Internal Revenue Service Pilot of an Electronic Transcript Delivery System

DEPARTMENT OF THE TREASURY

Internal Revenue Service

Internal Revenue Service Pilot of an Electronic Transcript

Delivery System

AGENCY: Internal Revenue Service (IRS), Department of the Treasury.

ACTION: Notice and Request for Public Comment on Internal Revenue

Service Pilot of an Electronic Transcript Delivery System.

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SUMMARY: The mission of the Electronic Tax Administration Office of the

Department of the Treasury's Internal Revenue Service (IRS) is to

revolutionize how taxpayers transact and communicate with the IRS. The

IRS seeks comments on a program to automate provision of tax

information to a third-party entity designated by the taxpayer. The IRS

requests comments on various aspects of the piloting and implementation

of this program, as well as specific questions concerning privacy,

authentication, and security.

DATES: Comments must be received by October 13, 1999.

ADDRESSES: Mail written comments to: Electronic Transcript Delivery

Pilot Project, Electronic Tax Administration, OP:ETA:E:P, Internal

Revenue Service, Room C5-463, 5000 Ellin Road, Lanham, MD 20706.

Paper submissions should include three paper copies and a version

on diskette in ASCII, Microsoft Word (please specify version), or

WordPerfect (please specify version) format. Comments submitted in

electronic form should be in ASCII, Microsoft Word (please specify

version) or WordPerfect (please specify version) format to:

www.*[email protected]">www.*[email protected].

FOR FURTHER INFORMATION CONTACT: Elizabeth Kelley, IRS, (202) 283-1990.

SUPPLEMENTARY INFORMATION:

Background: The mission of the Electronic Tax Administration Office

of the Department of the Treasury's Internal Revenue Service (IRS) is

to revolutionize how taxpayers transact and communicate with the IRS.

Strategies to fulfill the mission include:

Making electronic filing, payments, transactions and

communications so simple, inexpensive, and trusted that taxpayers will

prefer these to calling and mailing;

Providing additional taxpayer access methods to products

and services centering on electronic filing, payment, transaction, and

communication products and services;

Aggressively protecting transaction and information

integrity and quality; and

Seeking the best people, ideas and partners to assure IRS

success.

In response to the IRS' Restructuring and Reform Act of 1998, the

IRS has been tasked with increasing electronic communications and

services to the public. One of the services provided by the IRS is to

respond to over six (6) million requests annually from taxpayers

requesting copies of paper tax returns, return transcripts (an

electronic version of your submitted tax return), verification of non-

filing and W-2s. Of the six (6) million, approximately two (2) million

are from taxpayers requesting that their tax information be sent to a

designated ``third-party'' entity. Examples of third-party entities

include tax practitioners, financial institutions, the mortgage

industry, colleges/universities and local, state, and federal

government entities. The most frequent use of tax information by these

third parties is to provide income verification for loans, grants,

subsidies or other monetary guarantees, while tax practitioners assist

taxpayers in resolving tax issues.

Chapter 61 of the Internal Revenue Code addresses the

confidentiality and disclosure of returns and return information. Under

Section 6103(e) (Disclosure of Persons Having Material Interest), a

taxpayer has the right to obtain his/her tax return and/or most return

information held by the IRS that pertains to the taxpayer. Under

Section 6103(c) (Disclosure of Returns and Return Information to

Designee of Taxpayer), a taxpayer may designate a third-party recipient

to receive his/her return or return information and may authorize the

IRS to release that information to that third party.

The IRS uses Form 4506 ``Request for Copy or Transcript of Tax

Form'' for taxpayers to request copies of return transcripts. The

current process is as follows:

1. A taxpayer obtains a Form 4506. Form 4506 may be obtained from

the IRS' website, an IRS office, or it may be presented to the taxpayer

by the third party for the loan, grant, or subsidy application process.

2. The taxpayer completes the Form 4506 to authorize the IRS to

release their tax information to a designated third party. Completing

the Form 4506 includes signing and dating the Form 4506.

3. The taxpayer mails the completed, signed and dated form to the

appropriate IRS Service Center. In cases where the third party has

provided the Form 4506 to the taxpayer, the third party mails, or in

some cases, delivers the Form 4506 to the appropriate IRS Service

Center.

4. The IRS receives the Form 4506, routes it to the appropriate IRS

function and retrieves the requested tax information.

5. The IRS mails the requested tax information to the taxpayer or

to the third party designated by the taxpayer on the form.

Improving Customer Service

The IRS seeks to develop a process to automate the paper process of

the Form 4506 for third-party requests. The system would electronically

receive and process requests for disclosure of tax return information

from a third-party entity authorized by individual taxpayers. To assist

the IRS in final development of this program, the IRS seeks comments

and feedback from taxpayers and the private and public sectors on

access methods.

Since one third of the Form 4506 requests (over two (2) million

annually) are taxpayers requesting their tax information be sent to a

third party, the IRS seeks to improve customer service to the taxpayer

by:

(1) Accelerating Delivery Time. Currently, the receipt, processing

and retrieval of the return information for a designated third party

takes the IRS approximately seven (7) to ten (10) days, excluding the

time it takes for the tax information to be mailed to the third

[[Page 49541]]

party. It is proposed that the electronic delivery of return

transcripts could be made available within a 24-hour time period.

