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Part 5. Collecting Process

Chapter 20. Abusive Tax Avoidance Transactions

Section 3. Third Party Contacts

5.20.3  Third Party Contacts

5.20.3.1  (09-21-2005)
Third Party Contacts

  1. RRA 98 created IRC 7602(c), Notice of Contact of Third Parties, to require that before Service employees initiate contact with third parties for the determination or collection of a taxpayer's tax liability, the taxpayer must be given reasonable notice in advance that third parties may be contacted. IRC 7602(c) also requires the Service to make a record of persons contacted and provide that record to the taxpayer upon the taxpayer's request.

  2. The provisions of IRC 7602(c) must be followed prior to making a third party contact on an ATAT case. Refer to IRM 5.1.17, Third Party Contacts, for detailed guidance on third party contacts.

  3. The third party contact notice letter advises taxpayers that contacts may be made with other persons. The three collection letters available are Letter 3164 A, Third Party Contact Letter, for Trust Fund Recovery Penalty (TFRP) investigations; Letter 3164 B, Third Party Contact Letter, for balance due investigations and FTD Alerts; and Letter 3164 C, Third Party Contact Letter, for delinquent return investigations.

5.20.3.1.1  (09-21-2005)
Trust Cases

  1. When the taxpayer is a trust, special consideration must be given to establish who is determined to be the taxpayer and who is a third party. If a determination has not yet been made, initial correspondence should be sent directly to the trust.

  2. Any contact made with the grantor must be treated as a third party contact unless they are the trustee. The grantor is the person by whom a grant or gift is made. The creator of a trust is generally referred to as the grantor of the trust. Other common words are settler, creator, and trustor.

  3. Contacts made with trustees are not third party contacts. The trustee is a person who is charged with the fiduciary duty of management and control of the trust property for the benefit of the beneficiaries. Review Form 1041, U.S. Income Tax Return for Estates & Trusts, to determine who is designated as the trustee. Form 56, Notice Concerning Fiduciary Relationship, may also be reviewed.

  4. Treas. Reg. 601.503 requires the following:

    In the case of a taxpayer who has appointed a trustee, a Form 56, " Notice Concerning Fiduciary Relationship" , should be filed by the trustee. If there is more than one trustee appointed, all should join unless it is shown that fewer than all have authority to act. Internal Revenue Service officials may require the submission of documentary evidence of the authority of the trustee to act. Such evidence may be either a copy of a properly executed trust instrument or a certified copy of extracts from the trust instruments, showing:

    1. The date of the instrument;

    2. That it is or is not of record in any court;

    3. The names of the beneficiaries;

    4. The appointment of the trustee, the authority granted, and other information as may be necessary to show that such authority extends to Federal tax matters; and

    5. That the trust has not been terminated and the trustee appointed therein is still legally acting as such.

      In the event that the trustee appointed in the original trust instrument has been replaced by another trustee, documentary evidence of the appointment of the new trustee must be submitted.


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