[Federal Register: July 31, 2003 (Volume 68, Number 147)]
[Proposed Rules]
[Page 44905-44909]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr31jy03-23]
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DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Part 301
[REG-208199-91]
RIN 1545-BC55
Suspension of Running of Period of Limitations During a
Proceeding To Enforce or Quash a Designated or Related Summons
AGENCY: Internal Revenue Service (IRS), Treasury.
ACTION: Notice of proposed rulemaking.
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SUMMARY: This document contains proposed regulations regarding the use
of designated summonses and related summonses and the effect on the
period of limitations on assessment when a case is brought with respect
to a designated or related summons. These proposed regulations reflect
changes to section 6503 of the Internal Revenue Code of 1986 made by
the Omnibus Budget Reconciliation Act of 1990 and the Small Business
Job Protection Act of 1996. This regulation affects corporate taxpayers
that are examined under the coordinated issue case (CIC) program and
are served with designated or related summonses. This regulation also
affects third parties that are served with designated or related
summonses for information pertaining to the corporate examination.
DATES: Written or electronic comments and requests for a public hearing
must be received by October 29, 2003.
ADDRESSES: Send submissions to: CC:PA:RU (REG-208199-91), room 5203,
Internal Revenue Service, POB 7604, Ben Franklin Station, Washington,
DC 20044. Submissions may be hand delivered between the hours of 8 a.m.
and 4 p.m. to: CC:PA:RU (REG-208199-91), Courier's Desk, Internal
Revenue Service, 1111 Constitution Avenue NW., Washington, DC.
Taxpayers may also submit electronic comments directly to the IRS
Internet site at www.irs.gov/regs.
FOR FURTHER INFORMATION CONTACT: Elizabeth Rawlins, (202) 622-3630 (not
a toll-free number).
SUPPLEMENTARY INFORMATION:
Background
This document contains proposed regulations amending the Procedure
and Administration Regulations (26 CFR part 301) under section 6503 of
the Internal Revenue Code of 1986. Section 11311 of the Omnibus Budget
Reconciliation Act of 1990 (Public Law 101-508, 104 Stat. 1388) (1990
Act) amended section 6503(k) to suspend the period of limitations on
assessment when a case is brought with respect to a designated or
related summons. Section 6503(k) was redesignated as section 6503(j) by
section 1702(h)(17)(A) of the Small Business Job Protection Act of 1996
(Public Law 104-188, 110 Stat. 1874).
Explanation of Provisions
These proposed regulations generally provide that the period of
limitations on assessment provided for in section 6501 is suspended
with respect to any return of tax by a corporation that is the subject
of a designated or related summons if a court proceeding to enforce or
quash is instituted with respect to that summons.
Designated Summonses and Related Summonses
A designated summons is a summons issued to determine the amount of
any internal revenue tax of a corporation for which a return was filed
if certain additional requirements are satisfied. A designated summons
may only be issued to a corporation (or any other person to whom such
corporation has transferred records) if the corporation is being
examined under the IRS' coordinated examination program ``or any
successor program.'' The existing successor program to the coordinated
examination program is the coordinated issue case (CIC) program.
Section 6503(j)(2)(A)(i) requires that the issuance of the summons
be preceded by a review by the regional counsel of the Office of Chief
Counsel for the region in which the examination of the corporation is
being conducted. Because the prior regional structure of the IRS no
longer exists, these proposed regulations provide that the review must
by completed by the Division Commissioner and the Division Counsel of
the Office of Chief Counsel for the organizations that have
jurisdiction over the corporation whose liability is the subject of the
summons. The summons also must be issued at least 60 days before the
day on which the statute of limitations on assessment under section
6501 would otherwise expire. Finally, the summons must clearly state
that it is a designated summons for purposes of section 6503(j).
A related summons is any other summons that is issued with respect
to the same tax return of the corporation as a designated summons and
is issued during the 30-day period that begins on the date the
designated summons is issued.
Suspension of Period of Limitations on Assessment
Section 6503(j)(1) suspends the period of limitations on assessment
under section 6501 for the applicable tax period when a court
proceeding is brought with respect to a designated or related summons.
