Also, some foreign governments may restrict foreign  tax authorities from conducting investigative activities within their borders. Agreements That Authorize Exchange of Information between the United States and its Treaty Partners Differ in Content and Application

		The United States Has 143 Information Exchange Agreements with 90 Treaty Partners

As of April 30, 2011, the United States had 143 bilateral agreements  authorizing exchange of information with 90 treaty partners. There were 4,217 foreign-initiated  incoming requests, and 894 U.S.-initiated outgoing requests closed  during this period. Corporate records, tax  return data, and third-party interviews constituted about 78 percent of  closed incoming requests for which we received data on information type. As  shown in figure 5, our model estimates that most information exchange  requests are likely to close about 50 to 200 days after being opened, but  some can take much longer. Also, with respect to the processing time differences across the treaty  partner groupings, IRS officials noted that country-specific factors, such  as the sophistication or complexity of a country’s tax rules and the  existence of administrative arrangements such as automatic exchange  arrangements, can influence the nature of the information requested and  the amount of time required to obtain it. The volume of information exchange activity, especially outgoing requests  from the United States, can be influenced by the time it takes for partner  countries to respond to requests. While agreements have many similar features, the specific parameters  under which information can be exchanged are unique to the legal and  administrative arrangements negotiated by the United States and each  separate treaty partner. Although the IRS collects data on exchanges between the United States  and its treaty partners, the agency does not assemble or make use of  information such as the extent to which requests for information are  fulfilled or the type of information requested, and does not consistently  collect customer feedback. Better performance information could not  only help improve administrative operations, but could also enhance the  usefulness of this important tax law enforcement tool. Recommendation for Executive Action

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, we recommend that the  Commissioner of Internal Revenue 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. Appendix I: Scope and Methodology

This report (1) identifies all bilateral income tax treaties, Tax Information  Exchange Agreements (TIEA), and Mutual Legal Assistance Treaties  (MLAT) between the United States and other countries in force,  proposed, or signed as of April 30, 2011, and describes the legal  framework and administrative processes that the United States uses to  exchange information with its treaty partners; (2) describes the volume  and types of information exchanged between the United States and its  treaty partners and the time to process requests for information; and (3)  identifies opportunities to improve the effectiveness of current U.S.  information exchange processes and procedures.
Why GAO Did This Study

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.

What GAO Found

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.

What GAO Recommends

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.