oversight

IRS Records: Inconsistencies Between Statutes Affect Records Appraisal

Published by the Government Accountability Office on 1997-10-02.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

               United States General Accounting Office

GAO            Report to Congressional Requesters




October 1997
               IRS RECORDS
               Inconsistencies
               Between Statutes
               Affect Records
               Appraisal




GAO/GGD-98-4
      United States
GAO   General Accounting Office
      Washington, D.C. 20548

      General Government Division

      B-271700

      October 2, 1997

      The Honorable Bill Archer
      Chairman, Committee on Ways and Means
      House of Representatives

      The Honorable Nancy L. Johnson
      Chairman, Subcommittee on Oversight
      Committee on Ways and Means
      House of Representatives

      At any given time, the Internal Revenue Service (IRS) maintains millions of
      cubic feet of federal records. These records include documentation of
      agency policies and decisions, agency operations, and individual and
      corporate tax returns. IRS records containing tax returns and return
      information are protected from disclosure to any unauthorized person by
      26 U.S.C. 6103 of the Internal Revenue Code.

      The Federal Records Act (FRA)1 requires IRS to prepare disposition
      schedules for its records and to submit the schedules to the National
      Archives and Records Administration (NARA) for approval. NARA appraises
      federal records for their historical value, provides assistance to agencies in
      carrying out their records management and disposition responsibilities,
      oversees agency records management programs, and promulgates and
      administers regulations dealing with federal records. This report responds
      to your request that we evaluate certain aspects of IRS’ records
      management program. Specifically, you asked us to (1) determine how IRS
      applies the restrictions of section 6103 in reviewing and inventorying its
      records and (2) evaluate how IRS carries out its records management
      responsibilities. Your request was precipitated by the long-standing issues
      surrounding NARA’s access to IRS records for appraisal purposes, the
      former IRS historian’s allegations concerning IRS’ records management
      program, and a 1995 NARA evaluation of IRS’ records management program.2
      Because the NARA evaluation of IRS’ overall records management program
      was released just before the start of our work in early 1996, we focused on
      the issues NARA found to be most troublesome. These issues also
      corresponded with your concerns.




      1
       44 U.S.C. Chapters 21, 29, 31, and 33.
      2
       A NARA Evaluation: Records Management in the Internal Revenue Service, Department of the
      Treasury, December 14, 1995.



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                       The following terms, as defined in a NARA glossary3 and the Internal
                       Revenue Code, are used throughout this report:

                   •   Appraise refers to the determination of records’ value and their final
                       disposition.
                   •   Disposition refers to the actions taken regarding records that are no longer
                       needed for current government business. These actions include the
                       transfer to agency storage facilities or Federal Records Centers (FRC),
                       transfer from one federal agency to another, transfer of permanent records
                       to NARA, and disposal of temporary records.
                   •   Inventory refers to a survey of agency records and nonrecord materials
                       that is conducted primarily to develop records schedules and also to
                       identify various records management problems.
                   •   Schedule refers to a document that provides mandatory instructions for
                       what to do with records and nonrecord materials no longer needed for
                       current government business.
                   •   Tax return refers to any tax or information return, declaration of estimated
                       taxes, or claim for refund that is filed with IRS by, on behalf of, or with
                       respect to any person. This term also includes any amendment or
                       supplement to such document, including supporting schedules,
                       attachments, or lists that are supplemental to, or part of, the filed return.
                   •   Return information means the taxpayer’s identity; the nature, source, or
                       amount of his or her income, payments, receipts, deductions, exemptions,
                       credits, assets, liabilities, net worth, tax liability, tax withheld,
                       deficiencies, overassessments, or tax payments; whether the taxpayer’s
                       return was, is being, or will be examined or subject to other investigation
                       or processing; or any other data received, recorded, prepared, and
                       collected by or furnished to the Secretary of the Treasury with respect to a
                       return or to the determination of the existence, or possible existence, of
                       liability (or the amount thereof) of any person for any tax, penalty,
                       interest, fine, forfeiture, or any other imposition or offense. This term does
                       not include data in a form that cannot be associated with, or otherwise
                       directly or indirectly identify, a particular taxpayer.


                       NARA’s 1995 review of IRS’ records management program found that IRS had
Results in Brief       managed its overall records program according to NARA requirements,
                       except for certain issues. Specifically, NARA found that certain
                       management and policy documents, many of which IRS maintained were
                       subject to the disclosure restrictions of section 6103, were not inventoried
                       or scheduled for disposition as required, and that some documents were

                       3
                        A Federal Records Management Glossary, NARA, 1993, Second Edition.



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stored in unsatisfactory conditions. NARA’s review highlighted issues
associated with its inability to appraise certain IRS records for historical
value because of IRS’ interpretation of restrictions contained in section
6103. Our review confirmed that these records management problems
existed but also identified progress being made by IRS in resolving
deficiencies in its records management program. We also confirmed that
the controversy related to NARA’s access for appraisal purposes to records
containing tax returns or return information remains unresolved.

