4.10.1  Overview and Basic Examiner Responsibilities

4.10.1.1  (05-14-1999)
Overview

  1. This section discusses IRM 4.10, Examination of Returns, which provides the basic procedures, guidelines and requirements for use by Revenue Agents and Tax Auditors in conducting income tax examinations. Additional procedures for cases included in the Coordinated Examination Program (CEP) are found in IRM 4.45 Coordinated Examination Program (CEP).

  2. Income tax examiners and their managers should thoroughly acquaint themselves with the examination procedures and information contained in this IRM. Examiners and managers should also be aware of the applicable procedures in the other Examination chapters outlined in 1.8 below.

  3. Copies of forms and letters referenced in this chapter are generally not included as exhibits since the latest versions should always be used and they will be available in electronic format on the Multi-Media Website.

4.10.1.2  (05-14-1999)
Force and Effect of This Chapter

  1. All procedures found in section 8 of this chapter are mandatory.

  2. All procedures related to ensuring taxpayer rights are mandatory.

  3. The first revision of this chapter will contain a complete identification of all mandatory procedures using bolding, underlining, or other definitive marking.

4.10.1.3  (05-14-1999)
Chapter Structure

  1. Chapter 4.10, Examination of Returns, is organized in the following sections:

    1. section 1, Chapter Overview and Basic Examiner Responsibilities

    2. section 2, Pre-contact Responsibilities

    3. section 3, Examination Techniques

    4. section 4, Examination of Income

    5. section 5, Required Filing Checks

    6. section 6, Penalty Consideration

    7. section 7, Issue Resolution

    8. section 8, Report Writing

    9. section 9, Workpapers

    10. section 10, Correspondence Examination Procedures for Area Offices (Reserved)

4.10.1.4  (05-14-1999)
Basic Examiner Responsibilities — Overview

  1. All examiners must perform their professional responsibilities in a way that supports the IRS Mission. This requires examiners to provide top quality service and to apply the law with integrity and fairness to all.

  2. This subsection provides an explanation of the basic standards/responsibilities that all examiners should understand and apply in the performance of their duties. The standards/responsibilities covered in this section are as follows:

    1. Customer Service (1.5)

    2. Taxpayer Rights (1.6)

    3. Quality Standards (1.7) — Reserved

    4. Other Applicable IRMs (1.8)

4.10.1.5  (05-14-1999)
Customer Service

  1. Providing all taxpayers with high quality service in all contacts is a primary area of emphasis for all Examination employees.

4.10.1.5.1  (05-14-1999)
Focus on Problem Solving

  1. Examiners should assist taxpayers in solving any tax problems identified during an examination, even if the problems are not associated with the examination.

  2. Assistance should be requested from Customer Service personnel, as needed, to expedite resolution of taxpayer problems.

  3. Referrals should be made to the Taxpayer Advocate when appropriate.

  4. Referrals should be made to appropriate Collection personnel if taxpayers have questions about current or past collection actions. If a taxpayer requests information about collection actions taken against a former/separated spouse, this request should also be referred to Collection personnel.

  5. Examiners should refer to IRM 4.9, Technical Time Report chapters, to determine the appropriate time reporting codes to use when assisting taxpayers in problem solving, that is unrelated to an ongoing examination.

4.10.1.5.2  (05-14-1999)
Ensure Timely Actions

  1. The proper use of time is an essential element of a quality examination. Examiners are responsible for the day-to-day management of their cases and are accountable for completing their work in the least amount of time necessary to perform a quality audit. Both the number of hours charged to a case and the span of time the case is open must be reasonable.

  2. Factors used to determine if the time charged and the length of time a case is open are reasonable include:

    1. Issue complexity and potential

    2. Condition of books and records

    3. Taxpayer/representative cooperation

    4. Necessary case file documentation

    5. Level of taxpayer education needed

  3. A focus on timely actions will reduce taxpayer burden.

  4. Guidelines for timely actions during each phase of the examination are contained in the relevant sections of this IRM.

  5. In-process cases will be considered overage when they have been in status 12 (started) in excess of six months for office cases and twelve months for field cases.

4.10.1.5.3  (05-14-1999)
Ensure Quality Taxpayer Communication

  1. Effective communication with taxpayers is a significant factor in conducting a quality examination and in minimizing taxpayer burden. All communication with taxpayers should be courteous, professional and clear.

