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The Internal Revenue Service submitted responses regarding four sets of data banks: master files, law enforcement intelligence files, the office of the chief counsel's files, and Special Service Staff files. These are presented and analyzed separately below.

Subpart 1-Internal Revenue Service, Master Files

Subcommittee Analysis

The Internal Revenue Service reported six computerized master files.

I. Index


A. Master file:

Includes the following:

1. Business master file on persons
liable for social security, with-
holding, excise, or unemploy-
ment taxes (computerized).

2. Residual master file on persons
liable for occupational taxes,
such as dealers in alcoholic bev-
erages, operators of amusement
or wagering devices, truck oper-
ators paying highway use taxes

3. Individual master file on individ-
uals filing individual income tax
returns (computerized).

4. Aircraft users file, name and ad-
dress file of aircraft owners (file
provides a list of those to whom
airways use tax forms must be
sent) (computerized).

B. Statistics of income microfilm file individ-
uals (computerized).

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File is used for specific statistical purposes
such as pilot studies, small scale studies of
taxpayer reporting habits, studies of statis-
tical error conditions.

(2) File contains a subsample of a sample of indi-
vidual income tax returns selected according
to a stratified random sampling plan. Also a
random 50 percent of returns with adjusted
gross income of $500,000 or more. Informa-
tion is that provided by the subject individ-
ual with his return.

C. Statistics of income tape file (computer- (1) Files are used to tabulate statistics about indi-

viduals and the individual income tax sys-
tem. Individual records are weighted to make
the sample represent the whole system.
(2) File contains coded information from individual
returns, detailed accounting data from re-




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II. Nature of Material Submitted

With the exception of certain omitted details, such as the number of individuals in the Aircraft Users File, the IRS response regarding

Master files appears to be candid and complete. However, passing references to "Intelligence Special Agents" with no elaboration creates some serious doubts about the fullness and frankness of the response, as well as the nature of the data systems.

III. Comments

A. Statutory Authority

26 U.S.C. 7801 provides that the Secretary of the Treasury will administer and enforce title 26, the Internal Revenue Code. The maintenance of individual records is obviously implied. 26 U.S.C. 6108 requires the annual publication of ". . . statistics reasonably available with respect to the operation of income tax laws. . . "Such a provision necessitates the use of sampling techniques. Derivative statutory authorization therefore justifies these data banks.

B. Subject Notification and Review

IRS correspondence with individuals gives notice of inclusion in Master Files, even though it is not sent for the sole purpose of providing such notice; blank forms sent to individuals request that they use the pre-addressed return because it will ". . . facilitate the master file processing of the return." All notices sent to taxpayers serve as turn-around documents for correction of inaccurate master file data. Individuals are not notified of their inclusion in the Statistics of Income files. Since the subjects of the latter files are contained in the Master Files, provision is made for correction of inaccurate data. C. Access by Other Agencies

Access by agencies to tax information is provided for in 26 U.S.C. 6103 and in 26 CFR 301.6103, 301.6104, 301.9000, 601.701, 601.702. Information is disclosed to various executive departments and establishments of the federal government, to Congressional Committees, and to the states. Established procedure generally requires that requests for information be signed by the head of the executive department, the Chairman of a Congressional Committee, or the governor of a state. In the case of the Justice Department, requests may be submitted by a U.S. Attorney, Deputy Attorney General, or Assistant Attorney General. An "authorized official" of the Department of Health, Education, and Welfare may request information if it is to be used in the administration of the Social Security Act. Detailed information must be supplied with a request concerning the use to which information is to be put. The response asserts that "[f]ederal agencies other than IRS are never permitted direct access to the IMF (Individual Master File)"; rather, the specific information requested is extracted from the files and provided to the requesting agency. However, the enclosures reveal that "[p]rograms for supplying tax return information [to states] on magnetic tape exist to minimize the need to inspect or obtain copies of returns."

Statistics of Income files are available to those federal and state agencies which by law or Executive Order are permitted to inspect tax returns.

D. Public Access

In addition to the subject individual, access is provided to those who stand in the individual's stead; for instance, information is disclosed to the trustee of the estate of a deceased or legally incompetent

individual, next of kin, receiver or trustee in bankruptcy, or the duly constituted attorney in fact of any of the foregoing persons.

E. Security Precautions

States to which data is provided on magnetic tape are required to comply with detailed terms and conditions having to do with disclosure of information. The IRS publishes a lengthy manual for its own personnel regarding the protection of confidentiality of tax return data. In the main, the manual reflects the disclosure provisions of the statutes and federal regulations.