At the time of NARA’s review, certain IRS management records that
documented policymaking and high-profile programs and actions by
former commissioners and other top executives were not reviewed by
NARA because IRS maintained that the documents potentially contained
taxpayer-protected data and, historically, the two agencies could not work
out a mutually agreeable process for reviewing records given section 6103
restrictions on access to records containing tax returns or return
information.

NARA  and IRS subsequently worked out a test method for appraising some
of these management records. For the records of former IRS
commissioners and the former executive secretariat, IRS grouped records
into section 6103-protected and section 6103-nonprotected records. IRS and
NARA engaged in a “blind” review of the 6103-protected records, whereby
an IRS official described the records’ contents to the NARA records
appraiser who decided on the basis of this description whether the records
had historical value.4 The nonprotected records were made available to
NARA for appraisal. After the review, IRS prepared a records control
schedule for the records. We reviewed this schedule to ascertain the
volume of protected and nonprotected records on that schedule. We
observed that 59 percent of the records were designated as historical and
containing tax returns or return information, 36 percent were designated
as historical and containing no tax return information, and 5 percent were
designated as nonhistorical and could be destroyed after the applicable
period.

At the time of NARA’s and our reviews, a substantial backlog of
uninventoried records had accumulated at IRS. Also, in four of the six
headquarters storage locations we observed in early 1996, records were
stored in no particular order and under poor conditions. According to



4
 According to NARA officials, this blind method of reviewing records only worked for these particular
records because the historical value of the records was apparent and easily determined.



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                            NARA,some of the records stored at IRS headquarters could have been less
                            expensively stored at an FRC.

                            IRS acknowledged its records management problems. Early in 1996, IRS
                            escalated its efforts to improve its records management program with
                            NARA’s assistance. As of May 1997, IRS’ last official reporting date, NARA said
                            that IRS had completed action on 47 of NARA’s 58 recommendations to
                            improve records management and was making progress on the other
                            recommendations. The two agencies agreed that less progress had been
                            made on resolving NARA’s access for appraisal purposes to records
                            containing tax return information. NARA is still precluded from doing
                            independent reviews of IRS records that possibly contain tax returns or
                            return information. According to NARA, this lack of access did not hinder
                            its ability to make an overall evaluation of IRS’ records management
                            program, but did preclude it from independently appraising IRS records to
                            determine their historical value.


                            The law protecting taxpayers’ rights to privacy—codified in 26 U.S.C.
Background                  6103—is a critical underpinning of our voluntary tax system. Under this
                            law, access to tax returns or return information is limited to certain
                            federal employees working on tax issues and certain other authorized
                            persons. Such information is not to be released to the public or to other
                            unauthorized government officials. Congress considered these
                            protections, which are enforced by civil and criminal penalties, necessary
                            to encourage taxpayers to voluntarily file accurate information about their
                            taxes and to prevent inappropriate use of tax returns or return
                            information.

                            Government records management and retention laws have a different
                            purpose. FRA requires agencies to “make and preserve records containing
                            adequate and proper documentation of the organization, functions,
                            policies, decisions, procedures, and essential transactions of the
                            agency . . . .” The objectives of records management include the
                            maintenance of accurate and complete documentation of the policies and
                            transactions of the federal government, the establishment and
                            maintenance of control mechanisms to prevent the unnecessary creation
                            of records, and judicious preservation and disposal of records.


Statutory Inconsistencies   Both NARA and IRS agree that there are inconsistencies between the access
                            restrictions of section 6103 and the provisions of FRA that require NARA to



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appraise federal records. The legislative history of the National Archives
and Records Administration Act of 1984, while acknowledging the conflict,
does not resolve it. In 1984, the Department of the Treasury (Treasury)
determined that certain provisions of the draft legislation5 to make NARA an
independent agency would allow NARA to review management records that
might contain tax returns or return information. Treasury expressed
opposition to any overriding of the access restrictions of section 6103,
stating that it would endanger taxpayer compliance if NARA were given
access to tax returns that were filed with the expectation of
confidentiality. Accordingly, the Senate bill was amended to provide that,
notwithstanding any provision of the act, no tax returns or return
information as defined in section 6103 may be disclosed, except as
authorized by that title. The conference report6 stated that the concern for
the confidentiality of tax returns and return information was a legitimate
issue that deserved consideration as a separate matter. The report also
noted that the conferees were sensitive to the need to protect (1) the
confidentiality of tax returns and return information while also protecting
the permanent historical records of our government’s actions and (2) the
public’s right to know about those actions at some future time.
Consequently, the conferees urged NARA, IRS, and other affected agencies
to devise a cooperative means to address the issue.

