|Treasury Decision 9252
||March 20, 2006
Procedures for Administrative Review of a Determination
That an Authorized Recipient Has Failed
to Safeguard Tax Returns or Return Information
Internal Revenue Service (IRS), Treasury.
This document contains temporary regulations regarding administrative
review procedures for certain government agencies and other authorized recipients
of tax returns or return information (authorized recipients) whose receipt
of returns and return information may be suspended or terminated because they
do not maintain proper safeguards. The temporary regulations provide guidance
to responsible IRS personnel and authorized recipients as to these administrative
procedures. The text of these temporary regulations serves as the text of
the proposed regulations (REG-157271-05) set forth in the notice of proposed
rulemaking on this subject in this issue of the Bulletin.
Effective Date: These regulations are effective
February 24, 2006.
Applicability Date: For dates of applicability,
FOR FURTHER INFORMATION CONTACT:
Melinda Fisher, (202) 622-4580 (not a toll-free number).
Under section 6103 of the Internal Revenue Code (Code), tax returns
and return information are protected from disclosure except in specifically
enumerated circumstances. Where disclosure is permitted, section 6103 generally
imposes strict safeguarding requirements and requires the IRS to monitor and
enforce compliance with those requirements. Section 6103(p)(7) requires the
Secretary of the Treasury to prescribe procedures providing for administrative
review of any determination under section 6103(p)(4) that an agency, body,
or commission receiving returns or return information pursuant to section
6103(d) has failed to meet the safeguarding requirements. Withdrawn §301.6103(p)(7)-1
set forth the procedures for terminating future disclosures to these authorized
recipients. These temporary regulations provide the intermediate review and
termination procedures for all authorized recipients identified in section
With an increasing volume of authorized disclosures of returns and return
information, it is critical that authorized recipients of returns and return
information adhere to the strict safeguard requirements of the Code and that
the IRS take all necessary steps to ensure that those requirements are met.
If unauthorized disclosures do occur, it is similarly important that the
IRS take steps to address them and ensure that they are not repeated. Such
steps include, as appropriate, suspension or termination of further disclosures
to an authorized recipient. Nevertheless, because the authority to receive
returns and return information is provided by law, authorized disclosures
should not be suspended or terminated without appropriate administrative review
procedures. These temporary regulations set forth procedures to ensure that
authorized recipients provide the proper security and protection to returns
and return information.
Explanation of Provisions
There are four basic parts to the statutory scheme Congress created
in section 6103 of the Code to protect the confidentiality of tax returns
and return information:
The general rule that makes returns and return information confidential
except as expressly authorized in the Code;
The exceptions to the general rule detailing permissible disclosures;
Technical, administrative, and physical safeguard provisions to prevent
authorized recipients of returns and return information from inspecting, using,
or disclosing the returns and return information in an unauthorized manner,
and accounting, recordkeeping and reporting requirements that detail what
inspections and disclosures are made for certain purposes to assist in oversight;
Criminal penalties for the willful unauthorized inspection or disclosure
of returns and return information and a civil cause of action for the taxpayer
whose returns or return information has been inspected or disclosed in a manner
not authorized by the Code.
Section 6103(p)(4) provides that no returns or return information may
be disclosed by the IRS to certain government agencies and other authorized
recipients unless they establish procedures satisfactory to the IRS for safeguarding
the returns and return information they receive. These procedures are set
forth in Publication 1075, Tax Information Security Guidelines for
Federal, State and Local Agencies, which is available at www.irs.gov/formspubs/list.
Disclosure of returns and return information to the authorized recipients
described in section 6103(p)(4) is conditioned on the recipient maintaining
a secure place for storing the returns and return information, restricting
access to returns and return information to persons whose duty requires access
and to whom disclosure can be made under the internal revenue laws, providing
other safeguards necessary to keeping the returns and return information confidential,
reporting to the IRS on the safeguard procedures, and returning to the IRS
or destroying the returns and return information upon completion of use.
The IRS reviews, on a regular basis, safeguards established by authorized
recipients of returns and return information.
If there are any unauthorized inspections or disclosures of returns
or return information by authorized recipients, further disclosures may be
terminated or suspended until the IRS is satisfied that adequate protective
measures have been taken to prevent a recurrence of unauthorized inspection
or disclosure. In addition, the IRS may terminate or suspend disclosure to
any authorized recipient if the IRS determines that adequate safeguards are
not being maintained.
The Code, in section 6103(p)(4), (p)(7), and (q) authorizes the IRS
to promulgate regulations to carry out its statutory safeguard responsibilities.
More specifically, section 6103(p)(7) requires that the IRS promulgate regulations
establishing procedures for an administrative review of any determination
by the IRS under section 6103(p)(4) that a State tax agency authorized to
receive returns and return information under section 6103(d) has failed to
meet the requirements of section 6103(p)(4). See TAX REFORM ACT OF 1976,
S. Rep. 94-938, 94th Cong., 2d Sess. 345 (1976).
Under current §301.6103(p)(7)-1 of the Procedure and Administration
Regulations (26 CFR Part 301), the IRS has established procedures whereby
State tax agencies that receive returns and return information pursuant to
section 6103(d) have an opportunity, prior to a suspension or termination
of disclosure, to contest a preliminary finding by the IRS of inadequate safeguards
or unauthorized disclosure, or to establish that a State tax agency has taken
steps to prevent a recurrence of the violation.