26 U.S.C. 7213 and 18 U.S.C. 1905 provide penalties for improper disclosure; statements of these penalties are affixed to the medium of transmission of information (tape reels, abstracts, etc.) to other agencies. If delivery in person cannot be accomplished, mailing envelopes are marked "Addressee only." Information supplied to outside agencies is accompanied by a request to return the information after use or else provide IRS with notice as to the final disposition of the information (indefinite retention, destruction date, etc.).

Physical security measures are extensive. Chain link fencing, armed guards, electronic intrusion detection systems, identification badge system, and non-combustible buildings for information storage all safeguard information.

F. Sources of Information

Most of the data is derived directly from individual tax returns. Some information comes from assessments, collections, and adjustments made by Revenue Officers and Audit Examining Officers. Without elaborating, the response reveals that some data for the files is provided by Intelligence Special Agents.

IV. Evaluation

Although procedures regarding disclosure are detailed and extensive, information is available to an unusually large number of outside offices. The fact that information may be provided routinely to so many gives rise to a grave potential for abuse.

Agency Response

The following IRS responses to the subcommittee's October 15, 1971, request for replies to the standard questionnaire (see inside back cover) were prepared on November 23, 1971, February 2, 1973, and December 23, 1971. The Master file response was updated on April 16, 1973. All were received May 8, 1973.



Date Response Prepared.-November 23, 1971 (Updated April 16, 1973)
Class of File.-All Other Files

File Control No.-IR-01

File Medium.-Magnetic Tape

National Security Classification.-None

Question 1.-Describe briefly the major categories of data on individuals presently maintained and stored under auspices of the Treasury Department and its agencies and the approximate number of subject individuals covered in each category.

Answer.-Individuals are carried on our Business Master File at the National Computer Center if they are persons liable for Social Security, Withholding,

Excise or Unemployment Taxes. Individuals are also carried on the Residual Master Files at all ten IR Service Centers if they are persons liable for certain occupational taxes as, for example, "Wholesale Liquor Dealers", "Retail Dealers in Wine, Beer", or operators of amusement or wagering devices. Persons paying the special gambling tax are on this file. The Residual Master File also contains tax data for Truck Operators paying Highway Use Taxes.

All the above described taxpayers can also be multiple-person entities, such as corporations, partnerships. For that reason, their tax account numbers are Employer Identification Numbers. Gift Taxes are currently being added to the Residual Master File. Here the taxpayers are individuals, with the account number being their Social Security Account Numbers.

The Individual Master File at the National Computer Center is a record of all Individuals liable for and filing Individual Income Tax Returns. The Account Numbers for these individuals are their Social Security Numbers.

All the above files contain detailed accounting records of tax assessments, abatements, payments made by taxpayers, credits given, refunds made, and interest due to the taxpayer and/or the government. These files are operational media of IRS tax administration and effect all IRS settlements with the taxpayers concerned.

The Individual Master File contains data for each taxpayer derived from his tax return, such as, taxpayer's name, address, marital status, number of exemptions, etc.

During the processing of individual returns, certain items (medical expense, taxes, interest, etc.) are used in identifying returns in need of examination.

A sub-part of the Master File is also utilized for management purposes, such as, controlling returns identified for examination. results of examination, etc. Number of entities on BMF-11,038,337.

Number of Individuals-no data.

Number of entities on RMF-approximately 3,000 now. No data on how many of these are or will be individuals. The RMF is presently being installed at Cincinnati Service Center only. It will be operative in other Service Centers during 1972. By that time there will be approximately 1,000,000 entities on the RMF.

Number of Individuals on Individual Master File-90,040,711.

There is an additional Aircraft Users File maintained at Southwest Service Center to mail out Airways Use Tax Forms. This is a Name and Address file only of aircraft owners. No tax data is kept on it.

Question 2.-Under what statutory and administrative authority was each data bank established and for what purpose? Please supply copies of pertinent federal statutes, regulations and memoranda on which this authority is based and by which it is implemented.

Answer.-The authority to establish this data bank is derived from 26 U.S.C. 7801 et seq. (Internal Revenue Code). [Omitted]

Question 3.-Are Treasury Department controls, guidelines, or advice required by or offered to state officials and private individuals who either administer or who utilize this data-gathering program? Please supply copies of pertinent rules or advisory documents as issued by federal and state agencies.

