[Federal Register: December 18, 2002 (Volume 67, Number 243)]
[Rules and Regulations]
[Page 77419-77425]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr18de02-10]
-----------------------------------------------------------------------
DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Part 301
[TD 9028]
RIN 1545-AX04
Third Party Contacts
AGENCY: Internal Revenue Service (IRS), Treasury.
ACTION: Final regulations.
-----------------------------------------------------------------------
SUMMARY: This document contains final regulations providing guidance on
third-party contacts made with respect to the determination or
collection of tax liabilities. The regulations reflect changes to
section 7602 of the Internal Revenue Code made by section 3417 of the
Internal Revenue Service Restructuring and Reform Act of 1998. The
regulations potentially affect all taxpayers whose Federal tax
liabilities are being determined or collected by the IRS.
DATES: Effective Dates: These regulations are effective on December 18,
2002.
Applicability Dates: For the date of applicability, see section
301.7602-2(g).
FOR FURTHER INFORMATION CONTACT: Robert A. Miller, 202-622-3630 (not a
toll-free number).
SUPPLEMENTARY INFORMATION:
Background
Section 3417 of the IRS Restructuring and Reform Act of 1998 (RRA
1998), Public Law 105-206 (112 Stat. 685), amended section 7602 by
adding section 7602(c). This provision prohibits IRS officers and
employees from contacting any person, other than the taxpayer, with
respect to the determination or collection of the taxpayer's liability
without giving the taxpayer reasonable advance notice that contacts
with
[[Page 77420]]
persons other than the taxpayer may be made.
On January 2, 2001, the IRS published in the Federal Register a
notice of proposed rulemaking (66 FR 32479) to interpret and implement
section 7602(c). Two written comments were received but a public
hearing was not held. The proposed regulations, as revised by this
Treasury decision, are substantially adopted.
As described more fully in the preamble to the proposed
regulations, the final regulations balance a taxpayer's business and
reputational interests with third parties' privacy interests and the
IRS' responsibility to administer the internal revenue laws
effectively. By providing general pre-contact notice followed by post-
contact identification, these final regulations enable a taxpayer to
come forward with information required by the IRS before third parties
are contacted. The taxpayer's business and reputational interests
therefore can be addressed without impeding the IRS' ability to make
those third-party contacts that are necessary to administer the
internal revenue laws.
These final regulations do not finalize the provisions in the
proposed regulations regarding periodic reports. Subsequent to the
issuance of the proposed regulations, the IRS determined that the
issuance of periodic reports may result in harm to third parties and,
accordingly, has determined that periodic reports should not be issued.
Taxpayers will continue to receive pre-contact notice and may
specifically request from the IRS reports of persons contacted.
Comments on the Proposed Regulations
Sec. 301.7602-2(e)(3)(ii)--Post Contact Reports
The proposed regulations provided that for contacts with the
employees, officers, or fiduciaries of any entity who are acting within
the scope of their employment or relationship, it is sufficient to
record the entity as the person contacted.
One commentator noted that there may be situations where the name
of a specific employee of a business should be recorded and made
available to the taxpayer. The commentator suggests adopting a ``safe
harbor'' rule that requires that the name of the party contacted be
recorded whenever there is any doubt about how the contact should be
recorded. The commentator stated that whenever an employee of a
business is contacted due to his or her personal knowledge or business
relationship with the taxpayer, the name of the specific employee
contacted should be recorded in the contact record rather than (or in
addition to) the name of the business entity.
This comment has not been adopted in the final regulations. The
final regulations do not prevent IRS employees from providing more than
the name of the entity in the record of contact when an employee of a
business is contacted. Because the information being sought typically
is that of the entity, and not of any specific employee outside of
their capacity as an employee, requiring the identification of the
specific employees contacted is not required to provide notice to the
taxpayer of the contact made and may impede the IRS' ability to obtain
information from the entity.
Sec. 301.7602-2(f)(3)--Reprisal Exception
The proposed regulations provided that a statement by the person
contacted that harm may occur is good cause for the IRS to believe that
reprisal may occur. Such contacts are not reported by the IRS to the
taxpayer.
One commentator asserted that the proposed regulations are
inconsistent with the statute's origin and purpose because the proposed
regulations (i) subordinate the rights given to taxpayers to the rights
of third parties and the IRS; (ii) provide an insufficient threshold
for determining whether good cause exists to conclude that reprisal may
occur; (iii) permit a third party to express concerns that providing
notice to the taxpayer may result in reprisal against another person;
(iv) permit the IRS to make a reprisal determination based upon
information obtained from any source; and (v) permit the IRS to make a
reprisal determination without peer or supervisory review. In brief,
the commentator argued that the scope of what would be considered
reprisal is too broad and that the determination of when reprisal would
be considered to exist is too lenient. The commentator claimed that the
adoption of the proposed regulations would render the requirement in
section 7602(c) to provide taxpayers with a record of persons contacted
a nullity.