For purposes of these proposed regulations, a court proceeding is a
proceeding brought in a United States district court either to quash a
designated or related summons under section 7609(b)(2) or to enforce a
designated or related summons under section 7604. The court proceeding
must be brought within the otherwise applicable period of limitations
in order to suspend that period under section 6503(j).
The proposed regulations provide that the suspension begins on the
day that a court proceeding is brought and continues until there is a
final resolution as to the summoned party's response to the summons
(discussed in the next section), plus an additional 120 days if the
court requires any compliance with the summons at issue. If the court
does not require any compliance, then the period of limitations on
assessment resumes running on the day following the date of the final
resolution and in no event shall expire before the 60th day following
the date of final resolution.
Final Resolution of a Summoned Party's Response to a Summons
Under section 6503(j)(3)(B), the length of the suspension under
section 6503(j) depends on when ``final resolution'' of a summoned
party's response to the designated or related summons occurs. The term
``final resolution'' is not defined in the statute. The legislative
history to the 1990 Act states that the term ``final resolution'' has
the same meaning it has under section 7609(e)(2)(B), relating to third-
party summonses. H.R. Conf. Rep. No. 101-964 (1990). Specifically, the
conference report to the 1990 Act states that final resolution means
that no court proceeding remains pending and that the summoned party
has complied with
[[Page 44906]]
the summons to the extent required by the court.
Accordingly, the proposed regulations provide that final resolution
occurs when the summoned party complies with a summons to the extent
required by the court and all court proceedings and times for appeals
applicable to those proceedings have terminated. If the summoned party
has complied with the summons to the extent required by a court but
there still remains time to appeal that order, final resolution occurs
when the time for appeal has expired. (Were final resolution deemed to
occur before that point, the period of limitations on assessment might
resume running even though a later order after appeal might require
additional compliance.) If all appeal periods have expired but the
summoned party has not complied with the summons to the extent required
by the court order, the proposed regulations provide that final
resolution does not occur until the summoned party has complied with
the summons to the extent required by the court order.
Whether a party has complied with the terms of the summons as
enforced by the court cannot be determined until the completeness of
the materials produced and the testimony given have been evaluated. In
cases where the court wholly denies enforcement or orders that the
summons in its entirety be quashed, the date of compliance with the
court's order is treated as occurring on the date when all appeals are
disposed of or when all appeal periods expire.
In cases where the court orders the summons enforced in whole or in
part, the determination of whether the summoned party has complied with
the order will be made by the Commissioner or his delegate
(Commissioner). This determination will be made as soon as practicable
after the summoned party has given testimony or produced books, papers,
records, or other data as required by the court order. Notification of
a favorable determination, and the date of such determination, will be
made in writing and sent to the summoned party (and the taxpayer if the
taxpayer is not the summoned party) within five days after the date the
determination is made. If the period to appeal the court's order has
already run, the date of the favorable determination shall be the date
of final resolution for purposes of determining the length of the
suspension under section 6503(j).
The proposed regulations provide that the Commissioner is not
required to give notice that the court's order has not been complied
with prior to instituting a collateral proceeding challenging whether
the testimony given or the production made by the summoned party fully
satisfies the court order and requesting that sanctions be imposed
against the summoned party for a failure to testify or produce. The
proposed regulations further provide that if such a collateral
proceeding is instituted, then the collateral proceeding shall be
treated as a continuation of the original proceeding.
Statement of Compliance
A summoned party also may request a determination from the IRS that
it has fully complied with a designated or related summons to the
extent required by court order. Under this procedure, if the summoned
party believes that it has complied, the summoned party may submit a
written statement (statement of compliance) to the IRS that the
summoned party has fully complied with the court order. The statement
of compliance must be properly addressed and sent by registered or
certified mail. The statement of compliance must contain the summoned
party's current contact information and information specifically
identifying the applicable summons and court order.
To prevent the filing of premature or repetitious statements of
compliance, the proposed regulations provide that a statement of
compliance will be disregarded as a nullity if it is submitted before
production or the giving of testimony (or the last act of production
when there is a mutual agreement that production will be accomplished
in stages) or before the IRS has responded to a previously-submitted
statement of compliance. A statement of compliance also will be treated
as a nullity if it is submitted by the summoned party while a referral
to the Department of Justice for a collateral proceeding with respect
to the court order or an appeal of the court order is pending.
