Taxpayer Information: Data Sharing and Analysis May Enhance Tax  
Compliance and Improve Immigration Eligibility Decisions	 
(21-JUL-04, GAO-04-972T).					 
                                                                 
Data sharing can be a valuable tool for federal agencies. The	 
Internal Revenue Service (IRS) can use data from taxpayers and	 
third parties to better ensure taxpayers meet their obligations. 
Likewise, Congress has authorized certain agencies access to	 
taxpayer information collected by IRS to better determine	 
eligibility for benefit programs. GAO determined (1) the extent  
to which the IRS and Citizenship and Immigration Services (CIS)  
within the Department of Homeland Security share and verify data 
and (2) the benefits and challenges, if any, of increasing such  
activities. GAO also studied IRS's Offshore Voluntary Compliance 
Initiative (OVCI) to provide information on (1) the		 
characteristics of the taxpayers who came forward under OVCI and 
(2) how those taxpayers became noncompliant.			 
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-04-972T					        
    ACCNO:   A11074						        
  TITLE:     Taxpayer Information: Data Sharing and Analysis May      
Enhance Tax Compliance and Improve Immigration Eligibility	 
Decisions							 
     DATE:   07/21/2004 
  SUBJECT:   Data bases 					 
	     Data integrity					 
	     Immigrants 					 
	     Immigration information systems			 
	     Immigration or emigration				 
	     Income taxes					 
	     Interagency relations				 
	     Noncompliance					 
	     Tax administration 				 
	     Tax return audits					 
	     Tax returns					 
	     Tax violations					 
	     Taxpayers						 
	     Voluntary compliance				 
	     CIS Computer Linked Application			 
	     Information Management System, Version		 
	     3.0						 
                                                                 
	     IRS Business Master File				 
	     IRS Individual Master File 			 
	     IRS Offshore Voluntary Compliance			 
	     Initiative 					 
                                                                 

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GAO-04-972T

                 United States Government Accountability Office

GAO Testimony

Before the Committee on Finance,

                                  U.S. Senate

For Release on Delivery Expected at 10:00 a.m. EDT Wednesday, July 21,
2004

TAXPAYER INFORMATION

  Data Sharing and Analysis May Enhance Tax Compliance and Improve Immigration
                             Eligibility Decisions

Statement of Michael Brostek Director, Strategic Issues

GAO-04-972T

Highlights of GAO-04-972T, a testimony before the Committee on Finance,
U.S. Senate

Data sharing can be a valuable tool for federal agencies. The Internal
Revenue Service (IRS) can use data from taxpayers and third parties to
better ensure taxpayers meet their obligations. Likewise, Congress has
authorized certain agencies access to taxpayer information collected by
IRS to better determine eligibility for benefit programs.

GAO determined (1) the extent to which the IRS and Citizenship and
Immigration Services (CIS) within the Department of Homeland Security
share and verify data and (2) the benefits and challenges, if any, of
increasing such activities. GAO also studied IRS's Offshore Voluntary
Compliance Initiative (OVCI) to provide information on (1) the
characteristics of the taxpayers who came forward under OVCI and (2) how
those taxpayers became noncompliant.

GAO is making a recommendation to the Secretary of Homeland Security and
the Commissioner of Internal Revenue to assess the benefits and costs of
data sharing to enhance tax compliance and improve immigration eligibility
decisions. IRS and CIS officials generally agreed with GAO's
recommendation.

GAO is not making recommendations on the OVCI program.

www.gao.gov/cgi-bin/getrpt?GAO-04-972T.

To view the full product, including the scope and methodology, click on
the link above. For more information, contact Michael Brostek at (202)
512-9110 or [email protected].

July 21, 2004

TAXPAYER INFORMATION

Data Sharing and Analysis May Enhance Tax Compliance and Improve Immigration
Eligibility Decisions

IRS and CIS do not share data with each other to ensure taxpayers meet
their tax obligations or to determine immigration eligibility. IRS
officials believe that data on taxpayers' income they currently use are
more accurate and useful for enforcing tax law than CIS data. In a
nationwide selection of 413,723 businesses applying to sponsor immigrant
workers from 1997 through 2004, GAO found 19,972 (5 percent) businesses
and organizations that were unknown to IRS. Information like this can be
used to select taxpayers for audit or other enforcement efforts. Further,
CIS officials believe IRS taxpayer data would useful for immigration
decisions. In our nationwide selection, GAO found that 67,949 (16 percent)
businesses applying to sponsor immigrant workers from 1997 through 2004
did not file one or more tax returns. Failure to file a return could be
relevant to a CIS adjudicator's decision about whether a business meets
the financial feasibility (ability to pay wages) and legitimacy (proof of
existence) tests for sponsoring an immigrant. For data sharing to occur,
challenges must be overcome, including I.R.C. Section 6103's limitation on
IRS's ability to share data with CIS and technological problems like the
lack of automated financial data at CIS. Because the confidentiality of
tax data is considered crucial to voluntary compliance, executive branch
policy calls for a business case to support sharing tax data. IRS and CIS
have not analyzed data sharing benefits and costs.

Businesses Sponsoring Immigrant Workers That May Not Have Met CIS
Financial Feasibility or Legitimacy Requirements, 1997-2004

Number of Sponsors

80,000

67,949

60,000

40,000

20,000

0 Nationwide selection

Unpaid assessments Nonfilers Source: GAO analysis

The OVCI program attempted to quickly bring taxpayers who held funds
offshore illegally back into compliance while simultaneously gathering
more information about them and the promoters of offshore schemes. Under
OVCI, 861 taxpayers came forward and IRS received more than $200 million
in unpaid taxes, penalties, and interest. According to IRS data, OVCI
applicants are a diverse group, with wide variations in income, geographic
location, and occupation. Some applicants' noncompliance appears to be
intentional, while others' appears to be inadvertent. Given this
diversity, multiple compliance strategies may be needed to bring taxpayers
holding money offshore back into compliance.

Mr. Chairman and Members of the Committee:

I am pleased to participate in the committee's hearing today on issues
related to the tax gap, the difference between what taxpayers annually
report and pay and what they should have reported and paid in taxes. In
addressing the tax gap the Internal Revenue Service (IRS) uses many
strategies, two of which are obtaining corroborating information on
taxpayers' circumstances from third parties and analyzing data obtained
from taxpayers themselves. Just as IRS sometimes obtains corroborating
information from others, some federal agencies obtain tax data from IRS to
use in ensuring that benefits are properly awarded to applicants. Related
to obtaining corroborating information from others, as requested, my
testimony covers (1) the extent to which the IRS and Citizenship and
Immigration Services1 (CIS), within the Department of Homeland Security
(DHS), share and verify data and (2) the benefits and challenges, if any,
of increasing data sharing and verifying activities. Related to analyzing
information obtained from taxpayers, and also as requested, my testimony
provides information on (1) the characteristics of the taxpayers who came
forward under IRS's Offshore Voluntary Compliance Initiative (OVCI) and
(2) how those taxpayers became noncompliant.

My statement today will address each of these topics in turn. Our scope
and methodology for each of the topics is briefly summarized early in each
section of the testimony, and more detailed explanations of our scope and
methodology are presented in appendix I for data sharing analysis and
appendix II for our analyses related to OVCI. We conducted our work from
July 2003 through June 2004 in accordance with generally accepted
government auditing standards.

Regarding data sharing, in summary we found that IRS and CIS are not
sharing data with each other to ensure taxpayers are meeting their tax
obligations or to determine immigration eligibility but that data sharing
appears to have the potential to assist IRS in identifying noncompliant
taxpayers and to improve CIS eligibility decisions in granting

immigration benefits. For example, IRS may be able to use immigration
information to help identify taxpayers with no record of recent filing
activity and that are not easily identified via current compliance
efforts, such as self-employed and small business taxpayers. In our
nationwide selection of 413,723 businesses applying to sponsor immigrant
workers from 1997 through 2004, we found 19,972 businesses and
organizations that were unknown to IRS. Although IRS does not currently
use CIS data, information like this can be used to select taxpayers for
audit or other enforcement efforts. IRS officials believe that data on
taxpayers' income they currently use are more accurate and useful for
enforcing tax law than CIS data. Similarly, CIS may benefit from obtaining
IRS data. For example, in our nationwide selection, 67,949 businesses and
organizations applying to sponsor immigrant workers did not file one or
more tax returns. Failure to file a return could be relevant to a CIS
adjudicator's decision about whether a business meets the financial
feasibility (ability to pay wages) and legitimacy (proof of existence)
tests for sponsoring an immigrant. Although CIS officials believe IRS
taxpayer data would be useful, CIS does not obtain data from IRS primarily
because, under Internal Revenue Code (I.R.C.) Section 6103, CIS is not
authorized to directly receive information from IRS. To enable data
sharing between IRS and CIS, several challenges must be first overcome,
including the limitations of I.R.C. Section 6103 and technological
problems such as the lack of automated financial data at CIS. Because the
confidentiality of tax data is considered crucial to voluntary compliance,
executive branch policy calls for a business case to support sharing tax
data. IRS and CIS have not analyzed data sharing benefits and costs.

We are making a recommendation to IRS and CIS to assess the benefits and
costs of data sharing to enhance tax compliance and improve immigration
eligibility decisions. IRS and CIS generally agreed with our
recommendation.

Regarding the OVCI program, in summary, IRS's database shows that 861
taxpayers voluntarily came forward, and IRS officials say they have
received more than $200 million in previously unpaid taxes, penalties, and
interest during this attempt to quickly

 1 The U.S. Citizenship and Immigration Services (CIS) was formerly called the
                           Bureau of Citizenship and

bring taxpayers who held funds offshore illegally back into compliance
while simultaneously gathering more information about them and the
promoters of offshore arrangements.2 Under the OVCI program, IRS did not
impose certain penalties for those taxpayers who voluntarily come forward,
admitted they illegally held money offshore, and provided amended returns
and complete information about their offshore arrangements for tax years
after 1998. IRS used information provided by the taxpayers to build a
database containing information such as the taxpayers' income, additional
taxes owed, and use of promoters of offshore tax schemes. Since the data
are limited to taxpayers who voluntarily admitted they illegally held
offshore assets, they are not necessarily representative of any larger
population of taxpayers who used offshore arrangements to avoid paying
U.S. taxes. The taxpayers who applied for inclusion in the OVCI program
were a diverse group, with wide variations in income, geographic location,
and occupation, although some commonalities emerged for certain of these
characteristics. In addition, some applicants' noncompliance appears to be
intentional, such as those who used fairly elaborate schemes, while
others' noncompliance appears to be inadvertent. Further, more than half
of the OVCI applicants in each year we examined generally had reported
their offshore income and paid taxes but had failed to file a Report of
Foreign Bank and Financial Accounts (FBAR), and less than 16 percent said
that they used promoters. Given this diversity, multiple compliance
strategies may be needed to bring taxpayers holding money offshore back
into compliance. Because additional tax, interest, and penalties collected
to date from OVCI applicants who owed tax have been relatively modest-a
median of about $5,400-personnel-intensive investigations of individual
taxpayers who have hidden money offshore could significantly reduce the
net gain to Treasury from these cases.

The next section describes in more detail our analyses related to data
sharing between IRS and CIS. It is followed by detailed information about
the participants in IRS's OVCI.

Immigrations Services when established in 2002.
2 Illegal offshore arrangements are those that are used to avoid paying
U.S. taxes. These could include
arrangements to shelter unreported domestic income or any income earned
offshore, such as interest
income, investment returns, or ordinary business income. Promoters are
those who market such illegal
offshore schemes and cause some taxpayers to become noncompliant.

Data Sharing Between IRS and CIS

Our key findings resulting from our look at data sharing between IRS and
CIS are as follows:

o  	IRS may benefit from immigration information to select taxpayers who
appear to be noncompliant for enforcement actions and, if immigration
applicants were required to be current on their tax obligations before
applying for immigration benefits, from taxpayers coming to IRS to resolve
tax issues. Regarding improving IRS's selection of potentially
noncompliant taxpayers, IRS could benefit if CIS data helped it identify
taxpayers who fail to file tax returns or who file but underreport their
income. For nonfiling, we matched a nationwide selection of automated
immigration applications from 1997 through 20043 with IRS taxpayer
information and found that of the 413,723 businesses with Employer
Indentification Numbers (EINs) or Social Security Numbers (SSNs)4 in CIS's
database that applied to sponsor immigrant workers, 19,972 businesses and
organizations were unknown to IRS. For underreporting, we found 10
business/organization sponsors in our nonprobability sample of hard copy
immigration applications5 that reported more taxable income to CIS than to
IRS. One business reported approximately $162,000 in taxable income to CIS
in 2001 and no taxable income to IRS for the same period. Although we do
not know whether these businesses reported accurately to either CIS or
IRS, discrepancies like these often are considered by IRS in selecting
firms or individuals to audit. Regarding the potential numbers of
taxpayers who would need to resolve their tax situations if CIS applicants
were required to be current on their tax obligations

3 In order to study the nationwide implications of data sharing, we used
data from CIS's nationwide
Computer Linked Application Information Management System (CLAIMS 3)
database. Although this
database did not include financial information, it included EINs and SSNs
that we could use to determine
whether IRS had received a tax return and, if so, the status of the
taxpayer's account.
4 Individuals who operate a business and report income and losses on a
Schedule C attached to their
individual income tax return use their SSN.
5 Results from nonprobability samples cannot be used to make inferences
about a population, because in a
nonprobability sample some elements of the population being studied have
no chance or an unknown
chance of being selected as part of the sample. We selected hard copy
application files because CIS's

before applying for benefits, we found, that 18,942 businesses in our
nationwide selection sponsoring immigrants from 1997 through 2004 had
unpaid tax assessments at the time of application; the assessments totaled
$5.6 billion as of December 2003. Further, in addition to the 19,972
businesses unknown to IRS mentioned above, all of the taxpayers that IRS
already knew had not filed one or more tax returns but that applied for
immigration benefits-67,949 according to our match of a nationwide
selection of immigration applications-also would need to resolve their tax
issues.

