IRS may share an employee's background-check results with a state, but not any return information without consent

Plain-English summary

This is informal Chief Counsel advice, delivered by email, about whether the IRS may hand a state (Wisconsin) background-check information on an IRS employee so the employee can get access to a state database (here, the DMV). The advice says yes as to most background-check material: the Privacy Act allows disclosure without the employee's consent under a "routine use" published in the IRS's System of Records Notices, which authorizes sharing background-investigation records with a state agency that needs them to issue or continue a contract, license, or similar benefit. But there is a hard limit. If the background file contains tax returns or "return information," that material is confidential under IRC § 6103 and may not be disclosed unless the employee consents under § 6103(c). The Privacy Act does not override § 6103. So the IRS must either get the employee's consent or strip out any return information before sharing the file.

Ruling snapshot

• Question: May the IRS disclose an employee's background-check information to a state without consent, and what about any tax return information in the file?
• Outcome: Advice given (most background-check info may be shared under a Privacy Act routine use; return information may not be disclosed without the employee's § 6103(c) consent).
• Key authorities: IRC § 6103(a), (b), (c); Privacy Act, 5 U.S.C. § 552a(b); Treasury/IRS SORNs 34.021 and 34.022.

Full text (IRS public release)

ID: CCA_2021121615442650 [Third Party Communication:

UILC: 6103.00-00, 6103.03-00, Date of Communication: Month DD, YYYY]

        6103.01-00

Number: 202205025
Release Date: 2/4/2022
From: -----------------
Sent: Thursday, December 16, 2021 3:44:26 PM
To: --------
Cc: -------------------------------------------------------------
Bcc:
Subject: RE: Question Regarding Background Investigations

Hello,

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Specifically, you requested the following:
• May the IRS provide any background check information on an employee
to Wisconsin so that employee can obtain access to its information and to
what extent?
• What restrictions apply to the IRS providing an employee’s background
check information in this context?

Based on the facts that you provided to us, we believe the IRS may disclose to
Wisconsin the fact that an employee has undergone and passed a background check,
as well as provide most other background check information without the employee’s
prior consent. However, to the extent these background checks contain returns or
return information, such returns or return information may NOT be disclosed pursuant to
I.R.C. section 6103 unless we first obtain the employee’s consent.

Subject to certain statutory exceptions, the Privacy Act prohibits an agency from
disclosing any record which is contained in a system of records except pursuant to a
written request by, or with the prior written consent of, the individual to whom the record
pertains. 5 U.S.C. section 552a (b). One such exception is that records protected by
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the Privacy Act may be disclosed without prior written request or consent in accordance
with a routine use described in a System of Records Notice (“SORN”) published by the
agency in the Federal Register. 5 U.S.C. section 552a (b)(3) and (e)(4)(D).

Treasury/IRS SORNs 34.021 and 34.022 are the relevant SORNs covering systems of
records maintained by the IRS/Treasury pertaining to the background investigations of
current, former, and prospective IRS employees. Both SORNs contain a routine use
authorizing the IRS to disclose records pertaining to background investigations to a “…
state agency … which has requested information relevant or necessary to … issuing or
continuing a contract, security clearance, license, grant, or other benefit.”

The above-described routine use provides the IRS two bases for authority to disclose its
employees’ background investigation records to Wisconsin absent prior IRS employee
request or consent. First, disclosure is authorized because Wisconsin has determined
that such information is relevant or necessary to issuing or continuing its contract to
provide revenue officers access to its DMV database. Alternatively, disclosure is
authorized because Wisconsin has determined that such information is relevant or
necessary to the State issuing a security clearance for, license to, or other benefit, i.e.,
revenue officer access to Wisconsin’s DMV database.

However, while disclosure to Wisconsin of employee background investigation files is
permissible under the Privacy Act, the Privacy Act does not supersede the
confidentiality provisions set forth in I.R.C. section 6103. More specifically, Section
6103(a) makes confidential tax returns and return information unless otherwise
authorized by the Code. Accordingly, any returns or return information contained in a
background check file must not be disclosed unless an exception applies.

The applicable exception here would be the consent of the employee under section
6103(c), which authorizes the Secretary to disclose returns or return information “to
such person or persons as the taxpayer may designate in a request for or consent to
such disclosure.” Without consent, the IRS would need to parse out any returns or
return information contained in the background checks. For details about obtaining
effective consent for section 6103 purposes, see IRM 11.3.3.2.1 (01-26-2021) General
Requirements for Disclosure to Designee of Taxpayer. For the statutory definition of
returns and return information, see I.R.C. sections 6103(b)(1) and 6103(b)(2).

If you have any further questions, feel free to reach out to me either via email or directly
at --------------------.

Thanks,

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