Unless the IRS, within 180 days of the receipt of a statement of
compliance, or within the time agreed to by the IRS and the summoned
party, mails to the summoned party by registered or certified mail
notification that it has not fully satisfied the designated or related
summons, the summons will be treated as having been fully complied with
as of the 180th day following the date the IRS received the statement.
The date on which the statement of compliance was mailed by registered
or certified mail will be treated as the date on which the IRS received
the statement.
Other Rules
These proposed regulations provide additional rules regarding the
number of designated and related summonses that may be issued with
respect to a return for any taxable period, the time within which a
court proceeding must be brought to enforce or quash a designated or
related summons, the computation of the suspension period in cases of
multiple court proceedings, and the computation of the 60-day period
for assessment when the last day falls on a weekend or holiday.
The proposed regulations also address the relationship of the
suspension period provided for in section 6503(j) with other suspension
provisions in the Code. The proposed regulations first provide that if
a designated or related summons also could be subject to the suspension
rules governing third-party summonses under section 7609(e), then the
suspension rules in section 6503(j) govern. In addition, the section
6503(j) suspension period is independent of, and may run concurrently
with, any other period of suspension, such as the suspension period for
third-party summonses under section 7609(e) if a separate third-party
summons also was issued in a case. Examples of these rules are
contained in the proposed regulations.
Proposed Effective Date
These regulations are proposed to be applicable on the date final
regulations are published in the Federal Register.
Special Analyses
It has been determined that this notice of proposed rulemaking is
not a significant regulatory action as defined in Executive Order
12866. Therefore, a regulatory assessment is not required. It also has
been determined that section 553(b) of the Administrative Procedure Act
(5 U.S.C. chapter 5) and the Regulatory Flexibility Act (5 U.S.C.
chapter 6) do not apply to these regulations, and, therefore, a
Regulatory Flexibility Analysis is not required. Pursuant to section
7805(f) of the Code, this notice of proposed rulemaking will be
submitted to the Chief Counsel for Advocacy of the Small Business
Administration for comment on its impact on small business.
Comments and Requests for a Public Hearing
Before these proposed regulations are adopted as final regulations,
consideration will be given to any written comments (a signed original
and eight (8) copies) or electronic comments that are submitted timely
to the IRS. The IRS and the Treasury Department request comments on the
clarity of the proposed rules and how they can be made easier to
understand. All comments will be available for public
[[Page 44907]]
inspection and copying. A public hearing may be scheduled if requested
in writing by a person who timely submits written comments. If a public
hearing is scheduled, notice of the date, time, and place for the
hearing will be published in the Federal Register.
Drafting Information
The principal author of these regulations is Elizabeth Rawlins of
the Office of the Associate Chief Counsel, Procedure and Administration
(Collection, Bankruptcy and Summonses Division), IRS. However, other
personnel from the IRS and the Treasury Department participated in
their development.
Lists of Subjects in 26 CFR Part 301
Employment taxes, Estate taxes, Excise taxes, Gift taxes, Income
taxes, Penalties, Reporting and recordkeeping requirements.
Proposed Amendments to the Regulations
Accordingly, 26 CFR part 301 is proposed to be amended as follows:
PART 301--PROCEDURE AND ADMINISTRATION
Paragraph 1. The authority citation for part 301 continues to read
in part as follows:
Authority: 26 U.S.C. 7805 * * *
Par. 2. Section 301.6503(j)-1 is added to read as follows:
Sec. 301.6503(j)-1 Suspension of running of period of limitations;
extension in case of designated and related summonses.
(a) General rule. The running of the applicable period of
limitations on assessment provided for in section 6501 is suspended
with respect to any return of tax by a corporation that is the subject
of a designated or related summons if a court proceeding is instituted
with respect to that summons.
(b) Period of suspension. The period of suspension is the time
during which the running of the applicable period of limitations on
assessment provided for in section 6501 is suspended under section
6503(j). If the court requires any compliance with a designated or
related summons by ordering that any record, document, paper, object,
or items be produced, or the testimony of any person be given, the
period of suspension consists of the judicial enforcement period plus
120 days. If the court does not require any compliance with a
designated or related summons, the period of suspension consists of the
judicial enforcement period, and the period of limitations on
assessment provided in section 6501 shall not expire before the 60th
day after the judicial enforcement period.
