The exchange of confidential tax information between the Internal Revenue Service (IRS) and the States is intended to increase tax revenues and taxpayer compliance and reduce duplicate resource expenditures. Congress has recognized the importance of this exchange program by permitting the disclosure of certain confidential Federal tax information to State agencies for tax administration purposes. However, Congress balanced this disclosure authority with additional requirements designed to safeguard Federal tax information against misuse and unauthorized disclosure. A fundamental step toward reducing the risk of unauthorized disclosures is the elimination of unnecessary disclosures. Many of the guidelines, requirements and programs outlined in this IRM were developed with this goal in mind.

Governmental Liaisons are assigned responsibility for liaison with State tax authorities and are to be personally involved in the cooperative tax administration program.

Disclosure Officers, Governmental Liaisons, and Mission Assurance and Security Services (MA&SS) share the responsibility for ensuring that resources are used to the best advantage and that Federal tax information is properly safeguarded. Some of the responsibilities that have traditionally been accomplished by the Disclosure Officer may be completed by the Governmental Liaison. This does not negate the need for the Disclosure Officer’s involvement in any negotiation or task that includes the disclosure of tax or other confidential information. The Governmental Liaison may also serve as the IRS representative at conferences and meetings with senior officials of state agencies.

As more and more third party data is requested from State agencies, privacy and security issues must be considered before third party data requests are made for compliance initiatives or interagency agreements. Database security is becoming more important as we promote local electronic/tape exchanges both with tax and nontax agencies. Responsibilities for maintaining external databases have been addressed in IRM 11.3.14.6, Spirit and Requirements of the Act, as well as in the Compliance Improvement Project Program. See IRM 4.17, Compliance Initiative Projects. Disclosure and Governmental Liaison employees should ensure that all applicable requirements have been met and the appropriate authorities for disclosure exist before data is disclosed.

This section deals with disclosure for State tax purposes in accordance with IRC 6103(d), whereas the concept of FedState is much more global. Other parts of IRC 6103 may be used for FedState purposes when State tax administration is not the reason for the disclosure or it is determined that another disclosure provision is best used from an administrative viewpoint. Other sections of this IRM may be appropriate when considering the feasibility of FedState exchanges.

The following terms are defined for use in this IRM:

State - any of the fifty States, the District of Columbia, the Commonwealth of Puerto Rico, the Virgin Islands, Guam, American Samoa, the Commonwealth of the Northern Mariana Islands, and any municipality with a population in excess of 250,000, as determined by the most recent decennial United States census data available, which imposes a tax on income or wages and with which the Commissioner of the Internal Revenue Service has entered into an agreement regarding disclosure.

State tax administration - the administration, management, conduct, direction, and supervision of the execution and application of the revenue laws (or related statutes) of the State, the development and formulation of State tax policy relating to existing or proposed revenue laws, or related statutes, of the State, including assessment, collection, enforcement, litigation, and statistical gathering functions under such laws and statutes. The term does not include nontax functions of a State agency such as the determination of eligibility for unemployment compensation or the collection of such benefits if erroneously paid. If a state transfers tax administration functions (e.g., statistical gathering or revenue forecasting) from a revenue agency to a state agency that does not actually administer taxes, disclosures under IRC 6103(d) cannot be made to this successor agency. If residual functional responsibilities remain with the revenue agency, close coordination with Disclosure is necessary to determine which disclosure statutory provisions apply.

Basic agreement - the Agreement on Coordination of Tax Administration executed by the Commissioner of Internal Revenue and the head of a State tax agency.

Implementing agreement - an agreement, complementing the basic agreement, entered into between the head of a State tax agency with which IRS has finalized an agreement on coordination of tax administration and the IRS GLD Area Manager—or higher GLD official.

primary Disclosure Office - the Disclosure Office responsible for negotiating agreements and overseeing disclosures with the State tax agency.

secondary Disclosure Office - used with reference to multi-Disclosure Office States only, the Disclosure Office(s) other than the primary Disclosure Office. A multi-Disclosure Office State is a State which has more than one IRS Disclosure Office within its borders.

affected Campus - the campus(es) responsible for processing returns of taxpayers residing in primary and/or secondary Disclosure Offices’ geographical areas and which will be involved in exchanging data with a particular State tax agency.

field Disclosure Officer - the Disclosure official at a local IRS office.

campus Disclosure Officer - the Disclosure official at an IRS Campus.

Governmental Liaison - the FedState IRS official designated to cover a particular state.

Mission Assurance and Security Services (MA&SS) - the Safeguards Program Office within Certification, Testing and Evaluation Assessment of MA&SS that is responsible for oversight of IRC 6103(p)(4), 6103(n), and periodic on-site need and use reviews of state tax agencies.

