Taxpayer Information: Options Exist to Enable Data Sharing	 
Between IRS and USCIS but Each Presents Challenges (11-OCT-05,	 
GAO-06-100).							 
                                                                 
In 2000, federal agencies estimated they saved at least $900	 
million annually through data sharing initiatives. 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 benefit
eligibility. In July 2004, we reported that data sharing between 
IRS and the United States Citizenship and Immigration Services	 
(USCIS) has the potential to improve tax compliance as well as	 
immigration eligibility decisions (GAO-04-972T). For this report,
GAO determined (1) the potential benefits of data matching, and  
(2) the options and associated challenges.			 
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-06-100 					        
    ACCNO:   A39338						        
  TITLE:     Taxpayer Information: Options Exist to Enable Data       
Sharing Between IRS and USCIS but Each Presents Challenges	 
     DATE:   10/11/2005 
  SUBJECT:   Computer matching					 
	     Eligibility criteria				 
	     Immigration					 
	     Interagency relations				 
	     Tax administration 				 
	     Taxpayers						 
	     Voluntary compliance				 
	     Information sharing				 

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GAO-06-100

     

     * Report to the Committee on Finance, U.S. Senate
          * October 2005
     * TAXPAYER INFORMATION
          * Options Exist to Enable Data Sharing Between IRS and USCIS but
            Each Presents Challenges
     * Contents
          * Results in Brief
          * Background
          * IRS and USCIS Could Benefit from Data Sharing Although an
            Immigration Eligibility Change Would Be Key for IRS
               * A Change in Eligibility Rules Is Key to IRS Benefiting from
                 a Data-Sharing Relationship with USCIS
                    * Compliance with Payment of Taxes
                    * Compliance With Filing of Taxes
               * USCIS Can Benefit from Data Sharing with IRS in Making
                 Immigration Eligibility Decisions
                    * More Accurate Immigration Eligibility Decisions
                    * More Timely Immigration Eligibility Decisions
          * IRS and USCIS Have Data-Sharing Options but Each Presents
            Challenges
               * Applicant-Initiated Option Could Be Implemented Using
                 Existing Disclosure Authority
                    * Taxpayer Consents Under Existing Disclosure Authority
                    * Challenges Using Taxpayer Consents
               * Agency-Initiated Electronic Option Is Seen as More
                 Efficient, but Additional Authority Would Be Needed
                    * Specific Disclosure Authorities for Sharing Data
                      Electronically
                    * Challenges Associated with Electronic Data Sharing
               * Currently Authorized User Fees Can Fund Data Sharing, but
                 IRS Could Not Recover All Related Costs
          * Conclusions
          * Matters for Congressional Consideration
          * Recommendation for Executive Action
          * Agency Comments and Our Evaluation
     * Objective, Scope, and Methodology
     * Summary of IRS/USCIS Data-Matching Results
     * Comments from the Internal Revenue Service
     * Comments from the Department of Homeland Security
     * GAO Contact and Staff Acknowledgments

                 United States Government Accountability Office

Report to the Committee on Finance, U.S. Senate

October 2005

TAXPAYER INFORMATION

  Options Exist to Enable Data Sharing Between IRS and USCIS but Each Presents
                                   Challenges

                                       a

GAO-06-100

TAXPAYER INFORMATION

Options Exist to Enable Data Sharing Between IRS and USCIS but Each
Presents Challenges

  What GAO Found

Data sharing can help improve (1) tax compliance if businesses applying to
sponsor immigrant workers are required to meet tax filing and payment
requirements, and (2) the accuracy and timeliness of USCIS's immigration
eligibility decisions if it obtained tax data from IRS to help ensure
business sponsors meet eligibility criteria. As of December 2003, IRS
databases showed 18,942 businesses (5 percent) applying to sponsor
immigrant workers had $5.6 billion in unpaid assessments. Of this amount,
businesses were not in installment agreements with IRS or otherwise making
payments on $3.7 billion. If future business sponsors owe taxes and are
required to meet their tax obligations, they would need to make
arrangements with the IRS to come into compliance. Although USCIS
officials acknowledge that no explicit prohibition exists in immigration
laws against conditioning approval of employer applications on their tax
compliance, USCIS officials said a statutory change is preferable because
they have legal concerns about USCIS's authority to issue such a
regulation absent specific authority. IRS data can help USCIS make more
accurate eligibility decisions by better identifying businesses that may
not have met eligibility criteria due to having unpaid assessments or not
filing returns. In our nationwide selection, 67,949 of 413,723 (16
percent) business sponsors were in IRS's nonfiler database at the time of
their application.

Businesses Sponsoring Immigrant Workers That May Not Have Met USCIS's
Immigration Eligibility Criteria, 1997-2004 Nationwide selection

Source: GAO analysis of taxpayer and immigration data.

A variety of options is available to IRS and USCIS for establishing and
implementing data sharing. An applicant-initiated data-sharing arrangement
could be implemented under existing Internal Revenue Code authority
through taxpayer consent, whereby taxpayers authorize IRS to disclose
their information. USCIS then could verify applicant-provided data by
obtaining tax returns or tax transcripts. Treasury guidance suggests a
small-scale pilot using consents as a way to make the business case for
continued access to taxpayer information. In general, the more that data
sharing could be done electronically, the more efficient the data sharing
could be. However, achieving electronic data sharing may take longer than
paper-based processes due to legal, technological, and cost challenges.
Further, if business sponsors need to come into compliance, net tax
collections might not increase if collecting their taxes displaces other
IRS work. Establishing user fees to cover data-sharing costs could be a
way to fund data sharing, but IRS lacks the authority to collect and
retain a user fee to cover compliance-related costs associated with data
sharing.

                 United States Government Accountability Office

Contents

  Letter 1

Results in Brief 3 Background 7 IRS and USCIS Could Benefit from Data
Sharing Although an

Immigration Eligibility Change Would Be Key for IRS 14 IRS and USCIS Have
Data-Sharing Options but Each Presents

Challenges 25 Conclusions 43 Matters for Congressional Consideration 44
Recommendation for Executive Action 44 Agency Comments and Our Evaluation
45

  Appendixes

     Appendix I: Objective, Scope, and Methodology 49 Appendix II: Summary of
           IRS/USCIS Data-Matching Results 52 Appendix III: Comments from the
     Internal Revenue Service 56 Appendix IV: Comments from the Department of
    Homeland Security 57 Appendix V: GAO Contact and Staff Acknowledgments 60

  Tables

Table 1: Forms of Data Sharing Involving Taxpayer or Personal

Information 10 Table 2: User Fee Guidance and Authority 13 Table 3:
Examples of State and Private Entities That Require Tax

Checks 29 Table 4: Examples of Operational Data on the Paper Taxpayer

Consent Process 30 Table 5: Characteristics of Selected Electronic
Data-Sharing

Arrangements between IRS and Federal Agencies 32 Table 6: Criteria Applied
by Treasury and IRS When Evaluating

Specific Proposals for Governmental Disclosures 35 Table 7: User Fees
Collected by IRS, Fiscal Year 2004 42 Table 8: Number and Percentage of
Total Applications GAO

Collected 54 Table 9: Matching Results on Nationwide Data, 1997 through
2004 -

Automated Data 54 Table 10: Matching Results on Nonprobability Sample,
2001 through

2003 - Hard Copy Application Files 55

                                    Contents

Figures Figure 1: Current Lack of Data Verification between IRS and        
                     USCIS                                                  9
           Figure 2: Businesses Sponsoring Immigrant Workers That May Not  
                     Have Met USCIS's Financial Feasibility or Legitimacy  
                     Requirements, 1997-2004                               18 
           Figure 3: USCIS General Adjudication Process for                
                     Employment-Based Applications to Sponsor Immigrant    
                     Workers                                               19 
           Figure 4: Average Reported Processing Times for Fiscal Years    
                     2004                                                  
                     and 2005 and Fiscal Year 2006 Processing Time Goal    
                     for                                                   
                     Select USCIS Forms                                    24 
           Figure 5: Process for Retrieving Tax Return and Tax Transcript  
                     Information                                           27 
           Figure 6: Flow Chart on the Medicare Prescription Drug          
                     Process                                               34 

Contents

                                 Abbreviations

BMF              Business Master File                                      
CLAIMS 3         Computer Linked Application Information Management        
                    System, Version 3.0                                       
CMA              Computer Matching Agreement                               
CMS              Centers for Medicare and Medicaid Services                
DHS              Department of Homeland Security                           
Education        Department of Education                                   
EIN              Employer Identification Number                            
FMS              Financial Management Service                              
FOIA             Freedom of Information Act                                
IDRS             Integrated Data Retrieval System                          
IMF              Individual Master File                                    
IRC              Internal Revenue Code                                     
IRS              Internal Revenue Service                                  
OIG              Office of Inspector General                               
OMB              Office of Management and Budget                           
SSA              Social Security Administration                            
SSN              Social Security Number                                    
TDS              Transcript Delivery System                                
USCIS            United States Citizenship and Immigration Services        

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separately.

A

United States Government Accountability Office Washington, D.C. 20548

October 11, 2005

The Honorable Charles E. Grassley Chairman The Honorable Max Baucus
Ranking Minority Member Committee on Finance United States Senate

In 2000, federal agencies estimated that they saved at least $900 million
annually in program costs through data-sharing initiatives. As we have
previously reported, federal agencies are increasingly using data sharing
to help verify applicant-provided information. Many federal agencies use
financial information to make eligibility decisions or ensure compliance
with program requirements. For instance, the United States Citizenship and
Immigration Services (USCIS) grants immigrants admittance into the United
States or allows immigrants to remain in the country based, in part, on
financial information provided by the applicant and/or their sponsors.
Likewise, the Internal Revenue Service (IRS) uses financial information to
ensure that taxpayers are meeting their tax obligations.

To facilitate data sharing, Congress has authorized a number of agencies
to access federal taxpayer information collected by the 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. At the same time, taxpayers'
privacy must be protected and various federal laws and agency policies
regulate agencies' use and disclosure of taxpayer and personal
information. Internal Revenue Code (IRC) Section 6103 allows IRS to
disclose taxpayer information to federal agencies and authorized employees
of those agencies, but only under specific conditions. Such privacy
protection is an important component of continued voluntary compliance
with the internal revenue laws.

Data-sharing arrangements between agencies can take different forms. These
arrangements can be applicant-or agency-initiated data sharing.
Applicant-initiated arrangements entail requiring an applicant for a
benefit or employment to secure proof from another agency to qualify for
the benefit or employment. In these cases, the agency may share the
eligibility proof directly with the agency that would be providing the
benefit or employment. Agency-initiated sharing can include matching data
from two agencies to help one agency or both agencies verify data
accuracy.

In our July 2004 testimony, we reported that data sharing between IRS and
USCIS has the potential to improve tax compliance as well as immigration
eligibility decisions.1 You then requested additional information on
potential benefits and options for data sharing between IRS and USCIS. For
this study, our objectives were to determine the (1) potential benefits of
data matching for IRS and USCIS and (2) options for establishing and
maintaining a data-sharing relationship between the IRS and USCIS,
including any challenges associated with those options.

In responding to the objectives, we performed work at several IRS offices,
including compliance and research, and at various program and district
offices, and service centers at USCIS. We also contacted representatives
of two immigration advocacy groups to obtain their perspectives. Our
findings are based on matching of immigration and IRS taxpayer data,
documents and various publications, and interviews with agency officials.
We used two sets of USCIS data to match with IRS taxpayer data to
determine the potential value for increased data sharing and matching. We
matched taxpayer data to automated immigration applications and hard copy
immigration applications. We used a nationwide selection of automated
USCIS applications from immigration applications submitted to USCIS
service centers from 1997 through 2004. Approximately 3.4 million of 4.5
million automated immigration records had Social Security numbers (SSN) or
employer identification numbers (EIN) that could be used to match with
SSNs and EINs in IRS databases. We used these 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.2 Because the
nationwide selection did not include any financial information, we also
selected a nonprobability sample of about 1,000 immigration hard copy
applications for citizenship, employment, and family-related immigration
and change of immigration status filed by

1GAO, Taxpayer Information: Data Sharing and Analysis May Enhance Tax
Compliance and Improve Immigration Eligibility Decisions, GAO-04-972T
(Washington, D.C.: July 21, 2004).

2The term immigrant as used in this report generically refers to any
employer-sponsored alien worker whether immigrant or nonimmigrant. The
term application as used in this report refers to immigration petitions.

    Page 2 GAO-06-100 Taxpayer Information

                                Results in Brief

businesses and individuals from 2001 through 2003 at four immigration
locations.3 We used the hard copy applications to build a database of
personal and financial information. We used this sample as a second source
of examples of USCIS applicants who may not have filed tax returns and may
have owed taxes to IRS. For this report, our discussion will focus on
businesses applying to sponsor immigrant workers because the matching
results from our July 2004 testimony identified business sponsors as the
most likely group in which benefits would result.

