What Is 26 USC 6103? Tax Return Confidentiality

Federal law, specifically 26 U.S.C. 6103, establishes that tax returns and the information they contain are confidential. This statute is a core element of the U.S. tax system, aiming to protect taxpayer privacy from government intrusion. The principle of confidentiality is also a practical measure designed to encourage voluntary compliance with tax laws. By assuring taxpayers that their sensitive financial data will be protected, the government fosters trust and a willingness to report income and pay taxes accurately.

The Tax Reform Act of 1976 strengthened this legal framework. It established the default rule that returns and return information are confidential unless a specific exception in the law authorizes their disclosure. This law protects individual privacy while also safeguarding the integrity of the tax administration system. It governs when and how the Internal Revenue Service (IRS) and other government bodies can share this protected information.

The General Rule of Confidentiality

The law’s core provision establishes a firm prohibition against the disclosure of tax information by government officials and employees. IRS personnel, and employees of other federal and state agencies who receive tax data, are legally barred from sharing it unless a specific statutory exception applies. Any unauthorized disclosure, whether intentional or negligent, is a violation of federal law.

The law protects both the “return” and “return information.” The term “return” is defined broadly to include the primary tax form, such as a Form 1040, and any related schedules, attachments, and amendments filed with the IRS. This encompasses everything from a declaration of estimated tax to a claim for a refund.

The concept of “return information” is even more expansive. It includes a taxpayer’s identity, such as their name, address, and Taxpayer Identification Number (TIN). It also covers the nature, source, or amount of income, payments, deductions, credits, assets, liabilities, and tax liability. Furthermore, it includes any data the IRS has collected or generated, such as whether a return was selected for an audit or is under investigation.

Permitted Disclosures for Tax Administration

While the rule of confidentiality is strict, the law includes necessary exceptions to allow for the effective administration of tax laws. One of the most common disclosures occurs within the IRS itself. For instance, an IRS auditor examining a tax return can share relevant information with an officer in the collections division if it becomes necessary to collect an unpaid tax liability.

Disclosures are also permitted to other federal agencies for specific tax administration purposes. A primary example is sharing return information with the Department of Justice. When a tax case, whether civil or criminal, requires litigation, attorneys at the Department of Justice may receive the necessary taxpayer information to represent the government in court proceedings.

The law also facilitates cooperation between federal and state tax authorities. The IRS is authorized to disclose federal return information to state and local tax agencies for the purpose of administering their own tax laws. This sharing requires the state agency to make a formal written request for the specific information needed. This provision helps states verify income and enforce their own tax codes.

Finally, the IRS has authority to disclose information to third parties during an investigation. This might happen if an agent needs to contact a taxpayer’s bank or employer to verify information that is not otherwise reasonably available. These disclosures must be necessary for the agent to complete their official duties in determining the correct tax liability.

Permitted Disclosures for Non-Tax Purposes

Beyond tax administration, the law authorizes disclosures for a limited set of non-tax-related purposes. These exceptions are narrowly tailored and often require a high legal standard. For instance, federal law enforcement agencies investigating non-tax criminal activities, such as money laundering or terrorism, can obtain tax return information. However, the agency must typically obtain a court order from a federal judge, which requires showing the tax information is relevant to the crime and cannot be reasonably obtained from another source.

Another category of non-tax disclosures involves the administration of certain federal benefit programs. The IRS is permitted to share tax information with the Social Security Administration (SSA) to ensure the proper calculation of benefits. Similarly, agencies administering federal student aid programs, housing assistance, or other needs-based benefits can receive taxpayer information to verify the income eligibility of applicants.

Congressional committees are also granted access to tax information for oversight purposes. The House Ways and Means Committee, the Senate Finance Committee, and the Joint Committee on Taxation have the authority to request tax returns and return information directly from the IRS. This access allows Congress to conduct oversight of the IRS and to gather information needed for crafting tax legislation.

In rare and urgent situations, the law permits disclosure to prevent imminent danger or flight from prosecution. The IRS can disclose return information to federal or state law enforcement if it is necessary to apprise them of an imminent danger of death or physical injury. A similar provision allows for disclosure to warn of an individual’s imminent flight from federal prosecution.

Providing Consent for Disclosure

Taxpayers have the right to authorize the IRS to disclose their own tax information to a third party. This is often necessary when applying for a mortgage or other loans where a lender needs to verify income. The primary method for this permission is IRS Form 8821, Tax Information Authorization. This form allows a taxpayer to designate a specific person or organization to receive their confidential tax data for specified periods.

To complete Form 8821, the taxpayer must provide their full name, address, and Taxpayer Identification Number (TIN). The form also requires the name and address of the designated recipient. The taxpayer must specify the type of tax information to be disclosed, such as “Income” for Form 1040, and the exact tax years or periods covered by the authorization.

It is important to distinguish Form 8821 from Form 2848, Power of Attorney and Declaration of Representative. Form 8821 only authorizes the designated party to inspect and receive tax information; it does not grant them authority to represent the taxpayer before the IRS or sign agreements. Form 2848, in contrast, grants those broader powers of representation. The taxpayer can also use Form 8821 to revoke a previously filed authorization.

Penalties for Unlawful Disclosure

The confidentiality provisions of the law are enforced through significant penalties for unlawful disclosures. These consequences apply to federal and state employees, as well as other individuals who gain access to tax information, and are both criminal and civil in nature.

Under Section 7213 of the Internal Revenue Code, a willful, unauthorized disclosure of a return or return information is a felony. A conviction can result in a fine of up to $5,000, imprisonment for up to five years, or both. If the offense is committed by a federal officer or employee, they will be dismissed from their position upon conviction.

Taxpayers also have a civil remedy available. Section 7431 allows a taxpayer to sue the U.S. government if a federal employee knowingly or negligently discloses their return information in violation of the law. If the lawsuit is successful, the taxpayer can recover damages, which are the greater of $1,000 for each act of unauthorized disclosure or the sum of actual damages sustained. Punitive damages may be awarded in cases of willful or grossly negligent disclosure, and the taxpayer may also be awarded the costs of the legal action.