Does Confidentiality Affect Tax Compliance?

C onfidentiality of individual taxpayer data is a long-held basic right of the U.S. system of tax administration. Section 6103 of the Internal Revenue Code sets the guidelines for confidentiality and for the limited disclosure of return information to State and local tax officials. As noted by former IRS Commissioner Richardson, " IRS employees are prohibited from accessing information not needed to perform their official tax administration duties " (Testimony, April 15, 1997). Confidentiality of taxpayer data is thereby guaranteed within the system of tax administration, and the IRS imposes strict disclosure rules for individual taxpayer data for data flowing outside the Federal system to State tax administrators, other U.S. Government agencies, individuals , companies, etc., as well as penalties for unwarranted disclosure. While many taxpayers believe that their tax information is largely private and held in confidence as stated by the IRS, the confidentiality of taxpayer data and information has not always been a given nor is it always chosen. Until the mid-1970's, tax returns of publicly traded companies were available to the public at large. Individuals may choose to disclose their tax information , and many in political office make this choice. State governments may have their own rules and regulations pertaining to disclosure of tax information. For example, the revenue code of Georgia allows limited disclosure in certain cases of tax arrears (see detail: In West Virginia, disclosure of corporate income tax returns is closely held until disputes in liabilities reach the point of the circuit court, at which time, there is more openness of the tax returns. Confidentiality or privacy of individual information may be compromised in a number of ways. With the continuing use of electronic information, there is always concern regarding the potential disclosure of information. 1 There may also be concern over " administrative disclosure " in the form of possible leakages of information by individuals who examine returns in Federal and state government or who otherwise have access to tax return data. Some states have purposefully disclosed some information on delinquent taxpayers to elicit taxpayer responses in the form of past-due payments. Overall, con