IRC 6103(d)(1) permits the disclosure of returns and return information with respect to taxes imposed by chapters 1, 2, 6, 11, 12, 21, 23, 24, 31, 32, 44, 51, and 52, and subchapter D of chapter 36 to any State agency, body or commission, or its legal representative, charged under the laws of the State with the responsibility for administration of any State tax law. See (5) below for the titles of these chapters.

Disclosure may be made only in response to a written request by the head of the agency, body or commission only for the purpose of, and to the extent necessary in, the administration of such tax laws.

The request may designate representatives to inspect or receive copies of the returns or return information but such representatives may not include any individual who is the Chief Executive Officer of the State or anyone who is not an employee, legal representative, or authorized contractor of the agency (see IRC 6103(n)), body or commission.

Disclosure of returns or return information must be denied if it will identify a confidential informant or seriously impair a civil or criminal tax investigation.

The titles of the chapters listed in IRC 6103(d)(1) are as follows:

IRC 6103(k)(5) permits the disclosure, to State or local agencies, bodies or commissions lawfully charged under any State or local law with the licensing, registration or regulation of income tax return preparers, of taxpayer identity information with regard to such preparers and information as to whether or not any penalty has been assessed against such preparers under IRC 6694, IRC 6695, or IRC 7216. In response to a written request by the head of the agency, body, or commission designating the officers or employees to whom the information is to be disclosed, the information may be furnished and used only for the purpose of licensing, registration, or regulation of the preparers. Such disclosures are subject to the accounting requirements of IRC 6103(p)(3)(A), but are not subject to safeguards under IRC 6103(p)(4).

IRC 4102 permits the inspection of records required to be kept regarding taxes on gasoline and lubricating oils (Subchapter A, Part III of Chapter 32, Manufacturers Excise Taxes) by officers of a State or political subdivision charged with the enforcement or collection of any tax on such products. Disclosures under this Code section are to be made pursuant to regulation. See Treasury Regulation 48.4102-1. Information other than that taken directly from returns may not be disclosed under this provision. Disclosures involving sole proprietors must be accounted for under the Privacy Act.

Refund offset information disclosed to the States by FMS under IRC 6103(l)(10), for offsets authorized by IRC 6402(e), is not governed by IRC 6103(d). The requirements and restrictions of IRC 6103(l)(10) apply to this information which differs from IRC 6103(d) requirements and restrictions. For this reason, it is advisable for States to not commingle IRC 6103(l)(10) data with IRC 6103(d) data.

Disclosure of Federal returns and return information to a State tax agency under IRC 6103(d)(1) will be restricted to the agency ’s justified State tax administration need for and use of such information. See Policy Statement P-1-35.

Disclosure Officers will maintain separate written documentation of agency need for and use of information which is disclosed on a continuing basis, pursuant to an agreement on coordination of tax administration, and of each data item provided in magnetic tape or electronic format.

Every effort will be made to eliminate disclosure of unnecessary information to State tax agencies. Requests for copies of tax returns are to be carefully reviewed to determine what specific information is needed and whether a copy of the entire return should be provided or whether a computer transcript is more appropriate.

Tolerances and criteria will be established with regard to information furnished on a continuing basis, and information which the agency cannot use should normally not be provided. See IRM 11.3.32.6.1(2)c) below, for further discussion on tolerances and criteria.

In discussions and documentation of the particular State tax agency’s need for and use of specific information, it is understood that the State tax agency may subsequently use the Federal returns and return information for any State tax administration purpose authorized by the basic agreement even though such subsequent uses were not discussed or noted in the Disclosure office’s documentation records.

MA&SS, Safeguards will conduct an on-site "need and use" review of each State tax agency receiving Federal tax information in accordance with its established procedures. When appropriate as determined by MA&SS, Safeguards, Governmental Liaisons, and Disclosure Officers may accompany MA&SS on need and use reviews.

Disclosures made to State and local agencies under IRC 4102 and IRC 6103(k)(5) will likewise be subject to the same " need and use" restrictions as described above, except for the on-site inspection.

The "basic" agreement provides for the mutual exchange of tax data between a specific State tax agency and the IRS. The provisions of the "basic" agreement encompass the required procedures and safeguards.

Arrangements for continuing disclosures are made by means of an "implementing agreement," as discussed in IRM 11.3.32.6 below. State tax agency requests for tax data not covered by an Agreement on Coordination of Tax Administration must be made in accordance with instructions contained in IRM 11.3.32.13 below.