The inconsistencies between the laws have resulted in a number of
controversies. For example, the Department of Justice’s Office of Legal
Counsel (OLC), which provides advice to resolve inconsistencies that arise
within the executive branch from differing interpretations of federal
statutes, has issued at least three memorandums addressing the section
6103 issue and the transfer of records containing tax returns or return
information to NARA.7

OLC concluded in 1986—its most recent memorandum—that the statutory
provisions generally empowering NARA to obtain and open 30-year-old
records that are subject to statutory restrictions in 44 U.S.C. 2107 and 2108
do not apply to tax returns and return information, which are strictly
protected by section 6103. Title 44 U.S.C. 2107(2) provides that when it
appears to the Archivist to be in the public interest, he may direct the


5
 S. 905, 98th Cong., section 2105 (1983).
6
 H.R. Conf. Rep. No. 98-1124, at 30 (1984).
7
 See U.S. Department of Justice Legal Counsel Memos: (1) “Transfer of Watergate Special Prosecution
Force Records to the National Archives-Income Tax Information-26 U.S.C. 6103(a)” (Sept. 27, 1977);
(2) “Applicability of the Non-disclosure Provisions of the Tax Reform Act” (Nov. 7, 1980); and
(3) “Authority of the FBI to Transfer Restricted Records to the National Archives and Records
Administration” (Feb. 27, 1986).


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transfer to the National Archives federal agency records that (1) have been
in existence for more than 30 years and (2) have been determined by the
Archivist to have sufficient historical value to warrant their continued
preservation. Title 44 U.S.C. 2108 in turn provides that the Archivist is
responsible for the custody, use, and withdrawal of records transferred to
him, and that such records are subject to the same statutory limitations
and restrictions with respect to their examination and use as were
applicable to the agency from which the records were transferred. Section
2108 provides further that statutory and other restrictions shall remain in
force until the records have been in existence for 30 years, unless the
Archivist, by order, having consulted with the head of the transferring
agency, determines that for reasons consistent with standards established
in relevant statutory laws, such restrictions shall remain in force for a
longer period.

Referring to its two previous memorandums, OLC advised that section 6103
and its legislative history indicated that such tax records are not to be
transferred to NARA. OLC reasoned that the legislative history of section
6103 made it clear that Congress intended no disclosure of tax returns or
return information, except in the carefully limited exceptions found in
section 6103.

Recent concerns raised about IRS’ records management program, as well
as allegations that IRS was using the access restrictions of section 6103 to
avoid making public records that could be embarrassing to the agency, led
Congress to reopen this access issue last year. The conference report
accompanying IRS’ 1997 budget directed the two agencies to submit a
report to the cognizant committees by March 1, 1997. The report was to
include an analysis of outstanding issues and recommendations as to how
the disposition of certain IRS records should proceed. NARA and IRS
submitted a report on March 17, 1997; however, because of a pending
lawsuit8 the agencies did not provide specific recommendations in their
report. The two agencies remained unable to reach agreement on the
long-standing issue of access. In an attempt to end the long-standing
access to IRS records issue, identical bills were introduced in both the
Senate and the House of Representatives in July 1997 as part of the
congressional effort to restructure IRS. Both bills provide the Archivist of


8
  Tax Analysts, et. al., v. IRS and NARA, United States District Court for the District of Columbia (Feb.
7, 1997). The four plaintiffs in the lawsuit alleged that IRS had violated the FRA and NARA regulations.
Among other things, they argued that IRS had not scheduled many of its records, had not maintained
an up-to-date records management program, and had denied NARA access to its records as provided
by law. The plaintiffs further alleged that NARA had failed to take action to compel IRS compliance
with the FRA and NARA regulations.



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                      the United States access to “all records of the Internal Revenue Service for
                      purposes of scheduling such records for destruction or for retention in the
                      National Archives.”


Federal Records       Title 44 of the U.S. Code establishes standards and procedures for the
Management Programs   creation, management, preservation, and destruction of federal records.
                      These records management standards and procedures are intended to
                      ensure (1) accurate and complete documentation of the policies and
                      transactions of the federal government, (2) control of the quantity and
                      quality of records produced by the federal government, (3) the
                      establishment and maintenance of control mechanisms to prevent the
                      unnecessary creation of records, and (4) the judicious preservation and
                      disposal of records.9

                      Under title 44, each federal agency, including IRS, is to make and preserve
                      records containing adequate and proper documentation of the
                      organization, functions, policies, decisions, procedures, and essential
                      transactions of the agency. Such records are to be designed to furnish the
                      information necessary to protect the legal and financial rights of the
                      government and of persons directly affected by the agency’s activities.10
                      To do this, each agency is to establish and maintain an active, continuous
                      records management program that provides effective controls over the
                      creation, maintenance, and use of agency records that are sufficient to
                      (1) document the persons, places, things, or matters dealt with by the
                      agency; (2) facilitate action by agency officials and their successors in
                      office; (3) make possible a proper scrutiny by Congress or other
                      authorized agencies of the government; (4) protect the financial, legal, and
                      other rights of the government and other affected persons; (5) document
                      the formulation of agency policies and decisions; and (6) document
                      important board, committee, or staff meetings.11

                      Title 44 also authorizes NARA to provide advice and assistance to federal
                      agencies with respect to ensuring adequate and proper documentation of
                      the policies and transactions of the federal government, proper records
                      disposition, and economical and effective records management. To fulfill
                      this responsibility, NARA is authorized to inspect the records or records
                      management practices and programs of any federal agency for the purpose

                      9
                       44 U.S.C. section 2902.
                      10
                          44 U.S.C. section 3101.
                      11
                          44 U.S.C. section 3102 and 36 C.F.R. section 1222.38.