o  	At the same time, CIS may also benefit from having access to IRS
taxpayer information when making immigration eligibility decisions. For
example, IRS taxpayer data can help CIS officials identify those
businesses and organizations that may not have met the requirements for
financial feasibility (ability to pay wages) or legitimacy (proof of
existence) when they apply to sponsor immigrants. We found that 67,949 of
413,723 (16 percent) of business sponsors in our nationwide selection were
in IRS's nonfiler database at the time of their application to sponsor an
immigrant worker. These business sponsors had not filed one or more income
or Federal Insurance Contribution Act (FICA)/Federal Unemployment Tax Act
(FUTA) employment returns between 1997 and 2004. Additionally, 19,972
business sponsors (5 percent) were unknown to IRS. Especially for smaller
businesses, failure to file a return may indicate the business is
struggling financially. CIS officials told us that access to IRS taxpayer
data could also improve the efficiency of making eligibility decisions by
reducing decision-making time and decreasing rework/follow-up work, which,
in turn, could help CIS address its backlog for processing immigration
applications.

o  	CIS and, to a lesser extent, IRS face significant challenges for
establishing a data sharing relationship. CIS faces several technology
challenges, including CIS does not automate any financial data, such as
the applicant's income, and both agencies use different tracking
numbers-that is, CIS uses alien registration

  automated systems did not have income or other tax related information that
                          could be used to match with

numbers, which CIS assigns to individuals and businesses, while IRS uses
SSNs or EINs for individuals and businesses. Given CIS's data limitations,
IRS would need to determine whether and how it could efficiently access
and use CIS data to identify potentially noncompliant taxpayers. In
addition, since I.R.C. Section 6103 does not authorize IRS to disclose
taxpayer information for immigration eligibility decisions, CIS would need
to seek a legislative change to I.R.C. Section 6103 or ask taxpayers for
consent to obtain tax data directly from IRS. However, because the
confidentiality of tax data is considered crucial to voluntary compliance,
executive branch policy calls for a business case to support sharing tax
data. Further, the Computer Matching and Privacy Protection Act of 1988
generally requires that no matching program between agencies can be
approved unless the agencies have performed a cost-benefit analysis for
the proposed matching program that demonstrates the program is likely to
be cost effective. IRS and CIS have not analyzed and do not currently have
plans to analyze data sharing benefits and costs.

Our findings related to data sharing are based on interviews, reviews of
agency documents and various publications, and matching of immigration and
IRS taxpayer data. We used two sets of CIS data to match with IRS taxpayer
data to determine the potential value for increased data sharing and
matching. First, we used nationwide selection of automated CIS
applications that included SSNs and EINs from immigration applications
submitted to CIS service centers from 1997 through 2004. Approximately 3.4
million of 4.5 million automated immigration records had SSNs or EINs that
could be used to match with SSNs and EINs in IRS databases. We used this
data to determine whether businesses and others that had applied to
sponsor immigrant workers or immigrants applying to change their
immigration status had filed a tax return with IRS and, if so, whether
they owed taxes to IRS. Because the nationwide selection did not include
any financial information, we could not use it to determine whether CIS
applicants reported the same income amounts to IRS as well as to CIS.
Therefore, we also selected a nonprobability sample of about 1,000
immigration hard copy applications

IRS databases. We transcribed personal and financial information from
CIS's paper files. GAO-04-972T 6

for citizenship, employment, and family-related immigration and change of
immigration status filed by businesses and individuals from 2001 through
2003 at 4 immigration locations.6 We used the hard copy applications to
build a database of personal and financial information. We used this
sample to determine whether CIS applicants reported the same income
information to IRS as to CIS and also as a second source of information on
the extent to which CIS applicants may not have filed tax returns and may
have owed taxes to IRS. We assessed the reliability of IRS's Individual
Master File (IMF) and Business Master File (BMF) data and the CIS's
Computer Linked Application Information Management System, Version 3.0
(CLAIMS 3), which is a database containing nationwide immigration data. We
determined that the data were sufficiently reliable for the purposes of
this testimony.

Background

As we have previously found, federal agencies are increasingly using data
sharing to help

                                       7

verify applicant-provided information. To facilitate this, Congress has
authorized a number of agencies to access federal taxpayer information
collected by IRS to improve the accuracy of eligibility decisions. The
Social Security Administration (SSA) is one agency, for example, that has
an extensive data sharing relationship with IRS, which aids in
administering Social Security benefit programs and ensuring taxpayer
compliance. Overall, SSA is responsible for paying approximately $42
billion monthly in benefits to more than 50 million people. This
relationship, which has been in place for almost 30 years, provides the
basis for matching of employee earnings reported to SSA and IRS; allows
for the disclosure of taxpayer mailing address information for the
Personal Earnings and Benefit Estimate Statement program; and helps SSA
determine the eligibility of applicants and recipients of Supplemental
Security Income. IRS, on the

6 CIS has four service centers nationwide established to handle the
filing, data entry, and adjudication of
certain applications for immigration services and benefits. District
offices are responsible for providing
certain immigration services and benefits to residents in their service
area, and for enforcing immigration
laws in that jurisdiction.
7 As used in this testimony, "data sharing" means obtaining and disclosing
information on individuals
between federal agencies, such as IRS and CIS, to determine eligibility
for benefits and to ensure taxpayers
have met their tax obligations. U.S. General Accounting Office, The
Challenge of Data Sharing: Results of
a GAO-Sponsored Symposium on Benefit and Loan Programs, GAO-01-67
(Washington, D.C.: October 20,
2000).

other hand, uses SSA-processed wage and earnings information to ensure tax
compliance by verifying individuals' income tax return information against
that reported by their employers. SSA officials say that sharing and
verifying taxpayer information is cost and time efficient, reduces waste
and fraud, and is mutually beneficial for both agencies.

Although such data sharing arrangements can be useful, privacy advocates,
lawmakers, and others are concerned about the extent to which the
government can disclose and share citizens' personal information,
including sharing with other government agencies. Historically, lawmakers
and policymakers have created legislation to address these concerns. For
example, the Privacy Act of 19748 regulates the federal government's use
of personal information by limiting the collection, disclosure, and use of
personal information maintained in an agency's system of records. The
Computer Matching and Privacy Protection Act of 19889 further protects
personal information by requiring agencies to enter into written
agreements, referred to as matching agreements, when they share
information that is protected by the Privacy Act of 1974 for the purpose
of conducting computer matches.

As one of the largest repositories of personal information in the United
States, IRS is often at the center of these concerns. IRS receives tax
returns from about 116 million individual taxpayers who have wage and
investment income and from approximately 45 million small business and
self-employed taxpayers each year. IRS performs a variety of checks to
ensure the accuracy of information reported by these taxpayers on their
tax returns. These checks include verifying computations on returns,
requesting more information about items on a tax return, and matching
information reported by third parties to income reported by taxpayers on
returns (i.e., document matching). IRS's document matching program has
proven to be a highly cost-effective way of identifying underreported
income and thereby bringing in billions of dollars of tax revenue while
boosting voluntary compliance.

                    8 Pub. L. No. 93-579, December 31, 1974.

I.R.C. Section 6103, amended significantly by the Tax Reform Act of
1976,10 is the primary law used to restrict IRS's data-sharing capacity.
The law provides that tax returns and return information are confidential
and may not be disclosed by IRS, other federal employees, state employees,
and certain others having access to the information except as provided in
I.R.C. Section 6103. I.R.C. Section 6103 allows IRS to disclose taxpayer
information to federal agencies and authorized employees of those agencies
for certain specified purposes. Accordingly, I.R.C. Section 6103 controls
whether and how tax information submitted to IRS on federal tax returns
can be shared. I.R.C. Section 6103 specifies which agencies (or other
entities) may have access to tax return information, the type of
information they may access, for what purposes such access may be granted,
and under what conditions the information will be received. For example,
I.R.C. Section 6103 has exceptions allowing federal benefit and loan
programs to use taxpayer information for eligibility decisions. Because
the confidentiality of tax data is considered crucial to voluntary
compliance, if agencies want to establish new efforts to use taxpayer
information, executive branch policy calls for a business case to support
sharing tax data.

CIS is part of DHS, which was established by the Homeland Security Act of
2002.11 CIS is responsible for administering several immigration benefits
and services transferred from the former Immigration Services Division of
the Immigration and Naturalization Service. Included among the immigration
benefits and services CIS's offices oversee are citizenship, asylum,
lawful permanent residency, employment authorization, refugee status,
intercountry adoptions, replacement immigration documents, family- and
employment- related immigration, and foreign student authorization. CIS's
functions include adjudicating and processing applications for U.S.
citizenship and naturalization, administering work authorizations and
other petitions, and providing services for new residents and citizens.
CIS's employees for reviewing immigration benefit applications and
determining if they should be approved are its adjudicators, while CIS's
Fraud Detection Units (FDU) investigate cases in which there are trends or
patterns that

9 Pub. L. No. 100-503, October 18, 1988. 10 Pub. L. No. 94-455, October 4,
1976. 11 Pub. L. No. 107-296, S: 451, 116 Stat. 2195.

suggest potential fraud. CIS staff work with applicants through the
adjudicatory process beginning with initial contact when an application or
petition is filed, through the stages of gathering information on which to
base a decision. This contact continues to the point of an approval or
denial, the production of a final document or oath ceremony, and the
retirement of case records.

IRS and CIS Do Not Share and Verify Data for Tax Compliance or Eligibility
Decisions

IRS does not use personal information collected and maintained by CIS to
ensure that taxpayers meet their tax obligations because IRS officials
believe that data on taxpayers' income they already receive from taxpayers
and third parties is more accurate and useful for enforcing tax
obligations than CIS data. IRS officials cite a previous data sharing
effort with CIS that was ultimately ended due to incomplete data and
increased costs. In the mid-1980s, CIS and IRS entered into a
cost-reimbursable data sharing agreement that enabled CIS to share
immigrant data with IRS by completing IRS Form 9003.12 According to IRS
officials, IRS used form 9003 to help identify whether individuals who
filed for U.S. permanent residency had filed tax returns and properly
reported their income. CIS and IRS shared form 9003 data for about 10
years but ended this arrangement in 1996, according to an IRS official.
Much of the form 9003 immigrant data received from CIS lacked SSNs-a
primary mechanism IRS uses for tracking individual taxpayers, which made
it increasingly difficult for IRS to use the data to determine whether
individuals had filed taxes and properly reported income, according to IRS
officials. Additionally, the costs associated with the data sharing
agreement escalated each year, to the point that, in IRS's opinion, it was
no longer cost effective.

Under I.R.C. Section 6103, CIS is not authorized to receive taxpayer
information from IRS directly. Although CIS officials would like to use
IRS taxpayer data to help make

12 CIS completed Form 9003 whenever an immigrant filed for lawful
permanent residency status. The form contained personal identifying
information on the immigrant such as name and SSN as well as financial
information on an individual's income. CIS provided a contractor with the
Form 9003s, and the contractor then transcribed the Form 9003 immigrant
data onto tape and sent it to IRS's Martinsburg Computing Center (MCC).
IRS conducted matches of the Form 9003 immigrant data against its own
databases to determine whether the individuals had filed taxes and
properly reported their income.

immigration eligibility decisions, they have not sought it due to
perceived difficulty in overcoming the I.R.C. Section 6103 limitation. CIS
obtains self-reported personal and financial information provided by (1)
businesses and individuals applying to sponsor immigrant workers, (2)
individuals applying to sponsor relatives, and (3) individuals applying to
enter the country, extend their stay or obtain citizenship. CIS also
obtains information from third parties, not including IRS, to verify
applicants' self-reported data. Although CIS adjudicators sometimes ask
businesses and individuals to provide them with either official income tax
returns from IRS or unofficial copies to verify financial information
reported on immigration forms, immigration officials we spoke with in five
field locations said applicants could alter or falsify those documents.
Figure 1 illustrates the current lack of data verification activities
between CIS and IRS during the immigration application process.

Figure 1: Illustration of the Current Lack of Data Verification between
CIS and IRS

Source: GAO.

Increased Data Sharing May Benefit IRS's Tax Compliance Efforts and CIS's
Immigration Eligibility Decisions

Increased data sharing and verification between IRS and CIS may result in
IRS increasing tax compliance and CIS making better immigration
eligibility decisions. CIS data may be useful to IRS in identifying
businesses and organizations unknown to IRS and those that may not have
reported the same income to both agencies. Further, IRS data may enable
CIS to (1) better identify businesses or individuals that may not have met
immigration eligibility criteria because they had unpaid assessments or
did not file tax returns and (2) improve the efficiency of adjudicators'
eligibility decision making.

IRS May Benefit From Using CIS Information to Identify Taxpayers with No
Recent Filing Activity or That Report Different Incomes to Both Agencies

IRS may be able to use immigration information to help identify taxpayers
with no record of recent filing activity and that are not easily
identified via current compliance efforts, such as self-employed and small
business taxpayers. IRS shares with and receives from other agencies, such
as SSA, personal and financial information via document matching to help
identify individuals and businesses with tax obligations. However,
document matching is not very effective for taxpayers that have sources of
income not subject to such reporting. For example, the income of
self-employed taxpayers and others that receive income directly from
clients is not always subject to third party reporting. Both GAO and the
Treasury Inspector General for Tax Administration (TIGTA) have previously
reported on these document-matching limitations and stated that certain
taxpayers, such as those who are self-employed, are much less compliant in
fulfilling their tax obligations than those whose income is subject

13

to information reporting. IRS has also acknowledged that those taxpayers
that are not well covered by document matching programs represent the
biggest portion of taxpayers that do not voluntarily and timely pay their
full taxes. IRS reports taxpayers served by

13 U.S. General Accounting Office, Reducing the Tax Gap: Results of a
GAO-Sponsored Symposium, GAO/GGD-95-157 (Washington, D.C.: June 2, 1995).
U.S. Department of the Treasury, Inspector General for Tax Administration,
Management Advisory Report: Comparing the Internal Revenue Service's
Verification of Income for Wage Earners and Business Taxpayers
(Washington, D.C.: September 2001).