4.10.1.5.3.1  (05-14-1999)
Oral Communication

  1. In all personal contacts with taxpayers and representatives, examiners should always be courteous and professional.

  2. See section 3 of this chapter for more information on conducting interviews.

4.10.1.5.3.2  (05-14-1999)
Written Communication

  1. All taxpayer correspondence should be clear, concise, and professional, as well as adhering to legal requirements.

  2. All correspondence should also strive to meet the needs of the taxpayer.

  3. Where possible, all correspondence with taxpayers should be prepared using standard forms and letters, since the specific language in these documents has been approved for general use.

  4. All correspondence must contain an employee name, contact telephone number, employee identification number, and signature. (See 1.6.9 below for more information).

  5. Any original correspondence prepared by examiners should be approved by the group manager and such approval should be documented in the case file. If correspondence is not individually approved, managers must develop some type of ongoing review process to ensure the quality of correspondence

  6. Groups should maintain read files of all taxpayer correspondence that does not use form letters.

4.10.1.6  (05-14-1999)
Taxpayer Rights

  1. Examiners have the ongoing responsibility to ensure that all taxpayer rights are protected and observed, whether these rights are mandated by statute or provided as a matter of policy.

  2. Examiners should be aware of all the rights provided by the IRC, Taxpayer Bill of Rights I & II, the IRS Restructuring and Reform Act of 1998 (RRA 98) and IRS policies.

  3. The rights specifically covered in this subsection are not all inclusive, but rather are mentioned here to provide special emphasis or to highlight some of the new rights provided in RRA 98.

  4. The taxpayer rights covered in the subsections below are as follows:

    1. Representation/Power-of-Attorney Requirements (1.6.1)

    2. Confidentiality Privileges—Accountant/Client Privilege (1.6.2)

    3. Notification of Appeal Rights (1.6.3)

    4. Innocent Spouse Relief (1.6.4)

    5. Interest Abatement (1.6.5)

    6. Consideration of Collectibility (1.6.6)

    7. Early Referrals to Appeals (1.6.7)

    8. Separate Notices for Joint Filers (1.6.8)

    9. Providing Taxpayers with Employee Contact Information (1.6.9)

    10. Confidentiality of Taxpayer Information/Privacy (1.6.10)

    11. Unauthorized Access (UNAX) Requirements (1.6.11)

    12. Third Party Contacts (1.6.12)

4.10.1.6.1  (05-14-1999)
Representation/Power-of-Attorney Requirements

  1. Honoring a valid power-of-attorney submitted by a taxpayer is always required unless the criteria for bypassing the power-of-attorney has been met (see Power-of-Attorney for more information).

  2. Specific requirements for examiners are outlined in section 2. Pre-contact Responsibilities and section 3 of this chapter.

4.10.1.6.2  (05-14-1999)
Confidentiality Privileges Relating to Taxpayer Communications — Accountant/Client Privilege

  1. IRC Section 7525 extended the attorney-client privilege in noncriminal cases to communications between taxpayers and other federally authorized tax practitioners. No equivalent confidentiality privilege existed prior to the enactment of this provision.

4.10.1.6.2.1  (05-14-1999)
When Does it Apply?

  1. This statute applies to any noncriminal tax matter before the Service or any noncriminal tax proceeding in Federal Court.

  2. It does not apply to written communications between a federally authorized tax practitioner and certain representatives of a corporation in connection with the promotion of direct or indirect participation of a corporation in a tax shelter.

  3. This privilege is not automatic, it must be asserted by the taxpayer.

  4. The privilege may be asserted orally or in writing.

4.10.1.6.2.2  (05-14-1999)
When is it Effective?

  1. This provision is effective for privileged communications made on or after the date of enactment (July 22, 1998).

  2. This means that certain communications (oral and written) between federally authorized tax practitioners and taxpayers on or after July 22, 1998 may now be "privileged communications" within the meaning of the statute and may be withheld from the Service.

4.10.1.6.2.3  (05-14-1999)
Who are Federally Authorized Tax Practitioners?

  1. Federally authorized tax practitioners are individuals authorized to practice under 31 U.S.C. Section 330.

  2. Generally, this means attorneys, CPA’s, enrolled agents, and enrolled actuaries as defined in Circular 230.

  3. Questions about whether the privilege applies to communications with other individuals should be referred to Area Counsel.

4.10.1.6.2.4  (05-14-1999)
What Tax Advise Is Privileged?