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of making recommendations for the improvement of the agency’s records
management practices and programs. Under 44 U.S.C. 2904, NARA is to
report to the appropriate oversight and appropriations committees of
Congress on the results of inspections, the responses by agencies to NARA
evaluation recommendations, and the estimates of the costs to the federal
government resulting from the failure of agencies to implement such
recommendations.

NARA views the appraisal of federal records as its most important
responsibility under title 44. Under 44 U.S.C. sections 3303-3303a and 3314,
agency records may only be destroyed pursuant to a records schedule that
has been approved by NARA. Accordingly, the head of each agency is to
submit to NARA schedules of agency records proposing the time for
disposal of those records that do not have sufficient administrative, legal,
research, or other value to warrant further preservation. Under section
2107, NARA may direct and effect the transfer to the National Archives of
the United States those records that have been in existence for more than
30 years and that the Archivist has determined to have sufficient historical
value to warrant their continued preservation. Pursuant to its regulations,12
NARA is to appraise the records listed on agency schedules to determine
which records have sufficient historical value to warrant preservation and
transfer to its National Archives and is to approve the disposal of records
having only temporary value.

Historical records are defined by NARA as those that, among other things,
(1) document agency policies, procedures, and decisionmaking;
(2) generate widespread attention from the news media; (3) provide
information about an agency’s mission, organization, and history; and/or
(4) document persons, places, things, or matters dealt with by an agency
that contain information with significant research or reference value.13 It is
important to note that NARA’s appraisal process does not equate to public
disclosure of federal records. The process of “appraising records” deals
with the act of determining the value of records, which is an act involving
NARA appraisers and the federal agencies, rather than the separate issue of
public disclosure of the records.

Organizationally, IRS maintains two records management groups. First,
located within the Real Estate Planning and Management Division are the
IRS Records Officer and Servicewide records management staff. They are


12
  36 C.F.R. section 1228.182.
13
 National Archives and Records Administration Records Management Handbook, Disposition of
Federal Records, pp. IV-5 and C-1 through C-4.



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                     responsible for planning, developing, and establishing standards and
                     guidelines for the agency’s records management program. They also
                     coordinate with NARA and IRS field offices and headquarters. The second
                     group is located within the Support Services Division and includes the
                     headquarters records staff, which are responsible for IRS headquarters’
                     records management program and serve as the liaison to NARA’s
                     Washington National Records Center staff. In addition, records
                     management staff are designated in IRS’ field offices to perform functions
                     similar to those of the headquarters records management staff.


Section 6103         Before 1976, tax returns were described as “public records” and were
                     generally open to inspection, although only with the approval of the
                     president or under presidential order. Section 6103 was amended in 1976
                     to prohibit the release of tax returns or return information to unauthorized
                     persons; the prohibition was retroactive and thus encompassed
                     information generated before 1976. Before the 1976 amendment, questions
                     had been raised and substantial controversy created as to whether the
                     extent of actual and potential disclosure of tax returns or return
                     information breached the taxpayer’s expectation of privacy. This issue in
                     turn raised the question of whether the public’s reaction to this possible
                     abuse of taxpayer privacy would seriously impair the country’s system of
                     voluntary tax compliance. Access is currently limited, on a case-by-case
                     basis, to government staff working specifically on taxpayer issues and to
                     certain other authorized persons. Access is specifically granted by statute
                     and may carry with it civil and criminal penalties for unauthorized release
                     of tax returns or return information.


                     Our objectives were to (1) determine how IRS applies the restrictions of
Objectives, Scope,   section 6103 in reviewing and inventorying its records and (2) evaluate
and Methodology      how IRS carries out its records management responsibilities.

                     To determine how section 6103 might affect the appraisal of records
                     containing tax return information, we reviewed laws governing the
                     appraisal of records and taxpayer privacy under section 6103 and
                     discussed these laws with IRS and NARA officials. Additionally, we reviewed
                     OLC memorandums on disclosure of records containing tax returns or
                     return information to NARA. We also reviewed Treasury, Justice,
                     congressional, and NARA memorandums, letters, and draft legislation on
                     the restrictions of section 6103 and NARA’s appraisal responsibilities.




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Our work focused on certain IRS management records, which were those
records addressing agency policies, decisions, and operations. We did not
review how tax returns and return information were managed at FRCs.
Federal tax returns and criminal case files are currently stored in FRCs and
at IRS for retrieval and use by IRS staff as needed. According to NARA
officials, tax returns are inventoried and stored according to IRS and NARA
regulations. We did not review IRS’ field office records management
operations because NARA reviewed field operations as part of its
comprehensive 1995 review of IRS’ records program and found that the
agency had generally handled and maintained tax returns and return
information correctly. As part of NARA’s review, it visited 11 IRS field
locations, including district offices, a regional office, a data center, a
computer center, and service centers. We reviewed NARA’s workpapers
from its site visits and all of its IRS headquarters work.

