IRS's Information Exchanges with Other Countries Could Be Improved through Better Performance Information
GAO-11-730: Published: Sep 9, 2011. Publicly Released: Oct 7, 2011.
With trillions of dollars in cross-border financial activity, U.S. tax authorities and others around the world exchange information with each other to administer and enforce compliance with the tax laws of their respective countries. GAO was asked to (1) identify and describe all income tax treaties and other such agreements between the United States and other countries, (2) describe the volume of exchange activity, types of information exchanged between the United States and its treaty partners, and request processing times, and (3) identify opportunities to improve the effectiveness of current U.S. information exchange processes and procedures. GAO analyzed agreement documents, IRS data on information exchanges, and interviewed program officials and the users of exchanged information.
Treaties and other agreements authorizing information exchange provide tax authorities in the United States and abroad with a useful tax law enforcement tool. As of April 30, 2011, the United States had such agreements in force with 90 foreign jurisdictions. Agreements have many similar features, but the bounds within which information can be exchanged are unique to the legal and administrative arrangements agreed to by the United States and each partner. Between 2006 and 2010, 5,111 requests for information to or from the United States and 75 foreign jurisdictions were completed; 4,217 were incoming requests for information such as tax returns or corporate records and 894 were outgoing requests from the United States. IRS's enforcement presence also relies on several other methods to obtain relevant information, including a mechanism which yields about 2.1 million records annually from treaty partners. GAO estimates that most requests close about 50 to 200 days after being opened, but some take much longer. The time it takes to close requests can be influenced by factors such as the complexity of the requested information and the legal system of the treaty partner. GAO analysis of IRS data shows that the United States takes more time to close incoming requests for some groups of countries than others. Although IRS collects data on exchanges between the United States and its treaty partners, the agency does not consistently collect or analyze performance information, such as the type of information requested, whether the information was collected successfully, or feedback from staff making the requests about the usefulness of the information or their views on the process for obtaining it. Collecting this information could help program managers assess how well the IRS is managing the information exchange process, and whether changes to administrative processes and procedures could improve the exchange of information between the United States and its treaty partners. GAO recommends that the Commissioner of Internal Revenue determine the key types of performance information that exchange program managers could use to ensure the program is working as well as possible. Specifically, the Commissioner should require the collection of (1) consistent and accurate data on specific tax information exchange cases and (2) feedback from program users on a routine basis as part of regular program operations. IRS concurred with our recommendation. The agencies discussed in this report also suggested technical changes to a draft of this report which GAO incorporated as appropriate.
Recommendation for Executive Action
Status: Closed - Implemented
Comments: In August 2012, we received documentation from IRS showing that the agency had approved and commenced implementing programming changes to the information system that the agency uses to track data on exchange of information cases. IRS added data fields for the type of information exchanged, case status, and the disposition of cases, including the extent to which an information request was fulfilled. To capture feedback from information exchange program users, IRS created surveys to gather information about the value and use of the information obtained, and inviting suggestions for Exchange of Information Program improvements.
Recommendation: To identify opportunities to improve the administrative processes and procedures that the IRS uses to exchange information between the United States and its treaty partners, the Commissioner of Internal Revenue should determine the key types of information that exchange program managers could use to ensure the program is working as well as possible. The commissioner should specifically require the collection of (1) consistent and accurate data on specific tax information exchange cases, such as the extent to which requests for information are satisfied and the type of information requested, and (2) feedback from information exchange program users on how well the program is working and how it might be improved.
Agency Affected: Department of the Treasury: Internal Revenue Service