IRS's Small Business and Self-Employed Division are among those least
covered by their document-matching programs. As of March 2001, these
taxpayers accounted for 64 percent of IRS's accounts receivable
database-which contains taxes assessed but not paid.

Immigration information may be potentially useful to IRS in identifying
taxpayers required to file but that have not and that may be applying to
(1) sponsor immigrants, (2) seek citizenship, or (3) extend their stay in
the country. We matched a nationwide selection of automated applications
of 413,723 business and organizations applying to sponsor temporary,
permanent and religious workers between 1997 and 2004 and found 19,972
businesses and organizations that were unknown to IRS. We matched a
nonprobability sample of hard copy immigration applications submitted
between 2001 and 2003 and found 20 of 475 business/organization sponsors
had established an identity with IRS at some time in the past but had no
record of tax activity in the past 5 years. An additional 13
businesses/organizations in our nonprobability sample were unknown to IRS.
For example, one company sponsoring a temporary worker reported a gross
annual income of $156 million on its CIS application, but the EIN listed
on its application does not match any of IRS's master file databases. Five
business sponsors in our nonprobability sample submitted income tax
returns to CIS with their applications, but IRS had no record of receiving
these returns.

In order to determine whether these businesses/organizations were
operating, and thus, likely to have had filing requirements, we searched
the business/organizations' web sites, "LexisNexis,"14and the online
yellow pages. We found 31 of the 33 total business/organization sponsors
that had established an identity or were unknown to IRS appeared to be in
operation. For example, one business sponsoring a permanent worker had a
website, a listing on LexisNexis, and on the online yellow pages, all with
the same address.

14 LexisNexis is an information/research tool that, among other things,
maintains public records on businesses and individuals.

Although the majority of businesses and organizations applying to sponsor
immigrant workers in our nonprobability sample reported the same income to
both agencies, we identified 10 business/organization sponsors that had
submitted tax return information to CIS with significantly different
income than they reported to IRS. As a group, the 10 business sponsors
reported over half a million dollars more to CIS in taxable income than to
IRS for the period from 2001 through 2002. For example, one business
reported a little over $162,000 in taxable income to CIS in 2001 and no
taxable income to IRS for the same period. Although we do not know whether
these businesses reported accurately to either CIS or IRS, discrepancies
like these often are considered by IRS in selecting firms or individuals
to audit.

IRS Might Also Benefit if Applicants for Immigration Benefits Were
Required to Be Current on Their Taxes

IRS might gain an additional benefit from establishing a data sharing
relationship with CIS if immigration applicants were required to be
current on their taxes before they could apply for immigration benefits.
That is, if sponsors or immigrants were required to provide CIS with
evidence from IRS that they had no outstanding tax obligation before any
immigration benefit application could be processed, sponsors and
immigrants would need to have filed returns and paid taxes due. IRS
officials said that such a requirement would likely help with tax
compliance and would be similar to procedures IRS currently follows in
certain other situations.

Although the information sharing to help target IRS enforcement efforts,
as previously discussed, would help IRS identify and follow up on some
sponsors and immigrants that may not be fully compliant, a requirement
that all immigration benefit applicants be current on their tax
obligations has the potential to increase the total number of noncompliant
taxpayers that would be brought into compliance. For example, requiring
all immigration benefit applicants to be current on their tax obligations
would mean that delinquent taxpayers IRS knows about but that have not yet
settled their tax debts would need to do so. Based on our nationwide
selection, we found that 18,942 of 413,723 (5

percent) businesses applying to sponsor workers entering the country from
1997 through 2004 had unpaid assessments of $5.6 billion at the time they
applied to CIS, and 67,949 business sponsors had not filed one or more
required income or employment tax forms. Finally, the 19,972 business
sponsors in our nationwide selection that applied to CIS for which IRS had
no record of receiving a tax return would need to resolve their tax status
with IRS. Figure 2 shows our results on business sponsors that have unpaid
assessments or are nonfilers for both our nationwide selection and
nonprobability sample of immigration applications.

Figure 2: Businesses Who Owed IRS Taxes or Nonfilers Known to IRS When
They Applied to Sponsor Workers to Enter the Country, 1997 to 2004

Percentage

40

30

20

10

0 Unpaid Nonfilers assessments

GAO nonprobability sample

Selected nationwide data

Source: GAO analysis.

IRS has established a process for taxpayers that need to demonstrate clean
tax records before they can apply for benefits. Taxpayers can obtain a
"fact of filing" or "fact of payment" document to demonstrate that they
have been filing required tax returns and paying their taxes. For example,
the state of Nevada requires casino employees to be current on their
federal taxes, and applicants must sign taxpayer consent forms allowing
the state to verify tax information with IRS via the "fact of filing" or
"fact of payment."

CIS May Benefit from Using IRS Taxpayer Data to Make More Accurate
Immigration Eligibility Decisions

CIS headquarters officials told us immigration adjudicators use two basic
criteria for evaluating the eligibility of businesses and individuals to
sponsor immigrants: (1) the sponsor's financial feasibility and (2) the
legitimacy of the sponsor's existence. Financial feasibility refers to the
sponsor's ability to pay wages to or financially support the individual
being sponsored. For example, if a company is sponsoring an immigrant for
employment, that company must show that it has sufficient ability to pay
the worker. IRS information on a taxpayer's income and the status of a
taxpayer's account is relevant and useful to the adjudicator's decision on
the ability to pay, according to CIS officials. In the case of a nonworker
petition (e.g. a relative), such as with the Affidavit of Support (I864)
that accompanies forms such as the Application to Register Permanent
Status or Adjust Status (I-485)15, the sponsor must provide evidence that
his or her household income equals or exceeds 125 percent of the federal
poverty line. Information on tax returns filed with IRS would show income
levels and could be used to validate applicantprovided information.
Legitimacy, in the case of worker petitions, refers to whether a
sponsoring business or organization actually exists, has employees, and
has real assets. IRS tax data could be used to verify these facts,
according to CIS officials. In the case of nonworker petitions, legitimacy
refers to the relationship between the sponsor and immigrant as being
entered into in "good faith." For example, with the Petition to Remove the
Conditions on Residence (I-751), which is based on an immigrant's marriage
to a U.S. citizen or permanent resident, the immigrant must show evidence
of that relationship through documents such as financial records including
tax returns. IRS tax data could be used to help verify the marital status
of individuals.

In the case of immigrants applying for citizenship, adjudicators also use
a test of "good moral character" as one of the criteria in determining an
immigrant's eligibility for citizenship. In testing for "good moral
character," CIS asks such things as whether the applicant was ever
imprisoned or failed to file a federal, state, or local tax return.

15 The Application to Register Permanent Residence or Adjust Status form
is used by a person in the U.S. to adjust their temporary immigration
status to a permanent status or register for permanent residence.

Adjudicators said that having evidence directly from IRS on whether an
immigrant answered the tax-related questions accurately would be very
useful in their decisionmaking process.

Our analysis identified sponsors and immigrants that IRS classified as
nonfilers and therefore may not meet immigration financial feasibility and
legitimacy tests. In our nationwide selection submitted between 1997 and
2004, we found 67,949 of 413,723 (16 percent) businesses applying to
sponsor immigrant workers did not file one or more tax

                                       16

returns, such as income or employment tax forms. In addition, knowing that
IRS had no record of receiving a tax return from 19,972 businesses that
applied to CIS to sponsor immigrants would be relevant to adjudicators'
decisions. Similarly, 112 of 475 (24 percent) businesses in our
nonprobability sample for sponsorship of temporary, permanent, and
religious workers from 2001 through 2003 did not file one or more tax
returns, such as income or employment tax forms.

Of the individuals applying to sponsor family members' or workers' entry
into or stay in the country, 791 of 51,169 individuals in our nationwide
selection were in IRS's nonfiler database, meaning these sponsors did not
file one or more returns during the period from 1997 through 2004.
According to IRS, these individual sponsors are classified as nonfilers
but may not be required to file for a variety of reasons, including
insufficient income. This reason, however, may raise questions about
whether the sponsor is able to meet CIS's financial feasibility and
legitimacy tests. We also found that some individual immigrants applying
to extend their stay were classified as nonfilers. We found that 25,662 of
2,009,046 individuals in our nationwide selection applying to CIS from
1997 through 2004 did not file income tax returns. Some of these
individuals may not have been required to file.

Our analysis also identified business and individual sponsors that had
unpaid assessments with IRS and therefore may not have met immigration's
financial feasibility and legitimacy tests. Our nationwide results showed
that 18,942 of 413,723 business (5

16 IRS knows about these business nonfilers because of previously filed
returns.

percent) sponsors applying to sponsor immigrants from 1997 through 2004
had unpaid assessments at the time of application; the assessments totaled
$5.6 billion as of December 2003. We found that 94 of 475 (20 percent)
businesses in our nonprobability sample applying to sponsor immigrants
from 2001 through 2003 collectively had unpaid assessments at the time of
application. The assessments totaled $39 million as of December 2003. CIS
officials said IRS information on small businesses would be especially
helpful in assessing whether small businesses have the necessary income or
financial feasibility to support the workers. We identified instances in
which businesses sponsored a number of workers over several years but had
unpaid assessments to IRS and failed to file numerous tax forms. For
example, one company sponsored more than 600 workers from 1997 through
2004 but is currently delinquent on 12 tax returns for $8 million and
failed to file 3 income tax returns, employment tax returns, or both. We
found that 6,894 business sponsors in our nationwide selection of
immigration applications matched on IRS databases containing both
information on unpaid assessments and nonfilers. Figures 3 and 4 show
matching results identifying nonfilers and those with unpaid assessments
from our nationwide selection and nonprobability sample.

Figure 3: Business Sponsors in GAO's Nonprobability Sample and the
Nationwide Selection That May Not Have Met Financial Feasibility or
Legitimacy Requirements

Number of sponsors

                               Number of sponsors

120 67,949 70,000

100 60,000

50,000 80

40,000 60

30,000

40 20,000

20 10,000

00 Nonprobabilty sample Nationwide selection

Unpaid assessments Nonfilers

Source: GAO analysis.

Note: Data from immigration files was matched with IRS's Business Master
File including the Accounts Receivable
Database, which contains IRS data on unpaid assessments and the Nonfiler
Database, which contains IRS data on
businesses that should have filed a tax return but did not.
Source: GAO Analysis

Some individuals applying to sponsor immigrants also had unpaid
assessments when they submitted applications to CIS. Of 51,169 individual
sponsors in our nationwide selection for which CIS included SSNs, 889 had
unpaid assessments when they applied to CIS and the assessments totaled
$49.8 million as of December 2003. Fourteen of 273 individual sponsors in
our nonprobability sample had unpaid assessments when they applied to CIS;
the assessments totaled $84,761 as of December 2003. We also found
individual immigrants applying to extend their stay had unpaid assessments
at the time they applied to CIS. We found 38,877 of 2,009,046 individuals
immigrants from our nationwide selection that applied to CIS from 1997
through 2004 had unpaid assessments at the time of application; the
assessments totaled $328 million. Similarly, 20 of 804 individuals
immigrants in our nonprobability sample applying to CIS from 2001 through
2003 had unpaid assessments at the time of application.

Immigration officials we spoke with at five field locations told us
receiving and using IRS taxpayer information would be very valuable in
helping them make better decisions for immigration requests and in
investigating potential benefit fraud cases. Adjudicators expressed
concerns about the legitimacy of tax returns they review when making
immigration eligibility decisions and stated they would like to verify
applicant/sponsor provided data-including copies of tax returns-against
what is maintained in IRS's databases. They told us they have no way to
check tax return information when they suspect applicants have submitted
(1) bogus returns that can be printed from home computers using readily
available tax preparation software and (2) returns that falsify socalled
"IRS-certified tax returns." For example, adjudicators in the Vermont
service center told us about an instance in which a company sponsoring
multiple immigrants provided copies of tax returns that contained the same
company name and EIN but reported differing income and assets for the same
year (see fig. 5). Additionally, this company submitted the income tax
return for U.S. corporations (IRS Form 1120) with one application and the
short-form income tax return for U.S. corporations (IRS Form 1120-A) with
the other application for the same tax year, even though it did not meet
the IRS Form 1120-A's filing requirement of having gross receipts under
$500,000.

Figure 5: One Business Sponsor Submits Different Tax Returns to CIS

Note: We used a fictitious business name and EIN to protect the identity
of the CIS applicant.

CIS Fraud Detection Unit (FDU) officials begin an investigation when they
notice significant trends among a certain class of sponsors, immigrants,
or both, such as certain temporary worker sponsors submitting inflated tax
returns to demonstrate financial feasibility.17 Currently, FDUs verify
self-reported data through third party sources, such as a private sector
company that taps into state-level data to verify the legitimacy of a
company, and state data on company balance sheets. Obtaining these types
of data is a time-consuming process for CIS fraud staff and the results
are questionable, according to officials we spoke with at the California
and Texas Service Centers. FDU officials said that IRS taxpayer
information would be more helpful for verification purposes because (1)
they could determine directly if the sponsor and immigrant provided the
same information to IRS that they did to CIS and that it was accurate, (2)
they believed they

17 An alien convicted of an "aggravated felony" such as tax evasion in
which the revenue loss to the government exceeds $200,000 as defined in 8
U.S.C.1101(a)(43), is deportable.

would be able to obtain IRS data quicker, and (3) IRS data would be more
reliable than the self-reported and third-party data. However, FDU
officials explained they have not pursued obtaining this information from
IRS due to I.R.C. Section 6103's restrictions.