We assessed the reliability of IRS's Individual Master File (IMF) and
Business Master File (BMF) data and the USCIS's Computer Linked
Application Information Management System, Version 3.0 (CLAIMS 3), which
is a database containing nationwide immigration data. As part of our
annual audits of IRS's financial statements, we also assessed the
reliability of IRS's BMF and IMF data with respect to unpaid assessments
by testing selected statistical samples of unpaid assessment modules. We
determined that the data were sufficiently reliable for the purpose of
this report. We conducted our work from August 2004 through August 2005 in
accordance with generally accepted government auditing standards. For
details on our scope and methodology, see appendixes I and II.

IRS's tax compliance efforts could benefit from data sharing with USCIS if
immigration eligibility were changed to require business sponsors to show
that they met tax filing and payment requirements to qualify to sponsor
immigrant workers. Our analysis of automated immigration records matched
against IRS databases showed that 18,942 (5 percent) of businesses
applying to sponsor immigrant workers from 1997 through 2004 had $5.6
billion in unpaid assessments, as of December 2003. Business sponsors who
were not in an installment agreement with the IRS or otherwise making
payments to IRS had unpaid assessments totaling $3.7 billion of the $5.6
billion. USCIS officials said that businesses that apply to sponsor
workers tend to do so in multiple years. To the extent future business
sponsors owe taxes and are required to meet their tax obligations, they
would need to make arrangements with the IRS to come into compliance
before being eligible to sponsor immigrant workers to enter the

3USCIS 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 areas.

    Page 3 GAO-06-100 Taxpayer Information

country. Although this likely would help IRS collect unpaid tax
assessments, not all taxes would be collected since, for example, some
businesses may not be able to repay their full debt. USCIS officials said
requiring business sponsors to meet their tax obligations in order to
sponsor immigrant workers could be accomplished by a regulatory change.
Although USCIS officials acknowledge that no explicit prohibition exists
in immigration laws against conditioning approval of employer applications
on their tax compliance, USCIS officials said a statutory change is
preferable because they have legal concerns about USCIS's authority to
issue such a regulation absent specific authority.

Even if the eligibility criteria for business sponsors is not changed as
mentioned previously, USCIS can still benefit from data sharing with IRS
by making more accurate and timely immigration eligibility decisions for
businesses applying to sponsor workers. For businesses applying to sponsor
immigrant workers, immigration adjudicators use two basic criteria for
evaluating the eligibility of businesses to sponsor immigrants:

        (1)
                the sponsor's financial feasibility and (2) the legitimacy of
                the sponsor's existence. According to USCIS, because filing
                and paying taxes is an indicator that these qualifications
                are met, having access to IRS data may help them better
                identify businesses that do not meet immigration eligibility
                criteria. In addition to the 18,942 business sponsors we
                identified that owed taxes, we found that 67,949 of 413,723
                (16 percent) of business sponsors in our nationwide selection
                did not file one or more tax returns at the time of their
                application to sponsor an immigrant worker. Since
                adjudicators receive self-reported-and sometimes
                false-personal and financial information from applicants,
                USCIS officials said that a data-sharing arrangement to
                verify applicant-provided data during the adjudicatory
                process would help USCIS adjudicators make more accurate
                immigration eligibility decisions. USCIS officials said that
                adjudicators would find IRS information on small businesses
                particularly useful; 25 of 43 businesses with unpaid tax
                assessments in our nonprobability sample reported net incomes
                of less than $10 million to USCIS. Although USCIS officials
                are seeking a regulatory change that would shift
                adjudicators' focus away from a business sponsor's ability to
                pay, IRS taxpayer data could still help adjudicators
                establish a business sponsor's financial viability and
                legitimacy by providing information on whether the business
                sponsor was a functioning business. Further, USCIS officials
                said that access to IRS taxpayer data could improve the
                timeliness of making benefit decisions by (1) decreasing
                rework/follow-up work with applicants and

(2)
           possibly reducing the volume of applications received if benefits
           were

made contingent on applicants having met tax filing and payment
requirements.

A variety of options is available to IRS and USCIS for establishing and
implementing data sharing regardless of whether data sharing is
applicant-or agency-initiated. An applicant-initiated data-sharing
arrangement could be implemented under existing IRC authority through a
taxpayer consent, whereby a taxpayer authorizes IRS to disclose his or her
information to other agencies. If so, USCIS could verify
applicant-provided data by obtaining the applicant's tax return or tax
transcript. However, the Department of the Treasury suggests that before
an agency uses taxpayer consents, the agency should first conduct a
statistical test match or a small-scale pilot demonstrating that the need
for information outweighs concerns about taxpayer privacy and voluntary
tax compliance. In general, the more that data sharing could rely on
electronic communications between applicants and the agencies, the more
efficient the data-sharing arrangements could be. USCIS, which is working
to move into a paperless environment, is reluctant to receive additional
pieces of hard copy information. However, achieving efficient electronic
data sharing may take longer than implementing paper-based sharing due to
legal, technological, and cost challenges that must be overcome. For
example, if taxpayer consents were not used, IRC Section 6103 would need
to be changed to authorize IRS to disclose taxpayer information directly
to USCIS for immigration eligibility purposes. USCIS must also address a
number of technological challenges, such as ensuring all necessary data
are accurate and entered into automated systems to lay the foundation that
would enable data sharing to take place between the two agencies. Further,
estimating the cost benefit associated with data sharing can be
complicated. Unless IRS's costs to bring business sponsors with unpaid
assessments into compliance are reimbursed, net tax collections may not
rise since IRS might have to forgo bringing other noncompliant taxpayers
into compliance to bring the business sponsors into compliance.
Establishing user fees collected from businesses applying to sponsor
workers to cover data-sharing costs could be a way to fund data sharing,
but the IRS lacks authority to collect and retain fees for
compliance-related costs. USCIS, on the other hand, has authority to
collect and retain fees for adjudicatory services including compliance
related costs.

To improve taxpayer compliance and USCIS's immigration benefit decisions,
we suggest that Congress consider (1) changing immigration eligibility to
require businesses applying to sponsor immigrant workers to meet tax
filing and payment obligations and (2) authorizing a user fee to be
collected and retained by IRS to cover its costs to bring business
sponsors into compliance. To improve the accuracy and timeliness of
USCIS's immigration eligibility decisions absent requiring business to
have met their tax filing and payment obligations, we recommend the
Secretary of the Department of Homeland Security (DHS) direct USCIS, in
consultation with the IRS, to conduct a pilot data-sharing test. In the
test, USCIS should require a tax check for selected businesses and other
entities applying to sponsor immigrant workers before qualifying for
immigration benefits.

In commenting on a draft of this report (see app. III and IV), the
Commissioner of Internal Revenue agreed and the Director of DHS's Office
of Inspector General (OIG) Liaison-commenting on behalf of the Secretary
of DHS-generally agreed with our recommendation to conduct a small-scale
pilot test to determine whether a business case exists for supporting data
sharing before pursuing legislation or a large-scale taxpayer consent
program. The Commissioner also stated an executive working group will
determine the merits of applying user fees for compliance data sharing.
The Director of DHS's OIG Office liaison generally agreed with our
recommendation on the pilot program but said he had serious concerns about
our recommendation on the IRS user fee. The Director acknowledged the
pilot would be consistent with USCIS's desire to explore ways to
streamline its processes and provide necessary information with respect to
considering the feasibility of initiatives such as data sharing on a
larger scale. However, his agreement was contingent on the extent to which
USCIS can lawfully engage in a pilot program that requires business
sponsors to consent to a tax check. The Director did not further describe
his legal concerns and therefore we do not have a basis to evaluate them.
We agreed with the Director's assessment in technical comments that
immigration laws contain no explicit prohibition on conditioning employer
petitions on their tax compliance and doing so might be legally
defensible. We believe consulting with IRS in determining how to design
the pilot test should help USCIS resolve those concerns.

In commenting on user fees, the Director stated that policy considerations
have kept USCIS from completely using its authority to recover its full
costs but did not identify the specific policy considerations. The
Director specifically cited concerns about increasing fees to immigration
benefit applicants without a corresponding improvement in services.
However, as stated in our report, USCIS access to IRS data has the
potential to improve the agency's services because it could decrease
rework and follow-up work, which would help USCIS minimize processing time
for all business sponsors. Further, with more routine access to IRS data,
USCIS might not

                                   Background

need to request as much financial information from business applicants as
it does now since USCIS officials themselves see IRS data as more reliable
than information provided by applicants.

Finally, the Director commented that the proposed user fee to cover IRS's
compliance-related costs seems to be different in concept from other
existing user fees. IRS officials say they do not receive a user fee to
bring applicants for any other agencies' benefits into compliance with
their tax obligations. However, Congress has authorized new or expanded
funding arrangements recently to help IRS deal with its workload. For
instance, the user fees authorized in connection with IRS programs such as
its Offers-In-Compromise Program and its private debt collection program
are to support costs associated with processing agreements between IRS and
the taxpayer that resolve the taxpayer's tax liability. Given the
substantial unpaid taxes that we found among businesses applying to
sponsor immigrant workers, we believe that it is appropriate for Congress
to consider steps for effectively bringing these taxpayers into compliance
without unduly deterring IRS from pursuing other noncompliant taxpayers.
Consequently, our report put forth the user fee as one option for Congress
to consider for supporting a potential data sharing arrangement between
IRS and USCIS.

As one of the largest repositories of personal information in the United
States, 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, thereby bringing in billions of dollars
of tax revenue while boosting voluntary compliance.

IRC Section 6103, amended significantly by the Tax Reform Act of 1976,4 is
the primary law used to restrict IRS's data-sharing capacity. The law

4Pub. L. No. 94-455, Oct. 4, 1976.

provides that tax returns and return information are confidential and may
not be disclosed by IRS, other federal and/or state employees, and certain
others having access to the information except as provided in IRC Section
6103. IRC Section 6103 allows IRS to disclose taxpayer information to
federal agencies and authorized employees of those agencies for certain
specified purposes. Accordingly, IRC Section 6103 controls whether and how
tax information submitted to IRS on federal tax returns can be shared. IRC
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, IRC Section 6103 has exceptions
allowing certain 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.

USCIS is part of the Department of Homeland Security (DHS), which was
established by the Homeland Security Act of 2002.5 USCIS 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 USCIS'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. USCIS'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.
USCIS's employees who review immigration benefit applications and
determine if they should be approved are its adjudicators. USCIS's fraud
detection units and Fraud Detection and National Security immigration
officers in the districts, service centers, and asylum offices detect
potential fraudulent applications and any trends or patterns that suggest
potential fraud. USCIS 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.

5Pub. L. No. 107-296, S: 451, 116 Stat. 2195.

Under current legislative authority, USCIS is not authorized to receive
taxpayer information from IRS directly. USCIS currently obtains
self-reported personal and financial information provided by (1)
businesses, religious organizations, non-profit entities 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. USCIS also obtains information from third
parties, not including IRS, to verify applicants' self-reported data.
Figure 1 illustrates the current lack of data verification between USCIS
and IRS during the immigration application process.

       Figure 1: Current Lack of Data Verification between IRS and USCIS

Source: GAO.

Data-sharing arrangements between agencies can take different forms. As
used in this report, data sharing means obtaining and disclosing
information on individuals between federal agencies (IRS and USCIS) to
ensure taxpayers have met their tax obligations or to determine
eligibility for immigration benefits.6 Table 1 lists different forms of
data sharing, enabling authority, information gained, and related
examples.

6GAO, The Challenge of Data Sharing: Results of a GAO-Sponsored Symposium
on Benefit and Loan Programs, GAO-01-67 (Washington, D.C.: Oct. 20, 2000).

Page 9 GAO-06-100 Taxpayer Information

Table 1: Forms of Data Sharing Involving Taxpayer or Personal Information

                                                  New                         
                                                  information                 
                                                  gained or                   
                                                  confirm            Examples
                                                  agency            (entities
Type of sharing  Authority   Form              information       involved)
Applicant-       Taxpayer    Applicant         New         Tax checks      
initiated        consent     authorizes                    (IRS/states)    
                                information to be             Tax checks      
                                sent from one                 (IRS/mortgage   
                                agency to another             bankers)        
                                to be used to                 
                                qualify for                   
                                benefits or                   
                                employment                    
Agency-initiated Specific    Agency-to-agency  New         Taxpayer        
                    authority   data matching                 address request 
                    allowing    that benefits one             (IRS/Department 
                    disclosure  agency                        of Education)   
                                Agency-to-agency  Confirm     Combined annual 
                                data matching                 wage reporting  
                                that benefits                 (IRS/SSA)       
                                both agencies                 
                                Agency-to-agency  Confirm     Employment      
                                matching to                   Verification    
                                verify applicant              Pilot           
                                provided data                 (USCIS/SSA)     
                                                              Transitional    
                                                              Assistance      
                                                              Program         
                                                              (Centers for    
                                                              Medicare and    
                                                              Medicaid        
                                                              Services/IRS)   

Sources: IRS and USCIS documents.