The Treasury Department and the IRS do not agree that the proposed
regulations are either too broad with respect to what will be
considered reprisal or too permissive with respect to the determination
of whether the potential for reprisal exists. As a general matter, by
including a reprisal exception to the notice requirements of section
7602(c), Congress recognized that the rights of taxpayers to receive
notice of third-party contacts must be balanced with the rights of
third parties to be free from adverse consequences that may result from
the IRS providing such notice. The reprisal exception reflects
Congress' determination that a taxpayer's right to know whom the IRS
has contacted is outweighed by a third party's right to be free from
any reprisal. Moreover, since the statute's effective date, the IRS has
been operating under reprisal procedures consistent with the proposed
regulations. Based upon the small number of reprisal concerns expressed
to date, the Treasury Department and the IRS believe that the final
regulations, which make no change to the proposed regulations with
respect to this issue, appropriately balance the competing interests
reflected in the statute and will not render section 7602(c)(2) a
nullity.
More specifically, the Treasury Department and the IRS believe that
a third party is in the best position to evaluate its relationship with
a taxpayer and the potential for reprisal if a contact with that third
party is reported by the IRS to the taxpayer. Requiring the IRS to
investigate each claim of potential reprisal, including supervisory
review of a reprisal determination, would place a heavy administrative
burden on the IRS and, more importantly, would intrude into the third
party's affairs and require IRS employees to make judgments that they
are not well positioned to make. For these reasons, the final
regulations do not adopt the ``probable cause'' standard suggested by
the commentator. In addition, the rights provided to a taxpayer under
section 7602(c) (i.e., prior notice that contacts with third parties
may be made and a record of persons contacted) cannot be equated with a
person's Fourth Amendment right to be free from unreasonable searches
and seizures.
In addition, the statute clearly contemplates that the reprisal
exception is not limited to concerns of reprisal against the third
party contacted. The reprisal exception applies when providing notice
to the taxpayer ``may involve reprisal against any person.'' section
7602(c)(3)(B) (emphasis added). The statutory exception also does not
restrict the source of information that can be used in making a
reprisal determination. In certain cases, an IRS employee may be in
possession of information that is unknown to the third party contacted
but which suggests that reprisal may occur against another person if
the contact with the third party is reported to the taxpayer.
Finally, limiting the reprisal exception to physical harm would be
inconsistent with the statute and Congress' clear concern that third
parties be free from adverse
[[Page 77421]]
consequences as a result of being contacted by the IRS regarding a
taxpayer's liability. Congress did not define or limit the kind of
reprisal situations with which it was concerned. Excluding economic,
emotional, or other types of harm would significantly diminish the
third-party protections provided by the reprisal exception.
Modifications of Proposed Regulations
Sec. 301.7602-2(c)(1)(i)
The proposed regulations stated that for purposes of section
7602(c), an IRS employee includes, inter alia, a person who, through a
written agreement with the IRS, is subject to disclosure restrictions
consistent with section 6103. The final regulations provide that an IRS
employee includes a person described in section 6103(n), an officer or
employee of such person, and a person who is subject to disclosure
restrictions pursuant to a written agreement in connection with the
solicitation of an agreement described in section 6103(n) and its
implementing regulations. This change was made to provide a legally
precise statement of the rule and to clarify that persons who provide
tax administration services to the IRS and who enter into nondisclosure
agreements with the IRS, as well as prospective bidders who enter into
nondisclosure agreements, are treated as IRS employees for purposes of
section 7602(c).
Sec. 301.7602-2(c)(1)(ii) Example 3
The regulations provide that returning unsolicited telephone calls
or speaking with persons other than the taxpayer as part of an attempt
to speak to the taxpayer are not initiations of third-party contacts.
This provision is illustrated by Example 3, where a revenue agent
trying to contact the taxpayer to discuss the taxpayer's pending
examination twice calls the taxpayer's place of business. The first
call is answered by a receptionist, and the second call is answered by
the office answering machine. The example in the regulations states
that in both situations the employee leaves a message ``stating only
his name, telephone number, that he is with the IRS, and asks that the
taxpayer call him.'' The phrase ``that he is with the IRS'' has been
deleted from the example in the final regulations because there may be
situations where it would be inappropriate for an IRS employee to
identify his or her employer in a telephone conversation or message
that can be seen or heard by persons other than the taxpayer. See
section 6304(b)(4).