  1. The statute is unclear about what specific tax advise is privileged; however, based on the conference report, it appears that information disclosed for the purpose of preparing a tax return would not be privileged.

  2. This provision was not intended to provide tax practitioners with greater privilege that currently exists between attorneys and clients, so rules related to attorney client privilege should be used as a guideline.

    1. Refer to the Collecting Process IRM for a complete discussion of attorney client privilege.

4.10.1.6.2.5  (05-14-1999)
Taxpayer/Practitioner Questions About Specific Communications

  1. Taxpayers or authorized tax practitioners may question whether specific communications are privileged.

  2. Taxpayers/practitioners should be advised to seek their own counsel for advice on whether a specific communication is subject to privilege.

  3. Examiners should not attempt to become involved in making these determinations, since such determinations would require knowledge of the substance of the communication and examiners could not have this knowledge without disclosure of the information the taxpayer/practitioner seeks to protect.

4.10.1.6.2.6  (05-14-1999)
Requesting Information From Taxpayers or Authorized Tax Practitioners

  1. Examiners should follow existing procedures for requesting relevant tax return related information.

4.10.1.6.2.7  (05-14-1999)
What if Privilege is Asserted — Procedures

  1. When a taxpayer of a federally authorized tax practitioner declines to provide testimony or documents based on IRC section 7525, confidentiality privileges, the examiner should take the following actions:

    1. Request a written statement from the federally authorized tax practitioner providing the reasons why the privilege is being asserted.

    2. Contact Area Counsel for Guidance.

4.10.1.6.2.8  (05-14-1999)
When is a Case No Longer a Non-Criminal Tax Matter?

  1. A case ceases to be a noncriminal tax matter before the Service, when the matter is referred to Criminal Investigation for assignment to a Special Agent.

  2. Once the case is no longer a noncriminal matter, the taxpayer or federally authorized tax practitioner can no longer assert IRC section 7525 privilege.

4.10.1.6.3  (05-14-1999)
Notification of Appeal Rights

  1. Examiners should always inform taxpayers of the appeal rights available to them related to their examination.

    1. Examination policy requires that taxpayers are formally notified of their appeal rights and other related rights through the use of Publication 1, Your Rights as a Taxpayer, Publication 5, Appeal Rights and Preparation of Protests for Unagreed Cases, Publication 594, The IRS Collection Process and Notice 1214, Helpful Contacts for your "Notice of Deficiency" , (see specific instructions for notification in section 2, Precontact Responsibilities and section 8 of this chapter).

  2. Examiners should discuss appeal rights with the taxpayers during the first interview/contact to ensure that taxpayers understand these appeal rights.

  3. All taxpayer contacts made in the area by Examination (with few exceptions) require appeal right notification.

4.10.1.6.4  (05-14-1999)
Innocent Spouse Relief

  1. The IRS Restructuring and Reform Act of 1998 provided expanded provisions for granting innocent spouse relief See IRM 25.16, Relief from Joint and Several Liability, for complete information.

4.10.1.6.5  (05-14-1999)
Interest Abatement

  1. IRC section 6404(e) was expanded by the Taxpayer Bill of Rights 2 to provide abatement of interest when any assessment of interest on a deficiency is attributable in whole or in part to any unreasonable error or delay in performing a ministerial or managerial act.

  2. For purposes of this provision, deficiency means a deficiency related to income, estate, gift, generation-skipping and excise tax.

  3. To ensure that the Service can accurately and fairly respond to a taxpayer’s claims for interest abatement (for the taxes outlined in (2)), it is critical that all employees involved in these examinations accurately record activity, as well as inactivity on cases.

    1. Documentation should be recorded on Form 9984, Examining Officer’s Activity Record, either the paper form or the Electronic version found in the Report Generation Software (RGS).

    2. Documentation should include the date, the location of the activity, the contact code, and remarks/notes/actions taken.

    3. Time charged for each activity may also be recorded on Form 9984, as dictated by local practice.

    4. Group managers, Audit Accounting Aides, Specialists, Clerks, Reviewers, and any other employee involved in the Examination process, for a specific case, must also document their activities on Form 9984.

    5. Form 9984 must also be used to document activity on cases worked by Examination after assessment, such as audit reconsiderations and collection referrals.

    6. It is critical that periods of inactivity, such as extended leave, training and details also be documented on Form 9984.

  4. Taxpayer requests for interest abatement should be referred to the Area Interest Abatement Coordinator for consideration.