An example of applicant-initiated sharing occurs via tax checks required
by some states. A taxpayer may authorize a third party to receive his or
her IRS tax return information via consent. According to an IRS official,
many states may require consents to qualify for benefits or certain types
of employment. For example, the state of Missouri requires applicants to
be current on their state taxes before receiving a new professional
license. An example of agency-initiated sharing is an arrangement between
IRS and SSA for the Combined Annual Wage Reporting Program. SSA processes
and maintains W-2 and W-3 information on employees. IRS maintains personal
and financial information on employees. SSA and IRS conduct exchanges of
information to ensure employers are submitting accurate wage information
and to identify nonfilers. The agencies have a direct data-sharing
arrangement.

Research shows that certain data-sharing programs have value for
increasing taxpayer compliance since these programs have identified
discrepancies in income reporting amounts and, in some cases, enabled the
assessment of additional dollars in unpaid taxes. For example, matching
IRS's unpaid assessment database with the Treasury's Financial Management
Service's (FMS) records shows a substantial amount of money that could
have been collected by either IRS or FMS. In particular, the Taxpayer
Relief Act of 19977 allows IRS to continuously levy up to 15 percent of
certain federal payments made to delinquent taxpayers.8 IRS's continuous
levy program adds tax debts to FMS's program for recovering debts owed to
federal agencies. For the levy program, FMS compares federal payee
information from agency payment records with extracts of IRS's unpaid
assessments. We estimated that IRS could recover at least $270 million
annually from about 70,000 delinquent taxpayers.9 In addition, our
analysis10 of a match between FMS's database on payments to contractors
and IRS's unpaid assessment database showed that about 33,000 contractors
who received substantial federal payments from civilian agencies during
fiscal year 2004 owed a total of more than $3 billion in unpaid taxes.11
We estimated that if FMS database deficiencies such as erroneous Taxpayer
Identification Numbers (TINs) and invalid contractor names were corrected,
FMS could have collected at least $50 million more than it did in fiscal
year 2004.12

Although 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

7Pub. L. No. 105-34, 1977.

8 The American Jobs Creation Act of 2004 authorized IRS to levy 100
percent of the payment amount for certain federal payments [(Pub. L. No.
108-357,S:. 887 (a), 118 Stat. 1418, October 22, 2004, to be codified at
26 U.S.C. S: 6331(h)(3)].

9GAO, Tax Administration: Millions of Dollars Could Be Collected If IRS
Levied More Federal Payments, GAO-01-711 (Washington, D.C.: July 20,
2001). Since we issued our 2001 report, additional payment categories have
been added to the levy program, so the amount that could be collected
would likely be substantially higher.

10GAO, Financial Management: Thousands of Civilian Agency Contractors
Abuse the Federal Tax System with Little Consequence, GAO-05-637
(Washington, D.C.: June 16, 2005).

11Our initial matches of civilian contractor payments made during fiscal
year 2004 with IRS tax debt as of Sept. 30, 2004, identified about 63,000
contractors that had tax debt totaling $5.4 billion. We excluded tax debts
from our preliminary estimates that have not been agreed to by the tax
debtor or affirmed by the court, tax debts from calendar year 2004, tax
debts of $100 or less, and fiscal year 2004 FMS payments of $100 or less.

12GAO previously issued a similar report on Department of Defense (DOD)
contractors where GAO reported that DOD and IRS records showed that over
27,000 contractors owed about $3 billion in unpaid taxes as of Sept. 30,
2002; GAO, Financial Management: Some DOD Contractors Abuse the Federal
Tax System with Little Consequence, GAO-04-414T (Washington, D.C.: Feb.
12, 2004).

and policymakers have created legislation to address these concerns. For
example, the Privacy Act of 197413 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 198814 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.

User fees are collected from identifiable recipients of special benefits
beyond those accruing to the general public, and the amounts are based on
the recovery of costs of providing the service, the market value of goods,
or may be set by legislation. Various user fee authorities and guidance
exist which range from general to specific authority. Title V of the
Independent Offices Appropriations Act of 1952 codified at 31 U.S.C. S:
9701 established general authority to assess user fees or charges on
identifiable beneficiaries by administrative regulation. Under this
general authority, all fees collected would be deposited as miscellaneous
receipts to the General Fund of the Treasury and their use would be
determined through the annual appropriations process. Authority to assess
user fees may also be granted to agencies through the enactment of
specific authorizing or appropriations legislation, which may or may not
authorize the agencies to retain and/or use the fees they collect.

In setting certain user fees, agencies must follow either the general user
fee statute 31 U.S.C. S: 9701 or specific user fee statute. For example,
IRS must follow IRC section 752815 in certain cases while USCIS adheres to
the Immigration and Nationality Act,16 the general user fee statute, and
DHS regulations which outline fees that are collected, the amounts, and by
whom (see table 2).17 The Office of Management and Budget's (OMB)

13Pub. L. No. 93-579, Dec. 31, 1974. 14Pub. L. No. 100-503, Oct. 18, 1988.
15Section 7528 was added to the IRC by section 202 of the Temporary
Assistance for Needy

Families Block Grant Program, Pub. L. 108-89, and was extended to Sept.
30, 2014, by section 690 of the American Jobs Creation Act of 2004, Pub.
L. 108-357. 168 U.S.C. S: 1356(m), (n). 178 C.F.R. S: 103.7.

Circular A-25, User Charges, establishes general federal policy and
guidance for user fees assessed for government services by executive
branch agencies.18 IRS's chief financial office provides internal guidance
on user fees, which provides examples on how to implement the OMB
directives. USCIS does not provide internal guidance. According to USCIS
officials, the agency's fee setting is based upon cost studies and a
full-fledged regulatory process under the Administrative Procedure Act,
with the actual fees provided in regulations.

                    Table 2: User Fee Guidance and Authority

OMB Circular

Requires that agencies:

     o Identify services and activities that convey special benefits;
     o Determine services' and activities' full cost or market price, as
       appropriate;
     o Perform biennial reviews of user fees for unanticipated cost or market
       price changes; and
     o Perform biennial reviews of agency programs not subject to user fees
       to determine if such fees should be assessed.

IRC Section

Requires that IRS user fees:

     o Vary according to categories or subcategories;
     o Take into account the average time and difficulty of requests by
       categories or subcategories;
     o Be payable in advance; and
          * Be subject to appropriate exemptions and reduced fees within
            limits specified by IRC Section 7528.
          * Internal CFO guidance:
     o Provides steps and examples on developing cost estimates and
       implementation considerations.

18OMB Circular A-25 applies to executive branch agencies assessing charges
under the general user fee statute enacted in the Independent Offices
Appropriations Act of 1952 and codified at 31 U.S.C. S: 9701. The circular
provides guidance to agencies imposing user fees under other statutes to
the extent that the circular is not inconsistent with the statute in
question.

Page 13 GAO-06-100 Taxpayer Information

  IRS and USCIS Could Benefit from Data Sharing Although an Immigration
  Eligibility Change Would Be Key for IRS

                         (Continued From Previous Page)

USCIS Immigration and Nationality Act permits:

Guidance  o  Setting fees for providing adjudication and naturalization
services at a level that will ensure recovery of the full costs of
providing all such services.

        * Retention and use of fees to provide immigration services.
        * General statute requires agencies to establish fees that are:
     o Fair
          * Based on the costs to the government; the value of the service or
            thing to the recipient, public policy or interest served, and
            other relevant facts.
          * DHS regulations outline:
     o Fee remittances
     o Amounts of fees
     o Fee adjustments
     o Fee waivers

No internal guidance exists.

                            Sources: IRS and USCIS.

IRS's tax compliance efforts could benefit from data sharing with USCIS if
immigration eligibility were changed to require business sponsors to show
that they met tax filing and payment requirements to qualify to sponsor
immigrant workers. In particular, IRS could benefit because businesses
applying to sponsor immigrant workers that had not filed a tax return or
paid taxes would need to come into compliance. IRS data can also enable
USCIS adjudicators to make more accurate eligibility decisions by better
identifying businesses that may not have met immigration eligibility
criteria because they had unpaid assessments or did not file tax returns.
Further, obtaining IRS data has the potential to improve the timeliness of
benefit decisions by (1) decreasing rework/follow-up work and (2)
potentially resulting in fewer applicants if benefits are contingent on
having met tax filing and payment requirements.

    A Change in Eligibility Rules Is Key to IRS Benefiting from a Data-Sharing
    Relationship with USCIS

Compliance with Payment of IRS could benefit from data sharing with USCIS
if certain taxpayers, such Taxes as business sponsors who owe taxes, were
required to be in compliance with tax filing and payment requirements to
qualify for immigration benefits such as sponsoring immigrant workers. Our
analysis of automated immigration records matched against IRS databases
showed that 18,942 businesses applying to sponsor immigrant workers from
1997 through 2004 had $5.6 billion in unpaid assessments,19 as of December
2003 (app. II). Many were not paying their tax bill or making payments
towards fulfilling their tax obligations. As of December 2003, business
sponsors from our nationwide selection who were not in installment
agreements with the IRS or otherwise making payments to IRS, for taxes
due, had unpaid assessments totaling $3.7 billion.20 Although these
businesses with past applications to sponsor immigrant workers would not
be affected by a change to requirements for sponsoring workers since they
have already received immigration benefits, USCIS officials said that
businesses that apply to sponsor workers tend to do so in multiple years.
If businesses were required to meet their tax obligations, to the extent
that future business sponsors owe taxes, they would need to pay their tax
bill or make payment arrangements with the IRS to come into compliance
before becoming eligible to sponsor immigrant workers to enter the
country. USCIS officials said a statutory change would be preferable to a
regulatory change because, although they acknowledge no explicit
prohibition exists in immigration laws against conditioning approval of
employer petitions on their tax compliance, they have serious legal
concerns about USCIS's authority to issue such a regulation absent
specific statutory authority.

Although changing the eligibility requirement would likely help bring
taxpayers with unpaid assessments into compliance, IRS would be unlikely
to recover all taxes owed by the businesses. IRS officials commented that
some businesses, even if they came forward to IRS, would not be able to
repay their full debt. USCIS officials made a similar comment and added

19Unpaid assessments consist of (1) federal taxes receivable, which are
taxes due from taxpayers for which IRS can support the existence of a
receivable through taxpayer agreement or a favorable court ruling; (2)
compliance assessments where neither the taxpayer nor the court has
affirmed that the amounts are owed; (3) write-offs, which represent unpaid
assessments for which IRS does not expect further collections due to
factors such as the taxpayer's death, bankruptcy, or insolvency; and (4)
"memo," a module which includes duplicate assessments, fraudulent returns,
and cases the IRS/taxpaying entities need to resolve due to overstatements
or understatements.

20Of the $5.6 billion in unpaid assessments owed by these businesses,
business sponsors had entered into installment agreements and payment
arrangements for $168 million of the unpaid assessments. An additional
$1.7 billion in unpaid assessments that had not been affirmed, had been
judged by IRS to have no future collection potential, or were from
duplicate or fraudulent returns.

                        Compliance With Filing of Taxes

some businesses may decide not to apply for immigration benefits knowing
they are not in compliance with tax filing and payment requirements.
Further, either IRS would only be able to pursue collection for business
sponsor cases that exceed thresholds IRS uses in determining how many
cases to pursue or, if IRS took steps to collect taxes in all of these
cases, it would be unable to work other cases. As we have reported
previously, IRS has too many compliance cases to work.21

Immigration data appear less likely to be useful to IRS for identifying
applicants who do not file tax returns. For instance, we identified 33
business/entity sponsors from our nonprobability sample who appeared to be
unknown to the IRS because they did not show up in any of six different
IRS databases.22 An IRS investigation of the 33 revealed no productive
compliance leads. IRS determined most of the sponsors-businesses and
religious organizations-were either tax exempt, had no filing requirement,
or were no longer liable for the tax. However, these 33 cases were a small
fraction of the almost 20,000 business sponsors that appeared to be
unknown to IRS based on our nationwide selection of USCIS business sponsor
applications (see app. II).

In the mid-1980s, IRS and USCIS entered into a cost-reimbursable
data-sharing arrangement under which USCIS shared immigrant data with IRS
by completing IRS Form 9003.23 According to IRS officials, IRS used Form
9003 information to help identify whether individuals who filed for U.S.
permanent residency had filed tax returns and properly reported their
income. IRS and USCIS shared Form 9003 data for about 10 years but ended
this arrangement in 1996. Much of the form 9003 immigrant data received
from USCIS 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

21GAO, Compliance and Collection: Challenges for IRS in Reversing Trends
and Implementing New Initiatives, GAO-03-732T (Washington, D.C.: May 7,
2003).