(c) Definitions--(1) Designated summons. A designated summons is a
summons issued to a corporation (or to any other person to whom the
corporation has transferred records) with respect to any return of tax
by such corporation for a taxable period for which such corporation is
being examined under the coordinated industry case program or any other
successor to the coordinated examination program--
(i) If the Division Commissioner and the Division Counsel of the
Office of Chief Counsel (or their successors) for the organizations
that have jurisdiction over the corporation whose tax liability is the
subject of the summons have reviewed the summons before it is issued;
(ii) If the IRS issues the summons at least 60 days before the day
the period prescribed in section 6501 for the assessment of tax expires
(determined with regard to extensions); and
(iii) If the summons states that it is a designated summons for
purposes of section 6503(j).
(2) Related summons. A related summons is any summons issued that--
(i) Relates to the same return of the corporation under examination
as the designated summons; and
(ii) Is issued to any person, including the person to whom the
designated summons was issued, during the 30-day period that begins on
the day the designated summons is issued.
(3) Judicial enforcement period. The judicial enforcement period is
the period that begins on the day on which a court proceeding is
instituted with respect to a designated or related summons and ends on
the day on which there is a final resolution as to the summoned
person's response to that summons.
(4) Court proceeding--(i) In general. For purposes of this section,
a court proceeding is a proceeding filed in a United States district
court either to quash a designated or related summons under section
7609(b)(2) or to enforce a designated or related summons under section
7604 and includes any collateral proceeding to that proceeding such as
a civil contempt proceeding.
(ii) Date when proceeding is no longer pending. A proceeding to
quash or to enforce a designated or related summons is no longer
pending when all appeals are resolved, or after the expiration of the
period in which an appeal may be taken or a request for further review
may be made. If, however, following an enforcement order, a collateral
proceeding is brought challenging whether the testimony given or
production made by the summoned party fully satisfied the court order
and whether sanctions should be imposed against the summoned party for
a failure to so testify or produce, the proceeding to quash or to
enforce the summons shall include the time from which the proceeding to
quash or to enforce the summons was brought until the decision in the
collateral proceeding becomes final. The decision becomes final on the
date when all appeals are disposed of or when the period in which an
appeal may be taken or a request for further review may be made
expires. Any collateral proceeding to the original proceeding shall be
considered to be a continuation of the original proceeding.
(5) Compliance--(i) In general. Compliance is the giving of
testimony or the performance of an act or acts of production, or both,
in response to a court order concerning the designated or related
summons and the determination that the terms of the court order have
been satisfied.
(ii) Date compliance occurs. Compliance with a court order that
wholly denies enforcement of a designated or related summons is deemed
to occur on the date when all appeals are disposed of or when the
period in which an appeal may be taken or a request for further review
may be made expires. Compliance with a court order that grants
enforcement, in whole or in part, of a designated or related summons,
occurs on the date the Commissioner or his delegate (Commissioner)
determines that the testimony given, or the books, papers, records, or
other data produced, or both, by the summoned party fully satisfy the
court order concerning the summons. The determination whether there has
been compliance will be made as soon as practicable after the testimony
is given or the materials are produced.
(6) Final resolution. Final resolution means that compliance with a
court order concerning the designated or related summons has occurred
and that court proceedings are no longer pending.
(d) Special rules--(1) Number of summonses that may be issued--(i)
Designated summons. Only one designated summons may be issued in
connection with the examination of a specific taxable year or other
period of a corporation. A designated summons may cover more than one
year or other period of a corporation. The designated summons may seek
information that was previously sought in a summons
[[Page 44908]]
(other than a designated summons) that was issued in the course of the
examination of that particular corporation.
(ii) Related summonses. There is no restriction on the number of
related summonses that may be issued in connection with the examination
of a corporation. As provided in paragraph (c)(2) of this section,
however, a related summons must be issued within the 30-day period that
begins on the date on which the designated summons to which it relates
is issued and must relate to the same return as the designated summons.
A related summons may request the same information as the designated
summons.
