Tax System's Integrity Depends on Confidentiality of Taxpayer Information.

Law Should Protect APAs, Limit Access to Third-Party Information

The willingness of taxpayers to disclose confidential information to the Internal Revenue Service is largely attributable to assurances that their privacy interests will be safeguarded by the government, according to Tax Executives Institute. TEI's comments, which are reprinted in this issue beginning on page 518, were made in conjunction with studies on taxpayer confidentiality underway by the staff of the Joint Committee on Taxation and the U.S. Department of Treasury. Removing the assurance of confidentiality would jeopardize the tax system's ability to generate the billions of dollars necessary to fund the military, Social Security and Medicare, and other government programs.

The taxpayer confidentiality provisions of the Code are more than two decades old. In 1976, Congress enacted section 6103, which provided that tax returns and tax return information are confidential and not subject to disclosure, except in 13 limited circumstances. The general rule of confidentiality is not absolute; Congress also provided under section 6110 for the disclosure of "written determinations," which are defined as "a ruling, determination letter, technical advice memorandum, or Chief Counsel advice." In enacting these two provisions, Congress said it was trying "to balance the particular office or agency's need for the information involved with the citizen's right to privacy, as well as the impact of the disclosure upon the continuation of compliance with our country's voluntary tax assessment system." It is these provisions that are now under review.

TEI stated that "in general, taxpayers and the public have been well served during the 23 years since the enactment of sections 6103 and 6110." The Institute recognized, however, that at times the IRS may have invoked section 6103 to prevent information from becoming disclosed, for example, as a litigating tactic or perhaps in an attempt to save itself from embarrassment. Nonetheless, the organization asserted in its statement that "on the whole taxpayer confidentiality must remain paramount and, therefore, that no fundamental changes should be effected."

This is not to say, TEI noted, that there have not been "some hiccups." One of the problem areas involves the IRS's advance pricing agreement (APA) program. This program -- which is designed to...