22GAO-04-972T.

23USCIS 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. USCIS provided a contractor with
the Form 9003, and the contractor then transcribed the Form 9003 immigrant
data onto tape and sent it to IRS's Martinsburg Computing Center. 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 incomes.

    USCIS Can Benefit from Data Sharing with IRS in Making Immigration
    Eligibility Decisions

More Accurate Immigration Eligibility Decisions

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 view, it was no longer cost effective.

IRS data can enable USCIS adjudicators to make more accurate eligibility
decisions by better identifying businesses that may not have met
immigration eligibility criteria. Our matching of immigration and taxpayer
data identified business sponsors that may not meet immigration financial
feasibility and legitimacy tests because they have failed to file tax
returns and/or pay all of their taxes. Sixteen percent of businesses from
our nationwide selection (67,949 of 413,723 businesses) applying to
sponsor immigrant workers did not file one or more tax returns at the time
of their application to sponsor an immigrant worker between 1997 and 2004
(app. II). Twenty four percent of businesses (112 of 475 businesses) from
our nonprobability sample that applied to sponsor immigrant workers did
not file one or more tax returns at the time of their application to
sponsor an immigrant worker between 2001 and 2003 (app. II). Five percent
of sponsors from our nationwide selection (18,942 of 413,723 businesses)
and 20 percent of businesses in our nonprobability sample (94 of 475
businesses) had unpaid tax assessments at the time of application. As of
December 2003, for the nationwide results, the assessments totaled $5.6
billion and for the nonprobability sample results, the assessments totaled
$39 million (app. II). Filing and paying taxes is an indicator that
financial feasibility and legitimacy tests are met. Figure 2 shows
matching results identifying business nonfilers and those with unpaid
assessments from our nationwide selection.

Figure 2: Businesses Sponsoring Immigrant Workers That May Not Have Met
USCIS's Financial Feasibility or Legitimacy Requirements, 1997-2004

Nationwide selection

Number of sponsors (in thousands) Source: GAO analysis of taxpayer and
immigration data.

Immigration adjudicators use applicants' self-reported personal and
financial information plus third party data to make decisions about
granting benefits to immigration applicants. For businesses applying to
sponsor immigrant workers-employment-based applications- immigration
adjudicators use financial information for evaluating two basic
eligibility criteria for businesses sponsoring 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.
Information on tax returns filed with IRS show income levels and these
could be used to validate applicant-provided information. Legitimacy, in
the case of employment-based petitions, refers to whether a sponsoring
business or organization actually exists, has employees, and has real
assets. Figure 3 depicts an overview of the adjudication process for
employment-based applications.

 Figure 3: USCIS General Adjudication Process for Employment-Based Applications
                          to Sponsor Immigrant Workers

Source: GAO analysis of USCIS data.

aSome applicants may choose not to provide additional evidence, thereby
ending the adjudication process.

Since adjudicators receive self-reported-and sometimes false-personal and
financial information from applicants, they sometimes obtain additional or
different documentation from the applicant or third parties. For example,
at the time of application or during the adjudicatory process, applicants
may be required to provide additional documentation, such as tax returns
from IRS or unofficial copies to verify financial information reported on
immigration forms. However, immigration officials we spoke with in five
field locations said applicants could alter or falsify those documents.
According to USCIS officials, designing a data-sharing arrangement that
includes verification of applicant-provided data during the adjudicatory
process would be useful to USCIS adjudicators for the financial
feasibility and legitimacy tests and afford more accurate immigration
eligibility decisions. Additionally, with an eligibility change as
discussed earlier, business sponsors would be required to file tax
returns, pay amounts due, or make payment arrangements with IRS before
qualifying for immigration benefits. This, in turn, could result in a
higher likelihood of USCIS getting applications from business sponsors
that have met their tax filing and payment obligations, thereby more
likely meeting USCIS's financial feasibility and legitimacy criteria.
USCIS could then better assure that it was granting benefits to those
business sponsors that accurately meet their criteria.

USCIS Ombudsman and representatives of immigration advocacy groups have
concerns about data sharing and immigration eligibility for business
sponsors. Although the Ombudsman acknowledged the benefits of data
sharing, he was concerned that another step in the immigration application
process could be more cumbersome for business sponsors. He questioned the
type of information IRS would share and said businesses in dispute with
the IRS should not be prevented from applying for benefits while the
dispute is being resolved. A representative from one advocacy group
expressed several concerns on behalf of business sponsors including:

     o Increased delays in the immigration process - from their perspective,
       any additional step in the application process could lengthen the time
       between when a business decides to sponsor a worker and obtaining
       USCIS's approval.
     o Problems with improving USCIS's technological capabilities - according
       to the immigration advocate, USCIS is still mostly paper-driven and
       therefore it is questionable as to whether they could share data
       electronically.
     o Special tax issues related to small businesses - many small business
       sponsors file tax extensions and, therefore, may not have readily
       available tax documents. Additionally, newer small businesses have no
       tax history.
     o Adjudicator training - adjudicators need to understand how to read and
       interpret business tax documents because many, in the advocate's
       opinion, have no training in dealing with those complicated documents.

A representative of another immigration advocacy group also voiced the
same concern about adjudicator training and added that implementing data
sharing may be more useful in dealing with small- and medium-sized
businesses because, based on their experience, larger businesses are less
likely to be involved in immigration fraud. In addition, although not
mentioned by USCIS officials, one potential unintended effect of data
sharing might be an increased incentive to employ illegal workers. That
is, if a business knew that its tax status would be checked by USCIS, or
if it was required to meet tax filing and payment obligations before
sponsoring immigrant workers, some businesses might decide to meet their
labor force needs with workers not properly authorized to work in the
United States. Smaller employers, who are more likely to have tax
compliance problems according to IRS, may be more likely to make this
choice than larger-sized businesses.

According to USCIS officials, adjudicators would find IRS information on
small businesses particularly useful since they are limited in their
ability to assess these businesses' financial feasibility and legitimacy.
IRS has also encountered problems in corroborating financial information
provided by small businesses and its research generally shows higher
noncompliance among its small business population.24 Among our
nonprobability sample, 25 of 43 business sponsors with unpaid assessments
reported their net incomes as less than $10 million on USCIS
employment-based applications.25 Additionally, USCIS has begun a series of
benefit fraud assessments, which take a random sample of applications
filed within certain immigrant and nonimmigrant categories and assess them
for fraud by verifying key data reported. Based on the results of their
fraud assessments, USCIS could focus on businesses that are more prone to
fraud to match IRS data against in determining their financial feasibility
and legitimacy.

The type of taxpayer data USCIS adjudicators find useful could change
under a USCIS proposal to revise regulations for employment-based

24IRS classifies small businesses as all sole proprietorships,
partnerships, and corporations with assets of $10 million or less. The
USCIS application forms for business sponsors we examined asked for net
income and gross income instead of assets.

25Our non-probability sample revealed 94 businesses with unpaid
assessments (see app. II). However, 47 of those businesses did not report
net incomes on their USCIS application forms and 4 reported negative net
incomes. We did not include these in our analysis of businesses with net
incomes of less than $10 million.

More Timely Immigration Eligibility Decisions

immigration applications.26 USCIS officials are seeking to revise
requirements since they believe that (1) establishing the validity of the
sponsor is sufficient to meet immigration statutory requirements27 and (2)
adjudicators were spending too much time trying to establish a sponsor's
income levels for well-known or established businesses. In the interim, in
May 2004, USCIS issued updated guidance to adjudicators directing them not
to reestablish a sponsor's ability to pay with its USCIS Form I-485,
Application to Register Permanent Residence or to Adjust Status (see app.
II) to minimize processing delays. If this regulatory change is made, IRS
taxpayer data could still help adjudicators establish the legitimacy or
the bona fide nature of a business sponsor. According to USCIS officials,
if the proposed regulation were adopted, USCIS would still need tax
documents but would no longer need specific income information from tax
returns. USCIS adjudicators would need tax return information such as
whether the sponsor filed income tax returns, what years they filed, how
many employees they had, and if they paid taxes, and they would need to
further evaluate whether additional IRS information would be useful. USCIS
would need specific income information from the tax return, such as
adjusted gross income, only in cases where the initial information
provided by IRS raised questions about the sponsor for USCIS (e.g., if the
employer had unpaid assessments or was a nonfiler). As of July 2005, the
proposed regulatory change was with DHS's legal office, awaiting approval.

USCIS officials said that access to IRS taxpayer data could also improve
the timeliness of making benefit decisions primarily because it could
decrease the rework and follow-up work with the applicant. 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 applicant-provided data (e.g., sending
fewer RFEs to applicants; see figure 3 for an overview of the adjudicatory
process). 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. As we reported in May 2001, USCIS
officials said that lengthy processing times had resulted in increased
public

268 CFR 204.5(g)(2). 278 U.S.C. 1154.

Page 22 GAO-06-100 Taxpayer Information

inquiries on pending cases, which, in turn, caused USCIS to shift
resources away from processing cases to responding to inquiries, adversely
affecting processing time.28

Under a presidential initiative, USCIS has a 5-year, $540 million effort
under way intended to reduce its backlog of applications, and ensure a
6-month average processing time per immigration application by the end of
2006. While USCIS has made progress on meeting most of its fiscal year
2004 and 2005 processing time goals, which range from 2 months to 20
months, its overall goal is to reduce processing time to 6 months in
fiscal year 2006. This will be difficult because USCIS's fiscal year 2004
and 2005 average processing times for some forms are more than twice as
long as its fiscal year 2006 goal of a 6-month processing time. As Figure
4 shows, for three of the six forms we examined-the I-485 (Application to
Register Permanent Residence or to Adjust Status), I-751 (Petition to
Remove the Conditions on Residence), and N-400 (Application for
Naturalization),- USCIS will need to cut its application processing times
by more than 50 percent by fiscal year 2006 to meet its goal and thereby
improve the timeliness of eligibility decisions.

28GAO, Immigration Benefits: Several Factors Impede Timeliness of
Application Processing, GAO-01-488 (Washington, D.C.: May 4, 2001).

Page 23 GAO-06-100 Taxpayer Information

Figure 4: Average Reported Processing Times for Fiscal Years 2004 and 2005
and Fiscal Year 2006 Processing Time Goal for Select USCIS Forms

USCIS application form

                                                                         21.6
I-485                                                    18.2
                              6                             
                                                     14.6   
I-751                                  10.5              
                              6                             
                                                   13.5     
N-400                                       12           
                              6                             
                                          10.4              
I-140                            8.3                     
                            6                               
           1.7                                              
I-129     1.5                                            
            2                                               
0                    5               10            15        20         25 
       Number of months                                                  

          FY 04 average processing time FY 05 average processing timea

FY 06 goal

Source: GAO analysis of USCIS data.

Note: USCIS application forms are described in app. II. USCIS provided us
with processing times for five of the six forms we examined.

aFY 2005 times are reported through May 2005.

In his fiscal year 2006 budget request, USCIS's director stated "Although
we are on track to achieve the President's backlog elimination mandate, we
fully realize that funding alone will not enable us to achieve this
goal...I have worked closely with the leaders in USCIS to continually
review our processes, identify opportunities for streamlining and further
improvement, and to implement meaningful change."29 USCIS's director is
looking for opportunities to further streamline the adjudicatory process,
and, as stated previously, USCIS adjudicators said that if they could
match applicant data against IRS data early in the review process, they
would

29"The President's FY 2006 Budget Request", Statement of Eduardo Aguirre,
Jr., Director, USCIS, U.S. Department of Homeland Security before the
House Committee on Appropriations, Subcommittee on Homeland Security, Mar.
17, 2005.

Page 24 GAO-06-100 Taxpayer Information

spend less time researching and following up on the validity of
applicant-provided data, which could reduce USCIS's processing times for
business sponsors' applications.

USCIS staff in headquarters said that changing immigration eligibility to
require proof of tax filing and payment compliance for business sponsors
may also deter businesses that are not filing and paying their taxes from
submitting immigration applications because they would know that USCIS
would deny their applications. If so, this could somewhat reduce the
volume of applications received and, thereby contribute to quicker
application processing times.

A variety of options is available to IRS and USCIS for establishing and
implementing data sharing. An applicant-initiated data-sharing
relationship could be implemented under existing IRC authority through a
taxpayer consent, whereby a taxpayer authorizes IRS to disclose his or her
information to other agencies. Under an agency-initiated option, agencies
could share information directly with each other in an electronic format,
a process that is viewed as more efficient and desirable by USCIS and IRS
officials. However, achieving such efficient data sharing may take time
due to various legal, technological, and cost challenges that must be
overcome. Establishing user fees to cover data-sharing costs are a way
agencies can fund these various data-sharing options, but IRS lacks
authority to include in its user fees the costs for bringing non-compliant
business sponsors into compliance or to retain such fees.