CIS May Benefit from Using IRS Data to Make More Timely Immigration
Eligibility Decisions

Both the adjudicator and fraud staff at the five locations we visited said
that access to IRS taxpayer data could also improve the efficiency of
making benefit decisions because it would result in reduced
decision-making time and decreased rework/follow-up work. More efficient
benefit decisions have the potential to help CIS address application
backlogs. For example, adjudicators said that if they could match
applicant data against IRS data early in the review process, they would
spend less time researching and following up on the validity of those data
(e.g., they would send fewer requests for evidence [RFE] to the
applicant). According to adjudicators, it could take as long as 12 weeks
to receive responses from applicants for a certified IRS tax return,
during which time, the application file sits on a "suspense" shelf,
thereby extending the application processing time. Due to this time gap,
in certain cases, background checks must be redone, which further
lengthens the application processing time. Additionally, as we reported in
May 2001,19 CIS officials said that lengthy processing times have resulted
in increased public inquiries on pending cases, which, in turn, has caused
CIS to shift resources away from processing cases to responding to
inquiries. As a result, the time to process applications have further
increased.

18 Additionally, we and other agencies have found, and staff at some of
the field locations we visited agreed,
that access to IRS taxpayer information may also tangentially aid CIS in
its homeland security efforts.
GAO and the Department of Justice's Office of Inspector General have
identified weaknesses in CIS
locator information for immigrants. For example, in November 2002, GAO
reported that CIS investigators
determined that CIS's address information was inaccurate for 45 immigrants
who may have known some
of the terrorists responsible for the September 11, 2001 terrorist attacks
(GAO-03-188).
19 U.S. General Accounting Office, Immigration Benefits: Several Factors
Impede Timeliness of
Application Processing, GAO-01-488 (Washington, D.C.: May 4, 2001).

As we reported in January 2004,20 CIS used $80 million in appropriated
funds annually in fiscal years 2002 and 2003 for the President's backlog
initiative, a 5-year effort with a goal to achieve a 6-month average
processing time per application, and will continue to use $80 million of
its appropriations through fiscal year 2006 for the initiative. Figures 6
and 7 show CIS's application processing times and its backlog of pending
applications, respectively.

Figure 6: CIS Application Processing Time Goals and Average Reported
Processing Time for Fiscal Year 2003

Time in months 60

40

20

0 N-400 I-485 I-129 I-140 I-751 CIS application form

Application processing time goal Average reported processing time

Source: GAO.

Notes: Average reported processing time projected as of October 30, 2003.
Applications forms are described in appendix I.

20 U.S. General Accounting Office, Immigration Application Fees: Current
Fees Are Not Sufficient to Fund U.S. Citizenship and Immigration Services'
Operations, GAO-04-309R (Washington, D.C: Jan. 5, 2004).

          Figure 7: CIS Application Backlogs - End of Fiscal Year 2003

Numbers in thousands 1,200

1,000

800

600

400

200

0 N-400 I-485 I-129 I-140 I-751

CIS application form backlog

Source: CIS's Performance Analysis System.

Note: Applications forms are described in Appendix I.

Sharing Data Presents Challenges

While data sharing may be beneficial for IRS and CIS, CIS, and to a lesser
extent, IRS, face significant challenges for establishing a data sharing
relationship. CIS must address a number of technological challenges in
order to lay the foundation that would enable data sharing to take place
efficiently and effectively. For example, IRS and CIS currently use
different identifiers to track individuals, so their systems may not
interact with each other, automate different pieces of data, and face
concerns regarding maintaining the confidentiality of electronically
shared immigration and taxpayer data. IRS and CIS have two options for
overcoming the legal challenge and accessing information for benefit
determination purposes: use the existing I.R.C. Section 6103 taxpayer
consent authority or seek a legislative change to I.R.C. Section 6103.
Finally, both IRS and CIS need to further evaluate data-sharing options
and their related costs to determine whether such a relationship could be
cost beneficial.

CIS Faces a Wide Range of Technological Challenges

Although CIS and IRS may benefit from data sharing, CIS faces a wide range
of technological challenges that must be overcome in order to lay the
groundwork that would enable data sharing to take place between the two
agencies.

o  	CIS does not maintain any automated financial data on applicants.
Although CIS automates certain personal information from benefit
applications, such as an individual's name and alien registration number,
it does not automate any financial data that are reported on the benefit
application or in accompanying documents such as tax returns.

o  	CIS locations automate data inconsistently. Although CIS service
centers have servicewide automated case management and tracking systems
for the applications they process, the CIS district offices do not.
Instead, most applications are processed manually at the district offices.
Plans are underway to have a nationwide system in place for the districts
by the end of fiscal year 2006.

o  	CIS systems contain inaccurate data. GAO and the Department of
Justice's Justice's Office of Inspector General (OIG) have criticized CIS
systems because they contain inaccurate data for identifying pieces of
information (such as immigrants' addresses).

o  	CIS databases could encounter interaction difficulties. CIS uses
immigrant registration numbers as tracking identifiers whereas IRS uses
SSNs or EINs. Although CIS's systems capture SSNs/EINs if they are
provided on applications, CIS does not require them to be entered into its
systems. A little over 1 million of 4.5 million nationwide immigration
records did not have SSN or EIN identifiers that could be matched against
IRS's databases.

While I.R.C. Section 6103 Does Not Allow Data Sharing for Immigration
Eligibility Decisions, CIS Has Options for Gaining Access to Taxpayer
Information

Information May Be Disclosed with Taxpayer Consent

IRS cannot disclose taxpayer information to other federal agencies without
specific statutory authorization. As previously mentioned, CIS is not
authorized to directly receive taxpayer information for immigration
decisions under I.R.C. Section 6103. However, individual taxpayers may
authorize IRS to disclose their return information to agencies through
written consent. Under I.R.C. Section 6103(c), a taxpayer may designate a
third party to receive his or her tax return or return information from
IRS. Examples of third-party entities to which IRS provides information
pursuant to taxpayersigned waivers include financial institutions
(including the mortgage banking industry); colleges and universities; and
various federal, state, and local governmental entities.

Using this authority however, CIS could require applicants to allow IRS to
share personal and financial information with CIS. IRS already has a
process in place to accomplish this through the use of several forms, such
as IRS Form 4506, Request for Copy of Tax Return; IRS Form 4506-T, Request
for Transcript of Tax Return; and IRS Form 8821, Tax Information
Authorization. Form 4506 allows taxpayers to request that CIS receive
copies of their tax returns (at a cost of $39 to the taxpayer per copy)
directly from IRS. By signing form 4506-T, the taxpayer consents to
another party, like CIS, receiving a tax return transcript, tax account
transcript, information from Form W-2, Wage and Tax Statement, Form 1099
series information,21 record of account, or verification of nonfiling
directly from IRS, all at no charge to the taxpayer. Form 8821 allows a
third party to inspect taxpayer information, receive taxpayer information,
or both for specific tax matters listed on the form. This form is
different from the others in that the authority expires upon written
request from the taxpayer, whereas the other two authorities are one-time
requests.

21 One type Form 1099 is the Form 1099-R, Distributions From Pensions,
Annuities, Retirement or Profitsharing Plans, IRAs, Insurance Contracts,
etc.

Treasury and IRS's National Taxpayer Advocate22 have expressed concern
about the systematic use of taxpayer consent. Further, IRS's National
Taxpayer Advocate suggests that taxpayer consents should be used in
conjunction with pilot tests. A pilot test would help address whether the
disclosure can result in substantial program benefits. For example, from
October 2002 through March 2003, the Department of Education (Education)
conducted a test in which the department electronically verified a select
number of students' (or parents') tax returns instead of requesting hard
copies of the returns. The students were asked to authorize IRS to release
their tax information to their academic institutions via the Internet.
After authorizing the release, IRS then sent the individuals' tax
transcripts to the schools, which then resolved any inconsistencies
between information on the tax transcripts and on financial aid
applications. According to an Education official, the department received
positive feedback from the participating schools and taxpayers.

However, using taxpayer consent may affect the taxpayer's right to privacy
and IRS's implementation of I.R.C. Section 6103. The Joint Committee on
Taxation and Treasury's Office of Tax Policy warn that the use of consents
for programmatic governmental purposes potentially circumvents the general
rule of taxpayer confidentiality because the taxpayer waives certain
restrictions on agencies' use of the data. In addition, recordkeeping,
reporting, and safeguard requirements do not apply to agencies that use
taxpayer consent. Furthermore, IRS is not required to track taxpayer
consent disclosures and, as a result, cannot report on how the return
information is used or what safeguards are in place to protect the
information. Finally, according to IRS officials, taxpayer consents can be
costly and resource intensive to implement, primarily because the
information has to be retrieved manually unless the taxpayer makes a
request via telephone. IRS estimates that it receives more than 800,000
requests from taxpayers directing that their returns or return information
be sent to a third party.

Changes to I.R.C. Section 6103 Could Enable CIS to Access IRS Taxpayer
Information

22 Internal Revenue Service, National Taxpayer Advocate: 2003 Annual
Report to Congress (Washington,

Over the years a number of exceptions have gradually been added to I.R.C.
Section 6103 that allow access to taxpayer information. In his March 10,
2004, testimony before the Subcommittee on Oversight, House Committee on
Ways and Means, IRS Commissioner Mark Everson noted that IRS is broadly
restricted under I.R.C. Section 6103 from sharing taxpayer information
with third parties, including other government agencies, except in very
limited circumstances. According to Treasury, the burden of supporting an
exception to I.R.C. Section 6103 should be on the requesting agency, which
should make the case for disclosure and provide assurances that the
information will be safeguarded appropriately. Table 1 lists the criteria
Treasury and IRS have applied when evaluating specific legislative
proposals to amend I.R.C. Section 6103 for governmental disclosures.

Table 1: Criteria Applied by Treasury and IRS When Evaluating Specific
Proposals for Governmental Disclosures

                             Is the requesting information highly relevant to 
                             the program for which it is to be disclosed? Are 
                             there substantial program benefits to be derived 
Criteria to be addressed   from the requested information? Is the request  
by the requesting agency   narrowly tailored to the information actually   
                                  necessary for the program? Is the same      
                              information reasonably available from another   
                                                 source?                      
                             Will the disclosure involve significant resource 
                             demands on IRS? Will the information continue to 
Criteria to be addressed   be treated confidentially within the agency to  
by the requesting agency    which it is disclosed, pursuant to standards   
and Treasury/IRS            prescribed by IRS? Other than I.R.C. Section   
                               6103, are there any statutory impediments to   
                                     implementation of the proposal?          
                              Will the disclosure have an adverse impact on   
Criteria to be addressed   tax compliance or tax administration? Will the  
        by Treasury/IRS        disclosure implicate other sensitive privacy   
                                                concerns?                     

           Source: Office of Tax Policy, Department of the Treasury.

D.C.: Dec. 31, 2003). GAO-04-972T 28 Data-Sharing Costs Have Not Been
Analyzed

Although the results of our matching of IRS and CIS data indicate that IRS
and CIS may benefit from data sharing and verification, not all of the
potential benefits likely would be realized and determining whether and
how those benefits should be pursued also would depend on the cost of any
data-sharing arrangements. Neither IRS nor CIS has documented benefits
that may be gained from additional data sharing nor have they considered
the cost that would be associated with implementing a data sharing
arrangement. The cost of data sharing would depend on a variety of
factors, such as whether CIS would match data from all benefit
applications or some subset and whether the matching processes would be
primarily manual or automated.

Although our work shows potential benefits to IRS and CIS from sharing
data to enhance tax compliance and improve immigration eligibility
decisions, not all of those benefits likely would be realized. For
example, IRS is unable to pursue all of the current leads that it receives
from existing data corroboration efforts, like document matching.
Therefore, to the extent that obtaining and analyzing additional data from
CIS developed more leads for possible enforcement actions, IRS likely
would only be able to pursue some portion of those cases. Further, some of
the apparent noncompliance may not be substantiated. For example, some of
those who appear not to have filed tax returns may actually have been
provided inaccurate information to CIS or otherwise not have a filing
obligation. Of the taxpayers with delinquent taxes, some portion may
already have entered into arrangements with IRS to pay the taxes and no
further IRS action may be needed. From CIS's perspective, although we
found that many businesses and individuals may not have filed tax returns
or may be delinquent in paying taxes, some of these situations may not be
significant enough to affect a CIS adjudicator's decision about their
financial feasibility or legitimacy. For instance, some of the businesses
applying to sponsor immigrant workers that have delinquent taxes may not
owe enough to raise doubts about their ability to pay the worker. This may
be especially true for larger businesses.

The Computer Matching and Privacy Protection Act of 1988 established
requirements for agencies entering into routine data matching
arrangements. In general, the act states that no matching program can be
approved unless the agency has preformed a costbenefit analysis for the
proposed matching program that demonstrates the program is likely to be
cost effective. Similarly, Treasury's criteria for considering whether a
statutory change should be made for the sharing of tax data stress the
importance of documenting whether a substantial benefit is likely and what
the resource demands on IRS would be to support sharing the data. In the
case of using taxpayer consents, Treasury suggests that agencies conduct
pilot tests to support a business case for routine use of such consents.

