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Tax Return Information Should Remain Confidential, TEI Tells Justice, Treasury Departments

Tax Return Information Should Remain Confidential, TEI Tells Justice, Treasury Departments

A district court’s order to produce tax return information of unrelated third parties to plaintiffs involved in a tax refund suit “threatens to undermine the promise of confidentiality that undergirds the tax system,” according to a June 14 letter from TEI President Lester D. Ezrati to Attorney General Janet Reno and Treasury Secretary Robert Rubin. The court’s order in a case involving the section 936 affiliate of a pharmaceutical company grew out of the efforts to prove that the IRS had improperly denied the company the favorable treatment accorded similarly situated taxpayers. The IRS resisted production of the information under section 6103, which prohibits the disclosure of tax returns and tax return information. The United States District Court for the District of Puerto Rico, however, ordered the IRS to release the information.

In its letter, TEI called the plaintiffs’ “disparate treatment” claim worthy of adjudication, but asserted that the claim, even if wholly meritorious, is not sufficient reason to vitiate the protections of the Internal Revenue Code’s privacy provisions. The Institute urged both the Treasury Department and the Department of Justice to use all the resources at their disposal to prevent the release of tax returns and tax return information in the case, including settling the case. The Institute did, however, express concern that the IRS not be permitted to defeat the taxpayer’s claim simply by invoking section 6103.

“The government should work with the plaintiffs and third-party taxpayers to develop one or more alternatives to disclosing the third-party information,” TEI said. These alternatives — such as preparation of a statistical summary or the production of the information either in camera or subject to a protective order — would satisfy the court’s need for information necessary to adjudicate the disparate treatment claim without identifying particular taxpayers. Safeguarding taxpayer confidentiality must “remain a cornerstone of our system of tax administration,” the Institute concluded.

The Institute’s comments are reprinted in this issue, beginning on page 365.

COPYRIGHT 1999 Tax Executives Institute, Inc.

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