  IRS and USCIS Have Data-Sharing Options but Each Presents Challenges

    Applicant-Initiated Option Could Be Implemented Using Existing Disclosure
    Authority

Taxpayer Consents Under Existing Disclosure Authority

One option for establishing data sharing between IRS and USCIS is to use
an existing authority within the Internal Revenue Code (IRC). USCIS is not
currently authorized to directly receive taxpayer information for
immigration eligibility decisions under IRC Section 6103. However,
individual taxpayers could authorize IRS to disclose their tax return
information to agencies like USCIS through a taxpayer consent submitted
either via paper or electronically. The consent must be in the form of a
separate written document pertaining solely to the authorized disclosure -
with text appearing on a paper document or text appearing on a separate
computer screen. The consent must include: (1) taxpayer identity
information (i.e., name, address, SSN or EIN); (2) the designee to whom
the disclosure is to be made; (3) the type of tax return (or specified
portion of the return) or return information (and the particular data)
that are to be disclosed; and (4) the tax year or years to be covered. The
consent must be signed and dated by the taxpayer who filed the return or
to whom the return information relates and IRS must receive the consent
within 60 days of the taxpayer's signature and date.

Taxpayers use the Form 4506, Request for Copy of Tax Return, and the Form
4506-T, Request for Transcript of Tax Return, to authorize the paper
consent. A tax return can show that the taxpayer filed a tax return and a
tax transcript can show whether the taxpayer had a filing requirement,
owed taxes, or paid taxes. Figure 5 is an overview of the way IRS
processes paper consents, any costs to the taxpayer, and the average
turnaround times.

Figure 5: Process for Retrieving Tax Return and Tax Transcript Information

Source: GAO analysis of IRS data.

Note: According to IRS officials, taxpayers who live in disaster relief
areas do not have to pay the $39 fee.

IRS paper consents permit the agency to verify for a third party whether a
taxpayer has been filing required tax returns and paying his or her taxes.
These verifications may be referred to by various names but can be
generically called "tax checks."30 They are often done in connection with
a

30The state of Kansas refers to this verification as a tax clearance,
which is defined as a thorough taxpayer account review (of all tax types)
to ensure the account is current, properly registered, and compliant with
all Kansas tax laws.

Page 27 GAO-06-100 Taxpayer Information

taxpayer's application for benefits, licensing, or employment. Entities
that use tax checks include mortgage institutions, major banks, financial
institutions, state revenue agencies, and federal agencies. States are the
biggest users of taxpayer information. According to an official with the
Federation of Tax Administrators, many states have a taxpayer consent
requirement, along with their own consent form, to require potential
employees or contractors to consent to a state tax check as a condition of
employment or to receive a license. When states verify individual and
business compliance with state tax requirements, they are also able to
determine federal compliance as permitted by IRC 6103(d), since states
routinely receive extracts of IRS taxpayer information (See table 3 for
examples of state and private entities that require tax checks.).

For example, an Executive Order permits the state of Kansas to require a
tax check in order for individuals and businesses to qualify for state
employment or state contracts. State law also permits the rejection of a
business's application if the business owes the state taxes. Further,
Kansas requires a tax check on all new and renewing vehicle dealership
licenses. A March 2003 Kansas Legislative Audit Report found 514 motor
vehicle dealers who owed $7 million in state sales tax. Before a business
can apply or renew its dealership license at the state's Division of Motor
Vehicles (DMV), the business must present to the DMV proof that it
fulfilled its state tax filing and payment requirements. According to an
official with the Kansas Secretary of Revenue, for an active dealer, the
threat of license revocation provided an incentive to bring non-compliant
businesses into compliance. Businesses with unpaid assessments either paid
their assessments or set up a payment plan. The state increased its car
dealer tax compliance rate by 97 percent, according to an official with
the Kansas Secretary of Revenue.

Challenges Using Taxpayer Consents

    Table 3: Examples of State and Private Entities That Require Tax Checks

                                                                     Criteria
Entity                        For What Purpose   To qualify for...         
Banks/financial institutions Income verification A mortgage                
Kansas                       Tax compliance      Employment                
                                                     Vehicle dealer license   
Maryland                     Tax compliance      Business and professional 
                                                    license                   
Missouri                     Tax compliance      Building permits          
                                                      Professional license    

Source: GAO analysis.

As noted previously, IRS taxpayer consents can also be implemented
electronically. Similar to the paper consent, the electronic consent must
indicate taxpayer identity information, the designee to whom the
disclosure is made, the type of return information that is to be
disclosed, and the tax year or years covered. USCIS officials are
agreeable to using taxpayer consents if they could be implemented
electronically in a way similar to an electronic verification pilot
project that was undertaken by IRS and the Department of Education
(Education). In the pilot, students who wanted to qualify for financial
aid authorized the IRS to release their tax information to their academic
institutions via the Internet. After authorizing the release, IRS sent the
individuals' tax transcripts directly to the schools. This procedure then
resolved any inconsistencies between information on the tax transcripts
and on financial aid applications.31

One challenge agencies face in implementing data sharing based on taxpayer
consents is the costs IRS and USCIS would incur to make data sharing work.
Taxpayer consents can be costly and resource intensive when using paper,
according to IRS officials. For example, IRS processed approximately
340,000 paper return and transcript requests at an IRS estimated cost of
about $6.2 million (see table 4) during fiscal year 2004. Furthermore, the
process can be paper intensive since IRS typically receives only hard
copies of taxpayer consents. The agency only accepts paper requests via
mail or fax, and no electronic versions of the paper copies (e.g., scanned
copies cannot be e-mailed to IRS) are accepted. The

31GAO, Taxpayer Information: Increased Sharing and Verifying of
Information Could Improve Education's Award Decisions, GAO-03-821
(Washington, D.C.: July 18, 2003).

Page 29 GAO-06-100 Taxpayer Information

process also can be time intensive. For example, the average processing
turnaround time to process a copy of a tax return is 30 days; and the
average turnaround time for a tax transcript is 10 to 30 days.

  Table 4: Examples of Operational Data on the Paper Taxpayer Consent Process

                         Volume of                                     Annual 
                       information Data-sharing  Turnaround        processing 
Process                  shared method        time                    cost 
Request for copy of     161,000 Mail or fax   30 days         $2.9 million 
tax return                                                    
Request for             179,000 Mail or fax   10 to 30 days   $3.3 million 
transcript of tax                             (48 hours for   
return                                        bulk requests)  

Source: IRS.

USCIS officials are reluctant to use a paper consent because the agency is
moving from a paper to an electronic environment. USCIS officials warned
that requiring applicants to consent to a paper or electronic tax check
would necessitate business process and procedural changes by USCIS, as
well as an education process to the immigration community and the third
parties that assist petitioners with their applications. USCIS officials
said that requiring business and individual applications to undergo a tax
check could strain already limited agency resources. USCIS application
data showed the estimated annual volume for the six immigration forms we
reviewed totaled about two million for fiscal year 2004. USCIS officials
said implementing a tax check for employment-based business
applications-estimated to be at least 180,000 for fiscal year 2004-would
be less difficult to process than the six application forms that require
financial information. Also, because the same business sponsor could file
applications more than once in a year, depending on how USCIS implemented
the requirement for a tax check, it could be valid for a certain period of
time according to whatever policy USCIS established. Subsequently, the
business would not have to undergo a tax check every time it sponsored a
worker, which would not strain USCIS's resources.

Although use of tax data has helped some federal agencies better
administer their programs, some are concerned that widespread use of
taxpayer consents may undermine taxpayers' right to privacy and,
subsequently, voluntary tax compliance. The confidentiality of tax data is
considered by many to be crucial to voluntary compliance. The Joint

    Agency-Initiated Electronic Option Is Seen as More Efficient, but Additional
    Authority Would Be Needed

Specific Disclosure Authorities for Sharing Data Electronically

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. When
such waivers are granted, agencies are not obligated to follow the
recordkeeping, reporting, and safeguard requirements that apply to tax
data, although the less stringent requirements of the privacy act may
still apply. IRS's National Taxpayer Advocate stated in 2003 that
"Widespread use of tax information by federal or state agencies will, in
fact, undermine our tax administration system," and that "A change in tax
compliance of even one percentage point equates to an annual loss of over
$20 billion of revenue to the federal government." In its October 2000
report to the Congress on taxpayer confidentiality, Treasury's Office of
Tax Policy recommended that before a government program is allowed to use
taxpayer consents, the requesting agency should first conduct a
statistical test match or a small-scale pilot.32 If that test or pilot
demonstrates that the program's need for information outweighs concerns
about taxpayer privacy and voluntary tax compliance, then Treasury will
determine whether the agency can proceed with a limited program using
taxpayer consents or whether a legislative amendment should be sought
permitting direct access.

Another option for data sharing is direct agency-to-agency sharing. Such
data-sharing arrangements are enabled by specific statutes or regulations
and, in the case of electronic data matching, have written agreements
between agencies. Education, SSA, and the Centers for Medicare and
Medicaid Services (CMS) are examples of agencies that have existing
data-sharing relationships with IRS using electronic media such as a
magnetic tape. These agencies are able to share data with IRS because they
were each given specific authorities under IRC Section 6103, which
authorizes

32U.S. Department of the Treasury, Office of Tax Policy, Report to
Congress on Scope and Use of Taxpayer Confidentiality and Disclosure
Provisions, Vol. 1: Study of General Provisions (Washington, D.C.: October
2000).

Page 31 GAO-06-100 Taxpayer Information

the disclosure of a taxpayer's return information and tasks IRS with
oversight of safeguards for taxpayer information. Further, agencies enter
into a computer matching agreement (CMA), which outlines the purpose for
the data-sharing relationship, the information to be shared, the method of
sharing, the approximate number of records to be shared, the frequency of
sharing, and the length of the data-sharing arrangement. The requesting
agency is required to attach to the CMA an analysis that measures the
costs and benefits associated with a data-sharing arrangement with IRS.
Agencies must also provide IRS an annual report on their security
safeguards that protect against any unauthorized access or disclosure of
data received during the arrangement.

As shown by the examples in table 5, each agency's data-sharing
relationship with IRS differs in terms of the number of records shared,
the method and frequency of sharing, the annual cost to the agency, and
the cost per record.

Table 5: Characteristics of Selected Electronic Data-Sharing Arrangements
                        between IRS and Federal Agencies

          Purpose of       IRC Section Annual                           Annual cost to
          data-sharing     6103        number of Data-sharing           agency and cost per
Agency    relationship     Provision   records   method       Frequency record   
Education Education        6103(m)(4)  4.6           Magnetic Weekly    $819,000 $.18/record 
          obtains the                  million           tape                    
          current                                                                
          addresses of                                                           
          those taxpayers                                                        
          who have                                                               
          defaulted on                                                           
          their student                                                          
          loan.                                                                  
SSA       SSA determines   6103(1)(7)  26            Magnetic Monthly   $5.7     $.22/record 
          eligibility for              million           tape           million  
          its cash                                                               
          assistance                                                             
          program for the                                                        
          poor.                                                                  
          SSA identifies   6103        40            Magnetic Annually  $8.2     $.21/record 
          Medicareeligible (1)(12)     million           tape           million  
          individuals with                                                       
          insurance                                                              
          coverage to                                                            
          avoid duplicate                                                        
          payment for                                                            
          health services.                                                       
CMS       CMS determines   6103(l)(19) 1,064,685   Computer   Daily     $129,858 $.12/record 
          eligibility for                            file                        
          its prescription                                                       
          drug program.                                                          

Source: CMAs.

Note: With the exception of CMS's FY 2004 actual figures, all other agency
figures are estimated based on the 18-month duration of the matching
agreement. Education's figures are estimated for February 2001 through
August 2002. The first SSA program's figures are estimated for July 2003
through December 2004. The second SSA program's figures are estimated for
October 2000 through March 2002.

      Electronic Data Sharing between IRS and the Department of Education

The Department of Education obtains the mailing addresses of taxpayers for
use in collecting debt from students who have defaulted on loans. Under
the Taxpayer Address Request program, as authorized by IRC Section
6103(m)(4), Education furnishes the name and SSN of each defaulted student
to the IRS. IRS then matches the information to its records and provides
Education the most recent address for the taxpayer. Education sends about
4.6 million records annually to IRS for matching.