  5. Examiners should also contact the Area Interest Abatement Coordinator with questions on interest abatement.

4.10.1.6.6  (05-14-1999)
Consideration of Collectibility

  1. Examiners are expected to consider collectibility during the pre-contact phase of examinations as a factor in determining the scope and depth (see IRM 4.10.2.4.3).

  2. Examiners should also take all possible steps to secure payment of agreed deficiencies resulting from examinations.

  3. Installment Agreements and Offers-in-Compromise should be utilized as appropriate.

4.10.1.6.7  (05-14-1999)
Early Referrals to Appeals

  1. Section 3465 of the IRS Restructuring and Reform Act of 1998 expanded the use of Early Referral procedures to all Examination issues subject to review (these procedures previously applied only to cases in the Coordinated Examination Program (CEP)).

  2. A revenue procedure is being developed that will provide guidance on implementing this provision. However, before the publication of the revenue procedure, Appeals may accept such cases, on a case-by-case basis. Examiners should rely on the general guidelines in Rev. Proc. 96–9 (in consultation with Appeals) if requests from taxpayers are received for early referral.

4.10.1.6.8  (05-14-1999)
Separate Notice Requirements for Joint Returns

  1. Section 3201 of the IRS Restructuring and Reform Act of 1998 requires that, wherever practicable, any notice relating to a joint return be sent separately to each individual filing the joint return.

4.10.1.6.8.1  (05-14-1999)
Applicability to Examination Notices

  1. For Examination notices issued by Area offices, the following notices or circumstances require the issuance of separate notices:

    1. All initial appointment/contact or appointment confirmation letters, except those issued for office examination using the Centralized Files and Scheduling System (issuing separate notices from this system is not possible at this time).

    2. All first notices of deficiency.

    3. All Statutory Notices of Deficiency

    4. All third party notifications using Letter 3164

    5. Any other notice required by statute

    6. All correspondence subsequent to examiner knowledge that either spouse has a new/separate mailing address or if the correct mailing address for one or both of the spouses can not be verified. An examiner may become aware of address changes from information in the case file, such as transcripts or correspondence or from the taxpayer(s), when address verification is done (see 1.6.8.2 below for more information on address verification).

4.10.1.6.8.2  (05-14-1999)
Verification of Address for Each Spouse

  1. During the first contact (either by telephone or in person), the examiner must verify that the known mailing address is still correct for each of the spouses.

  2. If there is an address change for either or both of the spouses:

    1. Established address change procedures should be followed. See IRM 4.4, AIMS/Processing, for specific procedures to update the addresses as required.

    2. The case file should also be clearly annotated with the correct mailing addresses.

  3. Examiners will document the results of the address verification on Form 9984. Examining Officer’s Activity Record, in all cases.

4.10.1.6.8.3  (05-14-1999)
Procedures for Sending Separate Notices

  1. The taxpayer name on all examination reports will always be the joint name as it appears on the return. Any other reference made to the taxpayer under examination, in other correspondence, must also be in the joint name.

  2. For all notices required by statute, the name and address on the notice will be the joint name and the correct address for the primary taxpayer. The notice will be mailed to the primary taxpayer and a copy of the same notice will be mailed to the secondary taxpayer in a separate envelope, even if the address is the same as the primary taxpayer. The envelope addressed to the secondary taxpayer should be manually prepared.

  3. For all other computer-generated notices/letters relating to a joint return that are not required by statute, follow the existing guidelines to prepare and address the notices/letters.

  4. For manually generated and mailed notices/letters not required by statute, follow the procedures outlined in (2) above unless both spouses have confirmed that they are using the same address. If both spouses have confirmed that they are using the same address, follow existing guidelines to prepare and address notices/letters.

4.10.1.6.9  (05-14-1999)
Providing Taxpayers With Employee Contact Information

  1. Section 3705 of the Internal Revenue Service Restructuring and Reform Act (RRA 98) requires that during personal and telephone contacts and on all manually generated correspondence by an employee working tax related issues, an employee title (e.g. Mr., Mrs., Miss) or first name, last name, and unique identification number must be provided. This requirement will ensure that taxpayers are able to contact the appropriate employee to address any further questions they may have about their tax matter.