(2) Providing Electronic Authentication and Signature. The proposed

system would have an electronic Form 4506 that would be filled out on a

computer. Electronic authentication and an electronic signature would

ensure to the IRS that the taxpayer is authorizing the release of the

information.

(3) Making the Process a One-Stop Service. Currently, the taxpayer

(or business entity using the Form 4506 as part of their financial

benefit processing package) must retrieve the Form 4506 from an on-line

site or from an IRS office. The proposed system would provide this in

an electronic form through a computer at the office where the taxpayer

is applying for the loan, benefit, subsidy, or other financial

transaction.

(4) Reducing the Amount of Information Currently Released Through a

Standard Return Transcript. Currently, when a taxpayer authorizes his/

her return transcript be sent to a third party, a full return

transcript (over 200 lines of information transcribed from the

taxpayer's return) is sent. The proposed system would tailor the needs

of public and private industry to specific information from the

taxpayer's return that will aid in the processing of the application.

(5) Ensuring Timely Processing of the Request. Currently, the

third-party entity providing the Form 4506 to the taxpayer at the time

of application processing may request the taxpayer to sign but not date

the form. This allows the third-party to send in the Form 4506 at a

later date, in instances such as a mortgage resale which may occur a

year or two from the original application processing. The proposed

system would authenticate the taxpayer to the IRS (see item #2 above)

and then electronically date the request, locking it from further

manipulation. The taxpayer will be assured that the designated

recipient is receiving the data within a 24-hour period.

Proposed Pilot of the Electronic Program

The IRS plans to pilot an electronic transcript delivery system

with approximately 100 industry users. Pilot participants (hereinafter

referred to as ``Contractor'') will be selected competitively through

the Request For Proposal (RFP) process and will be awarded contracts,

with the possibility of a user fee, for a period of up to one year,

with an option to extend the term of the contract.

The RFP will be open for thirty (30) days to all private sector

businesses/firms in the following industries in the state of California

who perform income verification for loans, grants or subsidies or who

provide resolution to tax problems or issues:

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Standard industrial classification codes

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Tax Practitioners................................. Industry Numbers 7291, 8721.

Financial Institutions............................ Major Group 60.

Mortgage Industries............................... Major Group 61.

Credit Bureaus/Credit Reporting Services.......... Industry Number 7323.

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These industries comprise the largest volume of designated

recipients on the Forms 4506 from taxpayers and will enable the IRS to

pilot with a large audience to test an electronic transcript delivery

system in terms of customer satisfaction, system capacity and security,

and ease of use. For the pilot, the geographical limitation to the

state of California is to maintain software support and reduce burden

and cost to Contractors for training. In addition, it will limit costs

to the IRS in random reviews of system performance, security of

information checks, observation of taxpayer processing and Contractor

performance to the terms and conditions of the contract.

The capability to collect a user fee for the electronic transcript

service is being developed and a user fee may be collected from the

Contractors at some point during the pilot.

The Contractors will be required to have available (purchase, lease

or rent) hardware equipment and software systems to be specified in the

RFP. This equipment must be available by the start up of the training

period and will be needed for the entire length of the pilot. Training

on the systems will be at the expense of the Contractors and will be

structured as a two-day class at the IRS Service Center in Fresno,

California.

During the pilot, the IRS will ask for several reports. Status

reports to be completed by the Contractors will be used to evaluate

problems, determine any changes to be made during the pilot, evaluate

lessons learned and to gather recommendations for improvement of the

system. These reports are geared towards the Contractor's experience in

dealing with the system, the customers, the hardware and software, the

quality of training, the assistance provided by the IRS' Help Desk and

the usefulness of an IRS-provided User's Guide.

The IRS will also conduct a Taxpayer Satisfaction Survey with a

random sample of taxpayers who participated in the electronic

transcript delivery pilot. The Contractors will not have knowledge of

the particular taxpayers selected for this random survey.

To help the IRS evaluate discrepancies between income reported by a

taxpayer versus income stated on an application form, the Contractors

will be required to complete a form that captures statistical data on

discrepancies of income reporting. This will require the Contractors to

track and record the number of requests processed, the number of

discrepancies from the information provided by the taxpayers and the

number of loans, grants or subsidies that were declined based on the

data provided by the electronic transcript delivery pilot. All

information collected will be statistical in nature and will not

identify individual taxpayers.

The Contractor will also be required to provide a written notice to

each taxpayer prior to their participation in the electronic transcript

delivery pilot. This written notice makes the taxpayer aware of their

privacy interests and explains the purpose and scope of the pilot.

A draft Request For Proposals (RFP) titled ``Draft Request For

Proposals TIRNO-99-R-00043'' is posted on the IRS' Procurement website

at www.procurement.irs.treas.gov/opportun.htm. This accompanies a

Request For Information (RFI) (TIRNO-99-H-00005), which is the method

the IRS is using to seek business responses to this program.