A "model" Agreement on Coordination of Tax Administration is shown in Exhibit 11.3.32-1. Individual modifications to the standard provisions of the model are not permitted. Necessary departures from the standard provisions, however, may be proposed and submitted to the Office of Governmental Liaison and Disclosure for consideration and approval by the Commissioner.

The scope of the basic agreement and subsequent implementing agreement will initially be developed and negotiated through discussions between the GLD Area Manager and the head of the State tax agency. The respective Disclosure Officer is expected to play a key role in the development, negotiation and administration of such agreements. All legal questions must be addressed before an agreement is sent forward. It may be necessary to engage Area Counsel during this stage. Common questions of this nature involve whether a municipality has a qualifying tax, whether an item called a " fee" is actually a tax, whether the structure of the revenue bureaucracy meets IRC 6103(d) standards, whether contemplated state uses constitute tax administration, etc. Where such legal questions are involved, the Area GLD personnel must involve the Director, Office of Disclosure in the resolution.

Two copies of the proposed basic agreement must be signed by the head of the State agency. For this purpose, the head of the agency is generally the official (other than the Governor or Mayor) responsible under the State law for the functions of the particular tax agency or department. While a Governor or Mayor could be a cosigner with this official, their signature alone is insufficient. IRC 6103(d) prohibits a state’s chief executive officer from accessing Federal tax information.

Both signed copies will then be transmitted by the GLD Area Manager to the Director, Office of Disclosure, for review and securing of the Commissioner’s signature. The transmittal document must contain the reasons for entering into the agreement. In addition, " need and use" justifications are to be addressed as well as IRC 6103(p)(8) considerations. See IRM 11.3.32.14.1 below. The Office of Disclosure will coordinate with Disclosure and Privacy Law of Chief Counsel if it is thought that HQ legal issues still need to be resolved. The agreement will be returned to the field if the issue is one that Area Counsel should have addressed. Copies of all applicable State statutes must accompany all new and revised agreements.

Following the Commissioner’s signature, one signed copy will be retained in Headquarters and the other will be returned to the GLD Area Manager, who will have copies made for the appropriate affected Disclosure offices. The other signed copy is to be returned to the State tax agency or department.

The agreement becomes effective upon the signature of both parties and continues in effect indefinitely unless terminated by either party. A change of incumbent in the office of either party to the agreement will have no effect on the agreement.

Sections 2.5 and 3.3 of the basic agreement require that the field Disclosure Officer(s), as well as the affected Campus Disclosure Officer, be furnished with a list of designated agency representatives by the agency head.

From time to time it may be necessary to amend specific sections of a basic agreement. Usually this occurs as a result of a change in State or Federal statutes or policy. Amendments will be effected by means of an addendum. A "model" addendum is to be used for broadening the scope of basic agreements to incorporate additional chapters of Federal tax is shown in IRM Exhibit 11.3.32-2 below. The " model" addendum is also available electronically on the GLD website.

Addenda for the original basic agreement will be prepared, signed and cleared in the same manner prescribed in (5)-(7) above. It is unnecessary to formally amend the basic agreement for State tax agency responsibility changes that do not affect the chapters of tax covered in the agreement. However ,see IRM 11.3.36, Safeguard Review Program, for information on the potential need for a new Safeguard Procedures Report

Copies of basic agreements, including addenda, may be made available to the general public upon request.

An implementing agreement should be developed and negotiated with each State tax agency that wishes to receive Federal returns and return information on a continuing basis pursuant to a basic agreement.

This agreement will supplement the basic agreement by specifying the detailed working arrangements and items to be exchanged, including tolerances and criteria for selecting those items, as agreed to by the State tax agency and the GLD Disclosure offices and campuses. All provisions contained in implementing agreements must be consistent with the terms and conditions set forth in the basic agreement.

The implementing agreement is to be used to:

Wherever possible, the IRS should make efforts to use data available from State agencies to avoid duplicate resource expenditures. A Data Identification Sheet, shown in IRM Exhibit 11.3.32-4, has been developed to aid in determining what information is available from State sources. The appropriate IRS function can then evaluate the information in light of IRS tax compliance programs.

The majority of exchanges with a State tax agency will be on a geographical area level that is within the purview of the local Disclosure Officer. Local Disclosure Officers are encouraged to forward any items felt to have nationwide significance to Headquarters.

Implementing agreements must be reviewed periodically and, if necessary, amended or revised.

The agreements may be amended at any time to reflect the addition of new exchange programs or modification to existing exchanges. Memorandums of Understanding (MOU) may be used in lieu of amending Implementing Agreements. See IRM 11.3.32.7 below, for information on MOUs.