(2) Time within which court proceedings must be brought. In order
for the period of limitations on assessment to be suspended under
section 6503(j), a court proceeding to enforce or to quash a designated
or related summons must be instituted within the period of limitations
on assessment provided in section 6501 otherwise applicable to that tax
return.
(3) Computation of suspension period if multiple court proceedings
are instituted. If multiple court proceedings are instituted to enforce
or to quash a designated or one or more related summonses concerning
the same tax return, the period of limitations on assessment is
suspended for the entire period beginning on the day the first court
proceeding is brought and ending on the last day of the last-ending
suspension period resulting from the court proceedings that were
brought.
(4) Effect on other suspension periods--(i) In general. The periods
of suspension on the running of the period of limitations under section
6501 provided for under sections 7609(e)(1) and (2) are not applicable
with respect to any summons that is issued pursuant to section 6503(j).
The suspension under section 6503(j) on the running of the period of
limitations on assessment under section 6501 is independent of, and may
run concurrent with, any other period of suspension of the period of
limitations on assessment applicable to the tax return to which the
designated or related summons relates.
(ii) Examples. The rules of paragraph (d)(4)(i) of this section are
illustrated by the following examples:
Example 1. The period of limitations on assessment against
Corporation P for its calendar 1997 return is scheduled to end on
March 15, 2001. On January 3, 2001, a designated summons is issued
to Corporation P concerning its 1997 return. On March 1, 2001 (14
days before the period of limitations on assessment would otherwise
expire with respect Corporation P's 1997 tax return), a court
proceeding is brought to enforce the designated summons issued to
Corporation P. On June 5, 2001, the court orders Corporation P to
comply with the designated summons. Corporation P does not appeal
the court's order. On September 3, 2001, agents for Corporation P
deliver material that they state are the records requested by the
designated summons. On October 15, 2001, a final resolution to
Corporation P's response to the designated summons occurs when the
Commissioner determines that Corporation P has fully complied with
the court's order. The suspension period applicable with respect to
the designated summons issued to Corporation P consists of the
judicial enforcement period (March 1, 2001, through October 15,
2001) and an additional 120-day period under section 6503(j)(1)(B),
because the court required Corporation P to comply with the
designated summons. Thus, the suspension period applicable with
respect to the designated summons issued to Corporation P would
begin on March 1, 2001, and end on February 12, 2002. Under the
facts of this example, the period of limitations on assessment
against Corporation P would be extended to February 26, 2002, to
account for the additional 14 days that remained on the period of
limitations on assessment under section 6501 when the suspension
period under section 6503(j) began.
Example 2. Assume the same facts set forth in Example 1. On
April 3, 2001, a summons concerning Corporation P's calendar 1997
return is issued and served on individual A, a third party. This
summons is not a related summons because it was not issued during
the 30-day period that began on the date the designated summons was
issued. The third-party summons served on individual A is subject to
the notice requirements of section 7609(a). If there is no final
resolution of individual A's response to this summons by October 3,
2001, i.e., six months from the date of service of the summons, the
period of limitations on assessment against Corporation P would be
suspended under section 7609(e)(2) to the date on which there is a
final resolution to that response for the purposes of section
7609(e)(2). If a final resolution to the summons served on
individual A occurs after February 12, 2002, the end of the
suspension period for the designated summons, the period of
limitations on assessment against Corporation P expires 14 days
after the date that the final resolution as provided for in section
7609(e)(2) occurs with respect to the summons served on individual
A.
(5) Computation of 60-day period when last day of assessment period
falls on a weekend or holiday. For purposes of paragraph (c)(1)(ii) of
this section, in determining whether a designated summons has been
issued at least 60 days before the date on which the period of
limitations on assessment prescribed in section 6501 expires, the
provisions of section 7503 apply when the last day of the assessment
period falls on a Saturday, Sunday, or legal holiday.
(6) Determination of compliance with designated and related
summonses if a court proceeding has been instituted--(i) In general.
The Commissioner will determine, in an expeditious manner, whether a
summoned party has fully complied with any court order if the
designated or related summons is the subject of a court proceeding to
quash or to enforce. The determination will be made as soon as
practicable after the later of--
(A) The giving of any testimony required to be given by a summoned
party; or
(B) The act of production (or the last act of production in the
case of production that is accomplished in parts or in stages pursuant
to a mutual agreement between the summoned party and the Commissioner)
by the summoned party.
