Protecting Federal Tax Information: A Message From The IRS

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Data security breaches and information losses make the headlines and nightly newscasts.

The public is extremely sensitive about the vulnerability of their confidential data.

They have serious and very legitimate worries about identity theft.

When leading businesses and well-respected public agencies lose personal data about their customers and employees, whether by theft, accident, or negligence, it does more than make the news.

It's an event that undermines the public's confidence in institutions they trusted.

Because of the job you perform, you're probably accustomed to working with confidential records and other personal information.

You also have access to and work with federal tax information.

That federal tax information is an important asset on which both you and your employer rely.

Like you, I work with federal tax information, or FTI, as it's known.

To safeguard sensitive personal and financial information about taxpayers, FTI is protected by law.

That law imposes important obligations on you, just as it does on me and all other IRS employees.

This presentation is designed to give you information you need to know about federal tax information and the laws that protect it.

This material may not be news to you.

You may have heard it before, perhaps even many times before.

While the content may not be new, it is timely, and it's certainly relevant.

What you're going to hear will help you to confidently work with federal tax data, knowing what it is and how to protect it.

The very fact that you're working with FTI is evidence that we trust you and that your employer has a culture of confidentiality with rigorous safeguards in place to prevent data loss and misuse.

The legal provisions that allow IRS to disclose FTI to your employer also obliges it and each of its employees to protect it.

The disclosure basics I'll share with you in this presentation may be found in greater detail in the "IRS Disclosure Awareness Pocket Guide."

Publication 1075 is also an excellent source of information about federal tax information and how to protect it.

Both are available at irs.gov.

The law I've been referring to is found in the Internal Revenue Code, or Title 26 of the United States Code.

Code section 6103 contains a general prohibition against the disclosure of federal tax returns and return information.

This prohibition applies to you as someone having access to FTI.

The law limits your access to FTI and your disclosure of that information to certain circumstances specified in the law.

As examples, section 6103(d) is the specific point in the law that permits the IRS to disclose FTI to state and some city tax agencies for use in tax administration.

Section 6103(i) allows disclosure of FTI to the Department of Justice and others for the investigation and potential prosecution of non-tax federal crimes.

A section of the same law allows us to disclose FTI to the taxpayer and their authorized representatives, while other sections provide for disclosure of certain information to agencies for specified purposes.

The code provisions that govern disclosure of FTI to you and your employer are important because if it administers other programs, FTI can only be used for matters authorized by statute.

To have a sound understanding of your obligations, you need to know just exactly what you can and cannot disclose.

On a more basic level, it's also important to understand just exactly what the word "disclosure" means.

The law itself is the source for the definition of "return," "return information," and "disclosure."

While the definition of a return may seem obvious, let's go over what it means under the law, which tells us that...

A return means any tax or information return, estimated tax declaration, or refund claim, including amendments, supplements, supporting schedules, attachments or lists, required by or permitted under the Code, which is filed with the IRS by, on behalf of, or with respect to any person.

Examples of returns include forms filed on paper or electronically, such as Forms 1040, 941, 1099, 1120, and W-2.

"Return information" is defined by law and is very broad in scope.

It includes the taxpayer's name, mailing address, and identification number, including social security number or employer identification number; any information extracted from a return, including names of dependents or the location of a business; information on whether a return was, is being, or will be examined or subject to other investigation or processing; information contained on transcripts of accounts; the fact that a return was filed or examined; investigation or collection history; or tax balance due information.

Your employer may receive returns and return information electronically or on paper.

But it's important to know that, regardless of format, FTI is confidential.

Which brings us to the third important definition we need to cover, and that is "disclosure," which the law defines as...

...making a return or return information known to any person in any manner.

We know you want to do the right thing, and that's why we're here.

We want to make sure that you are fully aware of your responsibilities and the potentially serious repercussions of ignoring those responsibilities.

Knowingly and willfully disclosing FTI to someone not authorized to receive it or willfully accessing tax data without a business need to do so, known as UNAX, are both criminal offenses subject to penalties.

Internal Revenue Code section 7213 specifies that willful unauthorized disclosure of returns or return information by an employee -- whether federal or state -- former employee, or contractor employee is a felony.

The penalty can be a fine of up to $5,000 or up to five years in jail or both, plus the costs of prosecution.

Under IRC section 7213A, willful unauthorized access or inspection -- UNAX -- of taxpayer records by an employee is a misdemeanor.

This applies to both paper documents and computerized information.

Violators can be subject to a fine of up to $1,000 and up to one year in prison.

In addition to criminal penalties, civil remedies may also be pursued by any taxpayer whose return or return information has been knowingly or negligently inspected or disclosed in violation of section 6103.

Section 7431 allows a taxpayer to institute action in district court for civil damages.

If the court finds there has been an unauthorized inspection or disclosure of FTI, the taxpayer may receive damages of $1,000 for each act of unauthorized access or disclosure or the actual damages sustained, if greater, plus punitive damages and costs of the action.

And that's where it really gets expensive.

Protect FTI by following the tips available in the "Disclosure Awareness Pocket Guide."

Publication 1075 is the definitive source for safeguard standards and procedures required to protect federal tax information.

A number of IRS resources are available to help you access, work with, and protect FTI.

IRS Safeguards staff is responsible for periodic reviews for compliance with these data protection requirements and for receiving and approving certain reports required by law.

IRS Data Services works with agencies in use of the DIFSLA extracts.

The IRS Governmental Liaison keeps the lines of communication and cooperation open and active with state and some city tax agencies and some federal ones, as well.

The IRS Disclosure Office answers your questions and concerns about access to FTI.

We're here to help you when you need to check it out before you give it out.