  2. Section 3706 of RRA 98 requires a new approval process and criteria for use of pseudonyms by employees.

4.10.1.6.9.1  (05-14-1999)
Applicability to Examination

  1. All correspondence generated by area Examination will be considered manually generated correspondence except for a office audit appointment letters, generated through the Centralized Files and Scheduling System at the service centers. Procedures for name and contact number on these office audit letters will remain unchanged.

  2. All manually generated correspondence will provide the name, telephone number and unique identification number of the employee responsible for the examination.

  3. If statutory notices are issued and put in suspense at the group level, the examiner’s name, telephone number and unique identification number will be included on the notice. Procedures for determining the appropriate name and unique identification number (if applicable) on all other statutory notices can be found in the Statutory Notice.

4.10.1.6.9.1.1  (05-14-1999)
Use of Unique Employee Identification Number

  1. The employee’s building identification card (badge) number will be used as the unique employee identification number by all examination employees. No other number (including commission number) is authorized for use.

  2. Until all standard forms and letters currently used to communicate with taxpayers can be revised, examiners should write their unique identification number below their name on all correspondence.

  3. The February 1999 revision of Report Generation Software (RGS) will include the unique employee identification number on all forms and letters generated by RGS. An entry for the examiner’s unique identification number will be included in user set-up.

  4. The use of unique employee identification numbers for telephone/personal contacts will apply to group clerks/secretaries only if they become involved in resolving tax related matters or if they are providing tax law or account information. If clerks/secretaries pare simply providing routine assistance (e.g., providing copies of forms, scheduling appointments) or forwarding messages to another employee, who has responsibility for the resolution of tax issues, then they may continue to answer telephones using identification procedures currently in effect locally.

  5. Since the examination of returns in the area normally involves re-occurring contacts with a taxpayer by the same examiner, the examiner is not required to provide the taxpayer with an unique employee identification number during each telephone or personal contact.

4.10.1.6.9.1.2  (05-14-1999)
Examiner Verification Requirements

  1. Revenue Agents and Tax Auditors must verify during their first contact with the taxpayer (either telephone or in-person) that the taxpayer has the employee’s correct name, telephone number, and unique employee identification number. This verification must be documented by the examiner on the Form 9984, daily activity record maintained for each case file.

  2. If a case is reassigned to another examiner, the new examiner must also verify the employee identification data as described in (1) above.

4.10.1.6.9.2  (05-14-1999)
Use of Pseudonyms

  1. Under the new law, use of pseudonyms is only authorized if the request meets the adequate justification requirement (including protection of an employee’s personal safety).

    1. Requests for the use of a pseudonym, subsequent to the enactment of Section 3706, must be approved by the employee’s immediate supervisor, with second level management concurrence and must be approved in advance of use. Additional procedures regarding the request and approval process can be found in the Compliance and Customer Service Manager’s.

    2. The use of previously issued pseudonyms continues to be authorized.

4.10.1.6.10  (05-14-1999)
Confidentiality of Taxpayer Information/Taxpayer Privacy

  1. The obligation to protect taxpayer privacy and to safeguard the information taxpayers entrust to us is a fundamental part of the Service’s mission to apply the tax law with integrity and fairness to all. Taxpayers have the right to expect that the information they provide will be safeguarded and used only in accordance with the law.

  2. To promote and maintain taxpayers’ confidence in the privacy, confidentiality, and security protections provided by the IRS, all Examination employees will be guided by the following Privacy Principles in all facets of examination activities:

    1. Protecting taxpayer privacy and safeguarding confidential taxpayer information is a public trust.

    2. No information will be collected or used with respect to taxpayers that is not necessary and relevant for tax administration and other legally mandated or authorized purposes.

    3. Information will be collected, to the greatest extent practicable, directly from the taxpayer to whom it relates (see 1.6.12 below for more information regarding third party contacts).

    4. Information about taxpayers collected from third parties will be verified to the extent practicable, with the taxpayers themselves, before a determination is made, using the information.

    5. Personally identifiable taxpayer information will be used only for the purpose for which it was collected, unless other uses are specifically authorized or mandated by law.

    6. Personally identifiable taxpayer information will be disposed of at the end of the retention period required by law or regulation.

    7. Taxpayer information will be kept confidential and will not be discussed with, nor disclosed to, any person within or outside the IRS, other than as authorized by law in the performance of official duty.

    8. Browsing, or any unauthorized access of taxpayer information by any IRS employee, constitutes a serious breach of the confidentiality of that information and will not be tolerated (See 1.6.11 below for more information).