To gain an understanding of government records management programs,
we used NARA’s criteria from some of its publications, including a guide on
agency recordkeeping requirements, a recordkeeping self-evaluation
checklist, and a records management handbook. We supplemented this
work with interviews of NARA officials. We also reviewed IRS’ guidance for
records management, including its procedures for inventorying and
scheduling records.

At IRS, we interviewed (1) the IRS Records Officer and the Servicewide
records management staff located in the Real Estate Planning and
Management Division; (2) headquarters records staff located in the
Support Services Division; and (3) officials in the Office of Chief Counsel
and the Office of Disclosure. We also interviewed the former IRS historian
to obtain additional information about allegations she had made that were
critical of the agency’s records management program. We toured IRS’
headquarters storage facilities, which contained about 2,300 cubic feet of
records, to observe how these records were stored, the types of records
stored, and the physical characteristics of the storage facilities. We also
reviewed IRS documents, including appropriate sections of the Internal
Revenue Manual and the agency’s guidance and training materials on
records management, to determine whether it was in compliance with
internal guidance on records management at the locations NARA visited.

Additionally, we reviewed IRS’ record control schedule for records of the
former office of the executive secretariat and former commissioners.
These records had been scheduled by IRS and appraised by NARA.




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                     We did our work between March 1996 and August 1997 in accordance with
                     generally accepted government auditing standards. We requested
                     comments on a draft of this report from the Commissioner of Internal
                     Revenue and the Archivist of the United States or their designees. Their
                     written comments are addressed at the end of this report.


                     NARA  found in its review that, while IRS had many elements of an
NARA Found           acceptable records management program, it also had serious deficiencies
Recordkeeping        that needed correction. NARA noted that IRS had extensive recordkeeping
Problems in IRS’     requirements in its Internal Revenue Manual and was developing a vital
                     records program, and that the agency’s tax-processing records were
Records Management   well-managed and handled in accordance with approved disposition
Program              schedules. NARA also noted that electronic records systems were
                     well-maintained and had been scheduled for disposition.

                     However, NARA noted that IRS had not conducted a comprehensive records
                     inventory or a complete review of its records control schedules in several
                     years. NARA found that there was no consistency in how records that
                     documented the development of IRS policy were scheduled, that a number
                     of important agency records were unscheduled, and that IRS records
                     control schedules had not been updated to reflect agency reorganizations.
                     According to NARA, these records included those that documented
                     important IRS programs and initiatives.

                     NARA  made 58 recommendations to address the problems it found in IRS’
                     records management practices. According to a NARA official, as of
                     May 1997, IRS had successfully completed 47 of these recommendations. At
                     the time that we completed our audit work, IRS expected that the
                     remainder of the recommendations would be completed by September 30,
                     1997.

                     In addition, NARA noted that there were a number of backlogged
                     headquarters records stored on-site or at FRCs that could not be scheduled
                     for disposition because IRS, on the basis of the access restrictions of
                     section 6103, did not allow NARA to appraise the records’ contents. These
                     backlogged headquarters records included the historical office files of the
                     former IRS commissioners, criminal investigative case files, corporate tax
                     returns for 1909 through 1919, and records of the Special Services Staff
                     (created during the Watergate era to review certain tax returns). In early
                     1996, NARA and IRS formed an interagency working group to try to find a
                     mutually acceptable way to allow NARA to appraise IRS records.



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IRS and NARA devised a test method for appraising some of the backlogged
headquarters records, beginning in early 1996 with about 198 cubic feet of
records from the former office of the executive secretariat and from
former commissioners.14 The test method involved separating the records
into two groups—section 6103-protected and 6103-nonprotected records.
IRS and NARA engaged in a blind review of the 6103-protected records,
whereby an IRS disclosure officer described the records’ contents to the
NARA records appraiser who decided on the basis of this description
whether the records had historical value. The 6103-nonprotected records
were made available to NARA for appraisal.

After the appraisal of the protected and nonprotected records was
completed, IRS staff prepared a records control schedule for records
disposition. The schedule separated the records into three
categories—those that had historical value and did not contain tax returns
or return information; those that had historical value and contained tax
returns or return information, and those that were temporary,
nonhistorical records that could be destroyed. We observed that
36 percent of the records were in the first category, 59 percent were in the
second category, and 5 percent were in the third category.

NARA  officials told us that although this process worked for some records,
it could be problematic for others because of the potential to either
inadvertently destroy records that should be kept or to unnecessarily
retain records that should be destroyed. As an alternative, IRS officials said
that they offered to regroup the individual 6103-protected files into
restricted and nonrestricted stacks and to redact (block out restricted
material), where necessary, to expedite NARA’s review. According to IRS
officials, NARA officials declined, preferring to keep the files in the order
they were filed so that the context of each record could be understood by
a records appraiser.