Conclusions

Data sharing and verification between IRS and CIS appears to have the
potential to better guide IRS's efforts to identify and correct
noncompliance by taxpayers and result in more informed, accurate, and
timely eligibility decisions by CIS adjudicators. Although IRS terminated
its previous data sharing relationship with CIS for individual taxpayers
because it judged that relationship not to be cost effective, our matching
results show a greater potential for improving tax compliance for
businesses than individuals. Our analysis also shows the potential to
improve thousands of eligibility decisions if CIS has access to IRS data.
However, more needs to be known about the extent to which the potential
benefits likely would be realized if greater data sharing and verification
were to occur and about the costs that would be incurred to implement a
data-sharing effort. The benefits and costs are key, since both Congress
and executive branch policies stress that sharing of data, and especially
tax data, be well justified given concerns about possible adverse effects
on tax compliance if the confidentiality of taxpayer's data is
compromised.

Recommendation for Executive Action

The Secretary of Homeland Security and the Commissioner of Internal
Revenue should assess the benefits that may be obtained and the costs that
may be incurred to share information to enhance tax compliance and improve
immigration eligibility decisions.

Agency Comments

Agency officials provided official oral comments and generally agreed with
our recommendation. We talked with knowledgeable agency officials in IRS
and CIS about our findings and recommendation. They had no major concerns
with doing a study on the potential benefits and costs of establishing a
data sharing relationship. IRS officials said I.R.C. 6103 prevents them
from sharing taxpayer data with CIS for immigration eligibility decisions.
IRS officials said the use of taxpayer consents would be an alternative
but IRS would need to evaluate resource implications associated with
processing the potentially large number of requests to verify taxpayers'
status that could be associated with this proposal. CIS officials said
they want to have IRS data to assist with immigration eligibility
decisions but have not pursued obtaining IRS data because of the challenge
they would face in trying to change I.R.C. Section 6103.

IRS's OVCI Program

The major points arising from our review of the information available on
the taxpayers who came forward under the OVCI program and how they became
noncompliant are as follows:

o  	Of the more than 1 million taxpayers that IRS estimated might be
involved in an offshore scheme when it initiated the OVCI program, 861
taxpayers came forward. IRS officials say they have received more than
$200 million in previously unpaid taxes, penalties, and interest from
them. The taxpayers that applied for inclusion in the OVCI program were a
diverse group, with wide variations in income, geographic location, and
occupations, but some commonalities emerged for certain of these
characteristics.

o  	OVCI applicants reported an annual original adjusted gross income
(AGI)23 ranging from over well over $500,000 to substantial net losses.
Because these large outliers tend to skew the distribution of the income
data, we used the population's annual median income to describe the
population's income levels. OVCI applicants' annual median original AGI
ranged from about $39,000 to about $52,000 for tax years 1999, 2000, and
2001. For 2001, the annual median adjustment to the original AGI of OVCI
applicants who had not properly paid tax on money held offshore was about
$23,000, and the median amount of tax, penalties, and interest was about
$5,400. 24 The 81 applicants who composed the top 10 percent of originally
reported AGIs in 2001 accounted for more than half of the total reported
AGI amount.

o  	For each year covered by the OVCI program, more than half of the
applicants had generally reported all of their income and paid taxes
due-even on their offshore income--but had failed to disclose the
existence of their foreign bank accounts as is required by Treasury. Their
applications sought relief from FBAR penalties. IRS assesses FBAR
penalties at a rate of up to 100 percent of the value of the assets in the
account. These penalties were waived for OVCI applicants.

o  	OVCI applicants came from 47 states and the District of Columbia, but
half of all applicants came from only 5 states: Florida, California,
Connecticut, Texas, and New York.

23 AGI is the amount of income the taxpayer reported minus certain income
adjustments the taxpayer made
on his or her tax return. The original AGI is the amount the taxpayer
reported on his or her original federal
tax return. In applying for the OVCI program, the taxpayer also supplied
IRS with amended federal returns
with an adjusted AGI.
24 Taxpayers could apply for the OVCI program for any tax year after 1998
and could apply for one or more
years. The overwhelming majority of applications fell in tax years 1999
through 2001, but some applicants
applied for years prior to 1999 or subsequent to 2001. We only included
those taxpayers who were
noncompliant in 1999, 2000, or 2001, or in a combination of these years,
in our analysis. We used the year
2001 in this testimony for all tables because it is the most recent year
for which we have data and because
the data in 2001 were fairly representative of each of the 3 years that we
are reporting.

o  	OVCI applicants reported more than 200 occupations. We classified more
than one-third of applicants' occupations as either retired individuals,
business executives, or business/self-employed.

o  	Less than 16 percent of OVCI applicants said they used a promoter in
2001. Some promoters offered inexpensive, ready-made package deals that
bundled a standardized set of services together while others offered more
expensive, tailormade arrangements.

o  	Some taxpayers appear to have deliberately hidden money offshore
through fairly elaborate schemes involving, for instance, multiple
offshore bank accounts. Other applicants appear have fallen into
noncompliance inadvertently, for example, by inheriting money held in a
foreign bank account.

We used IRS's OVCI database to develop a profile of the characteristics of
the taxpayers that came forward under OVCI. Our information is limited to
those taxpayers who voluntarily admitted they held offshore assets, so the
information we are providing is not necessarily representative of any
larger population of taxpayers who used offshore arrangements to avoid
paying U.S. taxes. We limited our analysis to tax years 1999, 2000, and
2001 because the vast majority of the OVCI applicants applied for
inclusion for these 3 tax years. IRS officials said they verified the
accuracy of the data entered into the database, and we observed the
verification process. We analyzed IRS's data reliability processes and
verified some of the entry accuracy ourselves and as a result, we believe
the data we are using are sufficiently reliable and useful for reporting
on the characteristics of those who came forward under the OVCI program.
In addition, we reviewed 35 case files judgmentally selected based on
factors such as particularly high or low AGIs, high or low adjustments to
original AGI, or high or low taxes, penalties, and interest owed to verify
IRS's data entry and to obtain information about how taxpayers became
noncompliant and about the promoters, if any, they used. In addition, we
visited 25 promoter Web sites to gain a better understanding of the type
and cost of the services they provide. The Web sites were judgmentally
selected to ensure the sample included a

variety of geographic locations. We did our work at IRS's campus in
Philadelphia and its National Office in Washington, D.C. We conducted our
fieldwork for this portion of the testimony from January 2004 through June
2004. Appendix II provides more details on our methodology.

Background

Launched in January 2003, OVCI was an attempt to quickly bring taxpayers
who were hiding funds offshore back into compliance while simultaneously
gathering more information about those taxpayers as well as the promoters
of these offshore arrangements. It is not illegal to hold money offshore.
It is illegal, however, for a taxpayer to not disclose substantial
offshore holdings including, if applicable, not reporting income earned in
the U.S. and "hidden" through offshore arrangements and any income
generated through them to IRS on a tax return. As an incentive to come
forward, IRS said it would not impose the civil fraud penalty for filing a
false tax return, the failure to file penalty, or any information return
penalties for unreported or underreported income earned in 1 or more of
the tax years ending after December 31, 1998. However, taxpayers were
required to pay applicable back taxes, interest, and certain accuracy or
delinquency penalties. In addition, Treasury agreed to waive the penalty
associated with

25

the failure to file a Report of Foreign Bank and Financial Accounts (FBAR
penalties). To be eligible for the OVCI program, applicants had to supply
certain information about themselves, including

o  	personal information, such as their names, taxpayer identification
numbers, current addresses and telephone numbers;

o  	copies of their original and amended federal income tax returns for
tax periods ending after December 31, 1998; and

25 Under the Bank Secrecy Act, U.S. residents or individuals in and doing
business in the United States must file a report with Treasury if they
have a financial account in a foreign country with a value of more than
$10,000 at any time during the calendar year. Taxpayers comply with this
requirement by noting the

o  	information on any related entities that the applicants caused to be
involved in offshore tax avoidance.

In addition, taxpayers had to provide details on those who promoted or
solicited the offshore financial arrangement. IRS is using this
information to pursue promoters and to identify other clients who did not
come forward under OVCI. Taxpayers were required to provide

o  	complete information about the promoter, including the promoter's
name, address, and telephone number and any promotional materials that the
taxpayer received;

o  	descriptions of offshore payment cards, foreign and domestic accounts
of any kind, and foreign assets; and

o  	descriptions of any entities through which the taxpayer exercised
control over foreign funds, assets, or investments.

IRS used this documentation to build a database of descriptive information
about the OVCI applicants and any promoters of offshore schemes that they
used. IRS plans to eventually utilize the data to analyze taxpayer
characteristics and then use this information to try to make taxpayer
compliance programs more effective. Specifically the database contains
information on (1) the taxpayer, such as income, citizenship status,
occupation, and compliance history, and (2) the promoters of offshore tax
schemes, such as how much the promoter charged the taxpayer and the
country in which the promotion was located.

account on their tax return and by filing Form 90-22.1. Willfully failing
to file an FBAR report can be punished under both civil and criminal law.

OVCI Applicants Were a Diverse Group, but Some Common Characteristics
Emerged

When it initiated the OVCI program, IRS estimated that 1 million taxpayers
might be involved in offshore schemes covered by the program; 861
taxpayers came forward

26

under OVCI. IRS required taxpayers to calculate the additional tax they
owed and remit that amount with their OVCI application. IRS has received
more than $200 million from taxpayers. IRS has verified through audits
that $140 million of that amount was properly due and is continuing to
audit the remainder. In some ways the taxpayers in the OVCI program were a
diverse group. Applicants reported widely varying annual median original
AGIs in 1999, 2000, and 2001. The applicants were geographically dispersed
across the country and were involved in more than 200 occupations. Despite
the diversity, OVCI applicants reported an annual median original AGI from
approximately $39,000 in tax year 2001 to $52,000 in tax year 2000; half
came from five states; and about a third were retired individuals,
business executives, or business/self-employed. In addition, less than 16
percent said they used a promoter to help them set up their offshore
arrangements. Finally, more than half of OVCI applicants for each year
generally had reported their income and paid taxes but had failed to
disclose the existence of their foreign accounts.

OVCI Applicants' Income

For the 3 years of the OVCI program we reviewed, 1999 through 2001, OVCI
applicants reported an annual original AGI ranging from well over $500,000
to substantial net losses. Because these large outliers tend to skew the
distribution of the income data, we believe

26 IRS has previously reported that 1,321 taxpayers applied to the OVCI
program. This figure includes 400 entities that were set up by applicants
to handle their offshore funds. To avoid double counting, we excluded
these cases from our audit. We also excluded 49 applicants because they
did not meet program requirements and 16 applicants that applied for tax
years outside the scope of our audit, that is either before 1999 or after
200l. As a result, we identified 861 unique, individual taxpayers who
applied to the OVCI program. IRS has also previously reported that it had
received $200 million for all years while the database showed that only
$140 million had been collected. IRS officials said it recorded in the
database only those amounts that it had finished auditing and will enter
the additional money received as it completes audits of more OVCI
applicants. In addition, much of the money IRS received from OVCI
applicants was for tax years either before 1999 or after 2001.

the most representative method of describing the "average" applicant is by
using the population's annual median income, that is, the point in the
income distribution where half of the applicants fall above that point and
half fall below that point, rather than the mean AGI. As shown in table 2,
the median original AGI of applicants was from $38,761 in tax year 2001 to
$51,663 in tax year 2000. Appendix III contains more taxpayer income
information.

Table 2: OVCI Applicants' Original AGI Statistics, Tax Years 1999-2001

                                              Original AGI
            Number of                 10th                         90th       
Tax year applicants        Mean    percentilea     Median    percentileb   
       1999             806  $332,443              $0 $49,469        $545,196 
       2000             817 1,191,997               0  51,663         583,188 
       2001             808   242,515               0  38,761         582,593 

Source: GAO analysis of IRS data.

a The 10th percentile represents those taxpayers who were in the bottom
ten percent of the distribution of
the original AGI. Due to the number of taxpayers who reported negative
original AGIs or were nonfilers,
the value for the10th percentile was zero in all three years we reviewed.
b The 90th percentile represents those taxpayers who were in the top ten
percent of the distribution of the
original AGI.

Within the OVCI population, there were three distinct types of taxpayers:

o  Those who had filed their tax returns but omitted their foreign
financial assets.

o  	Those who failed to file tax returns for 1 or more of the years
covered by the OVCI program.

o  	Those who filed returns each year and included their offshore holdings
in their reported income but failed to meet their FBAR reporting
requirements.

As shown in table 3, the taxpayers in these groups varied in their
reported median original AGI; adjustment to original AGI; and taxes,
penalties, and interest assessed. In the table, the nonfilers' median
original AGI is shown as zero because, according to an IRS official, they
did not file tax returns, even though they had taxable income offshore. An
IRS official said that for those applying to the program for relief from
FBAR penalties,

the data show an original AGI because they generally reported all of their
  income and paid taxes due, but had failed to disclose the existence of their
                             foreign bank accounts.

Table 3: OVCI Applicants' Income and Amount Owed for Tax Year 2001

                           Median   Median                                    
                           original adjustment  Median      Median    Median  
                           AGI for  to original additional penalties interest 
      Population    Number 2001     AGI         tax oweda  assessed    owed
    Filed federal                                                             
tax returns but     326  $55,869     $20,460     $4,289      $523     $263
omitted foreign                                                   
        assets                                                       
      Nonfilers         24        0      82,561      7,573     2,431      860 
      Filers and                                                              
      nonfilers        350  $49,303     $22,951     $4,401      $657     $301
       combined                                                      
    Filed returns                                                             
    but failed to      458  $31,667          $0         $0        $0       $0
      meet FBAR                                                      
     requirements                                                    
        Total          808  $38,761          $0         $0        $0       $0 

Source: GAO analysis of IRS data.
a These figures represent the median for the amount IRS has verified
through audits that taxpayers owed
IRS. As IRS continues to conduct audits of OVCI taxpayers, the median may
rise or fall somewhat.