Sec. 301.7602-2(c)(3)(ii)
The final regulations add Examples 6(a) and 6(b) to illustrate the
application of the third-party contact rules to audits of TEFRA
partnerships.
Sec. 301.7602-2(d)(2)
The regulations provide that the pre-contact notice need not be
provided to a taxpayer for third-party contacts when advance notice has
otherwise been provided to the taxpayer pursuant to another statute,
regulation or administrative procedure. The proposed regulations
provide that the Collection Due Process (CDP) notice furnished under
section 6330 and its regulations is an example of a situation where the
pre-contact notice requirement is fulfilled by another notice. The
final regulations modify the proposed regulations to clarify that CDP
notices sent to taxpayers pursuant to section 6330 and its regulations
constitute reasonable advance notice that contacts with third parties
may be made for purposes of effectuating a levy.
Sec. 301.7602-2(f)(7)
The final regulations add examples to illustrate the application of
the nonadministrative contacts exception.
Special Analyses
It has been determined that this Treasury decision is not a
significant regulatory action as defined in Executive Order 12866.
Therefore, a regulatory assessment is not required. Likewise, section
553(b) of the Administrative Procedure Act (5 U.S.C. chapter 5) does
not apply to this regulation, and because the regulations do not impose
a collection of information on small entities, the Regulatory
Flexibility Act (5 U.S.C. chapter 6) does not apply. Pursuant to
section 7805(f) of the Internal Revenue Code, the notice of proposed
rulemaking was submitted to the Chief Counsel for Advocacy of the Small
Business Administration for comment on its impact on small business.
Drafting Information
The principal author of these regulations is Charles B. Christopher
of the Office of Associate Chief Counsel, Procedure & Administration
(Collection, Bankruptcy & Summonses Division).
List of Subjects in 26 CFR Part 301
Employment taxes, Estate taxes, Excise taxes, Gift taxes, Income
taxes, Penalties, Reporting and recordkeeping requirements.
Adoption of Amendments to the Regulations
Accordingly, 26 CFR part 301 is amended as follows:
PART 301--PROCEDURES 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 301.7602-2 is added to read as follows:
Sec. 301.7602-2 Third party contacts.
(a) In general. Subject to the exceptions in paragraph (f) of this
section, no officer or employee of the Internal Revenue Service (IRS)
may contact any person other than the taxpayer with respect to the
determination or collection of such taxpayer's tax liability without
giving the taxpayer reasonable notice in advance that such contacts may
be made. A record of persons so contacted must be made and given to the
taxpayer upon the taxpayer's request.
(b) Third-party contact defined. Contacts subject to section
7602(c) and this regulation shall be called ``third-party contacts.'' A
third-party contact is a communication which--
(1) Is initiated by an IRS employee;
(2) Is made to a person other than the taxpayer;
(3) Is made with respect to the determination or collection of the
tax liability of such taxpayer;
(4) Discloses the identity of the taxpayer being investigated; and
(5) Discloses the association of the IRS employee with the IRS.
(c) Elements of third-party contact explained--(1) Initiation by an
IRS employee-- (i) Explanation--(A) Initiation. An IRS employee
initiates a communication whenever it is the employee who first tries
to communicate with a person other than the taxpayer. Returning
unsolicited telephone calls or speaking with persons other than the
taxpayer as part of an attempt to speak to the taxpayer are not
initiations of third-party contacts.
(B) IRS employee. For purposes of this section, an IRS employee
includes all officers and employees of the IRS, the Chief Counsel of
the IRS and the National Taxpayer Advocate, as well as a person
described in section 6103(n), an officer or employee of such person, or
a person who is subject to disclosure restrictions pursuant to a
written agreement in connection with the solicitation of an agreement
described in section 6103(n) and its implementing
[[Page 77422]]
regulations. No inference about the employment or contractual
relationship of such other persons with the IRS may be drawn from this
regulation for any purpose other than the requirements of section
7602(c).
(ii) Examples. The following examples illustrate this paragraph
(c)(1):
Example 1. An IRS employee receives a message to return an
unsolicited call. The employee returns the call and speaks with a
person who reports information about a taxpayer who is not meeting
his tax responsibilities. Later, the employee makes a second call to
the person and asks for more information. The first call is not a
contact initiated by an IRS employee. Just because the employee must
return the call does not change the fact that it is the other
person, and not the employee, who initiated the contact. The second
call, however, is initiated by the employee and so meets the first
element.