Answer.-Publication 664, Handbook of Instructions, Specifications, and Agreements on Usage of Individual (IMF) Tax Data Furnished on Magnetic Tape, is furnished to State tax authorities. (See attachment 1.) [Portions are omitted.]

A further discussion of this program appears in our answer to Question 11. Question 4.-For each category and each conglomerate of data, indicate its present state of computerization or other mechanization for access and retrieval as well as for evaluation and analysis.

Answer. The Master Files are completely computerized and maintained on tape. As an additional communication media designed to improve service to taxpayers and expedite processing to the master files, data from the files is being used by our Integrated Data Retrieval System. This system stores Master File data on computer equipment so designed to furnish the data immediately to television-type screens at IR Service Centers, District Offices, and principal IRS filed activity offices when these offices call for it by remote control. The system will also enable remote control updating of master file tax data. System is being installed on a region-by-region basis during 1972 and January 1973.

Question 5.-Describe plans for further computerization or mechanization in each


Answer. The Service is presently testing a program of microfilming tax returns so that IRS personnel who need to see the detailed information on the return, in order to resolve a question, may obtain a visual image of the tax return without having to requisition the return from storage (which may be in another city). If this text program, which goes by the acronym STAR-for STorage And Retrieval-indicates substantial savings achievable to offset cost of implementation, funds for implementing such a system will be sought from Congress.

Question 6.-In what instances would each system be utilized? By what officials and by what agencies?

Answer.-Microfilm of tax returns made available through STAR could be used by Service personnel who need to inspect tax returns in accordance with their duties, such as Collection and Audit personnel.

Microfilm of tax returns would be available outside of the Service only to those persons who are authorized to have access to the tax returns themselves. This access is subject to limitations. (See attachments 4 and 5.)

Question 7.-For each new data storage and processing program, please describe: (a) the advantages; and (b) the extent to which it permits correlating, common storage and multi-faceted analysis of data on a scale not hitherto available.

Answer. (a) Project STAR could enable the Service to more efficiently handle the high volume requirements for inspection of tax returns and related documents. Microfilm provides for faster availability of documents and would be a solution to the problem of unavailability of original documents due to misfiles and chargeouts. In addition to providing file integrity, project STAR could result in substantial savings in dollars and space.

Moreover, it is anticipated that STAR would provide:

(1) Improved speed and quality of taxpayer service and convenience to the taxpayer.

(2) Increased efficiency through reduction in follow-up correspondence and reduction in Service Center adjustment workload.

(3) Increased revenue potential as copies of returns would be quickly available to Audit and Collection personnel.

Question 8.-What specific subject areas concerning an individual's background, personal life, personality and habits are noted in each data program?

Answer. No data is maintained on any master file as to any individual's personal life, personality and habits. The nature of the data maintained is entirely related to tax administration. (See Question 1). Other data maintained is comparable to that kept for a customer by any good accounting/bookkeeping system. In addition to the tax and payment data already mentioned, such data include: Bills sent, with amount and data.

Delinquent Account Collection actions taken-amount and date.

Question 9-Has the Treasury Department and its component agencies developed comprehensive guidelines governing maintenance of any or all the various data systems, access to them, review and disclosure of material in them, and distribution of data to other agencies? If so, please supply copies.

Answer.-Input, maintenance and control of the Master Files are accomplished strictly according to the Internal Revenue Code and Treasury Regulations. Detailed procedures, covering all aspects of establishment and maintenance of the Master Files, are written. They are coordinated with all operational segments of IRS prior to their implementation and are carefully reviewed to insure compliance with the Code, Regulations, and IRS policy. The operation of the Master File System is continuously reviewed by Internal Audit Division, which reports on all discrepancies found.

We have attached a copy of the Disclosure of Official Information Handbook (Attachment 2). This handbook, which is a part of the Internal Revenue Manual, contains instructions and guidelines for Service personnel relating to disclosure of information from tax returns and other IRS documents. Copies of Revenue Procedures 66-3, 66-4 and 66-43 are also attached (Attachment 3). Additional guidelines appear in Title 26 of the Code of Federal Regulations. We have provided copies of the applicable regulations in conjunction with our response to Question No. 11 (Attachment 5).

Question 10.-(A) Is the subject individual or his representative notified of the fact that he is in the data bank?

(B) Is he allowed to review the data on record about him; to supplement his file; or to explain or rebut inaccurate material? Please describe the precise limitations on such rights for each restriction.

Answer. (A) Taxpayers are notified of their inclusion in the Master Files by: (1) Receipt of a blank return form mailed out from processing the files.

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