For each of the 3 years of the OVCI program that we reviewed, more than
half of the applicants to the OVCI program applied to get relief from FBAR
penalties. This is a substantial relief for taxpayers because an IRS
official told us that IRS can assess FBAR penalties at a rate of up to 100
percent of the value of the assets in the account.

A few individuals with substantial offshore holdings accounted for a large
percentage of the original AGI reported. For tax year 2001, the 81
applicants with the top 10 percent of originally reported AGIs accounted
for more than half of the total reported AGI amount.

OVCI Applicants' Geographic Characteristics

Taxpayers from 47 states and the District of Columbia applied for
inclusion in the OVCI program in at least 1 of the 3 years of the program
(see app. IV for more geographic information about the applicants to the
OVCI program). In tax year 2001, applicants for whom we have data were
most commonly from the South (43 percent), but about 22 percent of all
applicants came from the Northeast and more than 26 percent came from the
West. The Midwest accounted for the fewest number of applicants (about 9
percent).27 However, half of all applicants came from only 5 states
(Florida, California, Connecticut, Texas, and New York). 28 Three states
had no taxpayers apply to the OVCI program. As shown in figure 8, median
adjustment to original AGI for taxpayers who filed tax returns but omitted
foreign assets or were nonfilers ranged from a low of about $15,000 in the
West to a high of about $32,500 in the Northeast.

27 A small number of taxpayers who applied to the OVCI program lived
outside of the United States or in
Puerto Rico. We are not disclosing any specific information about these
taxpayers due to concerns over
the information being used to identify the taxpayers.
28 These states accounted for about one-third of all individual income tax
returns filed in tax year 2003,
indicating that they accounted for a higher concentration of OVCI
applicants than would be explained by
the number of tax returns filed from those states.

Figure 8: OVCI Applicants' States of Residence and Regional Breakout of
the Median Adjustment to Original AGI for Non-FBAR applicants, Tax Year
2001

OVCI Applicants' Occupations

Applicants listed over 200 occupations on their federal tax returns,
including accountants, members of the clergy, builders, physicians, and
teachers, so we grouped the applicants' professions into 18 categories in
order to better analyze them. For all 3 years, the most common professions
of applicants to the OVCI program were retired individuals, business
executives, and business/self-employed. Table 4 provides information on
taxpayers' occupations and the associated AGI information for 2001.

Table 4: Individual OVCI Applicants' Profession, Median Original AGI, and
Median Adjustment to Original AGI for Tax Year 2001 (Filers and Nonfilers
but not FBAR applicants)

                                                   Median         
                                         Median    adjustment to  
         Profession        Applicants original AGI original AGI   
Retired                         52      $43,881        $25,074 
Executive                       47      158,183         23,302 
Business/self employed          32       73,134         22,006 
Banking/ finance/               27        3,596         22,951 
insurance b                                     
Sales                           22       91,000         24,329 
Medical profession              22       95,928          8,397 
Engineer                        21       55,941          5,722 
Other                           20       23,286         15,197 
Analyst/consultant              11       49,892         20,277 
Computer/ technology            11       39,348          6,461 
Attorney                         9      137,661         23,302 
Administrativea                  8      105,804         11,028 
Building trades                  5       22,684          6,569 
Education c                      5            0         36,364 
Scientist                        5       26,599          8,538 
Real estate                      4    1,100,241        291,871 
Pilot                            4      123,705         14,566 
Arts                             3      123,945         70,799 
Missing                         42            0         54,094 
Totale                         350      $49,598        $23,124 

Source: GAO analysis of IRS data.

a

A small number of taxpayers who applied to the OVCI program listed their
occupations as secretary but their incomes were each in excess of $1
million for each of the years 1999, 2000, and 2001. b Although a large
number of applicants were from the banking/finance/insurance sector, a
large number of these applicants reported large losses on their tax
returns. As a result, the median original AGI was relatively low.

Some occupations had more nonfilers apply to the OVCI program than filers,
so for these cases the median original AGI was zero. d Seven applicants
were identified as "deceased", and we included these people in the "other"
category.

e

We did not include FBAR applicants in this table because, according to IRS
officials, there is no adjustment to the FBAR applicants' original AGI.
These applicants generally reported their offshore holdings on their
original federal tax returns and incurred no additional taxes or interest
owed. Because these applicants made up more than half of all applicants,
if we included them in the table, the median adjustment to original AGI,
taxes, and interest would all be zero.

Few Applicants Said They Used Promoters

29

Less than 16 percent of all OVCI applicants said they used a promoter. The
services provided by promoters ranged from simple incorporation offshore
to more elaborate schemes involving such things as bogus charities.

The relatively small percentage of OVCI applicants reporting use of a
promoter may be due in part to the definition of a promoter used in the
OVCI instructions. IRS defined a promoter as any party who "promoted or
solicited the taxpayer's use of offshore payment cards or offshore
financial arrangements." Some taxpayers may have learned about offshore
arrangements from friends, an attorney, a paid preparer, or others.
However, IRS did not record detailed information in the OVCI database
about how the taxpayers learned about the offshore arrangement and
therefore we do not know the extent to which taxpayers learned of the
offshore arrangement from these individuals. If OVCI applicants did learn
of the arrangements from these individuals, they may not have considered
them to be promoters under IRS's promoter definition, particularly if they
did not feel that the individual actively sought them out to encourage or
convince them to use an offshore arrangement. IRS did record information
on whether the OVCI applicants used a paid preparer. For example, 326 of
the 350 tax year 2001 OVCI applicants, or 93 percent, said that a paid
preparer prepared their original tax return.

Recognizing that the data may change as IRS completes additional
investigations on promoters, taxpayers who said they used a promoter had
similar median original AGIs to those who reported not using a promoter.
For example, in 2001, those who said they used a promoter reported a
median original AGI of about $41,000, while those applicants who said they
did not use a promoter reported a median original AGI of about $39,000.

29 We cannot be precise about the number of taxpayers who said they used a
promoter. IRS officials said that they had identified 269 potential
promoters from 140 participants. IRS has opened investigations into 53 but
does not have sufficient information yet on the remainder to conclude
whether they are bona fide promoters. In addition, IRS compiled its
statistics on the number of taxpayers and associated business entities
that identified promoters-140-but not the number of unique taxpayers who
identified promoters.

For those taxpayers who said they used a promoter, the fees they paid
those promoters varied from nothing to a high of $85,000 for the
promoter's services.

One possible explanation for the range in fees is that promoters offer
different services, from off-the-rack services to custom-tailored
arrangements. We visited 25 Web sites maintained by individuals or
companies promoting offshore investments to gain a better understanding of
the type and cost of the services they provide. The Web sites were
judgmentally selected to ensure the sample included a variety of
geographic locations. Of the 25 Web sites we visited, 19 offered
off-the-shelf offshore companies or package deals. One company advertised
that taxpayers could incorporate offshore within the next day by buying an
off-the-shelf company, which is an existing company that has been set up
by the promoter. At a cost of $1,500, the taxpayer would receive a package
of services that would include an agent and local office, mail forwarding,
nominee corporate directors and officers, offshore credit card
applications, banking forms, and the payment of all government fees. These
companies are not legitimate business enterprises. Instead, they exist
strictly to provide taxpayers a way to quickly and easily move money
offshore and repatriate it without declaring that money to IRS.

Several taxpayers who used promoters of this type to avoid paying taxes
appeared to be scammed themselves. For example:

o  	One taxpayer was persuaded by a promoter to create an offshore
corporation. The taxpayer also opened an offshore bank account and gave
the promoter over $50,000 in cash to deposit into the account. The
promoter told the taxpayer that the money was stolen before it was ever
deposited in the account, leaving the taxpayer with practically nothing.

o  	Another taxpayer invested over $30,000 in an offshore investment
opportunity that promised a return of 20 percent per year. The taxpayer
got the money he/she invested through credit card advances. The taxpayer
received returns on the

investment for a while, but the payments soon stopped. The taxpayer said
he/she still owes money on the credit cards.

Other promoters' schemes are more complicated and targeted toward wealthy
taxpayers interested in avoiding taxes. Figure 9 is a hypothetical example
based on an actual case of how a promoter can help taxpayers repeatedly
send money offshore and repatriate it later, avoiding hundreds of
thousands of dollars in taxes. We calculated the tax savings below using a
popular tax software program.

Figure 9: Hypothetical Example of a Self-Employed Taxpayer Filing Singly
and Filing a Schedule C (for Profit and Loss from a Sole Proprietorship
Business)

In our hypothetical example, the self-employed taxpayer reports $3 million
in annual business income on his Schedule C (the form attached to a tax
return that is used to calculate profit or loss for a sole proprietor
business). The first year, the taxpayer hires the promoter to set up an
offshore scheme for a fee of $70,000 for financial planning services and
tax preparation. The promoter creates a bogus offshore charity that
actually has no charitable activity and a corollary offshore business
entity. The taxpayer controls both organizations by sitting on the board
of directors. The taxpayer then sends

money offshore, basically to himself, through a $500,000 "donation" to the
offshore charity, which in turn sends the money to the offshore business
entity. The offshore business entity then gives the taxpayer a $500,000
"home equity loan," which actually repatriates that amount to the
taxpayer's domestic bank account. Throughout the year, the taxpayer sends
monthly mortgage payments to the offshore business entity. The taxpayer
can then deduct the promoter's fees as a business expense on his Schedule
C and the charitable donation and mortgage interest as part of his
itemized deductions on his Schedule A. These false deductions would reduce
the taxpayer's tax liability from about $1.1 million to about $920,000, a
savings of about $180,000.

In the second year, the promoter would charge our hypothetical taxpayer
less-only $10,000 for tax preparation services. The taxpayer can send the
$500,000, repatriated as a home equity loan, back to the offshore charity
as a donation and continue to send mortgage payments offshore. In a new
wrinkle, however, the offshore business entity has purchased a luxury
automobile worth about $74,000 and leased it back to the taxpayer. The
taxpayer would have use of the automobile and would send lease payments to
the offshore business entity. On his tax return for the second year, the
taxpayer can deduct his charitable contribution of $500,000, the interest
on the home loan, the lease payments, and promoter fees as business
expenses. These false deductions would reduce the taxpayer's taxes by
about $163,000.

Therefore, in return for promoter fees of about $80,000, the taxpayer has
avoided more than $340,000 in taxes in just these 2 years. The taxpayer
received more than a 300 percent return on his money, a high return when
compared with those on other traditional investments. In addition, the
taxpayer receives a level of asset protection from potential creditors.
If, at some time, creditors were to pursue the taxpayer to collect money,
they may be unable to reach the assets because it would appear that his
house is heavily mortgaged and that his expensive car is leased.

There are many more options for transferring money offshore and then
repatriating it. For example, according to some promoters' Web sites, an
offshore charity could award a

"scholarship" to the taxpayer's child to defray college expenses, or a
business entity could provide administration services such as bookkeeping
for the taxpayer. An IRS official conservatively estimated that one
promoter of this type of scheme has cost the U.S. Treasury about $100
million in tax revenues.

Some Taxpayers' Noncompliance Appears

Deliberate, Others Appears Inadvertent

Some taxpayers went to great lengths to establish and maintain offshore
bank accounts

30

and credit cards, creating the appearance that the noncompliance was
deliberate, whereas others appeared to be unaware of their U.S. tax
obligations for foreign holdings. Deliberately noncompliant taxpayers
would include some of the taxpayers who, as discussed earlier, used
promoters and, for example, put funds into their offshore arrangements on
a cash basis. Examples of other taxpayers who appear deliberately
noncompliant include the following:

o  	A taxpayer who reported an original AGI of less than $20,000 on
his/her federal tax return and claimed the Earned Income Tax Credit. This
taxpayer's amended federal return showed income in 1 year of over $1
million and multiple foreign bank accounts. Before applying to the OVCI
program, the taxpayer never paid any tax on any income received. IRS told
us that had this taxpayer not applied for inclusion in the program, it is
doubtful the taxpayer's tax avoidance would have ever been discovered.

o  	A taxpayer who maintained multiple bank accounts in different foreign
countries. Each of the accounts contained funds invested in various
financial instruments. The taxpayer traveled abroad and physically brought
the money back into the United States.

30 IRS rejected OVCI applicants who did not divulge the entirety of their
scheme to avoid paying U.S. taxes. IRS told us that 49 applicants were
rejected for that reason, and those cases were sent to IRS's Criminal
Investigation Unit.

o  	A taxpayer who initially hired attorneys to create an offshore entity,
and then used wire transfers and a mailbox abroad to route after-tax
income from the United States to the foreign account for deposit. The
taxpayer did not pay U.S. taxes on the interest income earned on these
funds and claims to have not repatriated any of the foreign deposits
during that time.

In an increasingly global and mobile world, taxpayers may hold foreign
accounts and credit cards for a number of legitimate reasons. For example,
taxpayers may have worked or traveled overseas extensively or inherited
money from a foreign relative. Some taxpayers in these situations told IRS
that they were unaware they had to pay U.S. taxes on this income and that
their noncompliance was unintentional. For example:

o  	One taxpayer said that he/she had made a personal loan overseas and
had not reported the interest income of about $10,000 he/she had received.
Because the taxpayer held about 1 percent of his/her original AGI offshore
and had paid taxes on all other income, it appears that this taxpayer may
not have intentionally avoided his/her tax obligation.

o  	Another taxpayer along with a sibling invested an inheritance in a
joint account in a foreign country for convenience. The taxpayer realized,
when the OVCI program was announced, that the interest income on this
account should have been reported. He/she reported, through the OVCI
program, interest income of less than $2,000 over the years covered by
OVCI. The taxpayer paid taxes on all other domestic income during this
time and appeared to have overlooked the interest income.

o  	A young taxpayer got a job overseas. The taxpayer did not believe
he/she needed to file tax returns in the United States because he/she was
paying income taxes in the country in which he/she was working. When the
taxpayer found out that he/she was required to file in the United States,
the taxpayer contacted IRS. The

taxpayer was eligible for the Foreign Tax Credit, which offsets some or
all U.S. taxes owed. As a result, the U.S. tax obligation was less than
$10,000 for all of the years covered by the OVCI program.