Example 2. An IRS employee wants to hire an appraiser to help
determine the value of a taxpayer's oil and gas business. At the
initial interview, the appraiser signs an agreement that prohibits
him from disclosing return information of the taxpayer except as
allowed by the agreement. Once hired, the appraiser initiates a
contact by calling an industry expert in Houston and discusses the
taxpayer's business. The IRS employee's contact with the appraiser
does not meet the first element of a third-party contact because the
appraiser is treated, for section 7602(c) purposes only, as an
employee of the IRS. For the same reason, however, the appraiser's
call to the industry expert does meet the first element of a third-
party contact.
Example 3. A revenue agent trying to contact the taxpayer to
discuss the taxpayer's pending examination twice calls the
taxpayer's place of business. The first call is answered by a
receptionist who states that the taxpayer is not available. The IRS
employee leaves a message with the receptionist stating only his
name and telephone number, and asks that the taxpayer call him. The
second call is answered by the office answering machine, on which
the IRS employee leaves the same message. Neither of these phone
calls meets the first element of a third-party contact because the
IRS employee is trying to initiate a communication with the taxpayer
and not a person other than the taxpayer. The fact that the IRS
employee must either speak with a third party (the receptionist) or
leave a message on the answering machine, which may be heard by a
third party, does not mean that the employee is initiating a
communication with a person other than the taxpayer. Both the
receptionist and the answering machine are only intermediaries in
the process of reaching the taxpayer.
(2) Person other than the taxpayer--(i) Explanation. The phrases
``person other than the taxpayer'' and ``third party'' are used
interchangeably in this section, and do not include--
(A) An officer or employee of the IRS, as defined in paragraph
(c)(1)(i)(B) of this section, acting within the scope of his or her
employment;
(B) Any computer database or website regardless of where located
and by whom maintained, including databases or web sites maintained on
the Internet or in county courthouses, libraries, or any other real or
virtual site; or
(C) A current employee, officer, or fiduciary of a taxpayer when
acting within the scope of his or her employment or relationship with
the taxpayer. Such employee, officer, or fiduciary shall be
conclusively presumed to be acting within the scope of his or her
employment or relationship during business hours on business premises.
(ii) Examples: The following examples illustrate this paragraph
(c)(2):
Example 1. A revenue agent examining a taxpayer's return speaks
with another revenue agent who has previously examined the same
taxpayer about a recurring issue. The revenue agent has not
contacted a ``person other than the taxpayer'' within the meaning of
section 7602(c).
Example 2. A revenue agent examining a taxpayer's return speaks
with one of the taxpayer's employees on business premises during
business hours. The employee is conclusively presumed to be acting
within the scope of his employment and is therefore not a ``person
other than the taxpayer'' for section 7602(c) purposes.
Example 3. A revenue agent examining a corporate taxpayer's
return uses a commercial online research service to research the
corporate structure of the taxpayer. The revenue agent uses an IRS
account, logs on with her IRS user name and password, and uses the
name of the corporate taxpayer in her search terms. The revenue
agent later explores several Internet web sites that may have
information relevant to the examination. The searches on the
commercial online research service and Internet websites are not
contacts with ``persons other than the taxpayer.''
(3) With respect to the determination or collection of the tax
liability of such taxpayer--(i) Explanation--(A) With respect to. A
contact is ``with respect to'' the determination or collection of the
tax liability of such taxpayer when made for the purpose of either
determining or collecting a particular tax liability and when directly
connected to that purpose. While a contact made for the purpose of
determining a particular taxpayer's tax liability may also affect the
tax liability of one or more other taxpayers, such contact is not for
that reason alone a contact ``with respect to'' the determination or
collection of those other taxpayers' tax liabilities. Contacts to
determine the tax status of a pension plan under chapter 1, subchapter
D (Deferred Compensation) of the Internal Revenue Code, are not ``with
respect to'' the determination of plan participants'' tax liabilities.
Contacts to determine the tax status of a bond issue under chapter 1,
subchapter B, Part IV (Tax Exemption Requirements for State and Local
Bonds) of the Internal Revenue Code, are not ``with respect to'' the
determination of the bondholders' tax liabilities. Contacts to
determine the tax status of an organization under chapter 1, subchapter
F (Exempt Organizations) of the Internal Revenue Code, are not ``with
respect to'' the determination of the contributors' liabilities, nor
are any similar determinations ``with respect to'' any persons with
similar relationships to the taxpayer whose tax liability is being
determined or collected.