      Electronic Data Sharing between IRS and the Social Security Administration

SSA is using each section within IRC Section 6103 that authorizes the
disclosure of taxpayer information by IRS to SSA for benefit eligibility
purposes. For example, the Disclosure of Information to Federal, State,
and Local Agencies, under IRC Section 6103(l)(7), enables SSA to request
and use taxpayer information from IRS to determine the eligibility of
applicants and recipients of Supplemental Security Income, the nation's
largest cash assistance program for the poor. SSA officials estimate a
savings of approximately $48 million annually with this data-sharing
relationship. In addition, with the Medicare Secondary Payer Program, as
authorized by IRC Section 6103(l)(12), SSA, through information collected
from employers of working-aged beneficiaries and Medicare-eligible spouses
such as name and SSN, is able to avoid duplicate payments for services by
identifying Medicare-eligible individuals who have primary coverage
through a group health plan. This data-sharing relationship's annual
savings are estimated at $463 million.

      Electronic Data Sharing between IRS and the Centers for Medicare and
      Medicaid Services

The most recent data-sharing relationship under IRC Section 6103 is
between IRS and CMS in which CMS uses taxpayer information on a daily
basis to determine eligibility for the Transitional Assistance Program,
which provides up to $600 to individuals to purchase prescription drugs.
IRC Section 6103(l)(19) authorizes IRS to disclose to CMS specified tax
return information of applicants for transitional assistance to help CMS
identify eligible applicants. Figure 6 describes how the data matching
occurs. In fiscal year 2004, CMS sent IRS about one million records for
matching, and this data-matching arrangement cost CMS approximately
$130,000.

         Figure 6: Flow Chart on the Medicare Prescription Drug Process

Source: GAO analysis of CMS data.

      Electronic Data Sharing via Transcript Delivery System

IRS offers electronic service, or e-service, products that are accessed
directly by authorized third parties such as tax practitioners and state
revenue agencies. Available since July 2004, the Transcript Delivery
System (TDS) allows authorized third parties to immediately,
electronically access taxpayer transcript information like the return
transcript, account transcript, record of account, and verification of
nonfiling-products that otherwise are available via the paper consent Form
4506-T. Tax practitioners can use this service if the taxpayer authorizes
disclosure via Form 2848, Power of Attorney, which must be on file with
IRS before the practitioner can request and receive a taxpayer's data.
This type of disclosure is authorized via IRC Section 6103(e)(6). Only
three states are currently using TDS, as authorized by IRC Section
6103(d).

The TDS e-services are Internet based and authorized users can access them
from any computer with minimal Internet capabilities. The authorized
individual retrieving taxpayer information inputs the request, and the

Challenges Associated with Electronic Data Sharing

information is accessed immediately. For fiscal year 2004, IRS estimates
that it cost about 4.8 cents to provide access to a transcript using
TDS.33

      Legal Challenge of Data Sharing

Electronically sharing taxpayer information directly from IRS to USCIS
without a taxpayer consent has a number of legal, technological, and cost
challenges if it is used for immigration benefit purposes. In order to
electronically share information without first obtaining taxpayers'
consent, IRC Section 6103 would need to be changed to authorize IRS to
disclose taxpayer information directly to USCIS for immigration
eligibility purposes. Over the years, a number of exceptions have
gradually been added to IRC Section 6103 that allow access to taxpayer
information. As mentioned previously, some are concerned that disclosing
taxpayer data could affect the taxpayer's right to privacy and,
subsequently, undermine voluntary tax compliance. According to Treasury,
the burden of supporting an exception to IRC 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 6
lists the criteria Treasury and IRS have applied when evaluating specific
legislative proposals to amend IRC Section 6103 for governmental
disclosures.

Table 6: Criteria Applied by Treasury and IRS When Evaluating Specific
Proposals for Governmental Disclosures

Criteria to be Is the requesting information highly relevant to the        
addressed by   program for which it is to be disclosed? Are there          
the requesting substantial program benefits to be derived from the         
agency         requested information?                                      
                  Is the request narrowly tailored to the information         
                  actually necessary for the program?                         
                  Is the same information reasonably available from another   
                  source?                                                     

33TDS was accessible in July 2004; thus, actual data are not available for
the 3 months of access during fiscal year 2004.

Page 35 GAO-06-100 Taxpayer Information

(Continued From Previous Page)

Criteria to be addressed by the requesting agency and Treasury/IRS Will
the disclosure involve significant resource demands on IRS?

Will the information continue to be treated confidentially within the
agency to which it is disclosed, pursuant to standards prescribed by IRS?

Other than IRC Section 6103, are there any statutory impediments to
implementation of the proposal?

Criteria to be Will the disclosure have an adverse impact on tax
compliance or tax addressed by administration? Treasury/IRS

Will the disclosure implicate other sensitive privacy concerns?

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

      Technological Challenges of Electronic Data Sharing

USCIS must also address a number of technological challenges to lay the
foundation that would enable data sharing to take place between the two
agencies. For example, in our July 2004 testimony, we reported that:

     o USCIS does not maintain any automated financial data on applicants.
       Although USCIS 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 USCIS systems contain some inaccurate data. We and the Department of
       Justice's Office of Inspector General have criticized USCIS systems
       because they contain some inaccurate data for identifying pieces of
       information that identifies applicants (such as immigrants'
       addresses).
     o USCIS and IRS databases do not always have a common numerical
       identifier for tracking individuals or businesses. USCIS uses alien
       registration numbers as tracking identifiers whereas IRS uses SSNs or
       EINs. Although USCIS's systems capture SSNs/EINs if they are provided
       on applications, USCIS does not require them to be entered into its
       systems. Thus, even though business sponsors should all have SSNs (if
       sole proprietor) or EINs (if another form of business), USCIS may not
       have entered the number into automated databases and therefore cannot
       match directly to IRS records.

These limitations in USCIS's record keeping would make electronic sharing
of data between USCIS and IRS less productive than it otherwise could be,
regardless of whether the data sharing was done directly between the
agencies pursuant to a change in IRC Section 6103 or whether done through
taxpayer consents. USCIS officials recognize that these problems could
interfere with achieving data sharing in the fully electronic environment
that they hope to achieve for adjudicators, but if a policy decision was
made to share data, they believe that some form of electronic data sharing
could be achieved relatively quickly without major technological
improvements. The officials believe that USCIS could develop interim
solutions while other USCIS transformation activities are under way. For
example, these officials said USCIS could modify its existing automated
systems to add a SSN/EIN identifier, and could adopt procedures to ensure
the identifiers are routinely entered in all locations. They view this as
a business process and policy challenge rather than a technological
challenge. They also believe they could link the existing USCIS record
identifiers to SSNs and EINS to enable data sharing to take place with IRS
relatively quickly.

Officials did offer some cautions about how quickly even these changes
could be implemented. For example, they said that although adding a
SSN/EIN identifier to their existing systems may only take a few months,
changing immigration forms and notifying adjudicators and the larger
community about the change could take much longer. As mentioned
previously, these officials contend that establishing a new immigration
requirement on applicants for a tax check will necessitate business
process and procedural changes by USCIS, as well as an education process
to the immigration community and the third parties that assist petitioners
with their applications, which could take years. Finally, these USCIS
officials pointed out, and the agency's fiscal year 2006 budget request
reflects, that the agency's current priorities fall into three areas: (1)
enhancing national security, (2) eliminating the immigration benefit
application backlog, and

(3) improving customer service. They stated that implementing changes to
enable data sharing with IRS might take a longer time because it is not
one of the agency's three main priorities.

If data sharing were to occur, officials ultimately would prefer to have
it integrated into a transformed USCIS information technology (IT)
environment. Since July 2004, USCIS has taken a number of steps to improve
IT capability. In March 2005, USCIS unveiled its IT transformation plan
that USCIS describes as a large scale and complex program to increase
capabilities, streamline processes and support the collection of service
fees. As such, the overall planned IT upgrade includes changes, which will
improve the agency's overall IT environment as well as facilitate data
sharing such as:

     o Moving from a paper to an automated environment;
     o Adding a unique identifier to track records for background checks;34
          * Implementing electronic adjudication whereby adjudicators will be
            able to review immigration applications and supporting evidence
            online, among the first increments of the IT upgrade.
          * Of the many ongoing activities related to USCIS's IT
            transformation, USCIS officials described three major projects
            under way to improve its ability to receive and share data within
            the agency as well as with other agencies:
     o Data layer/repository - this project will present users with a
       consolidated system to access information from 63 USCIS systems rather
       than the current situation where users have to log onto separate
       systems to obtain data. This capability would be available to
       adjudicators and, eventually, to external users.
     o Software updates - this project will upgrade, among other things,
       USCIS's desktop and software capabilities, USCIS's servers and
       network, and USCIS's capability to support the new electronic
       processes.
     o E-adjudication pilots - this project will allow paperless (electronic)
       adjudication for certain immigration forms. Initially, USCIS has plans
       to pilot green card replacement/renewal applications (Form I-90) and
       extension applications for temporary workers in specialty occupations
       (Form I-129 H1B).

In the fall of 2004, USCIS officials anticipated implementing the
e-adjudication pilots by mid-April 2005 and having the ability to receive
data from IRS in June or July 2005. However, these projects have not
gotten under way as scheduled; the start of the pilots is dependent on the
data layer and software updates being in place. USCIS could not provide us
with a completion date for the data layer and e-adjudication pilots due,
in part, to uncertainty regarding future funding. USCIS expects to
complete

34USCIS is currently reviewing whether its integrated case management
system and electronic adjudication process will track records using
current immigration identification schemes (alien registration numbers) or
will develop and implement a modernized immigrant identification scheme
(still to be designed) that may use EINs/SSNs to track records.

Page 38 GAO-06-100 Taxpayer Information

full implementation for its information technology transformation by
fiscal year 2010. We are examining USCIS's technological improvements as
part of our ongoing work on immigration backlog and benefit fraud issues.

      Cost Challenges of Data Sharing

Estimating the cost benefit associated with establishing and maintaining a
data-sharing relationship can be complicated. One reason developing a cost
estimate is difficult is because electronic methods of sharing data can
vary, and different costs are associated with different methods of
sharing. For example, USCIS may incur technological costs related to
improving their IT capability to enable data sharing, which can be
processed by either magnetic tape or computer file, each of which has
different costs. However, some of the necessary IT improvements are
already planned and would be funded as part of USCIS's comprehensive
upgrade of its IT systems if data sharing with IRS does not occur.

Estimating the cost benefit is also complicated because of the difficulty
both agencies may encounter in establishing costs for providing the
service. The Computer Matching and Privacy Protection Act of 1988 states
that no matching program can be approved unless the agency has preformed a
cost-benefit 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 stresses 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 our July 2004 testimony, we recommended that IRS and
USCIS assess the benefits and costs of data sharing to enhance tax
compliance and improve immigration eligibility decisions. IRS responded by
stating it would study the issues and work with USCIS to identify possible
solutions. DHS/USCIS agreed with our recommendation and said they were
"exploring a technical capability for effectively and efficiently sharing
data with the IRS on individuals who apply for immigration benefits." In
addition, in 2004, we reported IRS did not have a cost accounting system
capable of providing reliable cost

    Currently Authorized User Fees Can Fund Data Sharing, but IRS Could Not
    Recover All Related Costs

information,35 and in 2004, we also reported USCIS had insufficient cost
data to determine the full extent of its operating costs.36

Finally, estimating the cost benefit is also complicated because of
uncertainty regarding the net benefits that would be gained from data
sharing. 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 USCIS developed more leads for possible enforcement actions, IRS
likely would only be able to pursue the portion of cases that exceeds
thresholds IRS uses in determining how many cases to pursue. Further,
apparent noncompliance may not be substantiated. For example, some of
those who appear not to have filed tax returns based on matching IRS and
USCIS data may indeed have filed but were not found in IRS's databases due
to inaccurate information in USCIS files or otherwise not have a filing
obligation. Of business sponsors with unpaid assessments, some portion
likely would be unable to repay all taxes owed. From USCIS's perspective,
although we found that many businesses may not have filed tax returns or
may owe taxes, some of these situations may not be significant enough to
affect a USCIS adjudicator's decision about their financial feasibility or
legitimacy. For instance, some of the businesses applying to sponsor
immigrant workers that owe taxes may not owe enough to raise doubts about
their ability to pay the worker. This may be especially true for larger
businesses.

Under current statutes, USCIS likely would be able to increase its user
fees to recover all costs associated with data sharing with IRS and to
retain the fees, but IRS would not be able to charge user fees that would
include costs to bring noncompliant business sponsors into compliance.
Because IRS could not recover all costs, it might not realize an increase
in net tax collections through data sharing with USCIS.

Both IRS and USCIS currently have authority that states when and under
what circumstances they can charge user fees and defines permissible uses
of the funds. IRS is statutorily restricted to retaining no more than the

35GAO, Financial Audit: IRS's Fiscal Years 2004 and 2003 Financial
Statements, GAO-05-103 (Washington, D.C.: Nov. 10, 2004).

36GAO-04-309R.