An IRS official told us that detecting offshore income would be
particularly difficult without many of these taxpayers applying to the
OVCI program. Typically, IRS compares taxpayers' information returns, such
as the W-2 forms for wages or forms 1099 for interest or dividends, to
their income tax returns to identify underrreported income or nonfilers.
An IRS official said that since offshore entities, such as foreign banks,
are generally not subject to U.S. information reporting requirements,
identifying underreported foreign income would be difficult. For IRS to
investigate the taxpayer's return beyond the documentation provided on
income and various information returns would require investigating those
entities and the accuracy of the transactions reported. Such
investigations could be very labor intensive.

Concluding Observations

The diversity of the OVCI population indicates that multiple compliance
strategies may be appropriate for addressing those taxpayers holding money
offshore. For example, increased educational efforts might be effective
for those who became noncompliant inadvertently or those who were unaware
of the need to report their offshore holdings to IRS. For those taxpayers
who deliberately held money offshore illegally to avoid paying taxes,
investigation of promoters or others who may have assisted taxpayers may
both help reduce the spread of evasion to other taxpayers and identify
those already out of compliance for corrective action. However, because
the median AGIs for OVCI participants were relatively modest and the
additional tax, interest, and penalties collected to date have also been
relatively modest, personnel-intensive investigations of individual cases
who have hidden substantial amounts offshore could significantly reduce
the net gain to Treasury from these cases. This puts a premium on IRS
developing means to identify those cases that should be subjected to such
investigations and, if possible, alternative compliance strategies for
others.

Messrs. Chairman, this concludes my prepared statement. I would be happy
to respond to any questions you or other Members of the committee may have
at this time. For further information on this testimony, please contact
Michael Brostek at (202 512-9110) or [[email protected]]. Individuals
making key contributions to this testimony include Susan Baker, Tom Bloom,
Michelle Bowsky, Laura Czohara, Michele Fejfar, Jyoti Gupta, Signora May,
Karen O'Conor, Amy Rosewarne, Jeff Schmerling, Tina Smith, Jonda Vanpelt,
and Jim Ungvarsky.

Appendix I: Objectives, Scope, and Methodology

Our objectives were to determine (1) the extent to which IRS and CIS share
and verify data for immigration eligibility decisions or taxpayer
compliance purposes and (2) the benefits and challenges, if any, of
increasing data sharing and verifying activities.

We performed our work at various IRS offices, including the Office of
Governmental Liaison and Disclosure, the Office of Safeguards; the Office
of Program, Evaluation, and Risk Analysis; and the Privacy Advocate's
Office. Our work also included interviews with employees in IRS's Wage and
Investment Operating Division and Small Business/Self Employed Operating
Division, the Department of the Treasury's Office of Tax Policy and Office
of Inspector General for Tax Administration, and program offices at CIS,
and with CIS officials in selected service centers and district offices.
We collected and analyzed information on the extent of data sharing and
verifying activities between IRS and CIS from January 1997 through March
2004. To respond to your initial request on data sharing and verifying
between IRS and selected agencies, we also interviewed Social Security
Administration (SSA) officials and collected and analyzed information on
data sharing and verifying between IRS and SSA. To illustrate a
longstanding data sharing relationship, we summarized the IRS and SSA data
sharing relationship in the background section.

To determine the extent to which IRS and CIS share and verify data for
benefit decisions or taxpayer compliance, we interviewed IRS and CIS
officials about the existence of a data sharing relationship. We
identified the legislative and regulatory authorities that govern
disclosure of personal and taxpayer information. Additionally, we
identified the types of personal and financial information CIS and IRS
maintain for immigration decisions and tax compliance, respectively.

To determine the benefits of increasing data sharing and verification
activities, we collected and analyzed immigration and taxpayer
information. We interviewed IRS and CIS officials to obtain views on
possible impediments or missed opportunities to verify information to make
better programmatic decisions, and reviewed existing studies or

reports on data verification activities. We determined what personal and
financial information IRS collects but does not verify with CIS and why,
and whether officials believe verification with immigration would be
useful for tax compliance purposes. We determined what personal and
financial information CIS receives but does not verify with IRS and why,
and whether immigration officials believe verification with IRS would be
useful for immigration eligibility decisions.

We used two sets of immigration data from CIS to match with IRS taxpayer
data to determine the potential value for increased data sharing and
matching. First, we used a nationwide selection of automated data on
certain immigration applications: I-129 (Petition for a Nonimmigrant
Worker), I-140 (Immigrant Petition for Alien Worker), and I-360 (Petition
for Amerasian, Widow(er), or Special Immigrant31) submitted from January
1, 1997, through March 5, 2004, to CIS service centers for immigration
benefits. We used only those applications in CIS's Computer Linked
Application Information Management System, Version 3.0 (CLAIMS 3), a
database containing nationwide data, that contained an individual's Social
Security Number (SSN) or a business's Employer Identification Number (EIN)
--3.4 million out of 4.5 million had usable SSNs or EINs-- for the
matching process. We obtained automated data for those years because CIS's
automated system had historical data not readily available in hard copy
files. Because the nationwide selection did not include any financial
information, we could not use it to determine whether CIS applicants
reported the same income amounts to IRS as to CIS.

Second, we visited five CIS field locations and selected a nonprobability
sample of 984 immigration files covering the period of 2001--2003 at four
of the locations because they contained personal as well as financial
information. These hard copy files were applications for citizenship,
employment, and family-related immigration and change of immigration
status applications. We used the hard copy immigration files to build an
automated database of certain personal information, such as the
individual's SSN or business's EIN and income reported to CIS. We obtained
hard copy files for those years because the CIS offices we visited had
immigration applications for those years onsite.

Immigration offices send older files to storage. Since each district and
service center organized and stored its applications in a different way
and immigration officials could not always provide an updated count of
applications by form number, we developed an approach to selecting
applications that included pulling approximately every 50th file in
immigration file rooms. We generally selected approximately 50-75 files at
each field location for the following forms: I-129 (Petition for a
Nonimmigrant Worker); I-140 (Immigrant Petition for Alien Worker); N-400
(Application for Naturalization); I-751 (Petition to Remove the Conditions
on Residence); I-360 (Petition for Amerasian, Widow(er), or Special
Immigrant); and I-864 (Affidavit of Financial Support). We planned to
select 50 files for Form I-829 (Petition by Entrepreneur to Remove
Conditions) but only reviewed 12 files due to resource constraints and the
voluminous nature of the application files. The matching results for our
nonprobability sample included Form I829s for a small number of individual
immigrants who had unpaid assessments or were nonfilers and none for
business or individual sponsors.

We matched the SSNs/EINs in our nationwide selection of immigration
applications and our nonprobability sample of immigration applications
with IRS's Business Master File (BMF) and Individual Master File (IMF) and
other subsets such as the Revenue and Refunds Database. We identified
immigration applicants/taxpayers that (1) matched with the IRS master
files, (2) had unpaid assessments, (3) were nonfilers, (4) were
businesses/organizations that had no record of tax activity in the last 5
years, and (5) did not match IRS master files. Additionally, to ensure we
identified only business and organization sponsors whose EINs were unknown
to IRS, we had IRS perform three additional matches using its BMF Taxpayer
Identification Number Cross-Reference File, the BMF Entity File and the
IMF Entity File.

We assessed the reliability of IRS's BMF and IMF data and the CIS's CLAIMS
3, a database containing nationwide data, by (1) performing electronic
testing of required data elements, (2) reviewing existing information
about the data and the system that

31 The I-360 applications in our sample were submitted by religious
organizations sponsoring religious workers.

produced them, and (3) interviewing agency officials knowledgeable about
the data. We determined that the data were sufficiently reliable for the
purposes of this testimony.

Our review was subject to some limitations. We relied on IRS officials to
identify offices that use personal information because there is no
central, coordinating point within IRS for receipt of this type of
information. We relied on CIS officials to identify immigration forms they
believed would most benefit from data sharing with IRS, and we relied on
IRS and CIS officials' views on possible impediments or missed
opportunities to verify information, any additional data sharing and
verification needs, and the benefits of increased disclosure of taxpayer
information. Because our sample of 984 hard copy applications at selected
CIS field locations was not a probability sample, we cannot make
inferences about the population of applications. In addition, because
EINs/SSNs were only available for 3.4 million of the 4.5 million
applications in our nationwide selection of automated applications, our
findings from these records are not representative of the entire
population. IRS identified the limitations of its database that affect our
results. Immigration applicants/taxpayers who were in IRS's nonfiler
database could include individuals who did not meet IRS filing
requirements. Immigration applicants/taxpayers in IRS's unpaid assessment
database may include taxpayers that have entered into an installment
agreement, have proposed an offer-in-compromise or are in litigation with
IRS about amounts due. Since IRS searched its tax data for the last 5
years (1999-2004) and we collected 7 years of immigration data
(1997-2004), a small percentage of the businesses that submitted
applications during 1997 and 1998 but are unknown to IRS could no longer
be in operation.

We conducted our work from July 2003 through June 2004 in accordance with
generally accepted government auditing standards.

Appendix II: Objectives, Scope, and Methodology for OVCI Program

Our two objectives were to provide information on (1) the characteristics
of taxpayers who came forward under IRS's Offshore Voluntary Compliance
Initiative (OVCI) program and (2) how those taxpayers became noncompliant.

To develop information on the characteristics of OVCI taxpayers, we relied
on IRS's OVCI database. We used data from the applicants' original and
amended federal tax returns, including adjusted gross income (AGI), taxes,
penalties, and interest owed; the applicants' state and country of
residence; and the applicants' occupational information. We also obtained
information on applicants' use of promoters. Our information is limited to
those taxpayers who voluntarily admitted they held offshore assets, so the
information provided is not necessarily representative of any larger
population of taxpayers who used offshore arrangements to avoid paying
U.S. taxes. Of the 1,321 taxpayers who came forward under the OVCI
program, 16 did not apply for relief for 1999, 2000, or 2001. An
additional 400 were entities that were set up by and associated with
applicants to handle the taxpayers' offshore funds. The tax liabilities,
if any, of these entities would be reflected in the additional taxes,
penalties, and interest of the individual taxpayers in IRS's OVCI
database. In addition, IRS rejected 49 applicants for not divulging the
entirety of their schemes. Therefore, the numbers we reported here were
limited to the 861 applicants for whom we had data for 1 or more of the
years 1999, 2000, and 2001.

To assess the reliability of the IRS data we present in this testimony, we
reviewed IRS's data verification procedures. For example, according to a
senior manager, all financial data entered into the OVCI database was
compared to the taxpayer's account on IRS's Individual Master File. IRS
also told us that after all data were entered, a manager rechecked each
entry for errors. We reviewed a judgmental sample of 35 cases files based
on factors such as particularly high or low AGIs, high or low adjustments
to original AGI, or high or low taxes, penalties, or interest owed at
IRS's campus in Philadelphia to compare the data in the applicant's files
to what was transcribed in the

OVCI database. In addition, we analyzed IRS's data reliability processes
and conducted our own limited data verification. We believe the data we
used are sufficiently reliable and useful for reporting on the
characteristics of those who came forward under the OVCI program.

To determine how OVCI applicants became noncompliant, we talked to IRS
officials and obtained information on the taxpayers' circumstances while
reviewing the 35 cases in Philadelphia, such as their reasons for
noncompliance and their experiences with promoters, if any. To better
understand taxpayers' use of promoters, we also visited 25 Web sites
maintained by individuals or companies promoting offshore investments to
gain a better understanding of the type and cost of the services they
provide. The Web sites were judgmentally selected to ensure the sample
included a variety of geographic locations. We also reviewed examples of
intricate schemes employed by some OVCI applicants to avoid paying taxes
by holding money offshore illegally to develop a hypothetical illustration
of such schemes.

We did our work at IRS's campus in Philadelphia and its National Office in
Washington, D.C. We conducted our fieldwork from January 2004 through June
2004 in accordance with generally accepted government auditing standards.

Appendix III - OVCI Applicant Income Information by Tax Year for 1999,
2000, and 2001

As shown in tables 5, 6, and 7, there are yearly variations in OVCI
applicants' median original AGI; adjustment to original AGI; and the
taxes, penalties, and interest.

In the tables, the nonfilers' median original AGI is shown as zero because
they did not file tax returns, although according to an IRS official, they
did illegally hide money offshore and incurred taxes, penalties, and
interest. According to another IRS official, for those applying to the
program for relief from Report of Foreign Bank and Financial Accounts
(FBAR) penalties, the data show original AGIs because they generally
reported all of their income and paid taxes due, but had failed to
disclose the existence of their foreign bank accounts. There is no
adjustment to original AGIs because they had already reported their
offshore holdings on their original federal tax returns and, consequently,
incurred no additional taxes or interest owed. In addition, the Department
of the Treasury waived the FBAR penalties.

Table 5: OVCI Applicants' Income and Amounts Owed for Tax Year 1999

                      Median  Median adjustment   Median    Median    Median  
                     original to original AGI   additional penalties interest 
Population Number   AGI                      tax oweda  assessed    owed   
     Filers      323  $79,394           $24,914     $5,685      $800   $1,116 
Nonfilers      21        0            67,086      3,011     1,178    1,243 
      FBAR       462   34,722                 0          0         0        0 
     Total       806  $49,469                $0         $0        $0       $0 

Source: GAO analysis of IRS data.
aThese figures represent the median for the amount IRS has verified
through audits that taxpayers owed
IRS. As IRS continues to conduct audits of OVCI taxpayers, the median may
rise or fall somewhat.