(B) Determination or collection. A contact is with respect to the
``determination or collection'' of the tax liability of such taxpayer
when made during the administrative determination or collection
process. For purposes of this paragraph (c) only, the administrative
determination or collection process may include any administrative
action to ascertain the correctness of a return, make a return when
none has been filed, or determine or collect the tax liability of any
person as a transferee or fiduciary under chapter 71 of Title 26.
(C) Tax liability. A tax liability means the liability for any tax
imposed by Title 26 of the United States Code (including any interest,
additional amount, addition to the tax, or penalty) and does not
include the liability for any tax imposed by any other jurisdiction nor
any liability imposed by other Federal statutes.
(D) Such taxpayer. A contact is with respect to the determination
or collection of the tax liability of ``such taxpayer'' when made while
determining or collecting the tax liability of a particular, identified
taxpayer. Contacts made during an investigation of a particular,
identified taxpayer are third-party contacts only as to the particular,
identified taxpayer under investigation and not as to any other
taxpayer whose tax liabilities might be affected by such contacts.
(ii) Examples. The following examples illustrate the operation of
this paragraph (c)(3):
Example 1. As part of a compliance check on a return preparer,
an IRS employee visits the preparer's office and reviews the
preparer's client files to ensure that the proper forms and records
have been created and maintained. This contact is not a third-party
contact ``with respect to'' the preparer's clients because it is not
for the purpose of determining the tax liability of the preparer's
clients, even though the agent might discover information that would
lead the agent to recommend an examination of one or more of the
preparer's clients.
[[Page 77423]]
Example 2. A revenue agent is assigned to examine a taxpayer's
return, which was prepared by a return preparer. As in all such
examinations, the revenue agent asks the taxpayer routine questions
about what information the taxpayer gave the preparer and what
advice the preparer gave the taxpayer. As a result of the
examination, the revenue agent recommends that the preparer be
investigated for penalties under section 6694 or 6695. Neither the
examination of the taxpayer's return nor the questions asked of the
taxpayer are ``with respect to'' the determination of the preparer's
tax liabilities within the meaning of section 7602(c) because the
purpose of the contacts was to determine the taxpayer's tax
liability, even though the agent discovered information that may
result in a later investigation of the preparer.
Example 3. To help identify taxpayers in the florist industry
who may not have filed proper returns, an IRS employee contacts a
company that supplies equipment to florists and asks for a list of
its customers in the past year in order to cross-check the list
against filed returns. The employee later contacts the supplier for
more information about one particular florist who the employee
believes did not file a proper return. The first contact is not a
contact with respect to the determination of the tax liability of
``such taxpayer'' because no particular taxpayer has been identified
for investigation at the time the contact is made. The later
contact, however, is with respect to the determination of the tax
liability of ``such taxpayer'' because a particular taxpayer has
been identified. The later contact is also ``with respect to'' the
determination of that taxpayer's liability because, even though no
examination has been opened on the taxpayer, the information sought
could lead to an examination.
Example 4. A revenue officer, trying to collect the trust fund
portion of unpaid employment taxes of a corporation, begins to
investigate the liability of two corporate officers for the section
6672 Trust Fund Recovery Penalty (TFRP). The revenue officer obtains
the signature cards for the corporation's bank accounts from the
corporation's bank. The contact with the bank to obtain the
signature cards is a contact with respect to the determination of
the two identified corporate officers' tax liabilities because it is
directly connected to the purpose of determining a tax liability of
two identified taxpayers. It is not, however, a contact with respect
to any other person not already under investigation for TFRP
liability, even though the signature cards might identify other
potentially liable persons.
Example 5. The IRS is asked to rule on whether a certain pension
plan qualifies under section 401 so that contributions to the
pension plan are excludable from the employees' incomes under
section 402 and are also deductible from the employer's income under
section 404. Contacts made with the plan sponsor (and with persons
other than the plan sponsor) are not contacts ``with respect to''
the determination of the tax liabilities of the pension plan
participants because the purpose of the contacts is to determine the
status of the plan, even though that determination may affect the
participants' tax liabilities.
Example 6(a). The IRS audits a TEFRA partnership at the
partnership (entity) level pursuant to sections 6221 through 6233.