Page 40 GAO-06-100 Taxpayer Information

$119 million in user fees annually. If the additional user fees to perform
tax checks for USCIS business applicants seeking to sponsor workers
generate additional funds that exceed IRS's limit, the agency would be
unable to retain the excess amounts. Further, IRS is limited to recovering
the costs directly associated with providing a service to taxpayers.
USCIS, on the other hand, does not have a limit on the amount of user fees
it can collect and currently is authorized to collect and retain a user
fee related to providing adjudicatory and naturalization services
including compliance related costs.

In 2004, IRS collected over $137 million in user fees for a wide range of
services, including installment agreements, offers in compromise, and
Freedom of Information Act (FOIA) requests.37 In fiscal year 2004, about
82 percent of all user fees collected by IRS were for installment
agreements or employee plans and exempt organizations' letter rulings and
determination letters.38 The 1995 Treasury Appropriations Act specifies
that IRS can keep an overall maximum of $119 million per year of the user
fees it collects for specific purposes, with the rest of the user fees
going into the Treasury general fund.39 However, statutory formulas also
limit how much IRS can retain of certain individual user fees. Due to
these individual user fee limits, in 2004, IRS retained about $90 million
from the user fees collected (see table 7) while the remaining $48 million
went to the Treasury general fund.

37An offer-in-compromise is an agreement between a taxpayer and IRS that
resolves the taxpayer's tax liability for less than the full amount owed
for taxes, interest, and penalties. IRS charges a one-time fee. FOIA
requestors are charged a one-time fee and are provided with agency records
as requested, with some exceptions.

38A letter ruling is a written determination issued in response to a
written inquiry from an individual or an organization about its status for
tax purposes or the tax effects of its acts or transactions, prior to the
filing of returns or reports that are required by the revenue laws. A
determination letter is written and applies the principles and precedents
previously announced by IRS to a specific set of facts. It is issued only
when a determination can be made based on clearly established rules in a
statute, a tax treaty, the regulations, a conclusion in a revenue ruling,
or an opinion or court decision that represents the position of IRS.

39Pub. L. 103-329, Sept. 20, 1994.

             Table 7: User Fees Collected by IRS, Fiscal Year 2004

Dollars in millions       
                                                                 User fees to
                                                     Treasury       User fees 
Fee type                  User fees collected general fund retained by IRS 
Installment agreements                  $69.4          0.0            69.4 
Offers-in-compromise                      6.6          0.0             6.6 
Employee plans and exempt                43.1        $41.2             1.9 
organizations letter                                       
rulings                                                    
and determination letters                                  
Chief counsel letter                      9.3          5.5             3.8 
rulings                                                    
and determination letters                                  
Photocopy reimbursable                    6.4          0.0             6.4 
user fees                                                  
Other                                     2.8          1.2             1.6 
Total                                  $137.6        $47.9            89.7 

Source: IRS.

According to USCIS officials, in 2004, USCIS collected $1.3 billion in
user fees for administering a variety of immigration services and
benefits. Altogether, the agency has about 60 user fees, which range from
$2 to $585, except for the $1000 premium-processing fee for select
employment based applications.40 With the exception of FOIA fees, which
are retained by the Treasury, DHS retains all user fees collected.
According to USCIS, the agency's budget will be entirely fee based
beginning in fiscal year 2007.41

IRS cannot collect and retain a user fee to support the compliance-related
costs it incurs in connection with data-sharing activities. IRS currently
only has authority to collect and retain a user fee related to the direct
cost of providing the service-such as providing a copy of a tax return. If
business sponsors were required to meet their tax obligations before they
could sponsor immigrant workers, IRS also would incur costs to bring some
sponsors into tax filing and payment compliance. As discussed earlier,
bringing noncompliant business sponsors into compliance could displace
other compliance activities that IRS would otherwise undertake.

408 C.F.R. S:103.7.

41According to USCIS, the agency will seek appropriations in the fiscal
year 2007 budget to fund its information technology upgrades.

Page 42 GAO-06-100 Taxpayer Information

Depending on whether bringing the noncompliant business sponsors into
compliance brought in more, the same, or less taxes than the displaced
cases, bringing business sponsors into compliance could result in little
change to IRS's overall net tax collections, an increase, or possibly even
a decrease.

If data sharing were begun between USCIS and IRS and a user fee is
charged, a number of implementation issues also would need to be
considered. For example, would both agencies charge fees to cover their
costs? Would one charge a fee sufficient to cover both agencies' costs
and, if so, how often would it forward collected monies to the other
agency? In addition, if IRS were authorized to include costs for bringing
noncompliant business sponsors into compliance, it likely would have to
adjust the fees as it gained experience in determining how much cost it
would incur to bring sponsors into compliance.

Data sharing between IRS and USCIS has the potential to better guide IRS's

  Conclusions

efforts to identify and correct noncompliance by taxpayers and result in
more informed, accurate, and timely immigration eligibility decisions by
USCIS adjudicators. Although the agencies would benefit in differing ways,
establishing and implementing data sharing can be beneficial to both
agencies. For tax compliance purposes, requiring a tax check- documenting
whether a business sponsor has filed required returns and paid required
taxes-likely would lead some businesses to come into compliance because
they would know that USCIS would consider this information in determining
whether the business can sponsor immigrant workers. However, because USCIS
would only consider this information as one indication of whether
businesses qualify to sponsor workers, a greater tax compliance increase
is likely if businesses were required to meet tax filing and payment
obligations as a condition for sponsoring workers. Given the billions of
dollars of unpaid tax assessments among past business sponsors, our
matching results illustrate strong potential for increased tax collections
from changing immigration eligibility requirements. Although USCIS
officials say no statutory provision prohibits USCIS from changing its
regulations to require business sponsors to meet their tax filing and
payment obligations, officials believe a statutory change would better
withstand a legal challenge. Further, because collecting the unpaid
assessments of business sponsors would displace other tax collections
work, absent funding to cover its costs of bringing the business sponsors
into compliance, IRS might not realize a net increase in overall tax
collections.

  Matters for Congressional Consideration

For immigration eligibility purposes, requiring business sponsors to meet
their tax filing and payment obligations would help ensure businesses
applying to sponsor immigrant workers are legitimate. Short of this
change, either an applicant-initiated or an agency-initiated data-sharing
arrangement could help improve benefit decisions. Our analysis shows
strong potential to improve thousands of immigration eligibility decisions
if USCIS uses IRS data to help support officials' decisions about a
business sponsor's financial health.

Even though data sharing shows promise to benefit both agencies, they
would face implementation choices and challenges that could require
technological or statutory solutions. In order to develop a better
understanding of the implementation challenges and costs, to explore the
most practical options for full scale implementation of data sharing, and
to more completely assess benefits to IRS and USCIS from data sharing,
USCIS should undertake a pilot test of data sharing under existing
authority to use taxpayer consents to obtain tax data. Such a study would
be consistent with congressional and executive branch policies that stress
that sharing of tax data be thoroughly justified given concerns about
possible adverse effects on tax compliance if the confidentiality of
taxpayer's data is compromised. Additionally, a study could assess issues
raised by USCIS's Ombudsman and immigration advocacy groups. A study would
provide executive and legislative policymakers better information for
determining the costs and benefits of data sharing and whether USCIS
should require taxpayer consents from all future business sponsors or
whether a change to IRC Section 6103 would better support efficient data
sharing.

To improve taxpayer compliance and USCIS's immigration benefit decisions,
Congress should consider (1) changing immigration eligibility to require
businesses applying to sponsor immigrant workers to meet tax filing and
payment obligations to sponsor immigrant workers and

(2) authorizing a user fee to be collected and retained by IRS to cover
the costs of bringing non-compliant taxpayers into compliance.

To improve the accuracy and timeliness of USCIS's immigration eligibility

  Recommendation for

decisions absent requiring businesses to have met their tax filing and
payment obligations, we recommend the Secretary of the Department of
Homeland Security direct USCIS, in consultation with the IRS, to conduct a

  Agency Comments and Our Evaluation

pilot data-sharing test. In the test, USCIS should require a tax check for
selected businesses and other entities applying to sponsor immigrant
workers before qualifying for immigration benefits. The pilot test should
assess and document the costs and benefits of data sharing including key
issues such as using paper or electronic consents, or pursuing specific
IRC Section 6103 disclosure authority, assessing resource implications,
and considering how the agencies would allocate responsibilities for
collecting and allocating user fees from the business sponsors.

The Commissioner of Internal Revenue provided written comments on a draft
of this report in a September 16, 2005, letter. The Commissioner agreed
that data sharing between the IRS and USCIS within the Department of
Homeland Security may have many benefits. IRS agreed to conduct a
small-scale pilot test, in conjunction with USCIS, to determine whether a
business case exists for supporting data sharing before pursuing
legislation or a large-scale taxpayer consent program. The Commissioner
also stated an executive working group will determine the merits of
applying user fees for compliance data sharing.

On behalf of the Secretary of DHS, the Director of DHS's Office of
Inspector General Liaison provided written comments on a draft of this
report in a September 26, 2005, letter. The Director generally agreed with
our recommendation and acknowledged the pilot program would be consistent
with USCIS's desire to explore ways to streamline its processes and could
provide necessary information with respect to considering the feasibility
of initiatives such as data sharing on a larger scale. He appreciated
GAO's recognition of the burden of paper taxpayer consent forms place on
USCIS and its reluctance to embark on a process that would be largely
paper-based.

Although the Director generally agreed with our recommendation, his
agreement was contingent on the extent to which USCIS can lawfully engage
in a pilot program as we recommend. The Director's letter did not
elaborate on his uncertainty regarding USCIS's ability to lawfully engage
in the recommended pilot program. Based on supplemental communication, his
concern focused on USCIS's authority to require business sponsors to
consent to a tax check. According to the Director, immigration laws
contain no explicit prohibition on conditioning employer petitions on
their tax compliance and doing so might be legally defensible.
Nevertheless, he said USCIS has serious legal concerns about USCIS's
authority to promulgate regulations with such a requirement.

The Director did not describe the legal concerns and therefore we do not
have a basis to evaluate them. Consulting with IRS in determining how to
design the pilot test should help USCIS resolve these concerns. We note
that Education requires taxpayer consents as a condition of participation
in certain student loan repayment programs.42 Should USCIS ultimately
conclude that it does not have authority to require such a waiver, an
option for proceeding with the pilot test would be to ask selected
business applicants to voluntarily allow USCIS to directly obtain tax data
from IRS. Taxpayers may authorize others to obtain their tax data directly
from IRS.

The Director also expressed concerns about the impact of ongoing tax
disputes on immigration benefit decisions if those decisions are
contingent on a taxpayer being required to meet tax filing and payment
obligations. We believe consultations between USCIS and IRS in designing a
pilot program can address this issue. For instance, officials might decide
that businesses with some minimal level of tax underpayment or businesses
with tax delinquencies that are actively participating in a payment
arrangement with IRS would not be disqualified from sponsoring immigrant
workers. We would urge USCIS and IRS to develop data-sharing policies that
would minimize the impact of ongoing tax disputes on immigration benefit
decisions for business sponsors.

In commenting on a user fee to be collected and retained by the IRS, the
Director agreed that IRS should be provided with adequate resources to
carry out its tax compliance mission but had serious concerns about the
user fee proposal. The Director commented that policy considerations have
kept USCIS from completely using its authority to recover its full costs.
He noted that Congress has mandated several additional fees for certain
employment-based applications and that, "in short, the more interagency
functions the overall cost of an application to USCIS is expected to
support, the higher the cost to the applicant without consequent
improvements in USCIS services, the less likely it is that USCIS will be
able to increase its fees as may be necessary to fully recover its own
costs." The Director also noted that we had previously reported that fee
collections are not sufficient to pay USCIS's full costs.

We understand that many considerations must be taken into account in
setting USCIS's overall fees. However, as our report indicates, obtaining
a benefit from IRS's perspective depends substantially on having
sufficient

42GAO-03-821.

funds to bring business applicants that have outstanding tax filing or
payment obligations into compliance. Further, as also indicated in our
report, USCIS access to IRS tax data for determining immigration benefit
decisions has the potential to improve service to USCIS's business
applicants because it could decrease rework and follow-up work with the
applicant that currently occurs. This would help USCIS in minimizing
processing time for all business sponsors. Ultimately, with more routine
access to IRS data, USCIS might not need to request as much financial
information from business applicants as it does now since USCIS officials
themselves see IRS data as more reliable than information provided by
applicants. Finally, the GAO report cited by the Director did conclude
that USCIS fees were not sufficient to fully fund USCIS's operations. The
insufficiencies, however, were not due to fees being collected for
interagency functions. Rather, we said this resulted because USCIS's fee
schedule was based on an outdated fee study that did not include all costs
of USCIS's operations and costs had increased since the fee study was
conducted.43

Finally, the Director commented that the proposed user fee to cover IRS's
compliance related costs seemed to be different in concept from other
existing user fees. As the Director noted, it was not within the scope of
our review to examine all user fee relationships between IRS and other
agencies. Based on the work we did, we are not aware of another case in
which IRS receives a user fee to bring applicants for other agencies'
benefits into compliance with their tax obligations. However, Congress has
authorized new or expanded funding arrangements to help IRS deal with its
workload. For instance, in Treasury's appropriations for 1995, Congress
specifically authorized IRS to establish new user fees or raise existing
fees for services provided in order to increase receipts.44 More recently,
Congress also authorized IRS to use private collection agencies to assist
in collecting delinquent taxes and specified that up to 25 percent of
money collected can be used to pay the collection agencies and another 25
percent can be retained by IRS.45 Given the substantial unpaid taxes that
we found among businesses applying to sponsor immigrant workers, we
believe that it is appropriate for Congress to consider steps for
effectively bringing these taxpayers into compliance without unduly
deterring IRS from

43GAO-04-309R.