Table 6: OVCI Applicants' Income and Amounts Owed for Tax Year 2000

                      Median  Median adjustment   Median    Median    Median  
                     original to original AGI   additional penalties interest 
Population Number   AGI                      tax oweda  assessed    owed   
     Filers      331  $87,530           $25,664     $5,591      $674     $655 
Nonfilers      27        0            71,782      7,288     1,810    1,295 
      FBAR       459   41,448                 0          0         0        0 
     Total       817  $51,663                $0         $0        $0       $0 

Source: GAO analysis of IRS data.

a These figures represent the median for the amount IRS has verified
through audits that taxpayers owed IRS. As IRS continues to conduct audits
of OVCI taxpayers, the median may rise or fall somewhat.

Table 7: OVCI Applicants' Income and Amounts Owed for Tax Year 2001

                      Median                                                  
                     original                   Median      Median    Median  
                     AGI for  Median adjustment additional penalties interest 
Population Number   2001   to original AGI   tax oweda  assessed    owed
     Filers      326  $55,869           $20,460     $4,289      $523     $263 
Nonfilers      24        0            82,561      7,573     2,431      860 
      FBAR       458   31,667                 0          0         0        0 
     Total       808  $38,761                $0         $0        $0       $0 

Source: GAO analysis of IRS data.

a These figures represent the median for the amount IRS has verified
through audits that taxpayers owed IRS. As IRS continues to conduct audits
of OVCI taxpayers, the median may rise or fall somewhat.

Appendix IV - OVCI Applicant Geographical Information by Tax Year for
1999, 2000, and 2001

Tables 8, 9, and 10 show the number and median original AGI of applicants
to the OVCI program by state. In all 3 of the years shown, applicants from
Florida, California, Connecticut, Texas, and New York make up half of all
applicants to the OVCI program. In all 3 years, seven states had only one
applicant to the OVCI program and at least three states had no applicants.

Table 8: State, Number of Applicants, and Original Median AGI for Tax Year
1999

             State                 Applicants            Median AGI       
Florida                                      114               $51,318 
California                                   101                64,590 
Connecticut                                   87                30,354 
Texas                                         58                45,868 
New York                                      45                96,648 
Pennsylvania                                  37                36,480 
Ohio                                          22                41,891 
Massachusetts                                 21                93,187 
Michigan                                      20                63,212 
Maryland                                      19                52,964 
New Jersey                                    19                95,994 
Arizona                                       18                66,831 
Virginia                                      17                24,097 
Illinois                                      16               118,621 
South Carolina                                15                79,394 
Georgia                                       14               107,968 
Colorado                                      12                46,407 
North Carolina                                12                59,901 
Nevada                                        10                24,615 
Oklahoma                                      10                   770 
Washington                                     9                26,546 
Minnesota                                      8               119,810 
Alabama                                        5                 5,343 
Indiana                                        5                86,853 
Iowa                                           5                57,964 
New Hampshire                                  5                17,699 
Totala                                       806               $49,469 

Source: GAO analysis of IRS data.
a Because few OVCI applicants resided in the following states, we are not
disclosing specific information
about them due to concerns that the information could be used to identify
the taxpayers: Alaska,
Arkansas, Delaware, District of Columbia, Hawaii, Idaho, Kansas, Kentucky,
Louisiana, Maine, Mississippi,

Missouri, Montana, Nebraska, New Mexico, North Dakota, Oregon, Puerto
Rico, Rhode Island, South Dakota, Tennessee, Utah, Vermont, West Virginia,
Wisconsin, and Wyoming. Therefore, the totals do not reflect only numbers
shown in the table.

Table 9: State, Number of Applicants, and Original Median AGI for Tax Year
2000

             State                 Applicants            Median AGI       
Florida                                      115               $55,831 
California                                    97                73,330 
Connecticut                                   89                35,706 
Texas                                         58                50,965 
New York                                      47               132,642 
Pennsylvania                                  39                37,332 
Ohio                                          25                44,635 
Massachusetts                                 22                95,317 
Michigan                                      22                45,786 
Arizona                                       19                93,711 
New Jersey                                    19               101,675 
Maryland                                      18                93,894 
Illinois                                      16                82,666 
South Carolina                                16                81,730 
Virginia                                      16                28,273 
Georgia                                       14               155,554 
North Carolina                                13                51,123 
Colorado                                      12                47,051 
Oklahoma                                      11                 8,570 
Nevada                                        10                64,896 
Washington                                     9                28,412 
Minnesota                                      8               133,935 
Alabama                                        5                42,908 
Indiana                                        5                11,928 
Iowa                                           5                84,034 
New Hampshire                                  5                15,587 
Totala                                       817               $51,663 

Source: GAO analysis of IRS data.

a

Because few OVCI applicants resided in the following states, we are not
disclosing specific information about them due to concerns that the
information could be used to identify the taxpayers: Alaska, Arkansas,
Delaware, District of Columbia, Hawaii, Idaho, Kansas, Kentucky,
Louisiana, Maine, Mississippi, Missouri, Montana, Nebraska, New Mexico,
North Dakota, Oregon, Puerto Rico, Rhode Island, South Dakota Tennessee,
Utah, Vermont, West Virginia, Wisconsin, and Wyoming. Therefore, the
totals do not reflect only numbers shown in the table.

     Table 10: State, Number of Applicants, and Original Median AGI for Tax
                                   Year 2001
                 Median Florida 115         California 98        Connecticut 87        Texas 57        New  47                      39        Ohio 25        Massachusetts 21         New    20                 19        Illinois 18                 18        Arizona 17                 17 0 South    16                13        North    13        Colorado 12        Oklahoma 11                  10        Nevada 9 292 Minnesota 8         Alabama 5        Indiana 5        Iowa 5        New       5        Total 808         
State Applicants  AGI               $42,589               40,123                30,895          49,892 York    112,299 Pennsylvania    19,880         41,013                  112,460 Jersey    55,463 Michigan    46,662             76,783 Maryland    83,913            48,917 Virginia      Carolina    77,732 Georgia    83,423 Carolina    50,509             35,278             1,232 Washington    33,495                          121,779           30,130           39,036        68,655 Hampshire   18,456 a         $38,761

Source: GAO analysis of IRS data.
a Because few OVCI applicants resided in the following states, we are not
disclosing specific information
about them due to concerns that the information could be used to identify
the taxpayers: Alaska,
Arkansas, Delaware, District of Columbia, Hawaii, Idaho, Kansas, Kentucky,
Louisiana, Maine, Mississippi,
Missouri, Montana, Nebraska, New Mexico, North Dakota, Oregon, Puerto
Rico, Rhode Island, South
Dakota, Tennessee, Utah, Vermont, West Virginia, Wisconsin, and Wyoming.
Therefore, the totals do not
reflect only numbers shown in the table.

Appendix V - OVCI Applicant Occupational Information by Tax Year for 1999,
2000, and 2001

As shown in tables 11, 12, and 13, retired individuals account for the
most applications in

each year. The three most common occupations for each year are executives,

business/self-employed individuals, and those involved in
banking/finance/insurance.

       Table 11: Individual OVCI Applicants' Professions, Numbers, Median
    Original AGIs, and Median Adjustments to Original AGI for Tax Year 1999
                 (Filers and Nonfilers but not FBAR applicants)
                               Median                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
                               adjustment                                                                                       Banking/                                                                                                                                                                                                                                                Education           Real                                                                                                                                                             
                       Median  to         Retired 52                 Executive 47                              31 49,443 36,795 finance/  26 48,778 37,748 Sales 22                         21                         18                                  12                         10 53,118 6,887          8               Administrativea 8               Scientist 5              c         5 0       estate 4                 Pilot 4                         4               Arts 4                Other 19                       44               Totale 344        
           Number of  original original                                                          Business/self                  insurance                                                                   Medical                                                        Computer/                                                                                                                                                                        Building                                                                                                         
Profession applicants   AGI    AGI                   $61,543 $24,894              236,031 40,614 Employed                                                           105,251 40,586 Engineer    83,695 8,685 profession    84,952 14,847 Analyst/consultant    44,699 6,852 technology                 Attorney   116,753 5,381                   77,292 27,356             12,832 7,801               9,266          892,885 239,931         115,778 75,128 trades     16,974 55,203        178,432 90,998          13,515 28,245 Missing    28,562 42,663            68,626 $28,432

                       Source: GAO analysis of IRS data.

a

A small number of taxpayers who applied to the OVCI program listed their
occupations as secretary but their incomes were each in excess of $1
million for each of the years 1999, 2000, and 2001. b Although a large
number of applicants were from the banking/finance/insurance sector, a
large number of these applicants reported large losses on their tax
returns. As a result, the median original AGI was relatively low.

c

Some occupations had more nonfilers apply to the OVCI program than filers,
so for these cases the median original AGI was zero. d Seven applicants
were identified as "deceased," and we included these people in the "other"
category.

e

We did not include FBAR applicants in this table because, according to IRS
officials, there is no adjustment to the FBAR applicants' original AGI.
These applicants generally reported their offshore holdings on their
original federal tax returns and incurred no additional taxes or interest
owed. Because these applicants made up more than half of all applicants,
if we included them in the table, the median adjustment to original AGI,
taxes, and interest would all be zero.

       Table 12: Individual OVCI Applicants' Professions, Numbers, Median
    Original AGIs, and Median Adjustments to Original AGI for Tax Year 2000
                 (Filers and Nonfilers but not FBAR applicants)
                               Median                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
                               adjustment                                                                                       Banking/                                                                                                                                                                                                                                                                                                                                                                            Real                                                                
                       Median  to         Retired 57                 Executive 48                              33 74,387 38,576 finance/  24 104,129 81,372 Sales 23                           22                         21                                 11                           10 53,427 3,721 Administrativea 8                         8                Other 19               Education 6               Arts 5               Scientist 5 23,946 41,127          4               Pilot 4               estate 4                           46 735        Totale 358         
           Number of  original original                                                          Business/self                  insurance                                           Medical                                                                                    Computer/                                                                                                                                                                             Building                                                                                                           
Profession applicants   AGI    AGI                   $71,939 $19,192              258,665 42,943 employed                                                            123,315 48,587 profession    108,723 20,948 Engineer    66,765 7,529 Analyst/consultant    134,351 20,210 technology                                   113,736 29,043 Attorney   161,341 13,095          27,074 24,133             20,945 23,886        62,631 59,230                           trades     15,689 32,313         98,423 33,955          1,133,868 198,818 Missing        36,873            $41,448 $27,033

Source: GAO analysis of IRS data

a

A small number of taxpayers who applied to the OVCI program listed their
occupations as secretary but their incomes were each in excess of $1
million for each of the years 1999, 2000, and 2001. b Although a large
number of applicants were from the banking/finance/insurance sector, a
large number of these applicants reported large losses on their tax
returns. As a result, the median original AGI was relatively low.

Some occupations had more nonfilers apply to the OVCI program than filers,
so for these cases the median original AGI was zero. d Seven applicants
were identified as "deceased," and we included these people in the "other"
category.

e

We did not include FBAR applicants in this table because, according to IRS
officials, there is no adjustment to the FBAR applicants' original AGI.
These applicants generally reported their offshore holdings on their
original federal tax returns and incurred no additional taxes or interest
owed. Because these applicants made up more than half of all applicants,
if we included them in the table, the median adjustment to original AGI,
taxes, and interest would all be zero.

       Table 13: Individual OVCI Applicants' Professions, Numbers, Median
    Original AGIs, and Median Adjustments to Original AGI for Tax Year 2001
                 (Filers and Nonfilers but not FBAR applicants)
                               Median                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
                               adjustment                                                                                       Banking/                                                                                                                                                                                                                                                                      Education                                     Real                                                                                                           
                       Median  to         Retired 52 $43,881 $25,074 Executive 47                              32 73,134 22,006 finance/  27 3,596 22,951 Sales 22                          22                       21              Other 20                                  11                          11 39,348 6,461          9                Administrativea 8                         5              c         5 0        Scientist 5              estate 4                   Pilot 4                Arts 3                        42 0        Totale 350         
           Number of  original original                                                          Business/self                  insurance                                        Medical                                                                                                        Computer/                                                                             Building                                                                                                                                                                             
Profession applicants   AGI    AGI                                                158,183 23,302 employed                                                          91,000 24,329 profession    95,928 8,397 Engineer    55,941 5,722          23,286 15,197 Analyst/consultant    49,892 20,277 technology                 Attorney   137,661 23,302                   105,804 11,028 trades     22,684 6,569               36,364             26,599 8,538          1,100,241 291,871         123,705 14,566        123,945 70,799 Missing      54,094            $49,598 $23,124

Source: GAO analysis of IRS data.

a

A small number of taxpayers who applied to the OVCI program listed their
occupations as secretary but their incomes were each in excess of $1
million for each of the years 1999, 2000, and 2001. b Although a large
number of applicants were from the banking/finance/insurance sector, a
large number of these applicants reported large losses on their tax
returns. As a result, the median original AGI was relatively low.

Some occupations had more nonfilers apply to the OVCI program than filers,
so for these cases the median original AGI was zero. d Seven applicants
were identified as "deceased," and we included these people in the "other"
category.

e

We did not include FBAR applicants in this table because, according to IRS
officials, there is no adjustment to the FBAR applicants' original AGI.
These applicants generally reported their offshore holdings on their
original federal tax returns and incurred no additional taxes or interest
owed. Because these applicants made up more than half of all applicants,
if we included them in the table, the median adjustment to original AGI,
taxes, and interest would all be zero.

(450237)

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