The tax treatment of partnership items is at issue, but the
respective tax liabilities of the partners may be affected by the
results of the TEFRA partnership audit. With respect to the TEFRA
partnership, contacts made with employees of the partnership acting
within the scope of their duties or any partner are not section
7602(c) contacts because they are considered the equivalent of
contacting the partnership. Contacts relating to the tax treatment
of partnership items made with persons other than the employees of
the partnership who are acting within the scope of their duties or
the partners are section 7602(c) contacts with respect to the TEFRA
partnership, and reasonable advance notice should be provided by
sending the appropriate Letter 3164 to the partnership's tax matters
partner (TMP). Individual partners who are merely affected by the
partnership audit but who are not identified as subject to
examination with respect to their individual tax liabilities need
not be sent Letters 3164.
Example 6(b). In the course of an audit of a TEFRA partnership
at the partnership (entity) level, the IRS intends to contact third
parties regarding transactions between the TEFRA partnership and
specific, identified partners. In addition to the partnership's TMP,
the specific, identified partners should also be provided advance
notice of any third-party contacts relating to such transactions.
(4) Discloses the identity of the taxpayer being investigated--(i)
Explanation. An IRS employee discloses the taxpayer's identity whenever
the employee knows or should know that the person being contacted can
readily ascertain the taxpayer's identity from the information given by
the employee.
(ii) Examples. The following examples illustrate this paragraph
(c)(4):
Example 1. A revenue agent seeking to value the taxpayer's
condominium calls a real estate agent and asks for a market analysis
of the taxpayer's condominium, giving the unit number of the
taxpayer's condominium. The revenue agent has revealed the identity
of the taxpayer, regardless of whether the revenue agent discloses
the name of the taxpayer, because the real estate agent can readily
ascertain the taxpayer's identity from the address given.
Example 2. A revenue officer seeking to value the taxpayer's
condominium calls a real estate agent and, without identifying the
taxpayer's unit, asks for the sales prices of similar units recently
sold and listing prices of similar units currently on the market.
The revenue officer has not revealed the identity of the taxpayer
because the revenue officer has not given any information from which
the real estate agent can readily ascertain the taxpayer's identity.
(5) Discloses the association of the IRS employee with the IRS. An
IRS employee discloses his association with the IRS whenever the
employee knows or should know that the person being contacted can
readily ascertain the association from the information given by the
employee.
(d) Pre-contact notice--(1) In general. An officer or employee of
the IRS may not make third-party contacts without providing reasonable
notice in advance to the taxpayer that contacts may be made. The pre-
contact notice may be given either orally or in writing. If written
notice is given, it may be given in any manner that the IRS employee
responsible for giving the notice reasonably believes will be received
by the taxpayer in advance of the third-party contact. Written notice
is deemed reasonable if it is--
(i) Mailed to the taxpayer's last known address;
(ii) Given in person;
(iii) Left at the taxpayer's dwelling or usual place of business;
or
(iv) Actually received by the taxpayer.
(2) Pre-contact notice not required. Pre-contact notice under this
section need not be provided to a taxpayer for third-party contacts of
which advance notice has otherwise been provided to the taxpayer
pursuant to another statute, regulation or administrative procedure.
For example, Collection Due Process notices sent to taxpayers pursuant
to section 6330 and its regulations constitute reasonable advance
notice that contacts with third parties may be made in order to
effectuate a levy.
(e) Post-contact reports--(1) Requested reports. A taxpayer may
request a record of persons contacted in any manner that the
Commissioner reasonably permits. The Commissioner may set reasonable
limits on how frequently taxpayer requests need be honored. The
requested report may be mailed either to the taxpayer's last known
address or such other address as the taxpayer specifies in the request.
(2) Contents of record--(i) In general. The record of persons
contacted should contain information, if known to the IRS employee
making the contact, which reasonably identifies the person contacted.
Providing the name of the person contacted fully satisfies the
requirements of this section, but this section does not require IRS
employees to solicit identifying information from a person solely for
the purpose of the post-contact report. The record need not contain any
other information, such as the nature of the inquiry or the content of
the third party's response. The record need not report multiple
contacts made with the same person during a reporting period.
(ii) Special rule for employees. For contacts with the employees,
officers, or
[[Page 77424]]
fiduciaries of any entity who are acting within the scope of their
employment or relationship, it is sufficient to record the entity as
the person contacted. A fiduciary, officer or employee shall be
conclusively presumed to be acting within the scope of his employment
or relationship during business hours on business premises. For
purposes of this paragraph (e)(2)(ii), the term entity means any
business (whether operated as a sole proprietorship, disregarded entity
under Sec. 301.7701-2 of the regulations, or otherwise), trust,
estate, partnership, association, company, corporation, or similar
organization.