    9. Requirements governing the accuracy, reliability, completeness, and timeliness of taxpayer information will be such as to ensure fair treatment of all taxpayers.

    10. The privacy rights of taxpayers will be respected at all times and every taxpayer will be treated honestly, fairly and respectfully.

4.10.1.6.11  (05-14-1999)
Unauthorized Access (UNAX) Requirements

  1. IRS policy requires that employees are only allowed access to paper and electronic taxpayer records that are needed by a specific employee to carry-out his/her tax-related duties.

  2. Employees are not allowed access to taxpayer records when involvement in their tax work could cause a possible financial conflict of interest, or when they have a personal relationship or outside business relationship that could raise questions about the employees’ impartiality in handling the tax matter. See 4.10.2.2.3 of this for more information on potential conflict of interest issues.

  3. Employees are not authorized to access their own tax records.

  4. Employees are only authorized to access other employee accounts when working assigned cases (if they do not know the employee). If an employee is assigned the case of another employee that he/she knows, the case should be referred to management for reassignment.

  5. Employees may have a need to access returns and return information when there is a need to know the information for their tax administration duties, but there is no formal assignment of a case, directly corresponding to the entity being researched. In instances where this type of research is required or when inadvertent access occurs in the performance of their duties employees may use Form 11377, Taxpayer Data Access Form, or other authorized forms to document these accesses. The following criteria applies to the use of these forms:

    1. The form is used at the discretion of the employee.

    2. The form (if used) will be forwarded to the appropriate manager at the end of the business day (or as soon as practicable).

    3. The manager will initial and date the form to indicate receipt and forward the form for retention in a location designated by each head of office.

  6. For more information or questions regarding UNAX requirements, examiners should consult their immediate manager.

4.10.1.6.12  (05-14-1999)
Third Party Contacts — Background

  1. The provisions of IRC 6103(k)(6) and corresponding regulations apply to all third party contacts.

  2. In addition, for third party contacts made for the purpose of collecting or determining a tax liability, IRC 7602(c) requires the IRS to:

    1. Provide advance notice to the taxpayer that contacts may be made

    2. Periodically provide a list of all contacts to the taxpayer

    3. Provide a list of contacts to the taxpayer upon request

    4. See subsection 1.6.12.4 below for exceptions to notification requirements

4.10.1.6.12.1  (05-14-1999)
Third Party Contacts — Definition

  1. For purposes of IRC 7602(c), a third party contact has been made when:

    1. An employee of the IRS contacts a person other than the taxpayer, and

    2. Asks questions about a specific taxpayer with respect to the determination or collection of that taxpayer’s tax liability.

  2. The following are not considered third party contacts:

    1. Searches made on computer databases which do not require any personal involvement on the other end (e.g., LEXIS, Information America).

    2. Contacts with employees of the Postal Service if the contact is limited to determining the taxpayer’s current address.

    3. Information received from a third party when the third party initiates the contact.

    4. Unsolicited information received from a foreign country pursuant to an exchange of information clause within a tax convention between the United States and that foreign country.

    5. The dissemination of tax information via electronic format to other taxing jurisdictions.

    6. Contacts with individuals who have a valid power of attorney for the taxpayer.

    7. Contacts made by the IRS to respond to a request from a treaty partner for information concerning a taxpayer and tax liability of the treaty partner.

    8. Contacts made for the purpose of obtaining information about an industry or market segment where specific taxpayers have not yet been identified.

    9. Contacts made by Service employees during litigation if the contact relates to a matter and issue being litigated. This includes, but is not limited to, the service of Tax Court subpoenas on third parties by employees.

    10. Contacts made with other Service employees, including employees of the Office of Chief Counsel, acting within the scope of an employee’s official duties.

    11. Contacts made as the result of unsolicited requests for payoff of a Notice of Federal Tax Lien or to respond to requests for information regarding the priority of a lien.

4.10.1.6.12.2  (05-14-1999)
Notification Requirements Prior to Third Party Contact

  1. IRS employees may not contact any third parties described in 1.6.12.1(1) above without first providing reasonable notice to the taxpayer that contacts with persons other than the taxpayer may be made.

  2. Generally, contacts with third parties are made when we are unable to obtain the information from the taxpayer or when it is necessary to verify the information provided by the taxpayer.

  3. Since employees in general program examination groups seldom contact third parties, we will issue the general notice only when it becomes necessary to contact a third party. (The general notice is provided only once for all contacts that may be made with respect to the years listed on the notice.)