This document adopts temporary regulations that extend the administrative
review procedure applicable to State tax agencies to any authorized recipient
specified in section 6103(p)(4) with respect to which the IRS has made a preliminary
finding of inadequate safeguards or unauthorized disclosure. The temporary
regulations also apply this administrative review procedure to any such authorized
recipient with respect to which the IRS has made a preliminary finding as
to unauthorized inspection of returns or return information. The temporary
regulations treat unauthorized inspection in the same manner as unauthorized
disclosure because both unauthorized acts are proscribed by the Code. In
particular, section 7213A, enacted by the Taxpayer Browsing Protection Act
of 1997, Public Law No. 105-35 (111 Stat. 1104), specifically treats the unauthorized
inspection of a return or return information as a misdemeanor.
It has been determined that these temporary regulations are not a significant
regulatory action as defined in Executive Order 12866. Therefore, a regulatory
assessment is not required. Pursuant to 5 U.S.C. 553(b)(B) it has been determined
that prior notice and public comment on these temporary regulations are unnecessary
and contrary to the public interest. These regulations do not impose any
burdens or obligations on any person, but instead provide certain rights of
administrative review. Moreover, these regulations are necessary to protect
taxpayer confidentiality and the integrity of return information. For the
same reasons, it has been determined pursuant to 5 U.S.C. 553(d)(3) that good
cause exists to dispense with a delayed effective date for these regulations.
For applicability of the Regulatory Flexibility Act (5 U.S.C. chapter 6),
please refer to the cross-reference notice of proposed rulemaking published
elsewhere in this issue of the Bulletin. Pursuant to section 7805(f) of the
Code, these temporary regulations will be submitted to the Chief Counsel for
Advocacy of the Small Business Administration for comment on their impact
on small business.
Amendments to the Regulations
Accordingly, 26 CFR Part 301 is amended as follows:
PART 301—PROCEDURE AND ADMINISTRATION
Paragraph 1. The authority citation for part 301 is amended by adding
an entry in numerical order to read, in part, as follows:
Authority: 26 U.S.C. 7805 * * *
Sections 301.6103(p)(4)-1 and 301.6103(p)(7)-1T also issued under 26
U.S.C. 6103(p)(4) and (7) and (q), * * *
Par. 2. Section 301.6103(p)(4)-1T is added to read as follows:
§ 301.6103(p)(4)-1T Procedures relating to safeguards
for returns or return information (temporary).
For security guidelines and other safeguards for protecting returns
and return information, see guidance published by the Internal Revenue Service.
For procedures for administrative review of a determination that an authorized
recipient has failed to safeguard returns or return information, see §301.6103(p)(7)-1T.
Par. 3. Section 301.6103(p)(7)-1 is removed.
Par. 4. Section 301.6103(p)(7)-1T is added to read as follows:
§301.6103(p)(7)-1T Procedures for administrative review
of a determination that an authorized recipient has failed to safeguard returns
or return information (temporary).
(a) In general. Notwithstanding any section of
the Internal Revenue Code, the Internal Revenue Service (IRS) may terminate
or suspend disclosure of returns and return information to any authorized
recipient specified in subsection (p)(4) of section 6103, if the IRS makes
a determination that:
(1) The authorized recipient has allowed an unauthorized inspection
or disclosure of returns or return information and that the authorized recipient
has not taken adequate corrective action to prevent the recurrence of an unauthorized
inspection or disclosure, or
(2) The authorized recipient does not satisfactorily maintain the safeguards
prescribed by section 6103(p)(4), and has made no adequate plan to improve
its system to maintain the safeguards satisfactorily.
(b) Notice of IRS’s intention to terminate or suspend
disclosure. Prior to terminating or suspending authorized disclosures,
the IRS will notify the authorized recipient in writing of the IRS’s
preliminary determination and of the IRS’s intention to discontinue
disclosure of returns and return information to the authorized recipient.
Upon so notifying the authorized recipient, the IRS, if it determines that
tax administration otherwise would be seriously impaired, may suspend further
disclosures of returns and return information to the authorized recipient
pending a final determination by the Commissioner or a Deputy Commissioner
described in paragraph (d)(2) of this section.
(c) Authorized recipient’s right to appeal.
An authorized recipient shall have 30 days from the date of receipt of a
notice described in paragraph (b) of this section to appeal the preliminary
determination described in paragraph (b) of this section. The appeal shall
be made directly to the Commissioner.
(d) Procedures for administrative review. (1)
To appeal a preliminary determination described in paragraph (b) of this section,
the authorized recipient shall send a written request for a conference to:
Commissioner of Internal Revenue (Attention: SE:S:CLD:GLD), 1111 Constitution
Avenue, NW, Washington, DC 20224. The request must include a complete description
of the authorized recipient’s present system of safeguarding returns
or return information, as well as a complete description of its practices
with respect to the inspection, disclosure, and use of the returns or return
information it (including any authorized contractors or agents) receives under
the Internal Revenue Code. The request then must state the reason or reasons
the authorized recipient believes that such system, or practice, including
improvements, if any, to such system or practice expected to be made in the
near future, is or will be adequate to safeguard returns or return information.
(2) Within 45 days of the receipt of the request made in accordance
with the provisions of paragraph (d)(1) of this section, the Commissioner
or Deputy Commissioner personally will hold a conference with representatives
of the authorized recipient, after which the Commissioner or Deputy Commissioner
will make a final determination with respect to the appeal.
(e) Effective date. This section is applicable
to all authorized recipients of returns and return information that are subject
to the safeguard requirements set forth in section 6103(p)(4) on or after
February 23, 2006.
Mark E. Matthews,
Services and Enforcement.
Approved February 11, 2006.
Secretary of the Treasury (Tax Policy).
(Filed by the Office of the Federal Register on February 23, 2006, 8:45
a.m., and published in the issue of the Federal Register for February 24,
2006, 71 F.R. 9449)
The principal author of these temporary regulations is Melinda K. Fisher,
Office of the Associate Chief Counsel (Procedure & Administration), Disclosure
and Privacy Law Division.
* * * * *
Internal Revenue Bulletin 2006-12
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