(3) Post-contact record not required. A post-contact record under
this section need not be made, or provided to a taxpayer, for third-
party contacts of which the taxpayer has already been given a similar
record pursuant to another statute, regulation, or administrative
procedure.
(4) Examples. The following examples illustrate this paragraph (e):
Example 1. An IRS employee trying to find a specific taxpayer's
assets in order to collect unpaid taxes talks to the owner of a
marina. The employee asks whether the taxpayer has a boat at the
marina. The owner gives his name as John Doe. The employee may
record the contact as being with John Doe and is not required by
this regulation to collect or record any other identifying
information.
Example 2. An IRS employee trying to find a specific taxpayer
and his assets in order to collect unpaid taxes talks to a person at
502 Fernwood. The employee asks whether the taxpayer lives next door
at 500 Fernwood, as well as where the taxpayer works, what kind of
car the taxpayer drives and whether the camper parked in front of
500 Fernwood belongs to the taxpayer. The person does not disclose
his name. The employee may record the contact as being with a person
at 502 Fernwood. If the employee then makes the same inquiries of
another person on the street in front of 500 Fernwood, and does not
learn that person's name, the latter contact may be reported as
being with a person on the street in front of 500 Fernwood.
Example 3. An IRS employee examining a return obtains loan
documents from a bank where the taxpayer applied for a loan. After
reviewing the documents, the employee talks with the loan officer at
the bank who handled the application. The employee has contacted
only one ``person other than the taxpayer.'' The bank and not the
loan officer is the ``person other than the taxpayer'' for section
7602(c) purposes. The contact with the loan officer is treated as a
contact with the bank because the loan officer was an employee of
the bank and was acting within the scope of her employment with the
bank.
Example 4. An IRS employee issues a summons to a third party
with respect to the determination of a taxpayer's liability and
properly follows the procedures for such summonses under section
7609, which requires that a copy of the summons be given to the
taxpayer. This third-party contact need not be maintained in a
record of contacts available to the taxpayer because providing a
copy of the third-party summons to the taxpayer pursuant to section
7609 satisfies the post-contact recording and reporting requirement
of this section.
Example 5. An IRS employee serves a levy on a third party with
respect to the collection of a taxpayer's liability. The employee
provides the taxpayer with a copy of the notice of levy form that
shows the identity of the third party. This third-party contact need
not be maintained in a record of contacts available to the taxpayer
because providing a copy of the notice of levy to the taxpayer
satisfies the post-contact recording and reporting requirement of
this section.
(f) Exceptions. (1) Authorized by taxpayer--(i) Explanation.
Section 7602(c) does not apply to contacts authorized by the taxpayer.
A contact is ``authorized'' within the meaning of this section if--
(A) The contact is with the taxpayer's authorized representative,
that is, a person who is authorized to speak or act on behalf of the
taxpayer, such as a person holding a power of attorney, a corporate
officer, a personal representative, an executor or executrix, or an
attorney representing the taxpayer; or
(B) The taxpayer or the taxpayer's authorized representative
requests or approves the contact.
(ii) No prevention or delay of contact. This section does not
entitle any person to prevent or delay an IRS employee from contacting
any individual or entity.
(2) Jeopardy--(i) Explanation. Section 7602(c) does not apply when
the IRS employee making a contact has good cause to believe that
providing the taxpayer with either a general pre-contact notice or a
record of the specific person contacted may jeopardize the collection
of any tax. For purposes of this section only, good cause includes a
reasonable belief that providing the notice or record will lead to--
(A) Attempts by any person to conceal, remove, destroy, or alter
records or assets that may be relevant to any tax examination or
collection activity;
(B) Attempts by any person to prevent other persons, through
intimidation, bribery, or collusion, from communicating any information
that may be relevant to any tax examination or collection activity; or
(C) Attempts by any person to flee, or otherwise avoid testifying
or producing records that may be relevant to any tax examination or
collection activity.
(ii) Record of contact. If the circumstances described in this
paragraph (f)(2) exist, the IRS employee must still make a record of
the person contacted, but the taxpayer need not be provided the record
until it is no longer reasonable to believe that providing the record
would cause the jeopardy described.
(3) Reprisal--(i) In general. Section 7602(c) does not apply when
the IRS employee making a contact has good cause to believe that
providing the taxpayer with either a general pre-contact notice or a
specific record of the person being contacted may cause any person to
harm any other person in any way, whether the harm is physical,
economic, emotional or otherwise. A statement by the person contacted
that harm may occur against any person is sufficient to constitute good
cause for the IRS employee to believe that reprisal may occur. The IRS
employee is not required to further question the contacted person about
reprisal or otherwise make further inquiries regarding the statement.