  4. Letter 3164 and Notice 1219 were designed to provide the general notification. At the time of this printing, however, they are being revised. Continue to use them until the new language is approved and formal instructions are issued.

4.10.1.6.12.2.1  (05-14-1999)
Notification Procedures

  1. When it is determined that a third party contact is necessary, examiners must review the case file to verify whether the taxpayer has received the required notification (either Notice 1219 with appropriate cover letter or Letter 3164) for all tax periods under examination. (The required general notice may have been issued by another employee or function.)

  2. If the taxpayer has not received prior notification for the year(s) under examination and a third party contact is necessary, prepare Letter 3164 and provide it to the taxpayer.

  3. Letter 3164 can be either handed to the taxpayer or mailed to the taxpayer at the Master File address.

  4. The following requirements must also be followed when making third party notifications using Letter 3164:

    1. If the tax liability is due to a jointly filed return, a separate Letter 3164 must be provided to each spouse.

    2. In order to allow the Post Office sufficient time to deliver the notice, do not make any third party contacts until 10 days from the date Letter 3164 was mailed. If the letter is handed to the taxpayer, contacts may be made immediately.

    3. A copy of Letter 3164 should also be provided to the power of attorney.

  5. Document the case file with the date and method of service of Letter 3164.

    Caution:

    Providing the taxpayer with Notice 1219 alone does not constitute adequate notication of third party contacts. It must be attached to another letter that contains the required information found in Letter 3164: date, taxpayer’s name, address and TIN, employee’s name, telephone number, identification (badge) number and officer hours, tax form, type of tax and tax period(s).

    Note:

    Each time a prior or subsequent year is opened, this procedure must be repeated if a third party contact becomes necessary for those years.

4.10.1.6.12.3  (05-14-1999)
Providing Taxpayers With Notice of Third Party Contacts

  1. Except as provided in 1.6.12.4 below, the IRS will:

    1. Provide the taxpayer with a list of third party contacts once per year.

    2. Provide a list of third party contacts when requested by the taxpayer.

4.10.1.6.12.3.1  (05-14-1999)
Recording Third Party Contacts

  1. When a third party contact is made, the employee should complete Form 12175, "Third Party Contact Report."

    1. See subsection 1.6.12.4.3(4) below for specific requirements regarding reprisal determinations.

    2. The employee who makes a third party contact is responsible for complying with these provisions regardless of which function has control of the case.

  2. The following information should be included on Form 12175:

    1. Taxpayer TIN

    2. Name control

    3. Identification (badge) number of the employee making the contact

    4. Master File tax codes and tax periods for all periods associated with the contact

    5. Spouse’s SSN (if contact is for a joint liability or if the contact relates only to the spouse [secondary TIN])

    6. Date of the contact

    7. Name of party contacted, if known. If unknown, use a descriptive term such as neighbor, business associate, etc. DO NOT include the address or telephone number of the third party.

  3. When Form 12175 is completed:

    1. Send it to the Area/Service Center RRA 3417 (Third Party Contact) Coordinator daily or as soon as possible

    2. Associate a copy with the case file

    3. Document the activity record to show the action was taken

4.10.1.6.12.3.2  (05-14-1999)
Role of the Area/Service Center RRA 3417 Coordinator

  1. The Third Party Contact Coordinator is responsible for:

    1. Maintaining Forms 12175

    2. Providing the contact list to the taxpayer annually

    3. Providing the contact list when requested by the taxpayer

4.10.1.6.12.3.3  (05-14-1999)
Providing Taxpayers With a Third Party Contact List When Requested

  1. When a contact list is requested by a taxpayer, the employee receiving the request is responsible for:

    1. Securing the taxpayer’s name, TIN, and mailing address (if different from Master File address), and

    2. Referring the request to the Third Party Contact Coordinator.

  2. The Third Party Contact coordinator will research the request and prepare Letter 3173 (DO).

  3. Letter 3173 (DO) will list all third party contacts made after the later of:

    1. January 18, 1999,

    2. The last annual listing, or

  4. The Letter 3173 (DO) can be hand delivered or mailed to the taxpayer. If mailed, it should be sent to the address provided by’ the taxpayer or the Master File address.

  5. Note:

    The periodic (annual) listing will include all third party contacts made during the previous twelve months.