Copies of implementing agreements and of any amendments are to be attached to the appropriate basic agreement maintained by the local Disclosure Officer.

If any conflict arises between the provisions of the Agreement on Coordination of Tax Administration and the implementing agreement, the terms of the basic agreement will govern.

Governmental Liaisons have primary responsibility for the development and coordination of MOUs. MOUs should be considered for specific projects/exchanges that are short term or when the disclosure is authorized under some Code section other than IRC 6103(d).

MOUs must normally be signed by an official in the Operating Division with Delegation Order 11-2 authority, having jurisdiction for the project/exchange, and the head of the State tax agency if disclosures are involved.

A title section of the MOU should include the names of the agencies involved in the agreement.

Specific instructions for the project/exchange should be included to avoid confusion.

If time is an issue, requirements for responsiveness should be described.

Comments regarding security and disposition of information exchanged may be appropriate.

Appropriate parties should be consulted before commitments are made to provide resources.

Chief Counsel should be consulted for any legal opinions that are required.

The Disclosure Officers must be involved in the approval process for all MOUs.

Signature areas should contain blanks for name, date and place.

Signed copies should be maintained by the Office of Governmental Liaison, Disclosure Office, and the Operating Divisions, Functions, and Campuses involved. Copies should be provided to any parties to the agreement.

The primary Disclosure Officers have responsibility for ensuring the development and negotiation of implementing agreements with the appropriate State tax agencies within their States. This responsibility includes:

The primary Disclosure Officers will be responsible for maintaining complete and current documentation of the State tax agency ’s need for and use of all Federal returns, return information and data elements which are provided to the agency on a continuing basis pursuant to the implementing agreement.

Affected Campuses, Operating Divisions, and Functions are responsible for providing timely (generally within 30 days), input to the Disclosure Officers and assuring that the Disclosure Office is promptly, generally within 7 days, apprised of any significant changes in programs, practices and procedures which might affect exchange program activities.

Disclosure Offices involved in negotiating implementing agreements with the appropriate State tax agencies, are to ensure that affected Operating Divisions, Functions, and Campuses are involved in and concur with the terms of agreements which will affect their operations.

Implementing agreements do not need the approval of Headquarters’ Office of Governmental Liaison and Disclosure prior to signing. The negotiating Disclosure Office will distribute copies of signed implementing agreements to the GLD Area Manager and to affected Campuses, Operating Divisions, and Functions. Upon completion of signing both copies of the implementing agreement, one copy with original signatures will be given to the agency. The other copy with original signatures will be maintained by the respective Disclosure Office.

The Disclosure Office will distribute copies of amendments and revisions to implementing agreements, to the GLD Area Manager and to the affected Campuses, Operating Divisions, and Functions. Retention of the agreements by the GLD Area Manager is optional.

Copies of implementing agreements are generally available to the public. Portions of the implementing agreements which contain tolerance and criteria information are to be protected from disclosure and given the same protection accorded to LEM material as described in IRM Exhibit 1.16.13.2.5, Other Protectable Items, for a discussion. U.S. Possession agreements (e.g., Tax Information Agreements, Tax Coordination Agreements, MOUs), are considered Tax Conventions within the meaning of IRC 6105 and can only be disclosed consistent with IRC 6105.

MA&SS is responsible for safeguarding IRC 6103(p)(4) information exchanged via implementing agreements. See IRM 11.3.32.2(12) above, and IRM 11.3.36.

At least every three years (see subsections 11.3.36.9.2, Need and Use Reviews, and IRM 11.3.36.10(7), On-Site Safeguard Reviews) an on-site review (see IRM Exhibit 11.3.32-5 for a template that should be used) will be made of the agency’s actual use or non-use of data disclosed to them on a continuing basis under the tolerances and criteria established in the implementing or other agreement. MA&SS will notify the Governmental Liaison and Disclosure Officer in advance of the review as MA&SS deems appropriate and invite the Governmental Liaison and Disclosure Officer to attend. Magnetic media or electronic exchanges must be covered during this review. The report must specifically address whether or not the agency receives electronic data and/or tape extracts and, if applicable, the agency’s use of such data.

A report describing the method and scope of the review, and summarizing the review findings shall be incorporated into the report issued by MA&SS as a result of the safeguard review coordinated pursuant to IRC 6103(p)(4). See IRM 11.3.36.9.2. The results of the review must be transmitted to the agency by MA&SS within 30 days of the review, but not later than 45 calendar days after the closing conference.

The data obtained during the review will help identify those tolerances and criteria which should be modified to reduce or eliminate disclosures of data which, in practice, the agency does not or cannot use. MA&SS will share that information with GLD and SB/SE as appropriate.