One of the most important requirements of the RFP will be for the

Contractors to maintain the confidentiality and security of the

taxpayer's data. Although this information is supplied by the

Contractor at the taxpayer's consent, the IRS will require that all

information received through this program meet the following stringent

security requirements:

[[Page 49542]]

(1) Tax return information will be kept confidential.

(2) Tax return information will be used solely for the purpose

directed by the taxpayer.

(3) Tax return information will be stored in locked containers when

not in use.

(4) Tax return information will not be discussed unless

specifically referring to the taxpayer's application.

(5) Tax return information will not be further disclosed, traded,

bartered, or sold without the express authorization of the taxpayer

(i.e., the Contractor will be required to obtain another authorization

from the taxpayer for further disclosures).

Requested Comments

The Internal Revenue Service is seeking comments and input from

industry, federal, state and local agencies and taxpayers concerning

the piloting/implementation of this concept. In particular, the

Internal Revenue Service is interested in responses to the following,

but will appreciate all comments or reactions to the proposed pilot:

1. Based on commercial practice, what would be the best vehicle to

deliver this product (e.g., encrypted Internet, encrypted e-mail,

encrypted modem with digitized signature pads, etc.)? What issues do

each of these methods raise with regards to security, authentication,

safeguarding data, etc.?

2. How might companies and/or industry sectors self regulate the

safeguarding of sensitive taxpayer information?

3. Please comment on the effort which businesses and agencies

expend in income verification on an annual basis.

4. Do you, your company or agency currently do sensitive

transactions related to income verification or tax resolution issues

over the Internet or via e-mail? Are most of these types of

interactions internet-based or paper-based? Is your office fully

automated (i.e., do all employees have a computer, e-mail and Internet

accessibility?)

5. Is there common knowledge and use in your industry of the IRS'

Form 4506 and the ability to receive a copy of a paper return, return

transcript, W-2 or verification of non-filing?

6. What on-line experiences have you encountered in which privacy

and safeguarding of income verification or tax resolution information

have been at issue? In what instances have they appeared at risk? In

what instances were they well protected? In what ways have businesses

or organizations been responsive to privacy and information

safeguarding concerns? Have you had any negative experiences in

protecting your privacy on line?

7. What circumstances give rise to good privacy and information

safeguarding protection in a traditional business setting or on line?

8. Please comment on whether you feel an electronic transcript

system should be made universally available to any business requiring

income verification or tax resolution. Would 24-hour delivery of income

verification by the IRS accomplish accelerated processing of a loan,

grant or subsidy or resolution of a tax issue?

9. Please comment on the proposed 24-hour delivery versus the

current seven (7) to ten (10) day process. What advantages would you,

your business or agency have if the information were available in a

``real time'' on-line basis?

10. Please comment on whether you feel third-party entities would

maintain the confidentiality and security of the provided return

information.

11. Do you, your business or agency regularly sell customer

information for marketing or advertising purposes?

12. What do you, your business or agency see as methods to increase

confidentiality, security and improve customer service to the taxpayer

in providing electronic transcripts?

13. What do you, your business or agency see as elements of

enforcement mechanisms necessary for maintaining effective

confidentiality, security or enhancing customer service to the

taxpayer?

14. What do you, your business or agency see as the main

advantage(s) and disadvantage(s) of such a system?

15. What would you, your business or agency identify as an

appropriate consequence for any mishandling, misuse or unauthorized

disclosure of your tax return information by a third party that

requires taxpayer information to process a loan, grant or subsidy or

resolve a tax issue?

16. What existing privacy policies do you, your business or agency

follow? In what ways do they effectively address concerns about privacy

in the information to which they apply? In what ways do they fail?

17. Please comment on what you think the responsibilities of the

government, businesses or agencies are in protecting taxpayer data. To

what extent do these parties have a right to collect and use

information to further their commercial interests?

18. Should the government have an interest in reducing the

proliferation of taxpayer consent-based disclosures?

19. Please comment on whether you think that a growth in taxpayer

consent-based disclosures will have an impact (positive or negative) on

voluntary tax law compliance by the taxpayers.

20. Would you, your business or agency be amenable to paying a user

fee for this accelerated service? If so, what would you see as a

reasonable charge for this service?

21. What would you, your business or agency see as a viable means

of authenticating the taxpayer to the IRS within this electronic

format? What form of electronic signature (e.g., selection of a

personal identification number, signing digitized signature pad, a

public key-private key system, etc.) would be best and would ensure

legal recourse?

22. What type of information do you, your business or agency use in

processing applications for income verification for loans, grants,

subsidies, etc.? Is this information corroborated with information

secured from other private or public agencies?

23. Please comment on the types of written reports and statistical

accounting required by the pilot participants.

24. Please comment on the draft RFP (Draft Request For Proposals

TIRNO-99-R-00043) at the IRS' website (www.procurement.irs.treas.gov/

opportun.htm) including input on contractual boundaries, rules and

regulations.

25. Please indicate your industry type or if you are an individual.

Dated: August 30, 1999.

Robert E. Barr,

Assistant Commissioner, Electronic Tax Administration.

[FR Doc. 99-23789 Filed 9-10-99; 8:45 am]

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