine Taxpayer Compliance
.01 Projects, as defined in Section 4.045, must be authorized in writing by the Assistant
Commissioner, Regional COIlDllissioner or the District Director. Authority to initiate
projects may not be redelegated .
. 02 Authorizations for projects must state the purposes and define the scope of the
project. Project activities may include obtaining and analyzing data from sources outside
the S('rvice, but only information meeting the requirement of Section 4 may be sought.
obtained, indexed and analyzed. Authorizations must also specify the estimated life of the
project and specifically state what type of information is to be indexed.
Section 8. Intelligence Division Procedures
.01 The IntE!lligence Information Gathering and Retrieval System (IRM 9390) Is discontinued.
All districts will utilize the Information Index System. which will be described
in a separate Manual Transmittal, to file and index directly tax related information. Such
tax related information now in the discontinued Information Gathering and Retrieval System
may be retained in district files and indexed only if it relates to a taxpayer included in
an authorized project or for whom the Chief. Intelligence Division, has authorized
information gathering .
• 02 Where authorized by an Assistant Commissioner, a Regional Commissioner. or a
District Director_ projects, as defined in Section 4.045. may be initiated for th@ purpose
of identifying taxpayers involved in tax evasion or other criminal violations of the Internal
Revenue Code. The authorization for a project may idEmtify one or more taxpayers at the
outset for information gathering activity and additional taxpayers may be identified as the
project progresses. Immediately upon termination of the information gathering phase of the
project any infortnation not associated with the case file of a taxpayer must be removed from
the Information Index Systf!m and destroyed unless it relates to a taxpayer for whom information
gathering has been specifically authorized by the Chief as prOVided in Section 8.03.
(Note, however. that Section 3.01 prohibits destruction pending the completion of certain
inquiries. Information removed will be stored in the district until this suspension is
released. )
120
Section 8 -- Contd .
. 03 In addition to project information gathering, the Chief, Intelligence Division, may
authorize individual employees to obtain infonnation on a specific taxpayer who 1s or appears
to be involved in activities which have tax significance for purposes of making a decision as
to whei...her or not to initiate an investigation. This authority may not be redelegated. The
Chief's authorization must be made in advance of the information gathering activity. Only
information or data directly related to administration of the tax laws which the Service is
authorized and directed to enforce will be solicited or indexed, as specified in Sections 4.01
and 4.02. The Chief, Intelligence Division, may authorize only inforMation gathering activities
which relate to a taxpayer of interest to that district. The district's interest may be
the result of the taxpayer filing returns in the district. residing in the district or having
a principal business or other economic activity in the district. In the event the interest of
another district becomes apparent. the Chief will coordinate with the other district or
districts to establish which district has the principal interest. That district will, thereafter,
control information gathered and coordinate information gathering activity relating to
that taxpayer .
•04 When the Chief, Intelligence Division, approves the gathering of information relative
to a specific taxpayer (described in Section 8.03) the Information Index System will
be used to index the information. The authorization of the Chief must be in writing and must
specify the known or assumed identity of the taxpayer and the reaSon information gathering
has been authorized. The written authorization will be indexed .
• 05 Information gathered pursuant to Section 8.03 will be maintained at the location
specified by the Chief, Intelligence Division. The information may be maintained in the
custody of the employee authorized to gather the information. The employee will be responsible
for preparing the necessary forms to enter the authorization and each item of
information gathered in the index .
. 06 The Chief, lncelligence Division or Assistant Chief will conduct quarterly reviews
of samples of information gathered and entered into the Information Index System to ensure
that only directly tax related information is being retained and indexed and that information
no longer needed by the Service is being removed from the Information Index System to be
destroyed or retired to the Federal Records Centers. A written record of the quarterly
reviews will be submitted to the District Director who will review them •
. 07 Information obtained during the course of an assigned project or investigation
indicating a violation of a Federal law enforced by another agency will be forwarded to the
Director, Intelligence Division for transmittal to the appropriate agency in accordance with
the disclosure provisions (Reference IRM 9382.4) and the Privacy Act when effective•
. 08 Information in the Information Index System may not be retained in the System for a
period longer than six years except that, with the approval of the Chief. Intelligence
Division, specific information may be retained for a longer period if it has continuing
material significance to a taxpayer's tax affairs. Information in the System will be removed
and associated with the taxpayer's case file when a case ·is assigned. All other information
removed from the System will either be destroyed, or retired to the Federal Records Center,
in accordance with the provisions of IRM 1(15)59, Records Control Schedule 207, IntelligenceRegional
and District offices when the restrictions in Section 3 have been rescinded •
. 09 Intelligence employees who learn of indications of tax noncompliance will report
information on Form 3949 or, if authorization to gather information is being requested, by
memorandum, through appropriate JIlanagelIlent channels, to the Chief, Intelligence Division •
. 10 Special Enforcement files are eliminated. The National Register is discontinued
and Forms 4860, National Register Input Form, will no longer be prepared.
