[Federal Register Volume 61, Number 188 (Thursday, September 26, 1996)]
[Proposed Rules]
[Pages 50461-50463]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-24668]


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DEPARTMENT OF THE TREASURY
Internal Revenue Service

31 CFR Part 1


Privacy Act of 1974; Proposed Rule Exempting A System of Records 
from Certain Provisions

AGENCY: Internal Revenue Service, Treasury.

ACTION: Proposed Rule.

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SUMMARY: In accordance with the requirements of the Privacy Act of 
1974, as amended, 5 U.S.C. 552a, the Department of the Treasury gives 
notice of a proposed amendment of 31 CFR 1.36 to exempt the system of 
records entitled the Automated Information

[[Page 50462]]

Analysis System--Treasury/IRS 46.050 from certain provisions of the 
Privacy Act. The exemption is intended to comply with legal 
prohibitions against the disclosure of certain kinds of information and 
to protect certain information on individuals maintained in this system 
of records.

DATES: Comments must be received no later than October 28, 1996.

ADDRESSES: Please submit comments to the Director, Office of 
Disclosure, Internal Revenue Service, 1111 Constitution Avenue, NW, 
Washington, DC 20224. Comments will be made available for inspection 
and copying in the Freedom of Information Reading Room upon request.

FOR FURTHER INFORMATION CONTACT: Carman L. Gannotti, Director, Office 
of Disclosure, Internal Revenue Service at (202) 622-6200.

SUPPLEMENTARY INFORMATION: The Automated Information Analysis System is 
a computerized system that will automatically identify potential leads 
to money laundering and income tax violations which might not otherwise 
surface through traditional intelligence gathering efforts or auditing 
techniques. Access to this system would enable individuals to attempt 
to elude detection or otherwise frustrate any investigatory actions. 
The returns and return information contained within this system 
constitute investigatory material compiled for law enforcement purposes 
under Title 26 of the United States Code.
     Pursuant to the Privacy Act of 1974, the Department of the 
Treasury is publishing separately the Notice of a New System of 
Records, to be maintained by the IRS.
     Under 5 U.S.C. 552a(j)(2), the head of any agency may promulgate 
rules to exempt any system of records within the agency from certain 
provisions of the Privacy Act of 1974 if the agency or component 
thereof that maintains the system performs as its principal function 
any activities pertaining to the enforcement of criminal laws. Certain 
components of the Internal Revenue Service have as their principal 
function activities pertaining to the enforcement of criminal laws.
     Under 5 U.S.C. 552a (k)(2), the head of any agency may promulgate 
rules to exempt any system of records within the agency from certain 
provisions of the Privacy Act of 1974 if the system is investigatory 
material compiled for law enforcement purposes. To the extent that 
information contained in the above-named systems has as its principal 
purpose the enforcement of criminal laws, exemption for such 
information under 5 U.S.C. 552a (j)(2) is hereby claimed.
     The Department of the Treasury is hereby giving notice of a 
proposed rule to exempt this system of records described above from 
certain provisions of the Privacy Act pursuant to 5 U.S.C. 552a(j)(2) 
and (k)(2) and the authority of 31 CFR 1.23(c).
     The reasons for exempting this system of records from certain 
provisions of 5 U.S.C. 552a are set forth below:

    (1) 5 U.S.C. 552a(c)(3). This provision of the Privacy Act provides 
for the release of the disclosure accounting required by 5 U.S.C. 
552a(c)(1) and (2) to the individual named in the record at his 
request. The reasons for exempting this system of records from the 
foregoing provision are as follows: (i) The release of disclosure 
accounting would put the subject of an investigation on notice of the 
existence of an investigation and that such person is subject of that 
investigation; (ii) Such release of disclosure accounting would provide 
the subject of an investigation with an accurate accounting of the 
date, nature, name and address of the person or agency to whom the 
disclosure is made. The release of such information to the subject of 
an investigation would provide the subject with significant information 
concerning the nature of the investigation and could result in the 
altering or destruction of documentary evidence, the improper 
influencing of witnesses, and other activities that could impede or 
compromise the investigation. In the case of a delinquent account, such 
release might enable the subject of the investigation to dissipate 
assets before levy; (iii) Release to the individual of the disclosure 
accounting would alert the individual as to which agencies were 
investigating this person and the scope of the investigation, and could 
aid the individual in impeding or compromising investigations by those 
agencies.
    (2) 5 U.S.C. 552a(c)(4),(d)(1),(2),(3), and (4), (e)(4)(G) and (H), 
(f) and (g). These provisions of the Privacy Act relate to an 
individual's right to notification of the existence of records 
pertaining to such individual; requirements for identifying an 
individual who request access to records; the agency procedures 
relating to access to records and the contest of the information 
contained in such records; and the civil remedies available to the 
individual in the event of adverse determinations by an agency 
concerning access to or amendment of information contained in record 
systems. The reasons for exempting this system of records from the 
foregoing provisions are as follows: To notify an individual at the 
individual's request of the existence of records in an investigative 
file pertaining to such individual or to grant access to an 
investigative file could interfere with investigative and enforcement 
proceedings; deprive co-defendants of a right to a fair trial or an 
impartial adjudication; constitute an unwarranted invasion of the 
personal privacy of others, disclose the identity of confidential 
sources and reveal confidential information supplied by such sources; 
and disclose investigative techniques and procedures.
     (3) 5 U.S.C. 552a(e)(4)(I). This provision of the Privacy Act 
requires the publication of the categories of sources of records in 
each system of records. In cases where an exemption from this provision 
has been claimed, the reasons are as follows: (i) Revealing categories 
of sources of information could disclose investigative techniques and 
procedures; (ii) Revealing categories of sources of information could 
cause sources who supply information to investigators to refrain from 
giving such information because of fear of reprisal, or fear of breach 
of promises of anonymity and confidentiality.
     (4) 5 U.S.C. 552a(e)(1). This provision of the Privacy Act 
requires each agency to maintain in its records only such information 
about an individual as is relevant and necessary to accomplish a 
purpose of the agency required to be accomplished by statute or 
executive order. The reasons for exempting this system of records from 
the foregoing provision are as follows: (i) The Internal Revenue 
Service will limit its inquiries to information which is necessary for 
the enforcement and administration of tax laws. However, an exemption 
from the foregoing provision is needed because, particularly in the 
early stages of a tax audit or other investigation, it is not possible 
to determine the relevance or necessity of specific information. (ii) 
Relevance and necessity are questions of judgement and timing. What 
appear relevant and necessary when collected may subsequently be 
determined to be irrelevant or unnecessary. It is only after the 
information is evaluated that the relevance or necessity of such 
information can be established with certainty. (iii) When information 
is received by the Internal Revenue Service relating to violations of 
law within the jurisdiction of other agencies, the Service processes 
this information through Service systems in order to forward the 
material to the appropriate agencies.
     (5) 5 U.S.C. 552a(e)(2). This provision of the Privacy Act 
requires an agency to

[[Page 50463]]