(ii) Procedure for a favorable determination. If the Commissioner
determines that the summoned party has fully complied with the court
order, the Commissioner will mail notice of that determination within 5
business days after the date of the determination, which will be sent
by certified or registered mail, to the summoned party and the taxpayer
under examination (if the taxpayer is not the summoned party).
(iii) Notification of favorable determination. The written
notification that the summoned party has fully complied with the court
order will contain the following information--
(A) The name and address of the summoned party;
(B) The name, address, type of tax, and taxable period of the
taxpayer corporation with respect to which testimony or records, or
both, were sought by the summons; and
(C) The date on which the Commissioner made the determination that
the summoned party fully complied with court order.
(iv) Effective date of favorable determination. The Commissioner's
determination that the summoned party has fully complied with the court
order will be effective on the date the determination is stated to have
been made in the written notification sent to the summoned party.
(7) Statement of compliance with a court order--(i) In general. In
the case of a court order to which paragraph (d)(6)(i) of this section
applies, the summoned party may submit a statement in writing that the
summoned party has fully complied with the court order to the office
identified on the summons (marked for the attention of the Internal
Revenue Service employee
[[Page 44909]]
who issued the summons to which the order relates).
(ii) Form. The statement of compliance shall be sent by registered
or certified mail and shall include--
(A) The name, current address, current home and work telephone
numbers of the person making the statement and any convenient times
that person can be contacted;
(B) A specific identification of the court order with which
compliance has been achieved and the summons to which the order
relates; and
(C) The signature of the summoned party or the duly authorized
representative.
(iii) Response. (A) As soon as practicable after receipt of such a
statement of compliance, but in no event later than 180 days after such
receipt, the Commissioner will mail a response to the summoned party
(and a copy of the response to the taxpayer, if the summoned party is
not the taxpayer) by registered or certified mail. The date on which
the summoned person mails the statement of compliance shall be deemed
to be the date on which the Commissioner receives it. The
Commissioner's response will notify the summoned party--
(1) That a determination of compliance with the court order has
been made and the date of that determination; or
(2) That a determination of noncompliance has been made and the
date of that determination.
(B) The Commissioner is not required to give notice that the court
order has not been complied with prior to instituting a collateral
proceeding challenging whether the testimony given or the production
made by the summoned party fully satisfies the court order and
requesting that sanctions be imposed against the summoned party for a
failure to comply with the order. The institution of a collateral
proceeding shall constitute notice of a determination of noncompliance.
(C) The summoned party may, in writing, grant the Commissioner
additional time within which to notify it regarding compliance or
noncompliance with the summons.
(iv) Failure to respond within 180 days. If the Commissioner fails
to respond to a properly submitted statement of compliance within the
180-day period, described in paragraph (d)(7)(iii)(A) of this section,
or such longer period as agreed to in writing by the summoned party,
then the court order with respect to which the summoned party submitted
a statement of compliance shall be deemed complied with as of the
expiration of 180 days or such longer period.
(v) Limitations. The Commissioner may treat as a nullity and return
to the summoned party without action, as described in paragraph
(d)(7)(iii) of this section, a statement of compliance that is filed in
the following circumstances--
(A) Before the summoned party has provided testimony, or books,
papers, records, or other data, or both in response to the court order
(or before the last act of production in the case of production that is
accomplished in stages pursuant to a mutual agreement);
(B) Before the Commissioner has issued a determination pursuant to
paragraph (d)(7)(iii) of this section with respect to a previously-
tendered statement of compliance or before the expiration of 180 days
from the date such statement of compliance was received by the
Commissioner, whichever is earlier; or
(C) While a referral to the Department of Justice for a collateral
proceeding with respect to the court order or an appeal of that order
is pending.
(e) Effective date. This section is applicable on the date final
regulations are published in the Federal Register.
Robert E. Wenzel,
Deputy Commissioner of Internal Revenue.
[FR Doc. 03-19537 Filed 7-30-03; 8:45 am]
BILLING CODE 4830-01-P