In a March 1997 report to the Congress, NARA officials indicated that the
blind review process worked well for this group of records because their
historical value was readily apparent. However, they said that for some
groups of records, such as criminal investigative case files, this method
will not work because the historical value may not be apparent.




14
 Our review of these records found that they contained a wide variety of material, including regional
office reports, official executive calendars, records of former IRS commissioners, and taxpayer letters
with agency responses. The records varied in size from a few inches to many feet of paper material.



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                     Our review of IRS’ records management program indicated several
We Found Several     problems. The most significant problem was IRS’ records backlog that had
Problems in IRS’     been allowed to accumulate over many years. IRS’ records management
Records Management   staff had not followed their own or NARA’s requirements for managing
                     these records; thus, the backlog grew. IRS allowed records to accumulate
Program              in basement storage areas and in program offices because there was no
                     pressing need to dispose of them and there was an apparent abundance of
                     storage space. We observed about 2,300 cubic feet of documents in the six
                     locations we toured in April 1996 and August 1997, as shown in table 1.




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Table 1: IRS Records Storage
Locations Reviewed by GAO as of                                                              Approximate
April 1996 and the Status as of                                                                volume in       Status as of
August 1997                       Locations visiteda        Description                        cubic feet      August 1997
                                  Location 1: IRS           Former office of the                        235    All 235 cubic feet
                                  basement storage          executive                                          were (1)
                                  (room G560)               secretariat’s records                              inventoried and
                                                            and former                                         scheduled by IRS
                                                            commissioners’                                     and (2) appraised
                                                            records (1970-1993)                                by NARA.
                                  Location 2: Former        Various records,                            318    The former
                                  historian’s records       including Tax                                      historian’s records
                                  (room 4547)               Systems                                            were consolidated
                                                            Modernization                                      and are located in
                                                                                                               room G717. All
                                  Location 3: Former        Various records,                                   318 cubic feet
                                  historian’s records       including Service                                  were inventoried
                                  (room B-141, 1201         Center                                             and scheduled by
                                  Constitution Ave.)        reorganization                                     IRS and were
                                                            board minutes                                      awaiting NARA’s
                                                                                                               appraisal for final
                                                                                                               disposition.
                                  Location 4: IRS vault     Special Services                            140    All 140 cubic feet
                                  and adjoining             Staff’s records                                    were inventoried
                                  conference room                                                              and scheduled by
                                  (room 5120)                                                                  IRS and were
                                                                                                               awaiting NARA’s
                                                                                                               appraisal for final
                                                                                                               disposition.
                                  Location 5: Office of     Chief Counsel                             1,639    807 cubic feet
                                  the Chief Counsel         records                                            were (1)
                                  storage (room G511)                                                          inventoried and
                                                                                                               scheduled by IRS
                                                                                                               and (2) appraised
                                                                                                               by NARA for final
                                                                                                               disposition.
                                                                                                               According to IRS,
                                                                                                               the remaining 832
                                                                                                               cubic feet will be
                                                                                                               completed by
                                                                                                               September 30,
                                                                                                               1997.
                                  Location 6: IRS safe      Presidential,                                  5   All 5 cubic feet
                                  (room 3014)               vice-presidential tax                              were (1)
                                                            returns                                            inventoried and
                                                                                                               scheduled by IRS
                                                                                                               and (2) appraised
                                                                                                               by NARA.
                                  a
                                  All locations were in IRS’ main headquarters building, except where noted.




                                  Page 14                                                              GAO/GGD-98-4 IRS Records
B-271700




During our April 1996 tour, we found at location 3, a basement storage
room across the street from IRS headquarters, documents in file cabinets
and other documents piled around the room. In addition, we found
banners, maps, pictures, reports, furniture, and supplies. There were no
inventories to assist staff in finding documents, and records were strewn
throughout the room. Records in this location appeared to be undamaged.

Many of IRS’ Chief Counsel documents were kept in the Chief Counsel file
room in an IRS building basement storage facility. The room itself was
large—about 25 by 130 feet—and contained about 1,639 cubic feet of
documents. Records in this room were generally categorized by calendar
year, and some records had already been scheduled for disposition.
However, we observed in April 1996 that many boxes of records were
piled in corners and on the tops of file cabinets. We also observed some
records lying in unprotected boxes exposed to environmental conditions
not recommended by NARA for paper files (i.e., no temperature or humidity
control). The NARA evaluation mentioned that the room had poor air
quality—staff working in this area for extended periods were given masks
to wear—and there was danger from loose and hanging ceiling tiles. We
found evidence of insect infestation and observed records that had been
damaged by water during a basement flood. There were Christmas
decorations, boxes containing ketchup packages, and boxes containing
office equipment—such as lamp shades—in the room. These items were
located throughout the room, intermingled with the records themselves,
thus making it difficult to locate particular files.

According to NARA, if the records in the Chief Counsel file room had been
managed appropriately, they could have been stored at FRCs at less cost.
According to a NARA computation, which we did not examine, storing these
records cost IRS about $12,600 annually, whereas the cost of storing the
records at an FRC would cost only about $900 annually.