  6. An automated system to accumulate third party contact information, as well as provide periodic and requested contact information to the taxpayer, is currently being developed.

4.10.1.6.12.4  (05-14-1999)
Exceptions to Taxpayer Notification Requirements

  1. IRC 7602(c)(3) provides for four situations when the IRS is not required to provide the taxpayer with advance notice or a list of third party contacts. The exceptions are:

    1. When the taxpayer authorizes the third party contact

    2. When such notice would jeopardize collection of any tax

    3. When such notice may involve reprisal against any person

    4. When there is a pending criminal investigation

4.10.1.6.12.4.1  (05-14-1999)
Taxpayer Authorized Third Party Contacts

  1. If a taxpayer authorizes a third party contact, the employee should:

    1. Prepare a Form 12180, Third Party Contact Authorization, or obtain other written evidence listing the names of all third parties the taxpayer has authorized the employee to contact.

    2. For joint returns, both spouses must authorize the contact.

    3. Tell the taxpayer that the IRS will not maintain or provide a record of the authorized contacts.

    4. Document the case file with the date the taxpayer provided the authorization.

    5. Keep Form 12180 in the case file.

4.10.1.6.12.4.2  (05-14-1999)
Collection Jeopardy Situations

  1. If the employee making a third party contact determines, for good cause shown, that providing the taxpayer with advance general notice or notice of a specific contact would jeopardize the collection of the tax liability, notification is not required.

  2. If a jeopardy situation exists, the employee must take the following actions:

    1. Document the case file with specific information about the third party.

    2. Document the case file with the basis for the jeopardy determination.

    3. Complete Form 12175, but do not forward it to the Third Party Contact Coordinator.

  3. When the jeopardy situation no longer exists, forward Form 12175 to the Third Party Contact Coordinator.

  4. Jeopardy may apply to any type of tax.

4.10.1.6.12.4.3  (05-14-1999)
Reprisal Situations

  1. If providing third party information to the taxpayer may subject any person to reprisal, the IRS is not required to provide the taxpayer with notification of the third party contact.

  2. Form 12175 will still be forwarded to the Third Party Contact Coordinator but will contain ONLY the following information:

    1. Date of contact

    2. The word REPRISAL in the name field

    3. Taxpayer TIN

    4. Employee badge number

  3. The reprisal determination must be:

    1. Made on a case by case basis (no blanket determinations)

    2. Documented in the case file

  4. In every third party contact, the employee should advise the third party before the conclusion of the interview that by law the IRS is required to provide their name to the taxpayer as a third party contact and ask if doing so may result in reprisal against any person. This is particularly important in situations that may involve subsequent contacts with confidential informants.

  5. If any reprisal concerns exist, the employee will complete Form 12175 with ONLY the information in subsection 1.6.12.4.3(2) above.

  6. Depending on the facts and circumstances, an employee may be able to make the reprisal determination based upon facts already known. (For example, when the taxpayer has been identified as a "PDT." )

4.10.1.6.12.4.4  (05-14-1999)
Criminal Investigation Cases

  1. Notification Requirements do not apply to any tax period under investigation by Criminal Investigation.

4.10.1.7  (05-14-1999)
Quality Standards

  1. Reserved

4.10.1.8  (05-14-1999)
Other Applicable Chapters

  1. Other Examination chapters and multi-functional chapters also contain information relevant to conducting examinations.

  2. Although all of the new chapters are not yet published, the following is a list of the primary chapters that examiners should refer to when they become available:

    1. 4.23, Employment Tax

    2. 4.26, Anti-Money Laundering

    3. 4.13, Audit Reconsiderations

    4. 4.28, Market Segment Specialization Program

    5. 4.15, Jeopardy/Termination Assessments

    6. 4.27 Bankruptcy

    7. 4.12, Nonfiled Returns

    8. 4..12, Frivolous Filers/Nonfilers

    9. 25.1, Fraud

    10. 4.4, AIMS/Processing *

    11. 25.2, Information and Informant’s Claim for Reward

    12. 25.16, Relief From Joint & Several Liability

    13. 4.3, Midwest Automated Compliance System (MACS)

    14. 25.5, Summons

    15. 20.1, Penalties *

    16. 20.2, Interest *

    17. 25.6, Statute of Limitations *

    18. 21.11, Processing Powers of Attorney *

    19. 4.29, Partnership Control System *

    20. 4.31, Flow-through Entity *


    * Denotes chapters currently available


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