[Federal Register Volume 64, Number 176 (Monday, September 13, 1999)]
[Notices]
[Pages 49540-49542]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-23789]


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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]
BILLING CODE 4830-01-P