IRS’permanent records stored in the National Archives total about 3,000
cubic feet. Compared to other federal agencies, this amount is small. For
example, as of October 1, 1994, the Department of Transportation had over
16,000 cubic feet of records in the National Archives; Justice had 43,000
cubic feet; the Department of Agriculture had 57,000 cubic feet; and the
U.S. Bureau of Mines had about 5,000 cubic feet.

Not all IRS records were stored in poor conditions. IRS had, in a locked safe,
presidential and some vice-presidential tax returns dating back to the first
federal income tax in 1913. These tax returns were stored in alphabetical



Page 15                                               GAO/GGD-98-4 IRS Records
                    B-271700




                    order, and most were kept in special file folders designed to protect the
                    paper over time. There were about 5 cubic feet of records containing the
                    tax returns and return information.

                    In August 1997, we toured IRS’ headquarters storage facilities again and
                    found that progress in inventorying and scheduling these documents had
                    been made. IRS had consolidated the records of the former historian
                    (locations 2 and 3) into one location in the main IRS building. All of these
                    documents had been inventoried and scheduled by IRS and were awaiting
                    NARA appraisal. Additionally, all of the Special Services Staff’s records
                    (location 4) had been inventoried and scheduled and were awaiting NARA
                    appraisal.

                    The Office of the Chief Counsel had made progress in inventorying and
                    scheduling its 1,639 cubic feet of records. IRS records managers said that
                    they had a commitment from the Office of the Chief Counsel to complete
                    this task by September 30, 1997. IRS officials also said that the storage
                    room had been cleaned and that improvements were made to ensure that
                    environmental, health, and safety requirements were met. Additionally,
                    exterminations to control insect infestations had been done twice. We
                    observed that the room appeared cleaner, new air vent systems were in
                    place, and repairs had been made to the damaged ceiling tiles.


                    NARA found that decisionmaking documentation was not readily
Decisionmaking      identifiable in IRS. NARA was concerned that decisionmaking
Documentation Was   documentation was not maintained for the former IRS commissioners and
Not Readily         with intervening reorganizations, such records may have become
                    unidentifiable. Also, IRS commissioners have received various intra-agency
Identifiable        committees’ and units’ input, recommendations, and alternatives that the
                    agency has used to make policy decisions. NARA found that these types of
                    records with the potential to influence decisionmaking are returned to the
                    program areas, rather than being centrally filed and archived for
                    preservation. NARA and IRS were unable to determine the extent of these
                    records that were kept by individual staff members in personal or program
                    area records. NARA recommended that IRS determine the most efficient way
                    to maintain these types of records. IRS stated in its November 1996
                    response to the NARA recommendation that it had located and identified
                    policy records in the program areas and that inventorying was under way.




                    Page 16                                               GAO/GGD-98-4 IRS Records
                      B-271700




                      IRS acknowledged having some records management program problems. In
IRS Has Made          addressing concerns raised in the NARA evaluation, IRS launched a records
Improvements to Its   management cleanup effort. IRS plans to complete the relocation of many
Records Management    of its headquarters staff to new facilities in New Carrollton, MD, by 1998.
                      This move, according to IRS officials, presented a good opportunity for
Program               staff to review existing records and improve overall recordkeeping
                      practices. Among other efforts, IRS’ records management staff has
                      distributed memorandums, guidelines, and brochures to agency staff on
                      working with them and on the importance of maintaining adequate
                      records. Additionally, each program area at IRS headquarters designated an
                      information resource coordinator who is responsible for the group’s
                      records. The information resource coordinator also acts as a focal point
                      for records management in that group.

                      IRS records managers, trained by NARA staff, held training classes for IRS
                      headquarters staff. IRS records managers developed guidance for the
                      training session and made this available to all staff. The guidance
                      describes the legal requirements for federal recordkeeping, defines the
                      respective roles and responsibilities of IRS and NARA staff, defines the
                      various types of records maintained in IRS, and provides guidelines on how
                      staff should dispose of and save documents.


                      The continuing debate over how NARA should carry out its responsibilities
Observations          at IRS highlights a fundamental inconsistency between two important laws.
                      NARA’s authorizing legislation requires it, among other things, to
                      (1) appraise agency records to determine their historical value so that the
                      appropriate retention, storage, and accessibility of those historical records
                      will be systematically ensured and (2) establish regulations and ensure
                      agency accountability for the proper handling of public records. Congress
                      determined that a national interest exists in supporting the voluntary tax
                      system through strong assurances of taxpayer privacy. To this end, section
                      6103 provides that tax returns and return information be safeguarded and
                      not disclosed to unauthorized persons. Citing the section 6103 provisions,
                      IRS prevented NARA from appraising records that IRS believed contained
                      protected tax returns or return information.