(ii) Examples. The following examples illustrate this paragraph
(f)(3):
Example 1. An IRS employee seeking to collect unpaid taxes is
told by the taxpayer that all the money in his and his brother's
joint bank account belongs to the brother. The IRS employee contacts
the brother to verify this information. The brother refuses to
confirm or deny the taxpayer's statement. He states that he does not
believe that reporting the contact to the taxpayer would result in
harm to anyone but further states that he does not want his name
reported to the taxpayer because it would appear that he gave
information. This contact is not excepted from the statute merely
because the brother asks that his name be left off the list of
contacts.
Example 2. Assume the same facts as in Example 1, except that
the brother states that he fears harm from the taxpayer should the
taxpayer learn of the contact, even though the brother gave no
information. This contact is excepted from the statute because the
third party has expressed a fear of reprisal. The IRS employee is
not required to make further inquiry into the nature of the
brothers' relationship or otherwise question the brother's fear of
reprisal.
Example 3. An IRS employee is examining a joint return of a
husband and wife, who recently divorced. From reading the court
divorce file, the IRS employee learns that the divorce was
acrimonious and that the ex-husband once violated a restraining
order issued to protect the ex-wife. This information provides good
cause for the IRS employee to believe that reporting contacts which
might disclose the ex-wife's location may cause reprisal against any
person. Therefore, when the IRS employee contacts the ex-wife's new
employer to verify salary information provided by the ex-wife, the
IRS employee has good cause not to report that contact to the ex-
husband, regardless of whether the new employer expresses concern
about reprisal against it or its employees.
(4) Pending criminal investigations--(i) IRS criminal
investigations. Section
[[Page 77425]]
7602(c) does not apply to contacts made during an investigation, or
inquiry to determine whether to open an investigation, when the
investigation or inquiry is--
(A) Made against a particular, identified taxpayer for the primary
purpose of evaluating the potential for criminal prosecution of that
taxpayer; and
(B) Made by an IRS employee whose primary duties include either
identifying or investigating criminal violations of the law.
(ii) Other criminal investigations. Section 7602(c) does not apply
to contacts which, if reported to the taxpayer, could interfere with a
known pending criminal investigation being conducted by law enforcement
personnel of any local, state, Federal, foreign or other governmental
entity.
(5) Governmental entities. Section 7602(c) does not apply to any
contact with any office of any local, state, Federal or foreign
governmental entity except for contacts concerning the taxpayer's
business with the government office contacted, such as the taxpayer's
contracts with or employment by the office. The term office includes
any agent or contractor of the office acting in such capacity.
(6) Confidential informants. Section 7602(c) does not apply when
the employee making the contact has good cause to believe that
providing either the pre-contact notice or the record of the person
contacted would identify a confidential informant whose identity would
be protected under section 6103(h)(4).
(7) Nonadministrative contacts--(i) Explanation. Section 7602(c)
does not apply to contacts made in the course of a pending court
proceeding.
(ii) Examples. The following examples illustrate this paragraph
(f)(7):
Example 1. An attorney for the Office of Chief Counsel needs to
contact a potential witness for an upcoming Tax Court proceeding
involving the 1997 and 1998 taxable years of the taxpayer. Section
7602(c) does not apply because the contact is being made in the
course of a pending court proceeding.
Example 2. While a Tax Court case is pending with respect to a
taxpayer's 1997 and 1998 income tax liabilities, a revenue agent is
conducting an examination of the taxpayer's excise tax liabilities
for the fiscal year ending 1999. Any third-party contacts made by
the revenue agent with respect to the excise tax liabilities would
be subject to the requirements of section 7602(c) because the Tax
Court proceeding does not involve the excise tax liabilities.
Example 3. A taxpayer files a Chapter 7 bankruptcy petition and
receives a discharge. A revenue officer contacts a third party in
order to determine whether the taxpayer has any exempt assets
against which the IRS may take collection action to enforce its
federal tax lien. At the time of the contact, the bankruptcy case
has not been closed. Although the bankruptcy proceeding remains
pending, the purpose of this contact relates to potential collection
action by the IRS, a matter not before or related to the bankruptcy
court proceeding.
(g) Effective Date. This section is applicable on December 18,
2002.
David A. Mader,
Assistant Deputy Commissioner of Internal Revenue.
Pamela F. Olson,
Assistant Secretary of the Treasury.
[FR Doc. 02-31857 Filed 12-17-02; 8:45 am]
BILLING CODE 4830-01-P