121
Section 9. Audit Division Procedures
. 01 All Audit employees will be alert for indications of noncompliance with the tax
laws. They will continue to seek facts and evidence necessary to resolve issues in assigned
:ases and projects; however, care must he taken to ensure that only directly tax related
information Is sought. Employees will not maintain any individual files or background
information on taxpayers other than project files which they have been specifically
authorized to maintain by the District Director .
. 02 If potential fraud is discovered relating to a taxpayer upon 'Whom the employee
has an assigned case, the matter will be referred to the Chief. Intelligence Division on
Form 2797, Referral Report •
. 03 All other information received ",hich may involve potential fraud and all inform_
ants' communications received by Audit employees ",ill be recorded on Form 3949 and forwarded
through channels to the Chief, Intelligence Division. All other directly tax related
information received by Audit employees ",ill be forwarded with Form 4298, Audit Requisition
and Information Report, tc. the Returns Program Manager for processing. Group Managers will
ensure that only directly tax related information is forwarded. Information indicating a
violation of a Federal law enforced by another agency will be forwarded through channels to
the Director, Intelligence Division for transmittal to the appropriate agency subject to
disclosure provisions •
. 04 All Forms 4298 not selected by the RPM will be batched and sent to the Service
Center Files Management Unit for association with the returns. All Forms 4298 selected by
the RPM will be handled as provided in IRM 4175 and will remain with the tax return upon
disposition by Audit .
. 05 Information received indicating noncompliance by a large number of taxpayers
should be forwarded through channels to the Chief, Audit Division, and as appropriate, to
the District Director, the Assistant Regional Commissioner (Audit) or Director, Audit
Division, for consideration and appropriate action .
. 06 Joint Compliance, Coordinated Compliance and similar programs will continue.
Projects now in progress will be completed and new projects may be initiated if approved by
Assistant Commissioners, Regional Commissioners or the District Director. The provisions
of this Supplement do not change program reporting requirements on retention or indexing of
information. Care should be exercised to ensure that only directly tax related information
is sought .
. 07 Information necessary for the determination of comparable sales prices, appropriate
intercompany pricing practices. allocation of income and expenses, useful life of
assets and similar data necessary to sustain Service positions on valuation and costs
allocation matters may be obtained and retained for use as reference material. Such material
is to be used by examiners in arriving at timely. fair and reasonable determinations and is
not to be indexed and associated with the name or other identifying symbol of a taxpayer.
.08 The historical files used in the Large Case Program are considered a part of the
case file.
Section 10. Collection Procedures
.01 The Collection function will continue on-going activities in the Returns Compliance
Program area. New programs initiated at the National, regional or local levels will
require the approval of the Assistant Commissioner, Regional Cotrmlissioner or District
Director, respectively. Returns Compliance Programs may involve obtaining lists of tax122
Section 10 -- Contd.
payers' names and addresses and other general information ......hich identifies groups of taxpayers
who are probably required to file particular tax returns. Other types of Returns
Compliance Programs may involve direct contact with individual taxpayers to assure compliance
with specific filing requirements. Employees will not maintain any individual files or background
information on taxpayers .
• 02 Only directly tax related information will be obtained in the Returns Compliance
Program.
•03 Information gathered for the purpos(> of generating Returns Compliance Program leads
is normally retained for a relatively brief period until this purpose has been accomplished,
and then destroyed as soon as permitted under Section 3.02 .
. 04 Returns Compliance leads assigned for field fo11o,"" up will be considered as
"assigned cases" and~ as such~ come under the exclusions in Section 1.02 .
. 05 Collection employees who learn of indication of tax noncompliance will report the
information to Audit or EP/EO on Form 3449, Referral Report. If potential fraud is indicated~
the information will be reported to Intelligence on Form 3949~ Intelligence Information
Item, unless the referral resulted from an assigned case where Form 3212, Referral
Report, will be used. Information alleging other offenses against the United States will be
forwarded through channels to the Director, Intelligence Division .
• 06 Actions that are deeteed necessary to verify the current compliance of previously
delinquent taxpayers or taxpayers for whom the Service believes such verification is necessary,
will be considered delinquency prevention actions. Such actions will be considered
assigned cases and will be documented as outlined in 4.042.
Section 11. Employee Plans and Exempt Organizations Procedures
.01 All EP/EO employees will be alert for indications of noncompliance with the tax
laws. They will continue to seek facts and evidence necessary to resolve issues in assigned
cases and proj ects; however, care must be taken to ensure that only· direc.tly related information
is sought. Employees will not maintain any files or background inforinatlon on taxpayers
or organizations •
•02 If potential fraud is discovered relating to a taxpayer upon whom the employee has
an assigned case, the matter will be referred to the Ch::ef, Intelligence Division, On Fortn
2797, Referral Report .