44P.L. 103-329, Sept. 30, 1994. 45P.L. 108-357, Oct. 22, 2004.

Page 47 GAO-06-100 Taxpayer Information

pursuing other noncompliant taxpayers. As our report explains, for this to
occur, IRS's costs for bringing the noncompliant business sponsors into
compliance must be covered, otherwise IRS might experience a net decrease
in tax collections. Consequently, our report put forth the user fee as one
option for Congress to consider for supporting a potential data-sharing
arrangement between IRS and USCIS.

As agreed with your office, unless you publicly release its contents
earlier we plan no further distribution of this report until 30 days from
the date of this letter. At that time, we will send copies to interested
congressional committees, the Secretary of the Treasury, the Commissioner
of Internal Revenue, the Secretary of the Department of Homeland Security,
the Director of the United States Citizenship and Immigration Services,
and other interested parties. We will also make copies available to others
on request.

If you or your staff have any questions about this report, please contact
me at (202) 512-9110 or [email protected]. Contact points for our Offices
of Congressional Relations and Public Affairs may be found on the last
page of this report. GAO staff who made major contributions to this report
are listed in appendix IV.

Michael Brostek Director, Tax Issues, Strategic Issues Team Appendix I

                       Objective, Scope, and Methodology

Our objectives were to determine the (1) potential benefits of data
matching and the (2) options for establishing and maintaining a
data-sharing relationship between the Internal Revenue Service (IRS) and
the

U.S. Citizenship and Immigration Services (USCIS), including any
challenges associated with those options.

We performed our work at various IRS offices, including the Office of
Governmental Liaison and Disclosure, the Office of Safeguards; and the
Office of Program, Evaluation, and Risk Analysis. Our work included
interviews with employees in IRS's Wage and Investment Operating Division
and Small Business/Self Employed Operating Division. We interviewed USCIS
officials in headquarters' operational, technological, fraud, ombudsman,
and policy offices. Additionally, we interviewed representatives of two
immigration advocacy groups-the American Council on International
Personnel and the American Immigration Lawyers Association-to obtain their
perspectives on potential changes to immigration eligibility rules.

To determine the potential benefits of data matching between IRS and
USCIS, we summarized the benefits reported in our July testimony (GAO-
04-972T ), including the results of our data matching efforts (see app.
II). We worked with IRS on conducting additional research for business
sponsors unknown to IRS (identified in our July 21, 2004 testimony) to
determine whether they are operating businesses/organizations and have any
tax compliance problems. To better illustrate the potential tax compliance
benefit related to business sponsors who have unpaid tax assessments, we
further stratified the business sponsors with unpaid assessments from our
nationwide selection to identify subpopulations of business sponsors that
were or were not in a payment arrangement or had made payments within 2
years.

To determine the options for establishing and maintaining a data-sharing
relationship between the IRS and USCIS, we interviewed IRS and USCIS
officials on processes in place that support data sharing under existing
disclosure authorities. We summarized operational information such as
timeliness, costs, and volume levels for existing data-sharing
relationships to provide perspective on the options for establishing a
data-sharing relationship between IRS and USCIS. We interviewed IRS
officials on the resource implications of sharing data via different
data-sharing arrangements. We compiled examples of private institutions
and state entities that use "tax checks"- IRS verification that a taxpayer
filed and/or paid his or her taxes--for eligibility determination purposes
and to

Appendix I Objective, Scope, and Methodology

summarize costs associated with "tax checks." We interviewed IRS and USCIS
officials and obtained and reviewed statutory and regulatory guidance on
the use of user fees and summarized information on (1) types of user fees
IRS has in place to support compliance and enforcement activities, (2)
regulatory implications for employing a user fee to support data sharing
between USCIS and IRS, and (3) whether user fees go to the general fund or
the Treasury fund. Finally, we interviewed USCIS officials and reviewed
documents on planned changes to immigration eligibility that may impact
the type of IRS information immigration adjudicators will need for
eligibility decisions.

To determine the potential challenges of data matching between IRS and
USCIS under the various data-sharing options, we primarily summarized the
challenges reported in our July testimony, including the technological,
cost, and legislative barriers. We identified and reviewed the legislative
and regulatory authorities that govern disclosure of personal and
financial information for eligibility determinations and tax compliance
purposes. We interviewed USCIS policy and legal staff on the implications
of changing immigration eligibility decisions to require applicants to (1)
provide taxpayer consents that allow IRS to share data and (2) be current
on their taxes and review related documentation. We also interviewed USCIS
and IRS officials regarding future cost challenges associated with
establishing a data-sharing relationship.

We assessed the reliability of IRS's Business Master File (BMF) and
Individual Master File (IMF) data and the USCIS's Computer Linked
Application Information Management System, Version 3.0 (CLAIMS 3), a
database containing nationwide data but not naturalization data, by (1)
performing electronic testing of required data elements, (2) reviewing
existing information about the data and the system that produced them, and
(3) interviewing agency officials knowledgeable about the data. As part of
our annual audits of IRS's financial statements, we also assess the
reliability of IRS's BMF and IMF data with respect to unpaid assessments
by testing selected statistical samples of unpaid assessment modules. We
determined that the data were sufficiently reliable for the purposes of
this report.

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 USCIS officials to identify immigration forms
they believed would most benefit from data sharing with IRS, and we relied
on IRS and USCIS

Appendix I Objective, Scope, and Methodology

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 USCIS field locations was
not a probability sample, we cannot make inferences about the population
of applications. In addition, because employer identification
numbers/social security numbers 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. We did not assess the reliability or quality of
taxpayer information collected by IRS or the accuracy of information
applicants reported to USCIS. Immigration applicants/taxpayers who were in
IRS's non-filer database could include individuals who did not meet IRS
filing requirements. We relied on IRS's investigation of the 33 business
sponsors that were not in IRS's databases since disclosure rules limit our
contact with taxpayers. Since IRS searched its tax data for the last 5
years (1999- 2004) and we collected 7 years of immigration data
(1997-2004), an unknown but likely small percentage of the businesses that
submitted applications during 1997 and 1998, but are unknown to IRS, could
be no longer in operation. Additionally, we did not assess the reliability
of IRS data on the cost of paper taxpayer consents since we used this
information for background purposes. We conducted our work from August
2004 through August 2005 in accordance with generally accepted government
auditing standards.

Appendix II

Summary of IRS/USCIS Data-Matching Results

The tables that follow present the data we reported in our July 2004
testimony ( GAO-04-972T ) on the results of matching two sets of USCIS
immigration data 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
Immigrant1) submitted from January 1, 1997, through March 5, 2004, to
USCIS service centers for immigration benefits. We used only those
applications in USCIS'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). For the matching process, 3.4
million out of 4.5 million records had usable SSNs or EINs. We obtained
automated data for those years because USCIS's automated system had
historical data not readily available in hard copy files. We used these
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 USCIS
applicants reported the same income amounts to IRS and USCIS.

Second, we visited five USCIS field locations and selected a
nonprobability sample of 984 immigration files covering the period of 2001
through 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 USCIS. We
obtained hard copy files for those years because the USCIS offices we
visited had immigration applications for those years on-site. 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

1The I-360 applications in our sample were submitted by religious
organizations sponsoring religious workers.

Page 52 GAO-06-100 Taxpayer Information Appendix II Summary of IRS/USCIS
Data-Matching Results

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);
I360 (Petition for Amerasian, Widow(er), or Special Immigrant); and I-864
(Affidavit of Financial Support) that accompanies the I-485 (Application
to Register Permanent Residence or to Adjust Status). 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 I-829s for a small number of
individual immigrants who had unpaid assessments or were nonfilers and
none for business or individual sponsors.

To facilitate matching immigration and taxpayer data, we divided
immigration applicants into three groups: business sponsors, individual
sponsors, and individual beneficiaries. 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 used this sample to determine whether USCIS applicants reported the
same income information to IRS as to USCIS and also as a second source of
examples of USCIS applicants may who not have filed tax returns and may
have owed taxes to IRS.

Tables 1-3 show our results on business sponsors, individual sponsors, and
individual beneficiaries that have unpaid assessments2 or are nonfilers
for

2Immigration 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.

Page 53 GAO-06-100 Taxpayer Information

Appendix II Summary of IRS/USCIS Data-Matching Results

both our nationwide selection and nonprobability sample of immigration
files.

       Table 8: Number and Percentage of Total Applications GAO Collected

                                                      Total with              
                                      Years     Total identifiers  Percentage
Nationwide selection of                                                    
automated immigration data                                      
(CLAIMS 3)                     1997-2004 4,518,875  3,430,754         75.9
Nonprobability sample of                                                   
hardcopy application files     2001-2003       984          984      100.0

                      Source: GAO analysis of USCIS data.

  Table 9: Matching Results on Nationwide Data, 1997 through 2004 - Automated
                                     Dataa

                                  Owe IRS taxes        Nonfilers            Unknown to IRS
                Matched with IRS's database for Matched with IRS's       Did not match IRS
                                                nonfiler                 Master 
                            unpaid assessmentsb         database          Files and subsetsc
                 Total Number  Percent   Amount Number Percent  Amount   Number Percent Amount
Business                                                             Not                
sponsors                                                       available                
(petitioners)  413,723 18,942       4.6  $5.6   67,949    16.0     (N/A) 19,972     4.8    N/A
                                        billion                                         
Individual                                                               
sponsors                                                                 
(petitioners)    51,169    889    1.7 49.8         791       1.5     N/A    4,378     8.6  N/A 
                                      million                                              
Individual                                                               
beneficiaries 2,009,046  38,877 1.9 327,859,723   25,662     1.3     N/A  511,180   25.4   N/A 

Source: GAO analysis of IRS and USCIS data.

aThese results have been time controlled. That is, these numbers reflect
taxpayers' filing status with IRS at the time the USCIS application was
filed.

bUnpaid assessments are maintained in IRS's accounts receivable database.

cDid not match IRS's IMF, BMF, accounts receivable, nonfiler, revenue and
refunds, BMF Taxpayer Identification Number Cross-Reference file, BMF
entity file, and the IMF entity file.

Appendix II Summary of IRS/USCIS Data-Matching Results

    Table 10: Matching Results on Nonprobability Sample, 2001 through 2003 -
                          Hard Copy Application Files

                               Owe IRS taxes        Nonfilers            Unknown to IRS
                 Matched with IRS's database Matched with IRS's       Did not match IRS
                                             nonfiler                 Master 
                    for unpaid assessmentsaa         database          Files and subsetsb
            Total Number Percent   Amount    Number Percent  Amount   Number Percent Amount
Business                                                              
sponsors                               $39.0                   $533.4 
(petitioners) 475        94   19.8   million   112     24.0   million     13       2.7  N/A 
Individual                                                            
sponsors                                                              
(petitioners) 273     14       5.2   84,761           4 1.5   19,189      17       6.3  N/A 
Individual                                                            
Beneficiaries 804     20       2.5  100,821        7        .9    903        83  10.3   N/A 

Source: GAO analysis of IRS and USCIS data.

Note: Results from nonprobability samples cannot be generalized to the
population.

aUnpaid assessments are maintained in IRS's accounts receivable database.

bDid not match IRS's IMF/BMF, accounts receivable, nonfiler, revenue and
refunds, BMF Taxpayer

Identification Number Cross-Reference file, BMF entity file, and the IMF
entity file.

                                  Appendix III

                   Comments from the Internal Revenue Service

Appendix IV

Comments from the Department of Homeland Security

Appendix IV Comments from the Department of Homeland Security Appendix IV
Comments from the Department of Homeland Security

Appendix V

                     GAO Contact and Staff Acknowledgments

Michael Brostek, (202) 512-9110

  GAO Contact

In addition to the contact named above, major contributors to this

  Acknowledgments

assignment were Signora J. May, Assistant Director; Jyoti Gupta, Tina
Younger, Michele Fejfar, Shirley Jones, Amy Rosewarne, and James Ungvarsky
who made key contributions to this report.

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