collect information to the greatest extent practicable directly from 
the subject individual when the information may result in an adverse 
determination about the individual's rights, benefits, and privileges 
under Federal programs. The reasons for exempting this system of 
records from the foregoing provision are as follows: (i) In certain 
instances the subject of a criminal investigation cannot be required to 
supply information to investigators. In those instances, information 
relating to a subject's criminal activities must be obtained from other 
sources; (ii) In a criminal investigation it is necessary to obtain 
evidence from a variety of sources other than the subject of the 
investigation in order to accumulate and verify the evidence necessary 
for the successful prosecution of person(s) suspected of violating 
criminal laws.
     (6) 5 U.S.C. 552a(e)(3). This provision of the Privacy Act 
requires that an agency must inform the subject of an investigation who 
is asked to supply information of (A) the authority under which the 
information is sought and whether disclosure of the information is 
mandatory or voluntary, (B) the purposes for which the information is 
intended to be used, (C) the routine uses which may be made of the 
information, and (D) the effects on the subject, if any , of not 
providing the requested information. The reasons for exempting this 
system of records from the foregoing provision are as follows: (i) The 
disclosure to the subject of an investigation of the purposes for which 
the requested information is intended to be used would provide the 
subject with significant information concerning the nature of the 
investigation and could result in impeding or compromising the 
investigation. (ii) Informing the subject of an investigation of the 
matters required by this provision could seriously undermine the 
actions of undercover officers, requiring them to disclose their 
identity and impairing their safety, as well as impairing the 
successful conclusion of the investigation. (iii) Individuals may be 
contacted during preliminary information gathering, surveys, or 
compliance projects concerning the administration of the internal 
revenue laws before any individual is identified as the subject of an 
investigation. Informing the individual of the matters required by this 
provision would impede or compromise subsequent investigation.
     (7) 5 U.S.C. 552a(e)(5). This provision of the Privacy Act 
requires an agency to maintain all records which are used in making any 
determination about an individual with such accuracy, relevance, 
timeliness, and completeness as is reasonably necessary to assure 
fairness to the individual in the determination. The reasons for 
exempting this system of records from the foregoing provisions are as 
follows: Since the law defines ``maintain'' to include the collection 
of information, compliance with the foregoing provision would prohibit 
the initial collection of any data not shown to be accurate, relevant, 
timely, and complete at the moment of its collection. In gathering 
information during the course of a criminal investigation, it is not 
feasible or possible to determine completeness, accuracy, timeliness, 
or relevancy prior to collection of the information. Facts are first 
gathered and then placed into a cohesive order which objectively proves 
or disproves criminal behavior on the part of a suspect. Seemingly 
nonrelevant, untimely, or incomplete information when gathered may 
acquire new significance as an investigation progresses. The 
restrictions of the foregoing provision could impede investigators in 
the preparation of a complete investigative report.
     (8) 5 U.S.C. 552a(e)(8). This provision of the Privacy Act 
requires an agency to make reasonable efforts to serve notice on an 
individual when any record on such individual is made available to any 
person under compulsory legal process when such process becomes a 
matter of public record. The reason for exempting this system of 
records from the foregoing provision is as follows: The notice 
requirement of the foregoing provision could prematurely reveal the 
existence of criminal investigations to individuals who are the subject 
of such investigations.
     As required by Executive Order 12291, it has been determined that 
this proposed rule is not a ``major'' rule and, therefore, does not 
require a Regulatory Impact Analysis.
     Pursuant to the requirements of the Regulatory Flexibility Act, 5 
U.S.C. 601-612, it is hereby certified that this rule will not have 
significant economic impact on a substantial number of small entities.
     In accordance with the provisions of the Paperwork Reduction Act 
of 1980, the Department of the Treasury has determined that this 
proposed rule would not impose new recordkeeping, application, 
reporting, or other types of information collection requirements.

Lists of Subjects in 31 CFR Part 1

    Privacy.

     Part 1 of Title 31 of the Code of Federal Regulations is amended 
as follows:

 PART 1--[AMENDED]

     1. The authority citation for part 1 continues to read as follows:

    Authority: 5 U.S.C. 301 and 31 U.S.C. 321. Subpart A also issued 
under 5 U.S.C. as amended. Subpart C also issued under 5 U.S.C. 
552a.


Sec. 1.36   [Amended]

     2. Section 1.36 of subpart C is amended by adding the following 
text to the table in paragraphs (a)(1) and (b)(1) under the heading THE 
INTERNAL REVENUE SERVICE
    *    *    *    *    *    
    (a)    *    *    *
    (1)    *    *    *

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                        Name of System                             No.  
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                  *        *        *        *        *                 
 Automated Information Analysis System........................    46.050
                                                                        
                  *        *        *        *        *                 
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    *    *    *    *    *    
    (b)    *    *    *
    (1)    *    *    *

------------------------------------------------------------------------
                        Name of System                             No.  
------------------------------------------------------------------------
                  *        *        *        *        *                 
 Automated Information Analysis System........................    46.050
                                                                        
                  *        *        *        *        *                 
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    *    *    *    *    *    

    Dated: August 21, 1996.

Alex Rodriguez,
Deputy Assistant Secretary (Administration).

[FR Doc. 96-24668 Filed 9-25-96: 8:45 am]
BILLING CODE 4830-01-F