• 03 All other inforution received which may involve potential fraud and all informants'
communications received by EP!EO employee$ will be recorded on Form 3949 and forwarded
through channels to the Chief, Intelligence Division. All other directly tax related information
received by EP!EO employees will be forwarded with Fortll. 4298 to the Chief, EP/EO
Division, for processing. Group Managers will ensure that only directly tax related information
is forwarde:d. Any information alleging other offenses against the United States will
be forwarded through channels to the Director, Intelligence Division for appropriate disposition
pursuant to Section 5 .
. 04 The Chief, EP/EO Division, or an appropriate designee, will promptly screen all
Forms 3949 and 4298 received. Forms 4298 not involving exempt organizations. exempt status
of an organization or employee plans will be forwarded to the Returns Program Manager. Audit
Division, for the district office servicing the principal place of business of the taxpayer.
If it is determined an exempt organization or employee plan return is to be secured. the
return will be requested from the service center and the information associated with the
return. If the return does not warrant selection for examination because of prior
123
Section 11 -- Contd.
year returns, workload capacity or other factors, the Form 4298 and return will be sent back
to the service center. However, if the information relates to a taxable period for which no
return is due or Doe for which the organization does not have to file a return, such Form
4298 wlll be placed in a suspense file until the return is filed and secured I or until the
accumulated information warrants compliance action. Any instances of apparent failure to
file will be referred to the Collection function .
. 05 Projects as defined in Section 4.045 may be initiated when authorhed by an
Assistant Commissioner, the Regional Commissioner or by the key District Director. Care
should be exercised to ensure that only directly tax related information is sought .
. 06 Reports, comments or exchanged information required under the Employee Retirement
Income Security Act of 1974 (Public Law 93-406) are not considered informants' communications •
. 07 The historical files used in National Office Controlled cases in the Exempt Organization
Program are considered a part of the case file. Similarly, the administrative files of
employee plans and exempt organizations which contain information, such as application for
recognition of exempt status, determination letters issued and workpapers from prior examinations,
are considered as part of the case file.
Section 12. Effect on Other Documents
.01 This supersedes Manual Supplement 91RDD-7, CR 4lRDD-l8, 5lRDD-20 and 71RDD-l, dated
January 31, 1975 and Manual Supplement 93G-148. CR 42G-323, 45G-223. 5(l2)G-22 and 7lG-3,
dated February 20, 1975 and Amendment 1 thereto. Annotations made at IRM 42(14)0, 4568,
5(12)40, 9311, 9330 and 9390 referring to Manual Supplement 93G-148, CR 42G-323, 45G-223,
5(12)G-22 and 71G-3 should be removed .
. 02 This amends and supplements 1RM 4175, 42(14)0, 4568, 4569, 5(12)40, 6100 (to be
issued), 7100 (to be issued), 9311, 9330, and 9413. This "eHectlt should be annotated by pen
and ink beside the text cited with a reference to this Supplement .
•03 This supersedes IRM 9390 which will be revised and reissued as soon as possible.
Commissaioner
Attachment
124
Attachment to MS 93G-152, CR l( 15 )G-91, !..JIG-105, ~2G- 323, 45G-231, 51G-118, 5 (12 )G-25,
61G-3, 7lG-9, 91G-33 and 94G-57
P-l-l (Approved 6-23-75)
Mission of the
Servic.e
Programs and
facilities to be
established to
accomplish Service
mission
Taxpayer privacy
will be safeguarded
in the acquisition
and use of
infonnatlon
The mission of the Service is to encourage and
achieve the highest possible degree of voluntary
compliance with the tax laws and regulations and
to conduct itself so as to warrant the highest
degree of public confidence in its integrity and
efficiency. The Service should advise the public
of its rights and responsibilities, determine the
extent of compliance and the causes of noncompliance,
and do all things needed for proper administration
and enforcement of the tax laws.
In order to fulfill this mission. the Service
must establish programs and facilities for receiving
and processing returns, for collecting all taxes due.
for auditing, for detecting fraud and delinquency,
for hearing and adjudicating appeals, for providing
taxpayer assistance and information, for recruiting
persons with a professional outlook and maximizing
their ability to perform through trainiog in both
the ethical and professional aspects of their jobs,
for developing evaluation methods designed to measure
these aspects, for the uniform interpretation and
application of the tax laws, for the preparation of
regulations and tax guide materials, for clarification
and simplification of tax rules. for maintaining the
integrity of the Service and its efficient operation.
and for performing such other duties as may be
required by laws and regulations.
Since compliance with Internal Revenue la....s
cannot be determined solely ....ith reference to information
on returns and documents filed ....ith the Service,
the Service will obtain information from outside
sources. However, only information necessary for
the enforcement and administration of the tax law8
which the Service is authorized and directed to
enforce will be sought. To safeguard taxpayer
privacy, any information received by the Service,
other than that described in this paragraph, will
not be indexed or associated with the name or identifying
symbol of a taxpayer. No disclosure of information
will be made except as provided by law.
Approved by: ~ c.... ({I.-........£-.
Cotmnissloner
o
Date: II....- ...~ J""...-

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