                      In the draft of this report, which was sent to IRS and NARA for comment, we
                      identified several options for consideration as potential solutions to the
                      inconsistency between the two agencies’ responsibilities. However, upon
                      further reflection, including our consideration of IRS and NARA comments
                      on the options discussed in our draft report, we have come to believe that



                      Page 17                                               GAO/GGD-98-4 IRS Records
                     B-271700




                     consideration of such options may be premature in light of the lawsuit
                     (Tax Analysts, et. al., v. IRS and NARA) that was pending at the time of our
                     review. The lawsuit explicitly sought the court’s resolution of the
                     inconsistency between IRS’ and NARA’s responsibilities. Accordingly, we
                     have deleted the discussion of the options from this report.15


                     We provided drafts of this report to the heads of NARA and IRS for their
Agency Comments      comments. Both agencies provided written comments, which are
and Our Evaluation   discussed in the following sections, and technical corrections, which we
                     incorporated in this report where appropriate.


NARA’s Comments      NARA’s comments centered on two major points. First, while the Archivist
                     has the statutory responsibility to approve the disposition of records and
                     to select records for permanent retention, NARA believes that it is currently
                     unable to fulfill this responsibility for all IRS records because it lacks
                     access to the records. NARA notes, as we do in this report, that the process
                     by which it appraises and approves the disposition of agency records is, by
                     law, the official procedure. In line with NARA’s comments on this point, we
                     sought to emphasize in this report the statutory basis for NARA’s oversight
                     of federal records management. At the same time, we continued to
                     highlight the conflict between NARA’s statutory responsibilities and the
                     disclosure provisions of section 6103.

                     Second, NARA discussed the legal interpretation of section 6103 and the
                     policy questions it raises for both agencies. NARA stressed that although
                     NARA employees in the FRCs are involved in the retrieval, refiling, and
                     eventual destruction of individual tax returns on an ongoing basis, they do
                     not have similar access to records containing tax returns or return
                     information for appraisal and disposition purposes. IRS’ comments, which
                     we discuss in more detail below, noted that tax returns may be stored at
                     FRCs for retrieval and use by the agency pursuant to section 6103.
                     However, IRS does not believe that section 6103 would allow NARA access
                     to tax returns or return information for appraisal purposes. IRS has
                     interpreted section 6103 as allowing the disclosure of tax returns and
                     return information for purposes of tax administration to the extent
                     necessary in connection with the processing, storage, transmission, and

                     15
                      As this report was in final preparation for printing, a U.S. district court judge granted IRS’ motion to
                     dismiss this case and noted that (1) the Internal Revenue Code and case law prevented IRS from
                     providing NARA access to documents protected under section 6103 and (2) the remaining issues were
                     not ripe for judicial review because the collaborative process between IRS and NARA had not been
                     completed. Subsequently, the plaintiffs filed a motion requesting the court to alter or amend the
                     decision to dismiss the case.



                     Page 18                                                                   GAO/GGD-98-4 IRS Records
                B-271700




                reproduction of such information; the programming, maintenance, repair,
                testing, and procurement of equipment; and the providing of other
                services. The one court that has specifically examined this issue agreed
                with IRS’ interpretation.16


IRS’ Comments   IRSexplained that Congress has put very tight restrictions on access to tax
                returns and return information and that its interpretation of section 6103
                precludes any access that has not been expressly granted by legislation. As
                previously mentioned, H.R. 2292 and S. 1096, introduced July 30 and 31,
                1997, respectively, each include a section that would provide a statutory
                mechanism for NARA access to IRS records.

                IRS also commented that its relationship with NARA, except for the section
                6103 issue, has been satisfactory over the years. IRS described, as examples
                of the agencies’ satisfactory working relationship, the routine management
                and disposition of its huge volume of individual tax returns and its efforts
                in addressing the 58 recommendations made by NARA in its evaluation of
                IRS’ records management program. We mentioned in this report that IRS
                and NARA had worked together on several occasions and accomplished
                various tasks.


                We are sending copies of this report to the Ranking Minority Member of
                the House Committee on Ways and Means, the Chairman and Ranking
                Minority Member of the Senate Committee on Finance, other interested
                congressional committees, the Secretary of the Treasury, and other
                interested parties. We will also make copies available to others upon
                request.

                Major contributors to this report are listed in the appendix. If you or your
                staff have any questions concerning this report, please call me on
                (202) 512-9110.




                Lynda D. Willis
                Director, Tax Policy and
                  Administration Issues


                16
                  American Friends Service Committee v. Webster, 720 F. 2d 29 (D.C. Cir. 1983).



                Page 19                                                                GAO/GGD-98-4 IRS Records
Appendix I

Major Contributors to This Report


                        Harriet C. Ganson, Assistant Director
General Government      Kelsey M. Bright, Evaluator-in-Charge
Division, Washington,   Rodney F. Hobbs, Senior Evaluator
D.C.                    James M. Fields, Social Science Analyst

                        M. Rachel DeMarcus, Assistant General Counsel
Office of the General   Shirley A. Jones, Senior Attorney
Counsel, Washington,
D.C.




(268726)                Page 20                                         GAO/GGD-98-4 IRS Records
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