The agencies should be encouraged to voluntarily collect and furnish any additional data necessary for the review. An agency ’s failure or inability to provide data, in whole or in part, for this review shall not be cause for suspending or diminishing any cooperative tax administration activity with the agency.

When it is appropriate, tolerances and criteria should be modified per (4) above. Disclosure Officers should discuss the results of this aspect of the need and use reviews in meetings with appropriate state tax agency personnel.

Subsequent documentation that addresses the modifications by the agency in response to the discussion should be forwarded to the Safeguards Program Office.

Disclosure Officers shall ensure that requests are processed in accordance with IRC 6103(d) requirements. Processing of these requests does not need to be done in the primary Disclosure Office. Alternative procedures may be developed between the primary Disclosure Office and Campuses, or secondary Disclosure Offices located within the same state.

An officer or employee of a State tax agency may inspect or receive Federal returns or return information of specifically identified taxpayers if:

A proper request is one directed to the appropriate IRS official designated in the basic agreement or the implementing or other agreement which includes:

The IRS official to whom a State agency representative has made a request to inspect returns or to obtain return information, shall satisfy himself/herself as to the identity of the individual, and with the assistance of the Disclosure Officer ensure that the above requirements have been met.

The means used to transmit returns and return information may vary according to the sensitivity of the material involved.

Form 8796, Request for Returns/Information, can be used by either IRS or employees of State tax agencies to request returns and/or return information in accordance with an approved Agreement on Coordination of Tax Administration (Basic Agreement). Use of this form by IRS or employees of State tax agencies is encouraged but not mandatory; however, when Form 8796 is used, sections C and D must be signed by officials who are authorized to make requests and/or release information under the terms of the Basic and Implementing Agreements.

State tax agencies can participate in the Transcript Delivery System which will allow approved state employees to order certain IRS transcript products directly on-line. All regular rules regarding IRC 6103(d) disclosures apply, including need and use monitoring and accounting. IDRS TC 120s will automatically post to the Disclosure Accounting File. The transcripts will contain information for which the IRS would never make an impairment call to withhold disclosure to the state. As of the date of this IRM revision, final MOUs of participation and informational materials are still being developed. A pilot start-up is in place. The experience gained from the pilot may result in final roll-out modifications. Governmental Liaison is heavily involved in the initial roll-out, but after that, most activities should be routine and handled by the Disclosure Officer as any other "specific request" program.

The Governmental Liaison Data Exchange Program (GLDEP) provides state tax agencies with tax return information in the form of magnetic media or electronic extracts and is intended to minimize the need for State tax personnel to inspect or obtain copies of Federal tax returns and related records as well as minimizing the impact on the IRS’ s resources.

Magnetic media or electronic extracts will be made available to State tax agencies which have entered into basic agreements with the IRS.

The extracts will be made available only to the extent that the State agency can justify that the extract is needed for a State tax administration purpose. For certain extracts, specific data elements will be included in the extract only to the extent that the State agency can justify that the specific data elements are needed for a State tax administration purpose. Agencies will also be asked to explain how they intend to use the extracts and/or the specific data elements. See IRM 11.3.32.4 above for more details.

The GLDEP consists of many data extracts and is constantly undergoing change. Although all extracts must be enrolled for on an annual basis, distribution schedules vary. Some extracts are distributed annually, some monthly, some weekly, and some have irregular distribution schedules. For more information on the extracts, visit or contact the Office of Governmental Liaison.

Details on the production, content, and distribution of the extracts will be published annually in a series of documents called "Specification Books." The Specification Books are distributed prior to extract distribution via the local Governmental Liaison. Information and instructions on how to enroll in the program and receive extracts is made available on a yearly basis in the "GL Data Exchange Enrollment Package." Pertinent information regarding selection of specific data elements will be made available each year in the "IMF/IRTF and BMF/BRTF Data Element Selection Package," which is the mechanism by which states request specific data elements and submit a need and use justification for each. Both of these packages of forms are created and distributed each year by the Headquarters Office of Governmental Liaison staff.

The Governmental Liaisons are to contact the State tax agency liaison officials regarding these extracts and, in coordination with the Disclosure Officer, assist interested agencies in enrolling for extracts and requesting specific data elements. The shipping address for the media extracts must be that of an authorized employee within the State tax agency and cannot be that of a centralized data processing facility of the State.

Determinations and documentation of State tax agency need for and use of the data items selected will be made by the local Disclosure Officers and will be retained in their files for use in reviews. In addition, the Disclosure Officers will determine whether or not the data items selected are consistent with the typ